Ch 5 SECTION 2 – The Second Industrial Revolution INDUSTRY & STEEL In the 1850s a new method called the Bessemer process made steel-making faster and cheaper Steel helped transform the US into a modern industrial economy

The low cost of steel made it practical for everyday items such as nails and wire Cheap steel also helped the railroads expand By the mid-1890s, the US had become the world’s industrial leader

THE RISE OF BIG BUSINESS Entrepreneurs were risk takers who started new business within the economic system In the late 1800s, the US government encouraged free enterprise – business that is free from government involvement

This new economic system of free enterprise is called capitalism with most businesses being privately owned Supporters of the capitalism reasoned that if there were no government interference, the economy would grow

There are huge inequalities under capitalism (some people succeed and are rich and some are not) These inequalities were explained in a philosophy called Social Darwinism which believed in “survival of the fittest” and explains why some people succeed and others do not

Social Darwinists favored laissez-faire (hands off) capitalism where the government had little regulation of business In the late 1800s, the US economy went through cycles of boom and bust

Many entrepreneurs formed their businesses into corporations – companies that had many of the same legal rights as individuals They sell stock to raise money for expansion Corporations can exist after its founder leaves

Some corporations joined together to form a trust – a legal arrangement grouping together a number of companies under a single board of directors, which work to eliminate competition Company 4 Board of Directors Company 1 Company 2 Company 3

With no competition, they could raise prices or lower quality at will Consumers Corporation

Companies owned by US Steel Industrial Tycoons & Reasons for Success In the late 1800s, entrepreneurs succeeded in part to: Vertical Integration – owning the businesses in each step of the manufacturing process Steel Mills Railroads & Ships Coal Mines Iron Mines

-Horizontal Integration – Owning all the business in a certain field Standard Oil Company Oil-Refining Companies

John D. Rockefeller’s company, Standard Oil, started as an oil refinery To increase profits, Rockefeller used vertical integration by acquiring companies that supplied the oil business, such as pipelines and railroad cars

Rockefeller also practiced horizontal integration by taking over other refineries By 1875 Standard Oil refined half of all the oil in the US Rockefeller gave huge amounts of his wealth to colleges and other good causes

Andrew Carnegie worked for the Pennsylvania Railroad, began to invest, then founded his own company and rose to the top of the steel business Andrew Carnegie’s Steel Company practiced vertical integration by buying mines, coal fields, and railroads

By 1899 Carnegie Steel Company dominated the American steel industry In 1901 Carnegie sold the company for $480 million and retired Carnegie was a philanthropist who gave millions of dollars to charity

Cornelius Vanderbilt and other railroad owners began buying smaller companies to form larger companies which is called consolidation George Pullman made his fortune by designing sleeping cars for trains that traveled long distances

Some Americans viewed the tycoons of the late 1800s as robber barons, destroying competitors with tough tactics Others saw the tycoons as captains of industry, using their business skills to strengthen the economy

The government grew uneasy about the power of corporations In 1890 Congress passed the Sherman Antitrust Act which made it illegal to form trusts that interfered with free trade