1.4 The Expansion of Industry
and Big Business
Essential Question:
Where do you think the US would be in history if
it had not had the natural resources it did/does?
Do you think that the tycoons of the late 1800s
are best described as ruthless robber barons or
as effective captains of industry? Explain.
Starter Activity
• On a half sheet of paper write down the name
of someone who you think is the most
successful person in the world.
• Next list the qualities/characteristics that
made you choose that person
• How do you think success is determined?
What constitutes or defines success in your
opinion?
• What future goals would determine success
for you?
• Turn in your answers
Natural Resources Fuel
Industrialization
• The Civil War in many ways lead to the
growth of industrialization in the US
• Prior to the Civil War, the US was
predominately agricultural with southern
farmers controlling politics and the economy
• After the Civil War, the US transitioned into
an increasingly industrial society
• What lead to this Industrial Revolution, was
the discovery of natural resources
Black Gold
• Oil had been discovered by Native Americans long before
Europeans arrived, however, their uses of it were limited
• In the 1840s, Americans began using kerosene to light
lamps after the Canadian geologist Abraham Gesner
discovered how to distill the fuel from oil or coal
• In 1859, Edwin L. Drake used a steam engine to drill for
oil in Pennsylvania
– This technique spread throughout the Midwest and into
Texas with major cities including Cleveland and Pittsburg
– Gasoline, a by-product of the kerosene making process was
initially disposed of
– But after cars were invented another use for it was found
Coal and Iron Ore
• In 1887 iron ore was
discovered in deposits
more than 100 miles
long and 3miles wide in
the Mesabi range of
Minnesota
• At the same time, coal
production increased
from 33 mil toms to
more than 250 mil tons
in 1900
Coal as a Percentage of Energy
Consumption in US
The Bessemer Process
• Discovered in 1851 by William Kelley, but was
not used on an industrial scale until 1851
when Henry Bessemer patented it for major
iron industries
New Uses for Steel
• Can you guess what industry used the most
steel?
– Railroads
• Others Uses:
– Joseph Glidden’s barbed wire
– Deere’s farm equipment – Steel Plow
– Brooklyn Bridge – in 1883 it spanned 1,595 feet
and used 7,045 pounds of steel to build
Inventions Promote Change
• The Power of Electricity
– In 1876 Thomas Edison established the world’s first
research laboratory in Menlo Park, New Jersey
• Here, he produced the first incandescent light bulb, the
most life changing invention of the 1800s
• Later he invented and entire system for producing and
establishing energy
Effects of Edison’s Electricity
• By 1890 – this power was used to run
machines: fans, printing presses, home
appliances, electric streetcars
• Allowed manufacturers to locate their
factories away from rivers
• Allowed more efficient process for business
– Example: Armour and Swift meat packing plants
packed meat in a way that made it safer to eat,
and it sped up production
– Milton Hershey mass producing chocolate
George Westinghouse
• George Westinghouse was an industrialist
who made his fortune with the invention of
the electric transformer and air brakes
Inventions Change Lifestyles
• Christopher Sholes
– 1867 – invented the typewriter
• Alexander Graham Bell
– 1876 – invented the telephone
• Both of these inventions affected office work
and gave jobs to women
– In 1870 women made up 5% of office workers
– By 1910, they made up 40% of office workers
Dupont Family
• The Dupont Family created an industry that
experimented with chemicals and explosives
Andrew Carnegie
• Just as inventions began changing America, so
did the men and women who were behind the
innovations
• Andrew Carnegie was an immigrant from
Scotland who worked for the Pennsylvania RR
• Soon he began buying stock in the company
he worked and by 1865 he had made so much
money, he was able to leave the company to
start his own
Carnegie and Steel
• After touring a British steel mill and witnessing the
Bessemer Process first hand, he returned to the US and
entered the steel industry
• By 1899, the Carnegie Steel Company manufactured more
steel than all of the manufacturers in Great Britain
How did he do this?
• First, he continually searched for ways to make better
products at cheaper expenses
– He incorporated new machinery and techniques like
accounting systems to track precise costs
• Second, he attracted talented people by offering stock in
his company, and he encouraged competition among his
assistants
• In addition, he attempted to control as much of the
steel industry as he could by using vertical integration
– A process by which every aspect of the industry is controlled
by the produced – raw materials, like iron and coal, are mined,
they are manufactured in plants, and distributed and sold all
by the company – TOTAL CONTROL – FEWER EXPENSES
• Carnegie also attempted to buy out the
competing steel producers by using horizontal
integration
– A process in which companies producing similar
products merge – LESS COMPETITION
• By controlling the raw material extraction,
manufacturing, and distribution, as well as
reducing competition, Carnegie was able to
control almost the entire steel industry
• He attributed his success to his strong work ethic
and logic behind business practices
• But some people of the time explained his
success using scientific theories
What is another example of horizontal integration that we just saw a few slides
back?
