Lesson 8: Industry and Corporations

Question 1

Bessemer Process Definition

Answer 1

method developed in the 1850s to produce steel by removing impurities from raw iron ore at a lower cost

Question 2

Capitalism Definition

Answer 2

an economic system based on private ownership of property, a market economy, and the goal of making a profit, or income, from the use of one’s property

Question 3

Corporation Definition

Answer 3

business that is owned by investors whose risk of loss is limited

Question 4

Dividends Definition

Answer 4

share of a corporation’s profit

Question 5

Monopoly Definition

Answer 5

a company or group having control of all or nearly all of the business of an industry

Question 6

Scarcity Definition

Answer 6

a state of limited resources

Question 7

Stock Definition

Answer 7

share of ownership in a corporation

Question 8

Trust Definition

Answer 8

group of corporations run by a single board of directors

Question 9

Vertical Integration Definition

Answer 9

practice in which a single manufacturer controls all of the steps used to change raw materials into finished products

Question 10

What was the Bessemer Process? What happened to railroads as a result of its creation?

Answer 10

In the 1850s, William Kelly in the United States and Henry Bessemer in England each discovered a new way to make steel. The Bessemer process, as it came to be called, was a process that used oxygen and minerals from limestone or other sources to purify molten iron ore into steel. It enabled steel makers to produce strong steel at a lower cost than earlier methods. As a result, railroads began to lay steel rails.

Question 11

Which industries made use of the cheaper steel, produced through the Bessemer Process?

Answer 11

Other industries also took advantage of the cheaper steel. Manufacturers made steel nails, screws, needles, and other items. Steel girders supported the great weight of the new “skyscrapers”—the new tall buildings going up in the cities.

Question 12

How did Pittsburgh become the steel-making capital of the United States? What positive and negative effects did the steel boom have?

Answer 12

Steel mills sprang up in cities throughout the midwest. Pittsburgh became the steel-making capital of the nation. Nearby coal mines and good transportation helped Pittsburgh’s steel mills to thrive. The boom in steel making brought jobs and prosperity to Pittsburgh and other steel towns. It also caused problems. The yellow-colored river that Charles Trevelyan saw on his visit to Pittsburgh in 1898 was the result of years of pouring industrial waste into waterways. Steel mills belched thick black smoke that turned the air gray. Soot blanketed houses, trees, and streets.

Question 13

Remember: Many Americans made fortunes in the steel industry. Richest of all was a Scottish immigrant, Andrew Carnegie. Carnegie’s ideas about how to make money—and how to spend it—had a wide influence.

Answer 13

Many Americans made fortunes in the steel industry. Richest of all was a Scottish immigrant, Andrew Carnegie. Carnegie’s ideas about how to make money—and how to spend it—had a wide influence.

Question 14

How did Andrew Carnegie use vertical integration to expand his wealth?

Answer 14

During a visit to Britain, Carnegie had seen the Bessemer process in action. Returning to the United States, he borrowed money and began his own steel mill. Within a short time, Carnegie was earning huge profits. He used the money to buy out rivals. He also bought iron mines, railroad and steamship lines, and warehouses. Soon, Carnegie controlled all phases of the steel industry—from mining iron ore to shipping finished steel. Gaining control of all the steps used to change raw materials into finished products is called vertical integration. Vertical integration gave Carnegie a great advantage over other steel producers. By 1900, Carnegie’s steel mills were turning out more steel than was produced in all of Great Britain.

Question 15

My Idea: Vertical Integration enabled businesses to spend less money on products, increasing profits

Answer 15

Maybe

Question 16

What was Andrew Carnegie’s “Gospel of Wealth”?

Answer 16

Like other business owners, Carnegie drove his workers hard. Still, he believed that the rich had a duty to help the poor and to improve society. He called this idea the “gospel of wealth.” Carnegie gave millions of dollars to charities. After selling his steel empire in 1901, he spent his time and money helping people.

Question 17

How did railroads diminish the need for small factories and self-sufficiency in cities? What did big factories receive by increasing output? How did revenue allow these companies to grow? What happened as these factories grew? What is capital?

