Chapter 20, Section 2: The Rise of Big Business Main Idea: As industry boomed, American businesses grew and developed new ways of organizing and limiting competition.

A. Growth of the Steel Industry The Growth of RRs boosted the steel industry (needed rails, locomotives, etc). Making Steel a New Way The Bessemer Process Developed in the 1850s by William Kelly in the US & Henry Bessemer in England. This made steel stronger & less expensive. As a result, many things began to made of steel, such as RR rails, nails, screws, framework (girders) for taller buildings, etc. Thriving Steel Mills Mill towns spring up throughout the Midwest, & Pittsburgh, PA became the steel capital of the US. Many jobs were created, but also a lot of pollution, as well (yellow rivers, gray air, black soot).

The Steel Industry 1850’s – The Bessemer Process allowed steel to be produced cheaply. Therefore, the steel industry grew rapidly. Examples: railroads, skyscrapers, nails, pins Bessemer converter, Kelham Island Museum, Sheffield, England (2002) Henry Bessemer

B. Andrew Carnegie’s Steel Empire Controlling the Steel Industry A Scottish immigrant who opened a steel mill after seeing the Bessemer Process on a trip to England. Bought out rival mills, as well as iron mines, RRs, steamships & warehouses. Created a monopoly in steel through vertical integration, by controlling all phases of manufacturing, from raw material to finished product. The “Gospel of Wealth” He believed the rich had a duty to help the poor & improve society. He called this the “gospel of wealth.” He was a philanthropist, spending his later years giving tens of millions of dollars to charity & helping people. His favorite cause was libraries. “ I started life as a poor man, and I wish to end it that way.”

· Carnegie reportedly gave $350 million of his $400 million fortune to charities, including $60 million to build libraries. By 1919, 2,811 libraries had been founded at a total cost of $56,704,188. Harper's Weekly April 11, 1903

C. The Corporation & the Bankers As small, local factories gave way to big, national ones, the way businesses organized & operated changed. Capital = money for investment (needed to expand). The Rise of the Corporation Corporation – a business owned by investors who buy shares of stock (stockholders). Stock - shares in a business owned by investors. $ is used to expand business & increase profits. Dividend - corporate profits shared with investors Board of Directors – elected by investors to run the business & increase profit (1 share = 1 vote). Buying stock is less risky than starting & operating your own private business. Proprietors must pay all debts if a private business goes bankrupt; Stockholders can only lose what they invest if a public business fails.

Banks & Industry Corporations also borrowed large amounts of $ from banks to expand even faster. JP Morgan was the most powerful banker & used his power & $ to control corporations. He invested heavily in troubled corporations during difficult economic times in order to gain control of their boards of directors. Then, he reduced competition & ensured profits. “I like a little competition, but I like combination more.” He gained control of most of the major rail lines & bought up many steel companies, including Carnegie Steel. By 1901, his US Steel Company was worth over $1 billion.

operate for profit in a competitive system without an economic system in which resources and means of production are privately owned and prices, production, and the distribution of goods are determined mainly by competition in a free market U.S. Economy Free Enterprise Capitalism Private Property & Enterprise Competition Driven Profit Driven Consumer Driven freedom of private business to organize and operate for profit in a competitive system without interference by government beyond regulation necessary to protect public interest

D. Rockefeller’s Oil Empire US was rich w/ natural resources (raw materials), such as iron ore, coal, lumber, minerals, etc. Oil was first discovered in Titusville, PA in 1859 Rockefeller & Standard Oil John D. Rockefeller built an oil refinery to purify crude oil into kerosene for stoves & lamps He bought up other refineries & then combined them to create the Standard Oil Company of Ohio He did whatever he could to eliminate competition Slashed prices to drive others out of business Pressured customers to not deal with other oil companies Forced RRs to grant rebates to his company only The Standard Oil Trust Trust - group of corps. run by 1 board of directors. Standard Oil now managed all former rivals by controlling their stock. Monopoly - control of an industry by 1 corporation. Standard Oil controlled 95% of all US oil refining. Other corporations in other industries did the same. By 1890s, monopolies & trusts controlled most industries.

Vertical and Horizontal Integration

Standard Oil Co.

E. The Case For & Against Trusts Carnegie argued that too much competition ruined businesses & put people out of work: Wealth & Its Uses. “Millionaires are the bees that make the most honey, and contribute most to the hive even after they have gorged themselves” Goods could be made more cheaply to keep prices down Americans enjoyed higher wages & a better quality of life than before (#1 in the world by 1900). Against Lack of competition drives up prices & keeps product quality down. Smaller businesses can’t compete with corporations & have no chance to survive. Trusts had too much political influence & “bought” politicians ($ = power). Workers of corporations are often exploited & abused. Sherman Antitrust Act – 1890 Banned the formation of trusts & monopolies, but it was too weak to be effective.

“On Wealth” Andrew Carnegie “Gospel of Wealth” (1901): Inequality is inevitable and good. Wealthy should act as “trustees” for their “poorer brethren.” Wealth no longer looked upon as bad. Viewed as a sign of God’s approval. Christian duty to accumulate wealth. Andrew Carnegie

The Protectors of Our Industries

F. Captains of Industry or Robber Barons? Their leadership made the US the #1 industrial giant of the world. They were self-made men (rags to riches). They gave back to charity later in life (philanthropists). Robber Barons (-) They used cutthroat tactics to drive out others out of business (many are now illegal). They had too much $ & power (political influence) They were ruthless businessmen whose workers were often exploited (hard work, low pay, unsafe conditions)

Andrew Carnegie in his “Great Double Role” Caption reads: "Carnegie in his Great Double Role. As the tight-fisted employer he reduces wages that he may play philanthropist and give away libraries.”

“Congress—Who’s In It and Who Owns It”

The Bosses of the Senate