Inventions and the Rise of Big Business
The late 1800s were a time of inventions and industrial expansion. Businesspeople ruled America, and those who controlled the production of essential goods had enormous power. Many Americans hoped the new breed of businessperson would help the country make a successful transition to what some observers called a "modern age."
Building the New Industrial Society
Between 1865 and 1900 the United States went through one of the most dramatic
periods of change the country had ever seen. Several factors were responsible
for this amazing transformation.
Changing Iron into Steel. Steel was the basic building material of what many called the Second Industrial Revolution. In the 1850s a British inventor named Henry Bessemer perfected an inexpensive way to make steel. The Bessemer process, as it was called, made possible the mass production of steel.
particularly helped American railroads. The first rails were made of cast
iron, but they often wore out quickly. Steel rails lasted much longer than iron
Even after the introduction of steel rails, however, problems in the railroad
industry remained. Railroads had been built primarily to serve local
transportation needs. Most railroads in the United States were short,
averaging only about 100 miles. In 1860, passengers and freight traveling
between New York and Chicago, for example, had to change lines 17 times.
Inventions and new practices also contributed to the expansion of railroads. George Westinghouse invented a compressed air brake that made larger, faster, and safer trains possible. Another inventor, African American Granville Woods, improved the design of air brakes and created other useful products as well, including a new telegraph system.
New Industrial Society
Steel and railroads served as the building blocks of the Second Industrial
Revolution. Other products and industries powered the new society.
became a big business. By 1861 around 2 million barrels of oil were being pumped
from western Pennsylvania annually. Businesspeople
opened refineries to purify the crude
oil. They sold such finished petroleum product as kerosene to other businesses
and communities for use in lighting. Several inventions made oil even more
valuable. Elijah McCoy, the son of runaway slaves, invented a lubricating cup
that fed oil to parts of a machine while it ran. This breakthrough helped all
kinds of machines operate more smoothly and quickly. In the 1890s the internal
combustion engine, which burned petroleum in the form of gasoline or diesel
fuel, turned oil into one of the nation's major sources of power.
The Revolution in
communications also furthered the growth of American industry. Alexander Graham
Bell invented the telephone in 1876. At first, many people considered Bell's
invention a joke. Fortunately, others realized its usefulness. Telephone wires
soon rose up across the skies. The telephone became an essential part of
industrial society, allowing rapid, cheap, long-distance communication by voice.
The Wizard of Menlo Park.
same year that Bell invented the telephone, Thomas Alva Edison established the
nation's first industrial research laboratory in Menlo Park, New Jersey.
Although he had received only about five years of on-and-off formal schooling,
Edison became known as the greatest inventor of the age because he developed so
Edison's first major invention was the quadruplex telegraph. It could send four messages over one wire at the same time. He also invented the phonographand made several improvements on Bell's telephone. Edison's early inventions fascinated many Americans.
One writer celebrated the products of Edison's "invention factory" in a popular magazine:
"If this can be done ... what is there that cannot be? ... We feel that there may, after all, be a relief for all human ills in the great storehouse of nature."
Edison's most important invention came in the late 1870s, when he developed an electric lightbulb. Edison's basic idea was to pass electricity through a thin wire inside an airless glass globe. The electricity heated the wire, causing it to glow brightly. The wire could not burn up because there was no oxygen in the globe. Soon the "Wizard of Menlo Park" was setting up city lighting companies and power stations to generate electricity. He also sold light bulbs. by the millions. In just a few years, electric lights were replacing gas lights in cities across the country.
The Leaders of Big Business
(ahn-truh-puh-NUHRZ), or risktaking
businesspeople, played an important role in the Second Industrial Revolution.
Some were "robber barons" - rough, greedy businesspeople who cheated and
mistreated others to enrich themselves. Some were honest, public-spirited
citizens. All were eager to take advantage of the opportunities they saw opening
up around them .
New Business Practices.
entrepreneurs of the late 1800s developed new ways to make more money and
operate more efficiently. At around this time, businesspeople began to question
traditional forms of business organization. In the early 1800s most businesses
were owned by individuals or partners. However, it took huge' amounts of money
to construct and run a railroad, oil refinery, or research lab.
Therefore, entrepreneurs set up their new businesses as corporations.
They sold shares called stock certificates to investors. These investors, called
stockholders, made money when the corporation did well.
Corporations offered a number of advantages over other types of business
organization. By selling stock certificates, entrepreneurs could raise a lot of
money. Investors benefited as well because they had limited liability. They
risked only the money that they had paid for their stock. In a partnership, on
the other hand, all the partners were responsible for all the debts of the firm.
In addition, corporations allowed a small group of directors to control a very
large business operation.
Carnegie and Steel.
One of the
most important business leaders of the late 1800s was Andrew Carnegie. He came
to the United States from Scotland as a youth and worked 12 hours a day in a
cotton mill. By the time he was 1 7, he had become the private secretary to a
railroad company's superintendent. He soon became a railroad superintendent
himself and made a great deal of money from various investments.
Oil. John D. Rockefeller applied the business practices of the late 1800s and created
new ones to dominate the oil refining industry. After making a small fortune in
the wholesale food business, in 1863 Rockefeller went into oil refining. He
organized the Standard Oil Company in 1870. Like Carnegie, he used vertical
integration to increase his profits. Rockefeller also practiced horizontal
integration, or the attempted ownership of all the companies in a particular
field. He targeted oil refining firms.
He sold his oil
below cost in some areas to win business from smaller local oil companies. Then
he forced the local refiners to either sell out to Standard Oil or face
bankruptcy, a state of extreme financial ruin. If they refused to
sell, he forced them out of business. Though harsh, Rockefeller's methods
succeeded. By the late 1870s he controlled almost 90 percent of the American oil
Hoping to strengthen his grip on the industry even further, Rockefeller established a trust - a legal agreement under which several companies grouped together to regulate production and eliminate competition. To do this, stockholders of the separate companies turned control of their shares over to a group of directors called trustees. By controlling the stock of so many companies, the trustees could control an industry and thus collect huge profits. This resulted in a monopoly, or complete domination of an industry.
The Antitrust Movement
The size and power of these trusts alarmed many Americans. They feared that the trusts would not only destroy small companies but also cheat consumers by charging high prices once competition had been eliminated. Eventually, these people formed the antitrust movement. They wanted to break up large businesses into smaller companies to restore competition .
Like other entrepreneurs, Rockefeller defended the trusts: "Only ... by such an industrial combination is America today enabled to utilize the bounty which its land pours forth." Despite these arguments, the demand for government regulation of the economy increased steadily. Then in 1890 Congress passed the Sherman Antitrust Act. This law banned combinations "in the form of trust or otherwise" that restricted interstate trade or commerce. Violators faced fines or jail sentences.