Lesson 20.3: The Rise of Big Business

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Lesson 20.3 The Rise of Big Business

• Today we will learn how business leaders guided
  industrial expansion and created new ways of
  doing business.

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Vocabulary

• robber baron a business leader who became
  wealthy through dishonest methods
• monopoly a company that wipes out its
  competitors and controls an industry
• trust a legal body created to hold stock in
  many companies
• philanthropists people who give large sums of
  money to charity
• vertical straight up and down, like the school
  flagpole
• horizontal level, like the line where the sky
  meets the ocean

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Check for Understanding

• What are going to do today?
• If you had the opportunity, would you be a
  philanthropist?
• Why is a monopoly bad for the public?
• When people sleep in their beds, are they
  vertical or horizontal?

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What We Already Know

• The Bessemer process for making steel cheaply and
  Drakes new oil well-drilling technology helped
  spark a new revolution in American industry.

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What We Already Know

• In the North, the Civil War led to the rapid
  growth of industry and a new class of wealthy
  industrialists emerged.

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What We Already Know

• After the Civil War, many poor Southerners, both
  black and white, had to turn to sharecropping as
  a way to make their living.

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The Growth of Corporations

• Until the late 1800s, most businesses were small
  and owned by one person.
• Because of new technology, many business owners
  wanted to buy new equipment, which often was very
  expensive.

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One way to raise the money to do
so was to turn
their businesses into corporations.

• A corporation is a business that is owned by many
  people.
• They buy a small part of the company through
  shares of stock.

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Corporations have strengths that small businesses
do not have.

• By selling stock, corporations can raise a lot of
  money.
• Corporations do not end even after their founders
  die, so banks are more likely to lend them money.
  
• Also, corporations are less of a risk to
  investors, because the investors do not have to
  pay off the corporations debts.

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Advantages of a Corporation
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• In the late 1800s, few laws controlled what
  corporations did.
• This led to the growth of a few giant
  corporations that dominated U.S. industry.

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Get your whiteboards and markers ready!
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What advantages do corporations have over small
businesses?

• They can raise large amounts of money.
• They are more likely to receive loans from banks.
  
• They are less of a risk for investors.

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The Oil and Steel Industries

• The oil and steel industries grew dramatically in
  the late 1800s.
• John D. Rockefeller led the oil industry.
• Andrew Carnegie led the steel industry.

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• Rockefeller gained control of the oil industry by
  putting his competitors out of business.
• He realized he could do this by controlling one
  critical phase of the oil industry refining.

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• Rockefeller began by buying other refineries.
• Ultimately, almost all petroleum refining was
  done at his plants.
• This business model is known as horizontal
  integration.

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In the horizontal integration model, a
corporation tries to gain control of one critical
step of the manufacturing process.
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Rockefeller also made secret deals with
railroads.

• They agreed to carry his oil at a lower rate than
  other companies oil.
• By spending less on shipping, he could sell his
  oil for less than his competitors.

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One by one, Rockefeller drove them out of
business, until he had created a monopoly.
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What is a monopoly?
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Rockefeller also reduced competition by creating
a business arrangement known as a trust in 1882,
and persuading his remaining competitors to join
it.
Standard Oil Trust (Holds other oil companies
stock and shares profits from all the oil
companies)
Profits
Profits
Profits
Stock
Stock
Stock
Oil Co. A
Oil Co. C
Oil Co. B
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By 1880, the Standard Oil Trust controlled 95 of
U.S. oil refining.

• The trust set a high price for oil, and the
  public had to pay that price because they could
  not buy oil from anyone else.

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By 1880, the Standard Oil Trust controlled 95
of U.S. oil refining.

• Rockefellers actions caused the public to view
  him as a ruthless robber baron.

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Andrew Carnegie Dominated the Steel Industry

• Carnegie rose to power by making the best and
  cheapest product.
• To do so, he tried to control all the steps that
  went into making steel.
• In this way, he could avoid paying profits to
  others at various stages of production.

Carnegie Steel Homestead Works
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Andrew Carnegie Dominated the Steel Industry

• He bought the mines that supplied iron ore.
• He also bought the railroads that carried the ore
  to his mills.
• He owned the mills that converted the ore to
  high-quality steel.

This business model is known as
vertical integration.
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In the vertical integration model, a corporation
tries to control all steps of the
manufacturing process.
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Carnegie and Rockefeller earned hundreds of
millions of dollars.

• They both became philanthropists.
• These are people who give large sums of money to
  charity.

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• Rockefeller gave away more than 500 million to
  universities.

The University of Chicago
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Carnegie gave more than 350 million, much of it
to universities and to build hundreds of public
libraries.
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Get your whiteboards and markers ready!
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Who controlled the steel industry?

