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."


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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.

Steel had many uses in America's rapidly developing industrial society. After steel rails for railroad tracks came steel skeletons for tall buildings and bridges. Nails, wire, and other everyday objects were also made of steel.

The Railroad Network. Steel production 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 rails.

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.

Business leaders set out to connect these lines into networks. Cornelius Vanderbilt was a pioneer in this work. Although he quit school at age 11, he had a good head for business. Vanderbilt bought up separate railroad routes and combined them. By 1870 his railroad system extended from New York to Chicago. Passengers could travel between the two cities in less than 24 hours!

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.

Railroads stimulated the national economy in countless ways. They functioned as a major employer, supplying thousands of new jobs. Railroads also created many other jobs in related industries, such as the manufacturing of railroad cars and other materials needed for railroad operation. In addition, railroads allowed for the quick, easy, and inexpensive movement of goods and passengers over long distances. Finally, railroads encouraged urban growth.

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Powering the New Industrial Society

Steel and railroads served as the building blocks of the Second Industrial Revolution. Other products and industries powered the new society.

"Black Gold!' Americans had known about crude oil, or petroleum, for hundreds of years. Oil was very difficult to collect, though, so few people made much use of it. Then in 1859 a retired railroad conductor named E. L. Drake began drilling for petroleum in Pennsylvania. The idea seemed so impractical that onlookers called it "Drake's Folly," but when he had drilled down about 70 feet, Drake struck oil. In just a few years, "wildcatters," or adventurous people who searched for oil, flooded into western Pennsylvania to drill for what they called "black gold."

Oil quickly 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. Advances 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. In the 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 many products.

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 phonograph

and 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.


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The Leaders of Big Business

Entrepreneurs (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. The 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.

Carnegie eventually con­centrated his investments in the steel industry. He built the first Bessemer factory in America. Using clever business techniques, Carnegie built a vast industrial empire. Carnegie practiced what is known as vertical integration, or the attempted ownership of companies that provided the materials and services for his own factories. He bought up businesses that produced iron ore and coal to feed his steel mills, and railroads to move these materials to his factories. When Carnegie sold his company to banker J. P. Morgan in 190 I, he became the world's richest man.

Rockefeller and 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.

One scholar has described Rockefeller as having "a ruthlessness that never failed to impress his subordinates [employees]." He took business competition very seriously. He would do almost anything to beat out other companies. He forced railroad companies to give him special discounted rates on the oil he shipped with them by threatening to take his business to their competitors.

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 business.

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.



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The Antitrust Movement

The trust idea soon spread to other businesses. By 1900 a small number of wealthy and powerful business owners controlled many important branches of the nation's manufacturing industries.

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.

The Sherman Antitrust Act had little effect on big business at the time, however. Most judges still stressed the right of companies and individuals to run their affairs more or less as they pleased. In addition, the law was hard to enforce because it did not offer specific definitions of trusts or monopolies.

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