An Age of Big Business

Chapter 19Section 3

The The CorporationCorporation

• By becoming a corporation – a company that sells shares or stock of its business to the public – a company can raise capital, or money.

• Railroads were the first businesses to form corporations.

• The forming of corporations helped America’s industrial expansion after the Civil War.

• Businesses borrowed money from banks to start a company causing the banks to make a profit on the loans.

The Oil Business• John D. Rockefeller made his fortune from oil.• Rockefeller set up a plant to process oil – an oil

refinery – in Cleveland, Ohio.• The Standard Oil Company of Ohio was organized in

1870.• Rockefeller used horizontal integration – the

combining of competing firms into one corporation - to build his empire.

• The Standard Oil Trust:– Rockefeller lowered his prices, which drove his

competition out of business.– In 1882 Rockefeller formed a trust – a group of

companies manages by the same board of directors.• By creating this trust, Rockefeller created a

monopoly – total control by a single producer – of the oil industry.

• Andrew Carnegie, John D. Rockefeller and other industrial millionaires became interested in philanthropy – the use of money to benefit the community.

The Steel Business

• Steel is the ideal material for railroad tracks, bridges, and many other products.

• Two new methods of making steel were developed.

• As a result of these new methods, mills could produce steel in great quantities at affordable prices.

• Carnegie - Carnegie Hall in New York City and more than 2,000 libraries.• Rockefeller – University of Chicago and New York’s Rockefeller Institute for Medical Research.

Andrew Carnegie• In 1865 Carnegie invested in the iron industry.• In 1890 Carnegie had dominated the steel industry

through – vertical integration – acquiring companies that provided the equipment and services he needed.

• Carnegie bought iron and coal mines, warehouses, ships and railroads.

• By doing this Carnegie had gained control over all parts of the business of making and selling steel.

• In 1900 Carnegie combined all of his holdings = producer of 1/3 of the nation’s steel.

• In 1901 Carnegie sold his steel company to J.P. Morgan for $450 million.

• Morgan combined Carnegie’s business with others to form the first billion dollar company – the United States Steel Corporation.

Rockefeller Plaza, New York City

Carnegie Hall, New York City

Corporations Grow Larger

• Corporate mergers – the combining of companies – were made easier by states passing laws.

• Mergers made the few people, like Rockefeller and Morgan, who owned giant corporations, more powerful.

• By 1900 1/3 of America’s manufacturing was controlled by 1% of the country’s corporations.

Opposition to Big Business

• Problem? – Big businesses claimed that monopolies and

trusts benefited society because they reduced competition and brought greater economic stability.

– Opposers of big business argued that the lack of competition hurt consumers because without competition corporations had no reason to keep their prices low or improve their goods and services.

• During the 1880’s 15 states passed laws that restricted business combinations.

• Congress passed the Sherman Antitrust Act in 1890.– This act sought to “protect trade and commerce

against unlawful restraint and monopoly.”