Age of Big Business Age of Monopolies

Background: Capitalism – economic system  Private ownership of the means of production  Free enterprise – to meet the demands  Profit motive – goal to make $  Market price – buyers & sellers  Competition

New Business Culture 1. Laissez Faire  the ideology of the Industrial Age.  Individual as a moral and economic ideal.  Individuals should compete freely in the marketplace.  The market was not man-made or invented.  No room for government in the market!  Individual as a moral and economic ideal.  Individuals should compete freely in the marketplace.  The market was not man-made or invented.  No room for government in the market!

2. Social Darwinism × British economist. × Advocate of laissez-faire. × Adapted Darwin’s ideas from the “Origin of Species” to humans. × Notion of “Survival of the Fittest.” × British economist. × Advocate of laissez-faire. × Adapted Darwin’s ideas from the “Origin of Species” to humans. × Notion of “Survival of the Fittest.” Herbert Spencer

2. Social Darwinism in America William Graham Sumner Folkways (1906) $ Individuals must have absolute freedom to struggle, succeed or fail. $ Therefore, state intervention to reward society and the economy is futile! $ Individuals must have absolute freedom to struggle, succeed or fail. $ Therefore, state intervention to reward society and the economy is futile!

New Business Culture: “The American Dream?” 3. Protestant (Puritan) “Work Ethic”  Horatio Alger [100+ novels] 3. Protestant (Puritan) “Work Ethic”  Horatio Alger [100+ novels] Is the idea of the “self-made man” a MYTH??

Causes of Rapid Industrialization 1. Steam Revolution of the 1830s-1850s. 2. The Railroad fueled the growing US economy:  First big business in the US.  A magnet for financial investment.  The key to opening the West.  Aided the development of other industries. 1. Steam Revolution of the 1830s-1850s. 2. The Railroad fueled the growing US economy:  First big business in the US.  A magnet for financial investment.  The key to opening the West.  Aided the development of other industries.

Causes of Rapid Industrialization 3. Technological innovations.  Bessemer and open hearth process  Refrigerated cars  Edison o “Wizard of Menlo Park” o light bulb, phonograph, motion pictures. 3. Technological innovations.  Bessemer and open hearth process  Refrigerated cars  Edison o “Wizard of Menlo Park” o light bulb, phonograph, motion pictures.

Thomas Alva Edison “Wizard of Menlo Park”

The Light Bulb

The Phonograph (1877)

The Motion Picture Camera

Alexander Graham Bell Telephone (1876)

Alternate Current George Westinghouse

The Airplane Wilbur Wright Orville Wright Wilbur Wright Orville Wright Kitty Hawk, NC – December 7, 1903 Kitty Hawk, NC – December 7, 1903

Model T Automobile Henry Ford I want to pay my workers so that they can afford my product! Henry Ford I want to pay my workers so that they can afford my product!

U. S. Patents Granted 1790s  276 patents issued. 1990s  1,119,220 patents issued.

Essential Question Industrialization increased the standard of living and the opportunities of most Americans, but at what cost?

3 New Vocabulary words…  Monopoly: A company that completely dominates a particular industry  Trust: a set of companies managed by a small group known as trustees, who can prevent companies in the trust from competing with each other  Corporation: A company recognized by law to exist independently from its owners, with the ability to own property, borrow money, sue or be sued

Corporate Monopolies Horizontal vs. Vertical Integration Vertical Integration

New Type of Business Entities

Age of Big Business – Age of Monopolies  To gain control of a product or business  Types of monopolies –Pools (pooling agreements) RR’s – divide routes & agree not to compete –*Trusts – competing companies run by the same Board of Trustees –Holding companies –Interlocking directorates –Mergers/Consolidations * See slide # 23

New Type of Business Entities 2. Trust:  Horizontal Integration  John D. Rockefeller 2. Trust:  Horizontal Integration  John D. Rockefeller  Vertical Integration: o Gustavus Swift  Meat-packing o Andrew Carnegie  U. S. Steel  Vertical Integration: o Gustavus Swift  Meat-packing o Andrew Carnegie  U. S. Steel

American Business Leaders

Andrew Carnegie $75 Billion  Andrew Carnegie came from Scotland with his parents in  In 1861, at the age of 26, he started up the Freedom Iron Company, and used the new Bessemer process for making steel  He formed all of his companies into the Carnegie Steel Company in 1899, which controlled raw materials, manufacturing, storage, and distribution for steel. –Merged steps of production to cut costs of production –Vertical Integration Wrote “Gospel of Wealth” Established free lending libraries

“On Wealth” Andrew Carnegie $ The Anglo-Saxon race is superior. $ “Gospel of Wealth” (1901). $ Inequality is inevitable and good. $ Wealthy should act as “trustees” for their “poorer brethren.” $ The Anglo-Saxon race is superior. $ “Gospel of Wealth” (1901). $ Inequality is inevitable and good. $ Wealthy should act as “trustees” for their “poorer brethren.”