Answer 17

Before the railroad boom, nearly every American town had its own small factories. They produced goods for people in the area. By the late 1800s, however, big factories were producing goods more cheaply than small factories could. Railroads distributed these goods to nationwide markets. As demand for local goods fell, many small factories closed. Big factories then increased their output. By increasing output, big factories were able to earn greater revenue, or income earned from a business after covering costs. Factories often used revenue to expand operations or buy out rivals. Revenues allowed them to grow. Companies using revenues to expand increased their capital. Capital is money used to invest in the long-term health and success of a company.

Question 18

What were different ways capital was obtained and used?

Answer 18

However, sometimes companies borrowed money for capital investment. Other companies gave investors stock, or partial ownership of the company, in return for capital. Companies might use this capital to build factories, buy new equipment, or buy out other companies. To raise capital and invest in future growth, Americans adopted new ways of organizing their businesses.

Question 19

How did businesses become corporations? What privileges did corporation owners have?

Answer 19

Many expanding businesses became corporations. A corporation is a business that is owned by investors. Laws and court rulings allow corporations to enjoy many of the rights of individuals. Investors in stock, or stockholders, hope to receive dividends, or shares of a corporation’s profit. Stockholders elect a board of directors to run the corporation. Owners of stock in a corporation face fewer risks than owners of private businesses do. If a private business goes bankrupt, the owner must pay all the debts of the business. By law, stockholders cannot be held responsible for a corporation’s debts.

Question 20

What was the relationship between corporations and banks? Who was J. Pierpont Morgan and what was the United States Steel Company, of which he was the head of?

Answer 20

In the years after the Civil War, corporations attracted large amounts of capital from American investors. Corporations also borrowed millions of dollars from banks. These loans helped American industry grow at a rapid pace. At the same time, bankers made huge profits. The most powerful banker of the late 1800s was J. Pierpont Morgan. Morgan’s influence was not limited to banking. He used his banking profits to gain control of major corporations. During economic hard times in the 1890s, Morgan and other bankers bought up troubled corporations. They then adopted policies that reduced competition and ensured big profits. “I like a little competition, but I like combination more,” Morgan used to say. Morgan gained control of several major rail lines. He then began to buy up steel companies, including Carnegie Steel, and to merge them into a single large corporation. By 1901, Morgan had become head of the United States Steel Company. It was the first American business worth more than $1 billion.

Question 21

How did natural resources enable industry to grow?

Answer 21

Industry could not have expanded so quickly in the United States without the nation’s rich supply of natural resources. Iron ore was plentiful, especially in the Mesabi Range of Minnesota. Pennsylvania, West Virginia, and the Rocky Mountains had large deposits of coal. The Rockies also contained minerals, such as gold, silver, and copper. Vast forests provided lumber for building.

Question 22

In 1859, what new resource was found near Titusville, Pennsylvania?

Answer 22

In 1859, Americans discovered a valuable new resource: oil. Drillers near Titusville, Pennsylvania, made the nation’s first oil strike. An oil boom quickly followed. Hundreds of prospectors rushed to western Pennsylvania ready to drill wells in search of oil.

Question 23

How did John D. Rockefeller build up his company, the Standard Oil Company of Ohio.

Answer 23

Among those who came to the Pennsylvania oil fields was young John D. Rockefeller. Rockefeller, however, did not rush to drill for oil. He knew that oil had little value until it was refined, or purified, to make kerosene. Kerosene was used as a fuel in stoves and lamps. So Rockefeller built an oil refinery. Rockefeller believed that competition was wasteful. He used the profits from his refinery to buy up other refineries. He then combined the companies into the Standard Oil Company of Ohio. Rockefeller was a shrewd businessman. He was always trying to improve the quality of his oil. He also did whatever he could to get rid of competition. Standard Oil slashed its prices to drive rivals out of business. It pressured its customers not to deal with other oil companies. It forced railroad companies eager for its business to grant rebates to Standard Oil. Lower shipping costs gave Rockefeller an important advantage over his competitors.

