The Rise of Big Business
Chapter 20, Section 2
• What factors were responsible for the growth of
huge steel empires after the Civil War?
• What benefits did corporations and bankers
provide to the growing economy?
• How did John D. Rockefeller amass his huge oil
holdings?
• What were the arguments for and against trusts?
The Growth of the Steel Industry
Chapter 20, Section 2
Bessemer process
• In the 1850s, William Kelly in the United States and Henry Bessemer in
England each discovered a new way to make a strong steel at a low cost.
This way of making steel came to be called the Bessemer process.
Steel mills
• Steel mills sprang up in cities throughout the Midwest. Pittsburgh became
the steel-making capital of the nation. The steel boom brought jobs and
prosperity. It also caused problems, such as polluted water and air.
Andrew Carnegie
• Andrew Carnegie began with one steel mill, then used his profits to buy
out rivals. He also bought iron mines, railroad and steamship lines, and
warehouses. Soon he controlled all phases of the steel industry from
mining iron ore to shipping finished steel. Gaining control of all the steps
used to change raw materials into finished products is called vertical
integration.
Corporations and Bankers
Chapter 20, Section 2
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By the late 1800s, big factories were producing goods more cheaply than
small factories.
To expand, big factories needed capital, or money, for investment in raw
materials, workers’ pay, and shipping and advertising costs. Many
expanding businesses became corporations—businesses owned by
investors.
• A corporation sells stock, or shares in the business, to investors, who
are known as stockholders.
• In return for their investment, stockholders hope to receive dividends,
or shares of a corporation’s profit.
Corporations also raised money by borrowing millions of dollars from
banks. These loans helped American industry grow at a rapid pace.
The most powerful banker of the late 1800s was J. Pierpont Morgan. He
used his banking profits to gain control of major corporations. By 1901, he
had become the head of the United States Steel Company, the first
American business worth more than $1 billion.
John D. Rockefeller’s Oil Empire
Chapter 20, Section 2
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In 1859, drillers near Titusville, Pennsylvania, made the nation’s first oil
strike.
John D. Rockefeller recognized that oil had little economic value until it
was refined to make kerosene. He built an oil refinery.
Rockefeller believed that competition was wasteful. He used his profits to
buy up other refineries. He combined the companies into the Standard Oil
Company.
He did whatever he could to get rid of competition. He slashed prices so
others could not compete, pressured customers not to deal with other
companies, and forced railroads to grant rebates to Standard Oil.
Rockefeller formed the Standard Oil trust—a group of corporations run by
a single board of directors. Stockholders in smaller oil companies turned
over their stock to Standard Oil. In return, they got stock in the new trust.
The Standard Oil board of directors managed all the companies that used
to be the competition. Standard Oil trust had created a monopoly of the oil
industry. A monopoly controls all or nearly all the business of an industry.
Arguments For and Against Trusts
Chapter 20, Section 2
In a free enterprise system, businesses are owned by private citizens. Private
citizens decide what to make, how much to produce, where to sell, and what to
charge. Some Americans said large corporations hurt the free enterprise system.
The Argument Against Trusts
• Trusts and monopolies reduce
competition. Without competition,
there is no need to keep prices low
or improve products.
• New companies can’t compete with
powerful trusts.
• Trusts have too much political
influence. They are able to buy
favors from elected officials.
The Argument in Favor of Trusts
• Competition can ruin businesses
and put people out of work.
• The wealthy contribute the most to
the community.
• Corporations bring lower
production costs, lower prices,
higher wages, and a better quality
of life for all.
• By 1900, Americans had the highest
standard of living in the world.
In 1890, Congress passed the Sherman Antitrust Act, banning the formation of
trusts and monopolies. However, the law was too weak to be effective.
The Growth of American Business
• Steel and oil
become giant
industries
• Monopolies and
trusts dominate
important
industries
• Factory workers
face harsh
conditions
• Membership in
labor unions
grows
Effects Today
Effects
• Railroad boom
spurs business
• Businesses
become
corporations
• Nation has rich
supply of natural
resources
• New inventions
make business
more efficient
The Rise of Industry
Causes
Chapter 20, Section 2
• United States is
world’s leading
economic power
• American
corporations do
business around
the world
• Government laws
regulate
monopolies