For 25 years, the National League dominated major league baseball. Attempts to form rival associations flopped, mainly because of lack of money and organization. But a former sportswriter named Byron Bancroft (Ban) Johnson rebelled and eventually broke through. Johnson developed a well-run second league, but it was a minor league because the agreement that governed baseball dictated that the National League was the only major league. Johnson pulled out of that agreement and established the American League as a second, independent major league in 1901. Because the teams in the American League paid more, they were able to get a lot of players from the National League [source: Koppett].
Besides stealing players from the National League, the American League started beating the older one in attendance. There were spats about minor league players, which cities to play in and where to build ballparks.
By early 1903, the two leagues made peace, coming up with a National Agreement to oversee such things as schedules, rules and recruiting. A three-man National Commission oversaw everything. In 1903, the champions of the two leagues squared off for the first official Major League Baseball World Series. After the "Black Sox" scandal erupted over Chicago White Sox players deliberately losing the 1919 World Series, a new National Agreement was adopted in 1921, and the three-man National Commission in charge of Major League Baseball was replaced with one powerful baseball commissioner.
Over the years, teams have moved and changed names, and the leagues have expanded. In 2012, the National League had 16 teams and the American League had 14 teams. Once the Houston Astros switch to the American League in 2013, the numbers will be 15 and 15.
Outstanding players from the two leagues meet once a year for an All-Star Game. Since 1997, teams from the two leagues have met during the regular season for interleague play. Of course, the champions of the two leagues still meet each fall for the World Series.
Play between the two leagues has been more complicated since the American League adopted a major rule change in 1973. The American League's designated hitter (DH) rule allows a tenth player, a hitter who does not play in the field but bats regularly in place of the pitcher. Pitchers don't have to bat.
Since pitchers are usually poor hitters, the rule has changed the game. It was adopted because hitting had been declining. It worked in terms of some increase in batting averages, hits and runs. Some people think it makes the game more exciting. The DH rule has been good for players who are good hitters but poor fielders. The DH rule also affects pitching strategy because managers don't have to take a pitcher out of the game and use a pinch hitter when offense is crucial. (Designated hitters replace pitchers, who typically aren't great hitters.) Games don't have as many boring delays while teams change pitchers. And American League teams value pitchers without any worry about their hitting ability.
When teams from the two leagues play each other, the designated hitter rule is used in American League ballparks only.