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Unit 3 Part 1 Industrialization

Mr. Klein Fall 2012

Three Major Advancements
• Railroads • Oil Drilling and Refining
• Bessemer Process

1. Railroads
• Provided Cheaper Distribution for Goods • Transcontinental Railroad allowed transport from coast to coast. • Construction of tracks and trains created:
– Jobs (Immigrants) – Demand for lumber and iron (later steel)

Transcontinental Railroad

Leland Stanford
• Owned Central Pacific RR

• Founded Stanford University

• Governor of California

Transcontinental Railroad

Cornelius Vanderbilt
• Railroad Mogul

• Owned NY Central RR
• Questionable Business Practices:
– Used kickbacks (rebates) to secure freight

– Forced smaller RRs out of business and bought cheap
– Made approx $185 billion in today’s money

2. Oil Drilling
First commercial oil well:

Titusville, PA - 1858

Edwin Drake

What Good is Oil?
• No cars!

• No gasoline engines! • Oil was refined into kerosene • Used to produce LIGHT

John D. Rockefeller
• Opened Oil Refinery in Cleveland, OH • Invented process to create safe, stable kerosene • Called business “Standard Oil”

Horizontal Integration
• Definition: Buying other companies that do what you do to eliminate competition.
– Goal is to create MONOPOLY – Ex: AT&T buys Verizon, T-Mobile, Nextel, Sprint and Cricket

• Now no one else left to buy cell service from!
• Have to pay whatever AT&T wants to charge

Standard Oil Expands
• Cuts deal with Vanderbilt so can ship oil more cheaply than any other refiner

• Undercut prices so no one else makes $$ - then buys them.
• Rockefeller eventually controls 90% of refineries in US

Standard Oil Trust
• States outlaw monopolies • Rockefeller lawyer Samuel Dodd creates a TRUST • 40 Companies give shares to board of trustees
– Get shares in “Standard Oil Trust” in return – Rockefeller controls board and thus all companies – Not illegal because businesses still separate

Oil Business Threatened

Thomas Edison Invents Incandescent Light Bulb Pioneers Direct Current

Nikola Tesla Pioneers Alternating Current Gives to Westinghouse

AC vs. DC
Direct Current (Edison’s Patents): • Flows one direction • Easily stored in batteries • Generated as same voltage used in houses • Need many small generating stations Alternating Current (Tesla’s Patents): • Current flows two directions • Can have voltage raised and lowered (transformers) • Can travel much longer distances

The Battle and Winner

Westinghouse’s GENERAL ELECTRIC CO. gets contract to build power plants at Niagara Falls

• Kerosene replaced by electricity for lighting.

What Comes to Rescue For Standard Oil?

• Gasoline considered a dangerous waste product

• Internal combustion engine uses as fuel
• Rockefeller powers refineries with gasoline • Becomes popular fuel for factories

What Comes to Rescue For Standard Oil?

Legacy of Rockefeller
• US’s Richest Man -EVER!!! • $340 BILLION net worth in 2012 dollars • Bill Gates a mere $136 billion • Donates Nearly HALF of his money to charity through his Foundation

3. Bessemer Process

Henry Bessemer
• From England

• Develops New System to Make Steel
• Can make in 15 minutes what took 2 Weeks to make by old methods • Mass Production – make large amounts of a product at once

Bessemer Process

Bessemer Process

Andrew Carnegie
• From Scotland • Works for Railroad that needs to build bridge across Mississippi River

• No materials strong enough!
• Realizes steel is answer • Can’t find enough!!

Builds First Modern Steel Mill

Edgar Thomson Works – Braddock, PA 225 tons of steel per day

Growth of Carnegie Steel
• Carnegie uses profits to buy 8 more mills • Produces ¼ of nation’s steel • Continues to look for ways to increase profits…

Vertical Integration
Raw Materials

Own all phases of a product’s manufacture Economies of Scale: As production increases, cost per unit goes down. Profits Go UP!!

Limestone Quarries Iron Ore Mines Coal Mines


Coke Ovens Steel Mills

Distribution Railroads Ships

Effects of Carnegie and Steel
• Mass production makes steel CHEAPER
– Was so expensive used for jewelry and flatware

• Becomes material of choice for:

Pittsburgh - 1890

Pittsburgh - 1910

Legacy of Andrew Carnegie
• Sold Company in 1901 for $500 million • Became US Steel • Net worth of $314 billion in today’s money • Gave away 90% of $$!

• Libraries, Museums, Music Hall

Philanthropic Works
• 3,000 Libraries • Carnegie Tech (Now part of CMU)

• $10 million pension for teachers
• Numerous Foundations and Charitable groups • Organizations for World Peace and Justice

J. Pierpont Morgan
• Banker • Financed Thomas Edison • “Morganization” – Consolidate inefficient industries to reduce competition • Railroads • US Steel

J.P. Morgan
• Net Worth $41.5 Billion (#24) • Bailed out US Government in 1895 and several times during early 1900s

• Was supposed to be on Titanic!!

Gilded Age
• Gilded: covered in thin layer of gold

• Why is this name appropriate?

Captains of Industry

Robber Barons