Key Terms

Bessemer process
vertical integration
corporation
stock
o
Prepare t Re d
Objedives
In this section, you will
Identifyreasons forthe
growth ofhuge steel empires.
List the benefitscorporations
and bankers provided to the
growingeconomy.
dividend
Explain howJohn D.
trust
Rockefelleramassed his huge
monopoly
oil holdings.
free enterprise system
Summarizetheargumentsfor
ShermanAntitrustAct
and againsttrusts.
Main Id a As industryboomed,American businesses grewand
developed newways oforganizingand limitingcompetition.
Carnegiebuilds
huge empire
Target Reading Skill
Clarifying Meaning Copythe con-
ceptweb below. Includethree or
fourblankovals. As you read, fill in
each blankoval with amajordevel-
opmentassociated with the rise of
big business duringthellate 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.
" Acloudofsmoke hangs overitbyday. Theglowof
scores offurnaces lightsthe riverbanks bynight. It
stands atthejunctionoftwogreatrivers, the Mononga-
hela whichflowsdowntodayin a[slow] yellowstream,
and theAlleghenywhich is blackish."
-CharlesPhilipsTrevelyan, 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 busi-
ness and industry in the late 1800s. Its wealthiest citizens were a
new breed of American business leaders. They were bold, imagina-
tive, 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 Pitts-
burgh and other steel towns. It also caused problems. The yellow-
colored river that Charles Trevelyan saw on his visit to Pittsburgh in
1898 was the result of years of pouring industrial waste into water-
ways. 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 industry-
from 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 fac-
tories 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 Car-
negie earned only a modest salary,
shrewd linvestment made him a mil-
lionaire. 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 busi-
ness. 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 n ~ 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 invest-
ment, 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 responsi-
ble 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 cor-
poration. 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. Pennsyl-
vania, 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
refineryto buyupotherrefineries.Hethen
combined the companies into the Standard
Oil CompanyofOhio.
Rockefeller was a shrewd businessman.
Hewasalways tryingtoimprovethequality
ofhis oil. He also did whateverhecould to
getridofcompetition.StandardOilslashed
its prices to drive rivals out of business. It
pressured its customers not to deal with
otheroil companies.Itforced railroad com-
panies eager for his business to grant
rebates to Standard Oil. Lower shipping
costs gave Rockefeller animportant advan-
tageover hiscompetitors.
The Standard Oil Trust To tighten his
hold over the oil industry, Rockefeller
formed the Standard Oil trust in 1882. A
trustisa groupofcorporationsrunbya sin-
gleboardofdire tors.
Stockholders in dozens of smaller oil
companies turned over their stock to
StandardOil.Inreturn,theygotstockinthe
newly created trust. The trust paid the
stockholders high dividends. However, the
board of Standard Oil, headed by
Rockefeller,managedallthecompaniesthat
hadpreviouslybeenrivals.
Causeand 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
EffectsToday
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
monopolycontrol allornearlyallthebu ine s ofanindu try.The
Standard Oil trust controlled 95 percent of all oil refining in the
UnitedStates.
Other businessesfollowed Rockefeller's lead.They setup trusts
and tried to build monopolies. By the 1890s,monopolies and trusts
controlledsomeof thenation'smostimportantindustries.
TheCaseForandAgainstTrusts
SomeAmericanschargedthattheleadersofgiantcorporationswere
abusing the free enterprise system. In a free enterpris sy tem,
btl ine e areownedbyprivatecitIZens. Ownersdecidewhatprod
uctstomake,howmuchtoproduce,wheretosellproducts,andwhat
prices to charge. Companies compete to win customers by making
thebestproductatthelowestprice.
TheCaseAgainstTrusts Critics argued thattrusts andmonopo-
lies reducedcompetition.Withoutcompetition,therewas no reason
forcompaniestokeeppriceslowortoimprovetheirproducts.Itwas
also hardfor newcompaniesto competewithpowerfultrusts.
Critics were also upset about the political influence of trusts.
Some people worried that millionaires were using their wealth to
American industry boomed
aftertheCivil War. The
effects ofindustrial growth
are still beingfelt today.
1. Comprehen ion List two
causes for the rise of
industry.
2.CriticalThinking
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 corpo-
rations 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.