Chapter 6 Section 2 Rise of Big Business

New Capitalist Spirit Capitalism– private ownership of most industries Competition determines price of goods and wages By late 1800’s businesspeople looked to gain wealth by taking advantage of technological advances

Horatio Alger Wrote books describing idea of self reliant individiualism 1869 Luck and Pluck series– based on a rags to riches theme

Laissez-Faire Capitalism No government intervention in economy Literal translation “hands off” Businesses would let competition determine prices and wages Free enterprise system– supply and demand, profit margin determine what and how much to produce

Critics Respond Rapid industrialization is harmful and unjust to the working class Karl Marx– German philosopher Proposes a system that removes inequities of wealth Communism proposes that individual ownership of property not be allowed Property and production are owned by the community and it provides for needs of all “capitalism allowed bourgeoisie to take advantage of proletariat”

Social Darwinism Adapted Charles Darwin’s theory on natural selection and Evolution Society progresses through natural selection The “fittest” would and should rise to positions of wealth and power The “unfit” would fail Any attempt to assist poor or less capable would slow social progress Religious leaders echoed support– wealth became a sign of Christian virtue

“Natures cure for most social and political diseases is better than man’s” Nicholas Murray Butler

Corporations At close of Civil War businesses are owned by individuals, families or partnerships Not enough capital to manage new industries Definition Organizers raise money by selling shares of stock in company Stockholders receive % of profits– called dividends Stockholders had little or no part of daily operations

Advantages of corporations Could raise large sums of money Stockholders held limited liability– not responsible for corporations debt Stable organization– not dependent on owner for its existence Problems– where competition was fierce, prices and profits fluctuate

Jay Gould Worked as grocery clerk Invested in railroad stock and earned $77 million

Trusts Corporations band together to form trusts Turn control of business over to board of trustees Trustees run business as one large company Limits overproduction by reducing competition Develops monopolies or complete control over price and quality of product

Andrew Carnegie Born in 1835 in Scotland Immigrated to United States in 1848 at age of 12 Worked in cotton miles for $1.20/week in 1848 At 17 became private Secretary to railroad superintendent

Carnegie Steel Began investing to raise money which he used to get into steel industry Began empire in 1860’s Knew nothing about production but hired experts to run company

Vertical Integration Own the companies that provide materials and services you depend on Iron and coal mines for ore Steamships and railroads to transport products By 1899 Carnegie organizes Carnegie Steel Company Sold it to J.P. Morgan in 1901 for $500 million

Gospel of Wealth “Rich are morally obligated to benefit their fellow citizens” Donated $350 million to charities across the country

John D. Rockefeller Ran Standard Oil Company Started in 1863 at beginning of oil boom Practiced vertical integration like Carnegie Set out to control the oil industry “Competition was inefficient”

Horizontal Integration Control of other companies producing oil Drove others out of business by making deals with suppliers/transportation at cheaper rates than others Became first trust in U.S. in 1899 By 1880 controlled 90% of all oil production Like Carnegie– donated vast sums to charity $530 million total

Cornelius Vanderbilt Prior to Railroad– operated shipping business By 1869 gained control of New York Central and 2 others that connected New York City Soon controlled lines between Chicago, Cleveland, New York, and Toledo Provided more efficient service by combining small railroads By 1877 controlled 4,500 miles of track Personal fortune of $100 million

George Westinghouse 1869 at age of 23 established Westinghouse Air Brake Company After public demonstration of effectiveness of air brake his business grew By 1874 air brake was on 7,000 passenger cars

George Pullman Built Railroad cars to make travel more comfortable Built company town south of Chicago in 1880 Hoped to encourage educated, healthy, peaceful and virtuous workers Provided homes, stores, church, library, theatre, medical offices and athletic fields strictly controlled daily life in company town

Mass Marketing Persuade consumers to purchase products Brand names– name recognition “Standard Oil”– implies standard for industry Packaging to set products apart Helped create consumer culture Montgomery Ward and Sears, Roebuck and Company– develop mail order catalogs

Department Store Variety of products under one store Buy in bulk and set cheap prices Marshall Field– Chicago R.H. Macy– New York John Wanamaker– Philadelphia Becomes domain of women Hired as workers Enticed to shop

Chain Stores Branch stores in many cities Woolworths– Frank Woolworth in 1879 By 1900 had 59 stores around country