Inventors and Innovators Part 2

1. Inventors and Innovators Part 2

2. The _______ was the method of steel production that lowered the cost and made steel affordable to use. • ______ was an immigrant from Scotland, who started as a telegrapher. • Carnegie became rich before the end of the Civil War by as a result speculations in _______ and the building of _______ • Carnegie’s major contribution to business was his exploitation of the principle of “_______” • Vertical Integration was controlling all aspects from raw materials to shipping of your product. • Carnegie organized his business as a ______ • _______ = selling small shares in a company on the open market. • ______ began his career as an accountant, he avoided service in the Civil War by hiring a substitute. • ______ _________ meant establishing an effective monopoly across the industry. • _______ was the most effective method Rockefeller had to drive other companies out of business. • A ________was the means by which property of a minor was managed on his behalf. • _______once in control of the near monopoly could mop up those refineries that did not buy into the trust.

3. Steel • Steel is the element from which carbon and other impurities are burned out at high temperatures. • Engineers were aware of the possibilities for steel use: buildings, bridges, and train rails. • Steel is much stronger than iron. • Steel was hard to make and the cost was to high for most people to use. • Henry Bessemer of England developed a method to make steel in high quantities at a reasonable price. • The Bessemer process was the method of steel production that lowered the cost and made steel affordable to use.

4. Andrew Carnegie • Carnegie was an immigrant from Scotland, who started as a telegrapher. • He became a high ranking executive of the Pennsylvania Railroad. • Carnegie became rich before the end of the Civil War by as a result speculations in oil and the building of Iron bridges • He decided to sell everything and concentrate on the steel business. • 1873 Carnegie he began construction of a large Bessemer plant in Braddock, PA.

5. Carnegie and Business • Carnegie was a great business man: he named his plant after the president of Pennsy (a major customer). • He built his great works outside of Pittsburgh, which was serviced by the Pennsylvania RR company alone. • By building in Braddock he could play several railroads against one another and get the best shipping rate. • Carnegie could spot talent and put it to work, Charles Schwab was an engineer for Carnegie who he promoted and made a partner.

6. Vertical Integration • Carnegie’s major contribution to business was his exploitation of the principle of “vertical integration” • Carnegie expanded his operation from a base of steel manufacture to include ownership of the raw materials which steel was made and the means of assembling the raw materials. • Vertical Integration was controlling all aspects from raw materials to shipping of your product. • Carnegie controlled as much of his own shipping as he could. • Vertical integration allowed Carnegie to undersell competing companies that were not vertically integrated. • This allowed Carnegie’s income to rise to $25 million a year. • Carnegie organized his business as a partnership, • Corporate structure = selling small shares in a company on the open market.

7. John D. Rockefeller • Rockefeller began his career as an accountant, he avoided service in the Civil War by hiring a substitute. • He made a small fortune selling provisions to the Union army. • This only wet his appetite for money. • Oil was the business Rockefeller chose to pursue.

8. Horizontal Integration • Oil refining was a fragmented business, 250 companies in 1870s. • Rockefeller knew that drilling for oil would always attract people who could get rich overnight. • Refining oil required capital and competition would not be as likely. • Controlling an entire industry by controlling a key phase of its process is known as horizontal integration. • Horizontal integration meant establishing an effective monopoly across the industry. • 1870 Standard Oil Company of Ohio refined 3 to 4 % of the nations oil. • In 20 years Standard Oil controlled 90% of the nations oil. • Rockefeller controlled Standard by owning 25% of its stock, he persuaded strong competitors to come in with them and drove the weaker ones out of business.

9. Rebates • Rockefeller ground some refineries down by attacking them in cutthroat rate wars. • Standard Oil could take losses over the short term. • Once Standard sold crude oil at $.50 a barrel, less than a barrel of water. • Another time they bought up every barrel in the oil region. Competitors could not ship their products for lack of containers. • Rebates was the most effective method Rockefeller had to drive other companies out of business. • Standard Oil could promise railroads a fixed large amount of oil to carry east each day, Rockefeller demanded a refund of part of their published rate.

10. Standard Oil Trust • A trust was the means by which property of a minor was managed on his behalf. • Rockefeller described to his competitors that if they gave control of their refineries to Standard Oil Trust they would receive trust certificates they would not have to manage. • The wiser refineries saw the point, most of them were only running at half capacity in the early 1870s, they gave Rockefeller control of their refineries and soon were very wealthy. • Rockefeller once in control of the near monopoly could mop up those refineries that did not buy into the trust. • The goal of the trust was not to run prices up. • Rockefeller used to tell people that with each step toward a monopoly he reduced the price of kerosene.