Key Terms Bessemer process vertical integration corporation stock

o Prepare t Re d Objedives In this section, you will Identify reasons for the

growth of huge steel empires. List the benefits corporations

and bankers provided to the growing economy. dividend

Explain how John D. trust Rockefeller amassed his huge monopoly

oil holdings. free enterprise system

Summarize the arguments for Sherman Antitrust Act and against trusts.

Main Id a As industry boomed, American businesses grew and developed new ways of organizing and limiting competition.

Carnegie builds huge empire

Target Reading Skill Clarifying Meaning Copy the concept web below. Include three or four blank ovals. As you read, fill in each blank oval with a major development associated with the rise of big business during the llate 1800s.

Steel-mill pollution

578 * Chapter 20

SeUing the Scene In the spring of 1898, an Englishman named Charles Trevelyan visited Pittsburgh. Trevelyan found Pittsburgh to be a rough town dominated by the steel business.

" A cloud of smoke hangs over it by day. The glow of scores of furnaces lights the riverbanks by night. It stands at the junction of two great rivers, the Mononga

hela which flows down today in a [slow] yellow stream, and the Allegheny which is blackish."

-Charles Philips Trevelyan, Letters From North America and the Pacific, April 15, 1898

Trevelyan met some of Pittsburgh's wealthiest people. He thought they were "a good breed and shrewd and friendly."

Pittsburgh was one of many cities that drew its energy from business and industry in the late 1800s. Its wealthiest citizens were a new breed of American business leaders. They were bold, imaginative, sometimes generous, and sometimes ruthless. By the end of the 1800s, they had made their businesses big beyond imagining.

Growth of the Steel Industry The growth of railroads after the Civil War spurred the growth of the steel industry. Early trains ran on iron rails that wore out quickly. Railroad owners knew that steel rails were much stronger and not as likely to rust as iron. Steel, however, was costly and difficult to make.

Making Steel a New Way In the 1850s, William Kelly in the United States and Henry Bessemer in England each discovered a new way to make steel. The Bessemer proces , as it came to be called, enabled steel makers to produce strong steel at a lower cost. As a result, railroads began to lay steel rails.

Industrial Growth

Other industries also took advantage of the cheaper steel. Manufacturers made steel nails, screws, needles, and other items. Steel girders supported the great weight of the new "skyscrapers"the new tall buildings going up in the cities.

Thriving Steel Mills Steel mills sprang up in cities throughout the midwest. Pittsburgh became the steel-making capital of the nation. Nearby coal mines and good transportation helped Pittsburgh's steel mills to thrive.

The boom in steel making brought jobs and prosperity to Pittsburgh and other steel towns. It also caused problems. The yellowcolored river that Charles Trevelyan saw on his visit to Pittsburgh in 1898 was the result of years of pouring industrial waste into waterways. Steel mills belched thick black smoke that turned the air gray. Soot blanketed houses, trees, and streets.

A drew Carnegie's Steel Empire Many Americans made fortunes in the steel industry. Richest of all was a Scottish immigrant, Andrew Carnegie. Carnegie's ideas about how to make money-and how to spend it-had a wide influence.

Controlling the Steel Industry During a visit to Britain, Carnegie had seen the Bessemer process in action. Returning to the United States, he borrowed money and began his own steel mill. Within a short time, Carnegie was earning huge profits. He used the money to buyout rivals. He also bought iron mines, railroad and steamship lines, and warehouses.

Soon, Carnegie controlled all phases of the steel industryfrom mining iron ore to shipping finished steel. Gaining conlr 1 of all the tep' used to chang raw material inlo fini hed produc is called vertical integration. Vertical integration gave Carnegie a great advantage over other steel producers. By 1900, Carnegie's steel mills were turning out more steel than was produced in all of Great Britain.

The "Gospel of Wealth" Like other business owners, Carnegie drove his workers hard. Still, he believed that the rich had a duty to help the poor and to improve society. He called this idea the "gospel of wealth." Carnegie gave millions of dollars to charities. After selling his steel empire in 1901, he spent his time and money helping people.

The Corporaton and the Bankers Before the railroad boom, nearly every American town had its own small factories. They produced goods for people in the area. By the late 1800s, however, big factories were producing goods more cheaply than small factories could. Railroads distributed these goods to nationwide markets. As demand for local goods fell, many small factories closed. Big factories then increased their output.

Expanding factories needed capital, or money, for investment. Factory owners used the capital to buy raw materials, pay workers, and cover shipping and advertising costs. To raise capital, Americans adopted new ways of organizing their businesses.

An American Profile

When Andrew Carnegie was 12, his family left Scotland to immigrate to the United States. He first worked in a cotton factory for $1.20 a week. Then, he worked as a telegram messenger. Carnegie worked long hours during the day and studied Morse code at night. Luck favored Carnegie when

Thomas Scott, superintendent of the Pennsylvania Railroad, hired the young man as his telegrapher. Scott introduced Carnegie to other industrial leaders and helped him invest his savings. Although Carnegie earned only a modest salary, shrewd linvestment made him a millionaire. By the 1890s, he was one of the world's richest men. How did Carnegie take advantage of his good luck?

*Chapter 20 Section 2 579

~~ Summarize er 5'#.\*- Read the paragraphs

under the heading "Banks and Industry." Write a brief summary explaining how banks were linked with the development of big business. Add this information to your concept web.

The Rise of the Corporation Many expanding businesses became corporations. A orp r' tion is a busJnes t c.l 1. ow 1 d bv lllveSLOf . A corporation sells toe or 'hal III the h I "ne~ to investors, who are known as stockholders. The corporation can use the money invested by stockholders to build a new factory or buy new machines.

In return for their investment, stockholders hope to receive di Id nd or "har a corpora 'on pH fit. To protect their investment, stockholders elect a board of directors to run the corporation.