John D. Rockefeller $192 Billion  Born in started as a bookkeeper  He established one of the first oil refineries  1870—With partners, forms a business trust: Standard Oil  At its peak, controlled 90% of all oil companies  Noted for very ruthless tactics – price wars, intimidation  Merged companies that produced same product  Horizontal integration Later established foundations, scholarships,

John D. Rockefeller – Oil –Horizontal integration – merged companies that produced same product –At one point controlled 90% of the oil refineries in the US –Noted for very ruthless tactics – price wars, intimidation –Later established foundations, scholarships,

Standard Oil Co.

Cornelius Vanderbilt – Railroads –New York Central Railroad –Merged railroad lines between NY and Chicago

Cornelius [“Commodore”] Vanderbilt Can’t I do what I want with my money?

William Vanderbilt $ The public be damned! $ What do I care about the law? H’aint I got the power? $ The public be damned! $ What do I care about the law? H’aint I got the power?

JP Morgan – banking & finance –Loaned money to businesses –Took over bankrupt railroads and merged into profitable lines –Bought Carnegie Steel and merged with others to form US Steel

The Reorganization of Work Frederick W. Taylor The Principles of Scientific Management (1911) Frederick W. Taylor The Principles of Scientific Management (1911)

“Model T” Prices & Sales –Revolutionized auto making by using the assembly line to produce more affordable cars

Wall Street – 1867 & 1900

% of Billionaires in 1900 % of Billionaires in 1918

Robber Barons or Captains of Industry? Do millionaires/ billionaires have a responsibility to help the poor?

“Captains of Industry” or “Robber Barons”  Captain of Industry  Entrepreneurs, risk takers  Used the system & available resources to make a fortune  Role model  Philanthropist  Robber Baron  Ruthless businessmen  Exploited workers & consumers in order to make a profit

The ‘Robber Barons’ of the Past

Who are the billionaires (Robber Barons) of today?

Forbes 2011 RankNameWorthAgeSourceCountr y 1 Carlos Slim Helu & family $74 B71telecomMexico 2Bill Gates$56 B55MicrosoftUSA 3Warren Buffett$50 B81 Berkshire Hathaway USA 4Bernard Arnault$41 B62LVMHFrance 5Larry Ellison$39.5 B67OracleUSA 6Lakshmi Mittal$31.1 B61SteelIndia 7Amancio Ortega$31 B75ZaraSpain 8Eike Batista$30 B54mining, oilBrazil 9Mukesh Ambani$27 B54 petrochemicals, oil & gas India 10Christy Walton & family$26.5 B56WalmartUSA

Need for Government Regulation of Business

The Protectors of Our Industries

Abuses by Railroads  Pooling Agreements –Divide the sales territory and fix prices  Long haul, short haul discrimination –Charge more for short distances where there is no competition  Rebates and kickbacks to special customers  Unannounced rate increases  Free passes to government officials

Granger laws to help out farmers  Farmers complained about poor service and high rates charged by railroads  States passed “granger laws” to regulate railroads within the state  Granger laws were challenged in the Supreme Court (Court cases to follow)

Federal Legislation

Interstate Commerce Act – 1887  Created the Interstate Commerce Commission to end abuse by railroads –No pools, rebates, special deals –Public posting of rates, must be fair and reasonable –Set precedent for federal regulation of interstate commerce

Sherman Anti-Trust Act – 1890  Declared combinations in the form of a trust in restraint of trade to be illegal (if it lessens competition) –Weak, vague language but set the principle that the government should break up monopolies

Supreme Court Cases

Munn v. Illinois (1877)  Background –State of Illinois had passed Granger Laws to set rates of railroads and grain elevators  Issue –Did Illinois law deprive railroads of property (profits) without due process?  Decision –State law was constitutional because the law was related to the public interest  Importance –Railroad rates continued to be limited by the state government

Wabash, St.Louis, & Pacific Railway Co. v. Illinois (1886)  Background –Long-haul, short-haul discrimination by the railroads within the state of Illinois (penalties were applied)  Issue –Could the state regulate railroads on the intrastate portion of an interstate trip?  Decision –State law was unconstitutional –The power to regulate interstate commerce belongs to Congress  Importance –Put pressure on Congress to act if the states can’t regulate the railroads –One year after the decision Congress passed the Interstate Commerce Act

United States v. E.C. Knight Co. (1895)  Background –American Sugar Refining Co. bought stock in smaller companies & controlled 90% of sugar processed in U.S.  Issue –Can Congress regulate manufacturing? –Can Congress outlaw “manufacturing monopolies”?  Decision –Federal Gov’t cannot regulate refineries because they were manufacturing operations, not directly related to interstate commerce –State gov’t. can regulate local activities under the terms of 10 th Amendment  Importance –Few attempts made to prosecute corporations in restraint of trade (most against unions as “unreasonable restraint of trade”!)