The Expansion of American Industry

The Growth of Big Business

Robber Barons or Captains of Industry

Robber baron implies that business leaders built their fortunes by stealing from the public.

They drained the country of resources & told officials to interpret the laws in their favor.

They paid low wages & forced workers to work under dangerous conditions.

A Captain of Industry implies business leaders served their nation in a positive way.

They increased the supply of goods, expanded markets & created jobs.

Many founded museums, libraries & universities.

Andrew Carnegie The invention of the Bessemer process convinced

Carnegie steel would replace iron.

In the early 1870’s, Carnegie opened the first steel plants using the Bessemer process in Pittsburgh.

Carnegie Steel was created in 1889.

Carnegie soon owned the mines, the steel mills and the railroads that shipped the finished product.

By controlling all stages of production, Carnegie could lower his costs & drive out his competitors.

As production increases, the cost of each item produced is often lower.

Social Darwinism Theory emerged to describe the relationship and struggle

between workers & employers.

Theory held that society should do as little as possible to interfere with people's pursuit of success.

Those who were most ‘fit’ would succeed & become rich.

Society would benefit from the successes of the fit and the weeding out of the unfit.

The government did not tax businesses profits or regulate relations between workers & employers.

Unchecked, Industrialists used whatever means to gain a competitive edge.

Monopolies & Cartels A monopoly is the complete control of a product or

service by one producer.

In order to form monopolies, companies bought their competitors or drove them out of business.

As the sole supplier of a product or service, companies could charge whatever they wished.

Eventually, federal and state laws were created to prevent and destroy monopolies.

However, most political leaders refused to attack the powerful business leaders.

A cartel is a loose association of businesses that make the same product.

Members of a cartel agreed limit the supply of their product to keep prices high.

http://www.history.com/videos/john-d-rockefeller-oil-money-and-power#john-d-rockefeller-oil-money-and-power

The Standard Oil Trust John D. Rockefeller became rich from a grain & meat

partnership during the Civil War.

In 1863, he built an oil refinery near Cleveland.

The refinery expanded so in 1870 Rockefeller and several associates formed the Standard Oil Company of Ohio.

Rockefeller persuaded his railroad friends to give him illegal refunds on part of the cost of shipping his oil.

As a result, Standard Oil could set its prices lower than its competition.

Eventually, Rockefeller had enough money to buy out his competitors but he couldn’t.

State law prohibited one company from owning stock in another.

Rockefeller’s lawyer, Samuel Dodd devised a way to circumvent state laws called a Trust

In 1882, the owners of Standard Oil agreed to combine their operations.

All owners would turn over control to a board of nine trustees in return for a portion of the profit.

The board of trustees, controlled by Rockefeller, would manage the oil companies as a single unit.

Eventually, 40 companies joined the trust.

By the 1890’s Rockefeller controlled almost all of the nation's oil refining capacity.

In 1890, the government created the Sherman Antitrust Act.

The act outlawed combinations of companies that restrained interstate trade or commerce.

The act was very ineffective against trusts for 15 years.

The government rarely enforced it.

The law’s vague wording made it hard to apply in court.

Methods of Industrial Control

1. Horizontal Consolidation

Bringing businesses in the same industry together into one giant company.

Example: Rockefeller’s Standard Oil Trust

2. Vertical Consolidation

Controlling all the businesses needed in an industry.

Example: Andrew Carnegie’s steel business