Consolidated Industry in the United States
Laws of incorporation passed in the United States in the 1830s and 1840s made it easier for business organizations to raise money by selling stock to members of the public. The ability to sell stock to a broader public made it possible for entrepreneurs to gather vast sums of capital and undertake large projects. This led to the emergence of modern corporations as a major force in the United States after 1865. These large, national business enterprises needed more systematic administrative structures. As a result, corporate leaders introduced a set of managerial techniques that relied on systematic division of responsibilities, a carefully designed hierarchy of control, careful cost-accounting procedures, and perhaps above all a new breed of business executive: the middle manager, who formed a layer of command between workers and owners. Efficient administrative capabilities helped make possible another major feature of the modern corporation: consolidation (combining many things into one).
Businessmen created large, consolidated organizations primarily through two methods. One was horizontal integration—the combining of multiple firms engaged in the same enterprise into a single corporation. The consolidation of many different railroad lines into one company was an example. Another method, which became popular in the 1890s, was vertical integration—the taking over of all the different businesses on which a company relied for its primary function. Thus, Carnegie steel controlled mines and railroads as well as steel mills.
The most celebrated corporate empire of the late nineteenth century was John D. Rockefeller’s Standard Oil. Shortly after 1865, Rockefeller launched a refining company in Cleveland, Ohio, and immediately began trying to eliminate his competition. Allying himself with other wealthy capitalists, he proceeded methodically to buy out competing refineries. In 1870, he formed the Standard Oil Company of Ohio, which in a few years had acquired twenty of the twenty-five refineries in Cleveland, as well as plants in Pittsburgh, Philadelphia, New York, and Baltimore. He built his own barrel factories, warehouses, and pipelines. Standard Oil owned its own railroad freight cars and developed its own marketing organization. By the 1880s, Rockefeller had established such dominance within the petroleum industry that to much of the nation he served as a leading symbol of monopoly.
Rockefeller and other industrialists saw consolidation as a way to cope with what they believed was the greatest curse of the modern economy, “cutthroat competition.” Most businessmen claimed to believe in free enterprise and a competitive marketplace, but in fact they feared that substantial competition could result in instability and ruin for all. As the movement toward consolidation accelerated, new vehicles emerged to facilitate it. The railroads began with so-called pool arrangements—informal agreements among various companies to stabilize rates and divide markets. But if even a few firms in an industry were unwilling to cooperate (as was almost always the case), the pool arrangements collapsed. The failure of the pools led to new techniques of consolidation. At first, the most successful such technique was the creation of the “trust”— pioneered by Standard Oil in the early 1880s and perfected by the banker J. P. Morgan. Under a trust agreement, stockholders in individual corporations transferred their stocks to a small group of trustees in exchange for shares in the trust itself. Owners of trust certificates often had no direct control over the decisions of the trustees, they simply received a share of the profits of the combination. The trustees themselves, on the other hand, might literally own only a few companies but could exercise effective control over many.
In 1889, the state of New Jersey helped produce a third form of consolidation by changing its laws of incorporation to permit companies to buy up the stock of other companies. Other states soon followed. These changes made the trust unnecessary and permitted actual corporate mergers. Rockefeller, for example, quickly relocated Standard Oil to New Jersey and created there what became known as a holding company—a central corporate body that would buy up the stock of various members of the Standard Oil trust and establish direct, formal ownership of the corporations in the trust.
【Paragraph 1】Laws of incorporation passed in the United States in the 1830s and 1840s made it easier for business organizations to raise money by selling stock to members of the public. The ability to sell stock to a broader public made it possible for entrepreneurs to gather vast sums of capital and undertake large projects. This led to the emergence of modern corporations as a major force in the United States after 1865. These large, national business enterprises needed more systematic administrative structures. As a result, corporate leaders introduced a set of managerial techniques that relied on systematic division of responsibilities, a carefully designed hierarchy of control, careful cost-accounting procedures, and perhaps above all a new breed of business executive: the middle manager, who formed a layer of command between workers and owners. Efficient administrative capabilities helped make possible another major feature of the modern corporation: consolidation (combining many things into one).