Social Darwinism and Laissez-faire
• Social Darwinism is the premise of survival and
success of the most capable people in society
– Poor = lazy, unintelligent
rich=busy, smart
• The English philosopher Herbert Spencer used
Darwin’s biological theories to explain the evolution
of human society
• With this, economists found a way to justify the
doctrine of Laissez-faire – a French term meaning
“allow to do”
– According to this doctrine, the marketplace should not be
regulated
– Success and failure in business is governed by natural law
and that no one has a right to intervene
• Popular culture and literature
promoted the possible “rags to
riches” success for anyone who
worked hard and was virtuous,
like Carnegie
• In “Risen from the Ranks”,
Herbert works at a post office
which is bought out by a rich
business man
• He meets a scholar traveling to
Boston and throughout their
journey, Herbert makes a small
fortune that he returns home
with overturning his and his
mother’s lives.
But what are the pros and cons of
this belief in business practices?
• Pros –
– Liberty
– Beneficial to entrepreneurial spirit due to lack of
taxes, rules, regulations.
– Lots of incentive for profit, and in theory the invisible
hand benefits all of society.
• Cons –
– No regulation
– Allows for monopolies, which doesn't benefit society.
– Bad working conditions, wages, etc...
Monopolies
• Many business men took this Laissez-faire
approach and pursued horizontal integration
• This was usually in the form of a merger, like
the one that formed between Swift and
Armour meat packing using the same shipyard
• When firms buy out all competitions though,
or merge, there is no competition leading to
total control over that market, this is called a
monopoly
• Monopolies, as we will see later, become a
major problem of the Gilded Age – particularly
with big business like oil, steel, and railroads
J.P. Morgan
• J. P. Morgan was a banker who also owned United States
Steel, a holdings company
– A holding company is one that does nothing but buy out the
stock of another company, like Carnegie Steel in this case
• In 1901 Morgan bought out Carnegie Steel making US
Steel the world’s largest business
Standard Oil and John D.
Rockefeller
• John D. Rockefeller took a different approach
with mergers
– He joined companies in trust agreements
– Participants of the trust turned their stock over to
group of “trustees” who ran the separate
companies as one large corporation
– Trusts were not legal mergers, but they still
provided dividends to stock owners
• He used this approach to create Standard Oil
which controlled all of US oil
The “Robber Barons”
• In 1870 Standard Oil Company in Ohio processed
2% of the country’s crude oil
• Within a decade, it controlled 90%
• But, with no competition and a monopoly on the
market, you can do whatever you want (without
regulation)
– He paid his employees extremely low wages
– And he sold his oil at cheaper rates, snubbing out
competition – people will buy cheaper anything
– Then, after he controlled the market, he hiked prices
way up – now people only have one option
– Good or Bad Business???
Robber Baron? OR Philanthropist?
• Industrialists began referring to these men as
“robber barons” due to their business practices
• But these men were also philanthropists
– Rockefeller kept most of his assets, but he still gave
away $500 million establishing the Rockefeller
foundation, giving money to University of Chicago, and
creating a medical institute that helped find a cure for
yellow fever (50% - but where was this money going
really???)
– In his later years, Andrew Carnegie became a great
philanthropist donating about 90% of the wealth he
accumulated during his lifetime to arts and education
Carnegie Quote:
It will be a great mistake for the community to
shoot the millionaires, for they are the bees
that that make the most honey, and contribute
most to the hive even after they have gorged
themselves full
Do you see it this way?
• Today, David Rockefeller
ranks number 15 on
Bloomberg’s list of most
generous philanthropists
of all time
– His estimated lifetime
giving equals $940 million
(35% of his fortune)
• Top Philanthropists:
– Warren Buffet – holding
company and investor $40,780 million (78%)
– Bill and Melinda Gates –
Microsoft co-founder $21,844 million (48%)
Sherman Antitrust Act
• In 1890, the Sherman Antitrust Act made it
illegal to form a trust that interfered with free
trade between stated or with other countries
• But, there was a problem –
– The act didn’t define clearly what a trust was, so it
hard for prosecuting groups to gather a case
– And, because trusts were not legally binding, if a
company felt pressure of prosecution, they would
simply disassemble into small businesses again
– The Supreme Court threw out 7/8 cases
presented, finally they stopped enforcing the Act
Business Boom Bypasses the South
• What do you need to have thriving industry?
– Natural and urban resources
• The South was still trying to recover from the loss
of Civil War
– They were suffering from a lack of money and people
in the south were skeptical of investing their money
– They were still trying to remain an agricultural
economy
• Due to lack in ambition, 90% of stock in southern
industry was owned by businessmen in the north
Answer the Essential Questions
Where do you think the US would be in
history if it had not had the resources it
did/does?
Do you think that the tycoons of the late
1800s are best described as ruthless robber
barons or as effective captains of industry?
Explain.