The Rise of Big Business in America

Topics: Petroleum, Sherman Antitrust Act, Standard Oil Pages: 6 (2197 words) Published: May 6, 2012
The Rise of Big Business in America
Danny Weiss
FS American Economic History

Before the rise of modern corporations, business owners predominantly personally managed most private economic operations. These small-scale operations had little influence outside their regional realm. Eventually, American capitalism evolved from a proprietary-competitive stage to a corporate-administered stage as a result of numerous factors. Economies of scale became more applicable with innovations in transportation, communication, production, management, distribution, and marketing. As a result, America transformed into a global economic power. From 1870 to 1913, the United States’ distribution of the world’s industrial production rose from 23 percent to 36 percent (Chandler, 4). Comparing this substantial growth to other industrious countries of the time exemplifies America’s dominance. In the same time span Great Britain fell from 32 percent to 14 percent, Germany rose from 13 percent to 16 percent, France dropped from 10 percent to 6 percent, Russia rose from 4 percent to 6 percent, Japan rose from 0 percent to 1 percent, and the rest of the world rose from 17 percent to 21 percent (Chandler, 4). Capital intensive, mass production industries that rose during the 2nd half of the 19th century distinguished American business from economic institutions in other cultures and set the foundations of what is now known as the American corporation. Standard Oil

An industry that was a pioneer in changing the early business landscape was the petroleum sector. In 1859, the first successful commercial drilling of oil occurred at what is known as Drake’s Well in Titusville, Pennsylvania. The drilling of this well is known as the beginning of the modern oil industry. The aftermath of the Drake’s Well drilling exhibited a high level of entry in the oil industry and increased production. Crude Oil production rose from 2000 barrels in 1859 to 4,800,000 in 1869 and 5,250,000 in 1871 (Giebelhaus, 1). Production costs were low, incentives were high and the competitive environment was close to that of pure competition. The quintessential narrative of the rise of a powerful market-controlling corporation is especially highlighted with the Standard Oil Company. John Rockefeller and his partners formed the Standard Oil Company in 1867. With increased capital needs, the partnership organization of business became more common. The partnership allowed for economies of scale to be exploited by possessing large refining factories that cut unit costs by almost one-half. With high levels of capital and output, Standard and a pool of other refiners through contractual agreements obtained preferential railroad rates. They then used this advantageous partnership to pressure competing firms to sell out to them. This series of horizontal acquisitions was the beginning of the dominance of Standard. Rockefeller further expanded his level of market control by forming the National Refiners Association. A board of 15 representatives from major oil refining cities functioned to purchase crude, allocate refining quotas, fix prices, negotiate railroad freight prices, and distribute profits among members (Giebelhaus, 4). The collective effort of refineries, led by Rockefeller, gave refineries price control over petroleum producers. However, due to a lack of internal cohesiveness, Standard opted for a system of more official consolidation. In a series of mergers, Standard exchanged company stock for control in several large refining companies throughout the country starting in 1874. As a result, by 1878 the company owned 90 percent of the countries of the total refining capacity (Giebelhaus, 4). Standard dominated oil refining by 1880 and had vertically branched out extensively into it’s own transportation and marketing operations. For a period of time Rockefeller made a conscientious decision to not take part in crude oil extraction. He believed...
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