1. Which of the sentences below best expresses the essential information in the highlighted sentence in the passage? Incorrect choices change the meaning in important ways or leave out essential information.
A. Corporate leaders expanded the role of middle managers, who now had the responsibility to introduce systematic techniques of cost-accounting and a carefully designed hierarchy of control.
B. Corporate leaders replaced the former hierarchy of control with a new system, the main advantage of which was that it divided responsibilities among middle managers.
C. Corporate leaders were transformed into middle managers as a result of innovations such as the systematic division of responsibilities and the introduction of careful cost-accounting procedures.
D. Corporate leaders introduced a variety of innovative managerial techniques, the most important probably being the middle manager, a new executive layer below owners.
【Paragraph 2】Businessmen created large, consolidated organizations primarily through two methods. One was horizontal integration—the combining of multiple firms engaged in the same enterprise into a single corporation. The consolidation of many different railroad lines into one company was an example. Another method, which became popular in the 1890s, was vertical integration—the taking over of all the different businesses on which a company relied for its primary function. Thus, Carnegie steel controlled mines and railroads as well as steel mills.
2. Why does the author provide the information that “Carnegie Steel controlled mines and railroads as well as steel mills”?
A. To challenge the idea that railroads generally integrated horizontally
B. To help explain vertical integration by providing an example of a company using it
C. To help explain how a company’s primary function influenced the method of integration it used
D. To show that vertical integration was a much more effective technique for consolidation than horizontal integration was
【Paragraph 3】The most celebrated corporate empire of the late nineteenth century was John D. Rockefeller’s Standard Oil. Shortly after 1865, Rockefeller launched a refining company in Cleveland, Ohio, and immediately began trying to eliminate his competition. Allying himself with other wealthy capitalists, he proceeded methodically to buy out competing refineries. In 1870, he formed the Standard Oil Company of Ohio, which in a few years had acquired twenty of the twenty-five refineries in Cleveland, as well as plants in Pittsburgh, Philadelphia, New York, and Baltimore. He built his own barrel factories, warehouses, and pipelines. Standard Oil owned its own railroad freight cars and developed its own marketing organization. By the 1880s, Rockefeller had established such dominance within the petroleum industry that to much of the nation he served as a leading symbol of monopoly.
3. According to paragraph 3, which of the following was true of John D. Rockefeller?
A. He acquired most of the oil refineries in Cleveland, Ohio.
B. He bought some companies solely because they made supplies for competing oil refineries.
C. He limited sales of Standard Oil petroleum to companies associated with competing refineries.
D. He built many more new oil refineries than he bought.
4. According to paragraph 3, the Standard Oil Company of Ohio owned all of the following EXCEPT
A. a marketing organization
B. railroad freight cars
C. railroad lines
D. barrel factories
【Paragraph 4】Rockefeller and other industrialists saw consolidation as a way to cope with what they believed was the greatest curse of the modern economy, “cutthroat competition.” Most businessmen claimed to believe in free enterprise and a competitive marketplace, but in fact they feared that substantial competition could result in instability and ruin for all. As the movement toward consolidation accelerated, new vehicles emerged to facilitate it. The railroads began with so-called pool arrangements—informal agreements among various companies to stabilize rates and divide markets. But if even a few firms in an industry were unwilling to cooperate (as was almost always the case), the pool arrangements collapsed. The failure of the pools led to new techniques of consolidation. At first, the most successful such technique was the creation of the “trust”— pioneered by Standard Oil in the early 1880s and perfected by the banker J. P. Morgan. Under a trust agreement, stockholders in individual corporations transferred their stocks to a small group of trustees in exchange for shares in the trust itself. Owners of trust certificates often had no direct control over the decisions of the trustees, they simply received a share of the profits of the combination. The trustees themselves, on the other hand, might literally own only a few companies but could exercise effective control over many.
