The railroads were the first giant businesses, and they needed steel, coal and oil. In the decades after the Civil War the United States became the largest industrial economy in the world.
Key idea
New industries (steel, oil, electricity, the telephone) and new ways of organizing business made a few firms enormous. They grew by vertical integration (owning every stage of making one product) and horizontal integration (buying or combining with competitors). The Sherman Antitrust Act (1890) outlawed combinations "in restraint of trade."
| Industry | Leader | How the firm grew |
|---|---|---|
| Steel | Andrew Carnegie (Carnegie Steel) | Vertical: iron mines, ore ships, railroads and mills, using the Bessemer process |
| Oil | John D. Rockefeller (Standard Oil) | Horizontal: bought or squeezed out rival refineries; a trust (1882) held their stock |
| Electricity | Thomas Edison, George Westinghouse | Light bulb (1879), power stations; patents and new companies |
| Telephone | Alexander Graham Bell | Patent (1876); the Bell system |
Why it works
Why did business grow so big so fast? Railroads made a national market. New technology, such as the Bessemer process, made steel cheap. Large firms could lower costs by producing more (economies of scale). Investors such as J. P. Morgan raised huge sums, and in 1901 Morgan bought Carnegie Steel to form U.S. Steel. Firms that controlled a market could also set prices, and that worried farmers, small businesses and many voters.
Work it through
Worked example: Which kind of growth?
A meatpacker buys cattle ranches, refrigerated railroad cars and butcher shops. Which kind of integration is this?
- Ask: are these competitors, or stages of one product?
- Ranches (raw material), rail cars (transport), shops (sales) are stages of making and selling meat.
- Owning the stages of one product is vertical integration.
Answer: Vertical integration.
Common mistake
Students often mix up vertical and horizontal integration. Vertical means owning each stage of making one product: think of a vertical chain from mine to mill to market. Horizontal means buying up competitors at the same stage: a horizontal row of rival firms. Note too that the Sherman Act was weak at first; in United States v. E. C. Knight Co. (1895) the Supreme Court held that manufacturing was not commerce.
People still argue about the leaders of this age. Some called them "robber barons" who crushed rivals and workers; others called them "captains of industry" who built the modern economy and gave fortunes to libraries and universities. Historians weigh both sides of the record.