Question 24

How did John D. Rockefeller use supply and demand?

Answer 24

The success of Rockefeller’s empire reflects the economic principle of supply and demand. By lowering the price of oil, Rockefeller was able to attract the greater demand that existed at that lower price and increase total sales. This would not have been possible without the rise of national markets. Railroads could distribute production nationally, not just locally. National corporations marketed products widely, and railroads delivered them to consumers across the country.

Question 25

What were the benefits of Rockefeller’s Standard Oil Trust? How did it create a monopoly?

Answer 25

To tighten his hold over the oil industry, Rockefeller formed the Standard Oil trust in 1882. A trust is a group of corporations run by a single board of directors. Stockholders in dozens of smaller oil companies turned over their stock to Standard Oil. In return, they got stock in the newly created trust. The trust paid the stockholders high dividends. However, the board of Standard Oil, headed by Rockefeller, managed all the companies that had previously been rivals. The Standard Oil trust created a monopoly of the oil industry. A monopoly controls all or nearly all the business of an industry. The Standard Oil trust controlled 95 percent of all oil refining in the United States. Other businesses followed Rockefeller’s lead. They set up trusts and tried to build monopolies. By the 1890s, monopolies and trusts controlled some of the nation’s most important industries.

Question 26

Why did some Americans believe that the leaders of giant corporations were abusing the free enterprise system?

Answer 26

Some Americans charged that the leaders of giant corporations were abusing the free enterprise system. Under capitalism, businesses are owned by private citizens. Owners decide what products to make, how much to produce, where to sell products, and what prices to charge. Companies compete in a free market to win customers by making the best product at the lowest price. All people in a free market system have to make choices about what products to buy. This is because there is a limited supply of resources. This principle is known as scarcity. Companies compete for scarce resources and for customers. Customers then make choices about what to buy to meet their needs, keeping in mind their scarce income or savings. When there are fewer companies competing, people have fewer options.

Question 27

What were the arguments against trusts? What was the Sherman Antitrust Act of 1890?

Answer 27

Critics argued that trusts and monopolies reduced competition. Without competition, companies had no reason to keep prices low or to improve their products. It was also hard for new companies to compete with trusts. Critics were also upset about the political influence of trusts. Some people worried that millionaires were using their wealth to buy favors from elected officials. John Reagan, a member of Congress from Texas, said:

There were no beggars till Vanderbilts … shaped the actions of Congress and molded the purposes of government. Then the few became fabulously wealthy, the many wretchedly poor.

—John Reagan, Austin Weekly Democratic Statesman, 1877

Under pressure from the public, the government slowly moved toward controlling giant corporations. Congress approved the Sherman Antitrust Act in 1890, which banned the formation of trusts and monopolies. However, it was too weak to be effective. Some state governments passed laws to regulate business, but the corporations usually sidestepped them.

Question 28

What were the arguments for trusts?

Answer 28

Naturally, some business leaders defended trusts. Andrew Carnegie published articles arguing that too much competition ruined businesses and put people out of work. In an article titled “Wealth and Its Uses,” he wrote:

It will be a great mistake for the community to shoot the millionaires, for they are the bees that make the most honey, and contribute most to the hive even after they have gorged themselves full.

—Andrew Carnegie, “Wealth and Its Uses”

The rise of trusts brought economic growth, but their concentrated power sometimes led to tensions with workers or government. Defenders of big business argued that the growth of giant corporations brought lower production costs, lower prices, higher wages, and a better quality of life for millions of Americans. They pointed out that by 1900 Americans enjoyed the highest standard of living in the world.

Question 29

How did the invention of refrigerated railroad cars impact the Californian fruit industry?

Answer 29

With the invention of refrigerated railroad cars, fresh food could travel all the way across the country. California’s fruit industry grew rapidly. In 1889, the first shipment of fresh fruit from California was sold in New York. By 1899, millions of pounds of fruit were being shipped across the country each year. The refrigerated cars stored ice on the roof to keep contents cold. Cars stopped in hubs like Chicago to replace the melted ice on the twelve-day trip from California to New York.