Lesson 3: An Age of Big Business PDF

**Lesson 3** **An Age of Big Business** In western Pennsylvania, people had long noticed a sticky black oil---petroleum---that seeped from the ground. Some people actually used the oil as a kind of medicine. Then, in the 1850s, researchers found they could **burn petroleum to make heat and smoke-f...

**Lesson 3** **An Age of Big Business** In western Pennsylvania, people had long noticed a sticky black oil---petroleum---that seeped from the ground. Some people actually used the oil as a kind of medicine. Then, in the 1850s, researchers found they could **burn petroleum to make heat and smoke-free light**. It also was good for **lubricating machinery**. Suddenly, oil was valuable. Edwin L. Drake believed that he could find pools of oil that did indeed exist underground. In 1859 Drake drilled a well i**n Titusville, Pennsylvania**. large amounts of petroleum by digging a well. Many people thought Drake was wrong. At that time, few people knew that. He struck oil. This led to the creation of a multimillion-dollar petroleum industry. **The Factors of Production** During the late 1800s**, new technology, transportation, and business methods** allowed business leaders in the country to take advantage countries natural resources. This continued the shift in the United States from an economy based on farming to one based on industry. The change was possible because the United States had the resources needed for a growing economy. Among these resources were what economists call the factors of production---land, labor, and capital. Used to make goods and services - - - **Finding Capital for Expansion** With the economy growing after the Civil War, many businesses looked for ways to expand..**entrepreneurs** : people who start businesses---had to raise capital in the form of money. They needed this capital to buy **raw materials and equipment, pay workers, and cover other costs.** One way a company can raise capital is by becoming a **corporation** : l[egally defined organization of people and resources with the purpose of doing business] ( a type of business organization) that can have many owners and grow very large. A corporation often sells shares---part-ownership of the corporation---called **stock**. It then uses the money raised to build the business. The people who buy the stock are the corporation\'s **shareholders** a person who invests in a company by buying stock When a corporation does well, shareholders earn **dividends** a stockholder's share of a company's profits, usually as a cash payment. The rise of corporations helped fuel industry in the late 1800s. **Railroads were the first to form corporations.** Manufacturing firms, banks, and other businesses followed. [[https://form.jotform.com/243653931390459]](https://form.jotform.com/243653931390459) **The Growth of Oil and Steel** +-----------------------------------------------------------------------+ | As news of Edwin L. Drake and his oil strike of 1859 spread, | | prospectors and investors hurried to western Pennsylvania. **\"Oil | | rush\"** towns with names such as **Oil City and Petroleum Center** | | sprang up overnight. The oil boom expanded as prospectors struck oil | | in Ohio and West Virginia. | | | | John D. Rockefeller was the most famous figure of the oil industry. | | When he was just 26, he and four partners built an oil refinery---a | | plant to process oil---in **Cleveland, Ohio**. In 1870 Rockefeller | | organized the **Standard Oil Company** of Ohio. He then set out to | | dominate the oil industry. | | | | **Rockefeller and the Standard Oil Trust** | | | | Rockefeller used horizontal **integration :** combining competing | | companies of the same type into one corporation. Standard Oil grew | | powerful and wealthy. | | | | - - | | | | In 1882 Rockefeller formed a **trust**, a group of companies managed | | by a single board of trustees. **Shareholders of the competing | | companies traded their stock for Standard Oil stock because it paid | | higher dividends. In this way, Standard Oil gained partial ownership | | and control of the other companies.