Stockholders face fewer risks than owners of private businesses do. If a private business goes bankrupt, the owner must pay all the debts of the business. By law, stockholders cannot be held responsible for a corporation's debts.

Banks and Industry In the years after the Civil War, corporations attracted large amounts of capital from American investors. Corporations also borrowed millions of dollars from banks. These loans helped American industry grow at a rapid pace. At the same time, bankers made huge profits.

The most powerful banker of the late 1800s was J. Pierpont Morgan. Morgan's influence was not limited to banking. He used his banking profits to gain control of major corporations.

During economic hard times in the 1890s, Morgan and other bankers invested in the stock of troubled corporations. As large stockholders, they easily won seats on the boards of directors. They then adopted policies that reduced competition and ensured big profits. "I like a little competition, but I like combination more," Morgan used to say.

Between 1894 and 1898, Morgan gained control of most of the nation's major rail lines. He then began to buy up steel companies, including Carnegie Steel, and to merge them into a single large corporation. By 1901, Morgan had become head of the United States Steel Company. It was the first American business worth more than $1 billion.

ockefeller's Oil Empire Industry could not have expanded so quickly in the United States without the nation's rich supply of natural resources. Iron ore was plentiful, especially in the Mesabi Range of Minnesota. Pennsylvania, West Virginia, and the Rocky Mountains had large deposits of coal. The Rockies also contained minerals, such as gold, silver, and copper. Vast forests provided lumber for building.

In 1859,Americans discovered a valuable new resource: oil. Drillers near Titusville, Pennsylvania, made the nation's first oil strike. An oil boom quickly followed. Hundreds of prospectors rushed to western Pennsylvania ready to drill wells in search of oil.

Rockefeller and Standard 01 Among those who came to the Pennsylvania oil fields was young John D. Rockefeller. Rockefeller, however, did not rush to drill for oil. He knew that oil had little value until it was refined, or purified, to make kerosene. Kerosene was used as a fuel in stoves and lamps. So Rockefeller built an o-il refinery.

580 * Chapter 20 Industrial Growth

Rockefeller believed that competItIOn was wasteful. He used the profits from his refinery to buy up other refineries. He then combined the companies into the Standard Oil Company of Ohio.

Rockefeller was a shrewd businessman. He was always trying to improve the quality of his oil. He also did whatever he could to get rid of competition. Standard Oil slashed its prices to drive rivals out of business. It pressured its customers not to deal with other oil companies. It forced railroad companies eager for his business to grant rebates to Standard Oil. Lower shipping costs gave Rockefeller an important advantage over his competitors.

The Standard Oil Trust To tighten his hold over the oil industry, Rockefeller formed the Standard Oil trust in 1882. A trust is a group of corporations run by a single board of dire tors.

Stockholders in dozens of smaller oil companies turned over their stock to Standard Oil. In return, they got stock in the newly created trust. The trust paid the stockholders high dividends. However, the board of Standard Oil, headed by Rockefeller, managed all the companies that had previously been rivals.

Cause and Effect

Causes Railroad boom spurs business Businesses become corporations Nation has rich supply of natural resources New inventions make business more efficient

Effects Steel and oil become giant industries Monopolies and trusts dominate important industries Factory workers face harsh conditions Membership in labor unions grows

Effects Today United States is world's leading economic power American corporations do business around the world Government laws regulate monopolies

The Standard on trust created a monopoly of the oil industry. A monopoly control all or nearly all the bu ine s of an indu try. The Standard Oil trust controlled 95 percent of all oil refining in the United States.

Other businesses followed Rockefeller's lead. They set up trusts and tried to build monopolies. By the 1890s, monopolies and trusts controlled some of the nation's most important industries.

The Case For and Against Trusts Some Americans charged that the leaders of giant corporations were abusing the free enterprise system. In a free enterpris sy tem, btl ine e are owned by private citIZens. Owners decide what prod ucts to make, how much to produce, where to sell products, and what prices to charge. Companies compete to win customers by making the best product at the lowest price.

The Case Against Trusts Critics argued that trusts and monopolies reduced competition. Without competition, there was no reason for companies to keep prices low or to improve their products. It was also hard for new companies to compete with powerful trusts.

Critics were also upset about the political influence of trusts. Some people worried that millionaires were using their wealth to

American industry boomed after the Civil War. The effects of industrial growth are still being felt today. 1. Comprehen ion List two

causes for the rise of industry.

2. Critical Thinking Drawing Conclusions Why do you think the government now tries to regulate monopolies?

Economics@

Chapter 20 Section 2 * 581

buy favors from elected officials. John Reagan, a member of Congress from Texas, said:

"There were no beggars till Vanderbilts ... shaped the actions of Congress and molded the purposes of government. Then the few became fabulously wealthy, the many wretchedly poor."

-John Reagan, Austin Weekly Democratic Statesman, 1877

Under pressure from the public, the government slowly moved toward controlling giant corporations. Congress approved the herman Antitrust Act in 1890, which banned the formation of

trusts and monopolies. However, it was too weak to be effective. Some state governments passed laws to regulate business, but the corporations usually sidestepped them.

The Case for rusts Naturally, some business leaders defended trusts. Andrew Carnegie published articles arguing that too much competition ruined businesses and put people out of work. In an article titled "Wealth and Its Uses," he wrote:

" It will be a great mistake for the community to shoot the millionaires, for they are the bees that make the most honey, and contribute most to the hive even after they have gorged themselves full."

-Andrew Carnegie, "Wealth and Its Uses"

Defenders of big business argued that the growth of giant corporations brought lower production costs, lower prices, higher wages, and a better quality of life for millions of Americans. They pointed out that by 1900, Americans enjoyed the highest standard of living in the world.