From the end of the Civil War to 1900, the U.S. economy grew at an unprecedented rate. New industries, such as steel production and oil refining, turned America into a dominant economic power and ushered in an era of business tycoons. These tycoons created corporations, businesses that sold shares of stock to raise money. The tycoons used this money to build factories, pay workers, buy materials, ship goods, advertise, and buy out or crush smaller businesses.
Many of these business titans developed a reputation as plunderers who exploited workers, robbed investors, cheated consumers, created monopolies, and bribed government officials. They became known as robber barons.
John D. Rockefeller, who created the Standard Oil Corporation, was one such robber baron. Known for his shrewd and cutthroat business practices, he became a billionaire. These practices included diversifying the oil business, buying out or merging with competitors (horizontal integration), negotiating with railroads for exclusive pricing, and creating trusts. A trust is a type of a corporate monopoly that was powerful during the late 19th and early 20th centuries. Trusts exerted strong influence over prices, in part, because of monopolistic practices--that is, creating one super-company with no competition.
Another robber baron was steel tycoon Andrew Carnegie. He championed vertical integration--a business practice that bought all the companies that produced materials to make steel. In this way, no other steel competitors could emerge because they could not buy supplies needed to make steel.
Other famous robber barons included:
- Cornelius Vanderbilt (railroads)
- James Duke (tobacco)
- John Jacob Astor (fur)
- J. P. Morgan (finance)
The development of the railroad and the money people made from manufacturing and the Civil War brought on a new economy in America. There were fortunes to be made, and unfortunately these were made off the cheap labor of workers who had no rights. The time was right for businessmen to make their fortunes. John D. Rockefeller was one of these men. By the end of the 1800s, the average worker earned 8-10 dollars per week, and Rockefeller had millions. Rockefeller, as well as other business tycoons, could be seen as captains of industry but also as robber barons. This is someone who got rich by exploiting workers and resources and had unfair government influence.
John Rockefeller started working as a clerk in a Cleveland shipping yard. He saved his money and was able to start a business selling produce. He made a small fortune during the Civil War when demand for his goods increased. When oil was discovered in 1859, he sold off his interests and was convinced refining oil was his future. Rockefeller developed new techniques for the oil industry. In the mid-19th century, the oil was mainly used for kerosene. In this conversion from oil to kerosene, there are many wastes. He sold these to companies for money--things like paraffin to candle makers and petroleum jelly to medical supplies. The railroads wanted his business as well. Rockefeller demanded discounted rates from the railroads. He then reduced the price of oil. In doing so, everyone bought from him, and he was able to take control of his competitor’s companies as well.
Rockefeller established what is called a trust. A trust is a combination of firms combined by a legal agreement. This is not fair business because there is no competition. Rockefeller’s business practices led to his large corporation, Standard Oil Company. This became the largest business in the United States. With the invention of the automobile, gasoline became the main petroleum product. Rockefeller became a billionaire. He was criticized for his unfair labor practices and low worker’s wages.
The nation not only demanded oil, but with the development of the railroads, navies, and cities came a demand for steel. Every new factory in America was in need of steel for their plants and machines. Andrew Carnegie saw the benefit in steel. Carnegie started small in a cotton mill. He soon moved up the ladder to become the personal secretary as the head of a railroad company. Carnegie would soon become a business tycoon because of his business tactics. As Rockefeller was buying up his competition using a process called horizontal integration, Carnegie used vertical integration. He bought the companies which produced the materials needed to make steel. He also treated his workers fairly and created a prophet sharing plan. Carnegie Steel Company was bought by J. P. Morgan in 1901 to create U.S. Steel for 500 million dollars.
Pierpont Morgan was born into wealth. He went to the finest business schools and went on to work New York’s top banks. Morgan wanted to make a name for himself in the financial world, and so he did. He first started in banking. Morgan knew the power of investment and by 1860 began buying up smaller businesses to make money. He purchased a substitute soldier for himself during the Civil War so he didn’t have to go. In 1873 there was a financial panic, and Morgan’s tactics allowed him to emerge as the king of American finance. Many criticized Morgan of being a robber baron, but he felt this to be unfair. He helped smaller, mismanaged firms, resulting in more dependable service. When the nation was in a financial panic, he allowed the national government to buy his gold supplies to stop deflation. He had many companies, but the most profitable would be U.S. Steel. Within ten years of the purchase, the company was worth over a billion dollars. Morgan proved the benefit of smart investment and efficient consolidation and shifted the thinking of young entrepreneurs.
Even though Morgan was highly accomplished, he was also harshly criticized. The government would prove a challenge for Morgan. With the passing of anti-trust laws, his Northern Securities Railroad Company was found illegal. Congress investigated Morgan for controlling the financial markets, and U.S. Steel had to give up its monopoly. Because of all the criticism, Morgan eventually moved to Europe. He was targeted as one of the tycoons to benefit and exploited the poor for their wealth. These tycoons helped shape business and economics in America and really helped make the country what it is today.
| How did John D. Rockefeller make his fortune? | refining oil |
| What is a person called when he or she makes a fortune by exploiting workers and resources and using unfair government influences? | robber baron |
| What is the business tactic which includes buying all the competition and forming them under one trust? | horizontal integration |
| Which business tycoon bought Carnegie Steel for $500 million? | J. P. Morgan |