** Rockefeller had created a | | **monopoly**---total control of an industry by a single producer. | | | | **Carnegie and the Steel Industry** | | | | Steel became a big business during this era, too. This strong metal | | was ideal for making railroad tracks, bridges, and many other | | products. | | | | Two new methods of making steel : | | | | - - | | | | With these new methods, mills were able to make large amounts of | | affordable steel. In the 1870s, companies built large steel mills in | | western Pennsylvania and eastern Ohio**. Pittsburgh, Pennsylvania,** | | became the steel capital Cleveland, Chicago, Detroit, and Birmingham, | | Alabama, also became important hubs for steel production. | | | | The leading figure in steelmaking was **Andrew Carnegie**, the son of | | a Scottish immigrant. Starting as a messenger and telegraph operator, | | he worked his way up to become manager of the Pennsylvania Railroad. | | Carnegie soon realized that there was a huge market for steel. After | | learning about the Bessemer process, he built a steel plant near | | Pittsburgh. | | | | By 1890 Carnegie dominated the steel industry. He did this through | | **vertical integration**: He acquired companies at all stages of the | | steel-making process. Carnegie bought iron and coal mines---the raw | | materials of steel. He bought warehouses, ore ships, and railroads | | for storing and moving raw materials. In this way, Carnegie **gained | | control of all steps of his busines**s. This allowed Carnegie to | | reduce the cost of making steel and the prices he charged for it. | | Many other steel companies could not compete. By 1900 th**e Carnegie | | Steel Company was making a third of the nation\'s steel.** | | | | [[https://form.jotform.com/243654137231452]](https://form | |.jotform.com/243654137231452) | | | | **Millionaires and Philanthropists** | | | | Carnegie, Rockefeller, and other industrial millionaires of the era | | grew interested in philanthropy---**the use of money to benefit the | | community**. They used their fortunes to found schools, universities, | | libraries, and more. Carnegie donated \$350 million to various | | organizations. He **built Carnegie Hall---**one of the world\'s most | | famous concert halls---in New York City. He also funded the building | | of more than 2,000 libraries worldwide. Rockefeller used his fortune | | to establish t**he University of Chicago i**n 1890 and to found **New | | York\'s Rockefeller Institut**e for Medical Research. | | | | **Corporations Grow Larger** | | | | In 1889 New Jersey encouraged the **trend** toward monopolies by | | allowing formation of holding companies. A holding company could gain | | power over multiple other companies by buying their stock instead of | | buying the companies outright. Other states also made | | **mergers**---the combining of companies---easier. | | | | Some people admired large businesses. Others felt they hurt | | consumers. With little competition, corporations were under no | | pressure to improve their products or services. In 1890 Congress | | passed the Sherman Antitrust Act, which [made trusts and monopolies | | illega]l. At first, however, it did little to curb the | | power of big business. | | | | +--------------------------------+--------------------------------+ | | | - | | | | +================================+================================+ | | | | | | | +--------------------------------+--------------------------------+ | | | | | | | +--------------------------------+--------------------------------+ | | | **What is horizontal | - | | | | integration, and how did | | | | | Rockefeller use it to grow | | | | | Standard Oil?** | | | | | | | | | | - - - | | | | | | | | | | **How did Rockefeller drive | | | | | competitors out of business?** | | | | | | | | | | -Lowering prices of oil | | | | | | | | | | **What strategies did | | | | | Rockefeller use to pressure | | | | | customers and influence | | | | | railroads?** | | | | | | | | | | **-** lowered oil prices thus | | | | | pressured customers to not buy | | | | | from competing companies and | | | | | railroads gave hima lower rate | | | | | and rebates and discounts from | | | | | railroads helped transport his | | | | | oil | | | | | | | | | | -secret deals and networking | | | | | | | | | | **How did the formation of a | | | | | trust help Rockefeller gain | | | | | control over competing | | | | | companies?** | | | | | | | | | | - - | | | | | | | | | | **What is a monopoly, and how | | | | | did Rockefeller create one in | | | | | the oil industry?** | | | | | | | | | | - | | | | +--------------------------------+--------------------------------+ | +-----------------------------------------------------------------------+ Here are the refined answers to the questions you provided: 1. - 2. - 3. - 4. - 5. - 6. - 7. - 8. - 9. - 10. - 11. - 12. - These answers provide a comprehensive understanding of Carnegie's influence on the steel industry and his strategic use of vertical integration.