Industrialization and Captains of Industry

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How did industrial trusts in steel and oil develop, and what was their economic impact?

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What became an immense steel trust was begun by Andrew Carnegie, a Scottish immigrant. In the 1870s, he co-found a steel company close to Pittsburg. He bought up raw materials, transportation systems, and other factories that were unable to compete with him until he formed the Carnegie Steel Company in 1892. The banker John Morgan bought Carnegie's company in 1901 for almost $500 million dollars, an incredible sum at the time. Morgan then consolidated Carnegie Steel with other companies he had bought to create the massive trust called US Steel.

John D. Rockefeller was responsible for the monopoly known as the Standard Oil Company. Rockefeller was ruthless in eliminating rivals by undercutting them in pricing and buying up oil supplies, pipelines, and storage facilities. By the time he formed the Standard Oil Trust in 1882, it controlled 95 percent of the oil refining capability in the United States.

These gigantic trusts had several profound effects on the economy. First of all, they created great hardship on smaller and often more ethical companies as they drove them out of business. They widened the gap between the few rich and the many poor in America.

The overwhelming economic power in the hands of a few individuals prompted the federal government to take regulatory action, notably with the Sherman Anti-Trust Act of 1890 and later with the Clayton Act and the Federal Trade Commission Act of 1914. These pieces of legislation made trusts that dominated the marketplace illegal in order to ensure that economic competition remained a level playing field. These laws had a profound impact on business practices in the United States.

Another more positive effect of the wealth that resulted from these trusts should also be noted. Both Andrew Carnegie and John D. Rockefeller became philanthropists later in their careers, giving away hundreds of millions of dollars to educational, scientific, religious, and social causes. This generosity set an example for other wealthy individuals in generations to come.

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Toward the end of the 1800s, huge trusts began to form in various industries, including the steel and the oil industries. This occurred in various ways. One factor that influenced the formation of trusts was the benefits of forming a corporation over a non-corporation. With a corporation, businesses can raise money more quickly by selling stock. The owners are also protected from lawsuits. Only the corporation can be sued, not the owners of the corporation.

Andrew Carnegie and John D. Rockefeller formed huge trusts in their respective industries. Carnegie had a big trust in the steel industry while Rockefeller had a big trust in the oil industry. They would often undersell the competition, forcing the competition to sell their businesses to Carnegie or Rockefeller. By buying out the competition, these men were able to dominate their industries.

The economy was affected by these actions. For consumers, fewer choices are not a good thing. Businesses are able to charge whatever prices they want when there is little or no competition. Workers are often negatively affected because they are working in huge companies. These workers are easily replaced. This makes it hard for them to get better pay and working conditions. The economy is dominated by a handful of influential businessmen. These people often influence major economic decisions because of the power they have.

The development of these trusts helped lead to the start of the Progressive Era. People became upset with the abuses they saw in politics, the economy, and the business world. This led to a series of laws and the development of government agencies to regulate the actions of businesses.  

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