Lesson 20.3 : The Rise of Big Business

1. 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.

2. 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

3. 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?

4. What We Already Know The Bessemer process for making steel cheaply and Drake’s new oil well-drilling technology helped spark a new revolution in American industry.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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 corporation’s debts.

10. Advantages of a Corporation

11. 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.

12. Get your whiteboards and markers ready!

13. 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.

14. 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.

15. 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.

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

17. In the horizontal integration model, a corporation tries to gain control of one critical step of the manufacturing process.

18. 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.

19. One by one, Rockefellerdrove them out of business, until he had created a monopoly.

20. What is a monopoly?

21. 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

22. 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.

23. By 1880, the Standard Oil Trust controlled 95% of U.S. oil refining. Rockefeller’s actions caused the public to view him as a ruthless robber baron.

24. 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

25. 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.

26. In the vertical integration model, a corporation tries to control all steps of the manufacturing process.

27. CarnegieandRockefellerearned hundreds of millions of dollars. • They both became philanthropists. • These are people who give large sums of money to charity.

28. Rockefeller gave away more than $500 million to universities. The University of Chicago

29. Carnegie gave more than $350 million, much of it to universities and to build hundreds of public libraries.

30. Get your whiteboards and markers ready!

31. Who controlled the steel industry? • Jay Gould • John D. Rockefeller • Horatio Alger • J.P. Morgan • Cornelius Vanderbilt • Andrew Carnegie

32. Who controlled the oil industry? • Jay Gould • John D. Rockefeller • Horatio Alger • J.P. Morgan • Cornelius Vanderbilt

33. How did Rockefeller gain control of the oil industry? • He used vertical integration to control the refining phase of the oil business. • He made secret deals with railroads to get rates lower than his competitors. • He wiped out competitors by driving them out of business, then buying them. • He reduced competition by avoiding participation in trusts. Choose all that are true!

34. How did Carnegie gain control of the steel industry? • He tried to make the best and cheapest steel. • He reduced costs by using vertical integration. • He made secret deals with railroads to get rates lower than his competitors. • He tried to control all the steps that went into making steel. • He created a giant trust to help reduce competition. Choose all that are true!

35. What is a philanthropist? • Someone who becomes wealthy through dishonest methods • A business leader who wipes out his competitors and controls an industry • A legal body created to hold stock in many companies • Someone who gives large sums of money to charity

36. TheGilded 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.

37. 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.

38. 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.

39. 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.

40. Why is this period often referred to as the Gilded Age? • Nearly everyone had money. • It was the golden age of American inventions. • Society's problems were hidden by the wealth of a few people. • Nearly everyone who was wealthy got rich by unlawful methods.

41. What problems in society were hidden by the visible wealth of a small group during the Gilded Age? • Corrupt politics • Widespread poverty • Shortage of skilled labor • Improper business practices • High federal income taxes Choose all that are true!

42. 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.

43. In some Southern areas, industry did grow. Butcompared with the Northern economy, theSouthern economy grew very slowly.

44. 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.

45. Most of the South remained agricultural. • Although the South’s 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.

46. Get your whiteboards and markers ready!

47. Why was the South so much less industrial than the North? • The Civil War had left the South in ruins. • All the important industrialists had left the South in 1861, just after secession began. • Much of the land was given over to share-cropping and other agricultural pursuits. • Congress was unwilling to give Southern farmers cash subsidies, as it had to Northern farmers. • Southerners were still making so much money from cotton that industry seemed unnecessary. Choose all that are true!

48. Why were so many Southerners poor? • Many poor Southerners were sharecroppers, who had to pay a large portion of their crops as rent. • The price of cotton was low, so many had a hard time buying what they needed. • The sharecroppers often were cheated by their landlords. • They were heavily taxed by state governments who had large war debts to pay off. • Southerners were not well-educated, and so they could only qualify for low-paying jobs. Choose all that are true!

49. Class Notes 20.3 • Any person who gives away a great deal of his or her money to charity is a • A company that raises money by selling shares of stock • Any business leader who became wealthy by using dishonest methods is called • A company that wipes out its competitors and controls an industry is called • The wealthy businessman who controlled the oil industry was • A legal body created to hold stock in many companies, often in the same industry is called • The wealthy businessman who controlled the steel industry was • The era of the late 1800s, which was a time of fabulous wealth for a few Americans was called • The robber baron who made most of his money dealing in railroad stock was • An industrial plant that purifies oil is called