Age of Big BusinessSec. 19-3 Pages 567 - 571

• Define: Factors of production – land – labor – capital – corporation – stock - shareholders –dividends – horizontal integration –trust - vertical integration – philanthropy – merger – monopoly

• Identify: John D. Rockefeller – Andrew Carnegie – J. Pierpont Morgan – Sherman Antitrust Act

Foundations for Growth• 1859 - Titusville, Pa. – Oil found by Edwin Drake –

produce heat, lubricate machinery• US will change from agricultural economy to

industrial economy• Factors of production • Land – land and natural resources• Labor – workers to turn raw materials into goods –

population doubled 1860-1900• Capital – equipment, buildings, machinery, tools

used in production Also means money for investing – sell stocks by

corporations – corporate savings is investing a portion of earnings in better equipment

Raising Capital• Railroads and other businesses needed capital

to buy raw materials, equipment, pay workers, cover shipping and advertising costs.

• They formed a corporation – a company that sells stocks (shares of business) to the public.

• Shareholders – people who invest in a corporation by buying stock

• Earn dividends – cash payment from the corporation’s profits on the stock they own.

Summarize• What are the 3 factors of production?• Vocab term that means a company that sells

stocks (shares of business) to the public.• Vocab term that means people who invest in

a corporation by buying stock• Vocab term that means cash payment from

the corporation’s profits on the stock they own.

OIL BUSINESS John D. Rockefeller –1870 – Standard Oil Co. – built

empire using horizontal integration – combining competing (same industry)firms into one corporation.

• Standard Oil Corporation produced and used its own tank cars, pipelines, wooden barrels.

• Rockefeller lowered prices to drive out competitors – formed trust – group of companies managed by the same board of directors.

Horizontal integration

• Company A + B = Company C• Oil Oil Oil

Standard Oil Corp.• Standard Oil’s board traded for enough of other

companies’ stock, they then owned and managed those companies.

• Other tactics used:1. Lower his prices to force competitors out of business2. Pressure customers to avoid using other oil companies3. Persuaded RR to give him rebates in return for his

business.

Created monopoly – almost total control of an industry by a single producer

SUMMARIZE• Define horizontal integration.• Who industrialist used horizontal

integration?• What type of business was he in?• What was the company?• Vocab term that means group of companies

managed by the same board of directors. • Vocab term that means almost total control

of an industry by a single producer.

STEEL BUSINESS• Pittsburgh, Pa – steel capital of

US in late 1870s.• Started in RR business – invested

in sleeping cars , then steel mills• Andrew Carnegie – used vertical

integration – acquire companies that provide the raw materials, production and transportation needed.

• Formed Carnegie Steel Corp. in 1901–producing 1/3 of nation’s steel.

Vertical Integration• Raw Materials (oil fields, farms)

• Production (refineries, mills factories)

• Distribution ( RR, ships, trucks)

J.Pierpont Morgan• 1861-banking business – later invested in Edison’s company-

• Invested in Railroads- shipping• By 1890 one of the most

powerful men in US• 1901- Bought Carnegie’s

company for $480 million –• Became US Steel (Billion $ Corp)• 1912- Didn’t sail on Titanic

(subsidiary of his shipping line)• Helped consolidate (AT&T,

General Electric, Int’l Harvester)

Philanthropists• Carnegie interested in philanthropy – use of

money to benefit the community – started schools, universities, built more than 2000 libraries . Spent $350 million to build Carnegie Hall in NYC. Carnegie Mellon Univ. (Pitts.) Carnegie Institution of Washington (research)

• J.D. Rockefeller – started University of Chicago – Rockefeller Institute for Medical Research.

• J. P. Morgan- gave art collections to NY museums (Metropolitan Museum Of Art)

Corporations grow larger• Merger – combining of companies – put

economic power in few giant corporations• By 1900 1/3 of all US manufacturing was

controlled by 1% of US corporations.• Without competition, prices went up – no

need to improve goods/ service.• 1890- Sherman Antitrust Act – law that

prohibits trusts and monopolies – gov’t used this law to stop strikes by railroad workers threatening delivery of nation’s mail.

Summarize• Define Vertical integration• What industrialist used vertical integration.• What was his business? Name?• Vocab term that means use of money to

benefit the community?

Ticket out the door• Define: Philanthropy• Name one of the famous men who was a

philanthropist – what did he do?• What was the law that did not allow

companies to form a trust or have a monopoly?