5. According to paragraph 4, many industrialists in the 1880s worried that
A. pool arrangements would divide markets
B. new vehicles for pool arrangements would fail
C. too much competition would destroy the modern economy
D. trusts would be unable to exert adequate control over companies
6. According to paragraph 4, which of the following was a problem with pool arrangements?
A. They were effective only with railroads.
B. They could succeed only if all the firms in an industry cooperated.
C. They were effective only in situations where rates had already been stabilized.
D. They could be implemented only in industries with a large number of firms.
7. It can be inferred from paragraph 4 that trusts were more successful than pool arrangements at
A. exercising effective control over the participating companies
B. excluding less profitable companies
C. allowing small stockholders to participate in decision making
D. limiting the amount of money paid to the owners of individual corporations
【Paragraph 5】In 1889, the state of New Jersey helped produce a third form of consolidation by changing its laws of incorporation to permit companies to buy up the stock of other companies. Other states soon followed. These changes made the trust unnecessary and permitted actual corporate mergers. Rockefeller, for example, quickly relocated Standard Oil to New Jersey and created there what became known as a holding company—a central corporate body that would buy up the stock of various members of the Standard Oil trust and establish direct, formal ownership of the corporations in the trust.
8. According to paragraph 5, why did Rockefeller move Standard Oil to New Jersey?
A. To be in a better position to pressure the state to change its laws of incorporation
B. To increase the number of corporations under his control in the Standard Oil trust
C. To raise the needed amounts of money for the establishment of his new holding company
D. To acquire direct, legal ownership of the corporations in the Standard Oil trust
【Paragraph 3】The most celebrated corporate empire of the late nineteenth century was John D. Rockefeller’s Standard Oil. Shortly after 1865, Rockefeller launched a refining company in Cleveland, Ohio, and immediately began trying to eliminate his competition. Allying himself with other wealthy capitalists, he proceeded methodically to buy out competing refineries. ■In 1870, he formed the Standard Oil Company of Ohio, which in a few years had acquired twenty of the twenty-five refineries in Cleveland, as well as plants in Pittsburgh, Philadelphia, New York, and Baltimore. ■He built his own barrel factories, warehouses, and pipelines. ■Standard Oil owned its own railroad freight cars and developed its own marketing organization. ■By the 1880s, Rockefeller had established such dominance within the petroleum industry that to much of the nation he served as a leading symbol of monopoly.
9. Look at the four squares【■】that indicate where the following sentence could be added to the passage.
In addition to expanding horizontally, Rockefeller’s company expanded vertically as well.
Where would the sentence best fit?
10. 【Directions】An introductory sentence for a brief summary of the passage is provided below. Complete the summary by selecting the THREE answer choices that express the most important ideas in the passage. Some sentences do not belong in the summary because the express ideas that are not presented in the passage or are minor ideas in the passage. This question is worth 2 points.
Businesses’ increased ability to raise capital by selling stock led to the emergence of large corporations as a major force in the United States after 1865.
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Answer Choices
A. Large businesses developed more efficient administrative structures, which allowed them to consolidate through horizontal integration, vertical integration, or both.
B. Even though consolidation initially developed in manufacturing, it was J. P. Morgan in the banking industry who came up with the most successful consolidation technique.
C. The most famous corporation was Rockefeller’s Standard Oil, which acquired many competing businesses and controlled its supply sources, eventually establishing itself as a holding company.
D. In order to limit competition as effectively as they could, industrialists created pool arrangements and then later trusts and holding companies.
E. The rise of corporations as the dominant force in the American economy forced certain states to pass new laws that resulted in direct state control over consolidation.
F. Corporate consolidation was an extremely complex process, and required enormous amounts of capital for carrying out various integration procedures.
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