The Steel Industry Expands

After the Civil War, the expansion of railroads spurred the growth of the steel industry. Early trains ran on iron rails that wore out quickly. Railroad owners knew that steel rails were much stronger and not as likely to rust as iron rails. Steel, however, was costly and difficult to make.

A New Way to Produce Steel

In the 1850s, William Kelly in the United States and Henry Bessemer in England each discovered a new way to make steel. The Bessemer process, as it came to be called, used oxygen and other materials to purify molten iron ore into steel. It enabled steel makers to produce strong steel at a lower cost, and railroads began using steel rails.

Other industries also took advantage of the cheaper steel. Manufacturers made steel nails, screws, needles, and other items. Steel girders supported the great weight of “skyscrapers”—the new tall buildings going up in cities.

Midwestern Steel Mills

Steel mills sprang up in cities throughout the Midwest. Pittsburgh became the steel-making capital of the nation. Nearby coal mines and good transportation helped Pittsburgh’s steel mills thrive.

The boom in steel making brought jobs and prosperity to Pittsburgh and other steel towns. It also caused problems. Years of pouring industrial waste into nearby waterways had severely polluted them. Steel mills belched thick black smoke that turned the air gray. Soot blanketed houses, trees, and streets.

READING CHECK

Identify What effects did the growth of the steel industry have on industrial cities?

What Led to the Rise of Corporations and Banks?

Before the railroad boom, nearly every American town had its own small factories. They produced goods for people in the area. By the late 1800s, however, big factories were producing goods more cheaply than small factories could. Railroads distributed these goods to markets all over the country. As demand for local goods fell, many small factories closed. Big factories then increased their output.

By increasing output, big factories were able to earn greater revenue, or income earned from a business after covering costs. Factories often used revenue to expand operations or buy out rivals. Revenues allowed them to grow.

Companies using revenues to expand increased their capital. Capital is money used to invest in the long-term health and success of a company.

However, sometimes companies borrowed money for capital investment. Other companies gave investors stock, or partial ownership of the company, in return for capital. Companies might use this capital to build factories, buy new equipment, or buy out other companies. To raise capital and invest in future growth, Americans adopted new ways of organizing their businesses. They created corporations.

Businesses Become Corporations

A corporation is a business that is owned by investors. Laws and court rulings allow corporations to enjoy many of the rights of individuals.

Investors in stock, or stockholders, hope to receive dividends, or shares of a corporation’s profit. Stockholders elect a board of directors to run the corporation.

Owners of stock in a corporation face fewer risks than owners of private businesses do. If a private business goes bankrupt, the owner must pay all the debts of the business. By law, stockholders cannot be held responsible for a corporation’s debts.

Corporations and Banks

In the years after the Civil War, corporations attracted large amounts of capital from American investors. Corporations also borrowed millions of dollars from banks. Some of this money came from national banks backed by the federal government and some came from state banks. Loans helped American industry grow at a rapid pace. At the same time, bankers made huge profits.

The most powerful banker of the late 1800s was J. Pierpont Morgan. Morgan’s influence was not limited to banking. He used his banking profits to gain control of major corporations.

During economic hard times in the 1890s, Morgan and other bankers bought up troubled corporations. They then adopted policies that reduced competition and ensured big profits. “I like a little competition, but I like combination more,” Morgan used to say.

Morgan gained control of several major rail lines. He then began to buy up steel companies, including Carnegie Steel, and to merge them into a single large corporation. By 1901, Morgan had become head of the United States Steel Company. It was the first American business worth more than $1 billion.

Interpret Images American banker J. P. Morgan merged several companies into one large corporation in the early 1900s.

Infer How did Morgan’s position as a banker help him as a businessman?

READING CHECK

Identify Cause and Effect Why did many businesses become corporations?

Americans Debate Over Trusts

Some Americans charged that the leaders of giant corporations were abusing capitalism. Under capitalism, businesses are owned by private citizens. Owners decide what products to make, how much to produce, where to sell products, and what prices to charge. Companies compete in a free market to win customers by making the best product at the lowest price.

All people in a free-market system have to make choices about what products to buy. This is because there is a limited supply of resources, a principle known as scarcity. Companies compete for scarce resources and for customers. Customers then make choices about what to buy to meet their needs, keeping in mind their scarce income or savings. People have fewer options when there are fewer companies competing.

Analyze Political Cartoons This cartoon shows the Senate dominated by trusts, shown as oversized men watching over senators.

Synthesize Visual Information Many people argued against trusts and monopolies. What message does the artist convey in this 1889 cartoon?

Arguments Against Trusts

Critics argued that trusts and monopolies reduced competition. Without competition, companies had no reason to keep prices low or to improve their products. It was also hard for new companies to compete with trusts.

Critics were also upset about the political influence of trusts. Some people worried that millionaires were using their wealth to buy favors from elected officials. These critics pointed to government policies that advanced the interests of big business.

Trusts, for example, used their money and influence to persuade Congress to enact protective tariffs, or taxes on imported goods. By making imports more expensive, the government encouraged the purchase of American-made goods. At the same time, they protected the trusts from foreign competition. John Reagan, a member of Congress from Texas, said:

Primary Source

“There were no beggars till Vanderbilts . . . shaped the actions of Congress and molded the purposes of government. Then the few became fabulously wealthy, the many wretchedly poor.”

—John Reagan, Austin Weekly Democratic Statesman, 1877

Under pressure from the public, the government slowly moved toward controlling giant corporations. Congress approved the Sherman Antitrust Act in 1890, which banned the formation of trusts and monopolies. However, it was too weak to be effective. Some state governments passed laws to regulate business, but the corporations usually sidestepped them.

Analyze Charts The rise of trusts brought economic growth, but their concentrated power sometimes led to tensions with workers or government. Identify Cause and Effect Using evidence from the chart, identify drawbacks to the rise of trusts.

Arguments for Trusts

Naturally, some business leaders defended trusts. Andrew Carnegie published articles arguing that too much competition ruined businesses and put people out of work. In an article titled “Wealth and Its Uses,” he wrote:

Primary Source

“It will be a great mistake for the community to shoot the millionaires, for they are the bees that make the most honey, and contribute most to the hive even after they have gorged themselves full.”

—Andrew Carnegie, “Wealth and Its Uses”

Defenders of big business argued that the growth of giant corporations brought lower production costs, lower prices, higher wages, and a better quality of life for millions of Americans. They pointed out that by 1900 Americans enjoyed the highest standard of living in the world.

Analyze Images Andrew Carnegie became a millionaire in the steel industry and later donated large sums of money to build educational institutions and to help the poor.

Identify Cause and Effect How did Carnegie’s being an immigrant affect this attitude toward wealth and its use?

READING CHECK

Check Understanding Why was Andrew Carnegie in favor of trusts?