1. Jay Gould
2. John D. Rockefeller
3. Horatio Alger
4. J.P. Morgan
5. Cornelius Vanderbilt
6. Andrew Carnegie

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Who controlled the oil industry?

1. Jay Gould
2. John D. Rockefeller
3. Horatio Alger
4. J.P. Morgan
5. Cornelius Vanderbilt

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How did Rockefeller gain control of the oil
industry?

1. He used vertical integration to control the
   refining phase of the oil business.
2. He made secret deals with railroads to get rates
   lower than his competitors.
3. He wiped out competitors by driving them out of
   business, then buying them.
4. He reduced competition by avoiding participation
   in trusts.

Choose all that are true!
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How did Carnegie gain control of the steel
industry?

1. He tried to make the best and cheapest steel.
2. He reduced costs by using vertical integration.
3. He made secret deals with railroads to get rates
   lower than his competitors.
4. He tried to control all the steps that went into
   making steel.
5. He created a giant trust to help reduce
   competition.

Choose all that are true!
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What is a philanthropist?

1. Someone who becomes wealthy through dishonest
   methods
2. A business leader who wipes out his competitors
   and controls an industry
3. A legal body created to hold stock in many
   companies
4. Someone who gives large sums of money to charity

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The Gilded Age

• Rockefeller and Carnegie had risen from poverty
  to become rich.
• This caused many other Americans to believe that
  anyone, even themselves, could become rich
  through talent and hard work.

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But most people who made millions in the late
1800s did not start out poor.

• Many were from families that already were
  wealthy.
• And many had gone to college, and they began
  their careers with the advantage of money or
  family connections.

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The Gilded Age

• The Gilded Age was a time when the rich enjoyed
  great wealth while many in society lived in
  poverty.
• To gild is to coat an object with gold-leaf in
  order to make it look better.
• Gilded objects were popular in homes.

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• But the term Gilded Age also referred to the
  false appearance of society.
• A small group of rich people made U.S. society
  look beautiful, but below this rich surface were
  problems that included corrupt politics and
  widespread poverty.

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Why is this period often referred to as the
Gilded Age?

1. Nearly everyone had money.
2. It was the golden age of American inventions.
3. Society's problems were hidden by the wealth of a
   few people.
4. Nearly everyone who was wealthy got rich by
   unlawful methods.

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What problems in society were hidden by the
visible wealth of a small group during the Gilded
Age?

1. Corrupt politics
2. Widespread poverty
3. Shortage of skilled labor
4. Improper business practices
5. High federal income taxes

Choose all that are true!
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The South Remains Agricultural

• One region that knew great poverty was the South.
  
• Left in ruins by the Civil War, the South was
  slow to recover.

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In some Southern areas, industry
did grow.

• But compared with the Northern economy, the
  Southern economy grew very slowly.

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Most of the South remained agricultural.

• The sharecropping system was used through-out
  much of the region.
• Under this system, landowners rented their land
  to sharecroppers who paid a large portion of
  their crops as rent.
• They also often had to buy their seed and tools
  on credit.

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Most of the South remained agricultural.

• Although the Souths main crop continued to be
  cotton, the price of cotton was low in the years
  after the Civil War.
• As a result, many sharecroppers made little money
  selling cotton and had a hard time buying what
  they needed.
• And since most sharecroppers had little
  education, merchants cheated them, increasing
  their debt.

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Get your whiteboards and markers ready!
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Why was the South so much less industrial than
the North?

1. The Civil War had left the South in ruins.
2. All the important industrialists had left the
   South in 1861, just after secession began.
3. Much of the land was given over to share-cropping
   and other agricultural pursuits.
4. Congress was unwilling to give Southern farmers
   cash subsidies, as it had to Northern farmers.
5. Southerners were still making so much money from
   cotton that industry seemed unnecessary.

Choose all that are true!
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Why were so many Southerners poor?

1. Many poor Southerners were sharecroppers, who had
   to pay a large portion of their crops as rent.
2. The price of cotton was low, so many had a hard
   time buying what they needed.
3. The sharecroppers often were cheated by their
   landlords.
4. They were heavily taxed by state governments who
   had large war debts to pay off.
5. Southerners were not well-educated, and so they
   could only qualify for low-paying jobs.

Choose all that are true!
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Class Notes 20.3

1. Any person who gives away a great deal of his or
   her money to charity is a
2. A company that raises money by selling shares of
   stock
3. Any business leader who became wealthy by using
   dishonest methods is called
4. A company that wipes out its competitors and
   controls an industry is called
5. The wealthy businessman who controlled the oil
   industry was
6. A legal body created to hold stock in many
   companies, often in the same industry is called
7. The wealthy businessman who controlled the steel
   industry was
8. The era of the late 1800s, which was a time of
   fabulous wealth for a few Americans was called
9. The robber baron who made most of his money
   dealing in railroad stock was
10. An industrial plant that purifies oil is called