The Rise of Big Business

The Steel Empire New strategies for steel making including the Bessemer process made steel making both easier and cheaper. No city became more famous for steel production than Pittsburgh. An immigrant from Scotland named Andrew Carnegie took full advantage of this growing industry. Not only did Carnegie buy into the steel industry, but also bought iron mines, railroads and steamships. He successfully controlled every piece of the steel making industry. The strategy he used is known as vertical integration. Carnegie is criticized for creating a monopoly and treating his workers poorly, but also credited for donating millions of dollars to charities. In 1901 he sold his business to spend the rest of his life attempting to help the poor.

New Corporations in America At the start of the age of industry, nearly every small town had its own factory, but over time larger factories arrived and could produce more goods at a cheaper price, causing small factories to fail and close. Large factories needed a great deal of money to operate so many of them expanded into corporations. A corporation is a business that is owned by those who invest in it. A corporation sells stocks or shares in its company to the public and then uses the money it makes from that to build new factories, pay workers, or buy new machines. In return, the stockholders hope to receive dividends or shares of any profits. Other than through stocks, corporations also had to borrow money, and did so through banks. Bankers, through loans made a great deal of money, nobody more so than J.P. Morgan. He would often use his profits to buy the majority of company stocks and then buy out his competition. In fact he even purchased Carnegie steel company and became the head of the first American business worth more than one billion dollars.

Rockefeller and Standard Oil In 1859 in Titusville Pennsylvania, oil was found for the first time in America. This led to an oil boom, much like the gold rush. One of the people who arrived was John D. Rockefeller, but rather than look for oil, which he knew was useless unless purified. He built a refinery. Rockefeller believed that competition ruined profits, so once he made money, he bought out all of his competition and combined them into the Standard Oil Company of Ohio. He slashed prices to force his remaining competition out of business and demanded rebates from train companies. Standard oil created a monopoly, owning 95 percent of all oil refining in the USA. By 1892, Rockefeller formed the Standard Oil Trust. A trust is a group of corporations controlled by a single board of directors. Other companies followed the lead of Rockefeller and by the 1890’s most of the important businesses were controlled by monopolies and trusts.

Response to Monopolies Many Americans believed companies were abusing the free enterprise system. A free enterprise system means owners decide what to produce, how much to produce, where to sell products, and what prices to charge. Companies compete to win customers through the best prices or lowest prices. Critics argued that trusts and monopolies reduced competition and therefore there was no reason to lower prices, or increase quality. Critics also argued that wealthy owners influenced politics, by buying favors from politicians. Under public pressure, the government created the Sherman Antitrust Act. This act banned the formation of trusts and monopolies. It ended up being too weak so be effective so states often had to make even greater laws. Corporations argued that trusts and monopolies were good for America as they were able to lower prices, and offer higher wages for people, allowing for more workers and better quality of living for millions of Americans.