BIG BUSINESS

Big Business Leaders Andrew Carnegie John D. Rockefeller Carnegie Steel Gospel of Wealth More than 80% of his wealth went toward some form of education John D. Rockefeller Standard Oil University of Chicago Cornelius Vanderbilt- RR’s James J. Hill- RR’s Edward Harriman- RR’s Gospel of Wealth: People should be free to make as much money as they can. After they make it however, they should give it away.

BIG BUSINESS AND LABOR Andrew Carnegie was one of the first industrial moguls He entered the steel industry in 1873 By 1899, the Carnegie Steel Company manufactured more steel than all the factories in Great Britain combined

CARNEGIE BUSINESS PRACTICES Carnegie initiated many new business practices such as; Searching for ways to make better products more cheaply Accounting systems to track expenses Attracting quality people by offering them stock & benefits ANDREW CARNEGIE 1835 -1919

CARNEGIE’S VERTICAL INTEGRATION Carnegie attempted to control as much of the steel industry as possible How? Vertical integration; he bought out his suppliers (coal fields, iron mines, ore freighters, and rail lines) in order to control materials and transportation

SOCIAL DARWINISM The philosophy known as Social Darwinism has its origins in Darwin’s theory of evolution Darwin theorized that some individuals in a species flourish and pass their traits on while others do not Social Darwinists (like Herbert Spencer) believed riches was a sign of God’s favor, and being poor was a sign of inferiority and laziness DARWIN (RIGHT) LIMITED HIS FINDINGS TO THE ANIMAL WORLD SPENCER WAS THE ONE WHO COINED THE PHRASE “SURVIVAL OF THE FITTEST”

Robber Barons or Captains of Industry? Business leaders built their fortunes by stealing from the public. Drained the country of its natural resources. Persuaded public officials to interpret laws in their favor. Ruthlessly drove their competitors to ruin. Paid their workers meager wages and forced them to toil under dangerous and unhealthful conditions. “Captains of Industry” The business leaders served their nation in a positive way. Increased the supply of goods by building factories. Raised productivity and expanded markets. Created jobs that enabled many Americans to buy new goods and raise their standard of living. Created museums, libraries, and universities, many of which still serve the public today. Historians have used the terms “robber barons” and “captains of industry” to describe the powerful industrialists who established large business in the late 1800’s. These two terms suggest strikingly different images. Robber Barons implies that the business leaders built their fortunes by stealing from the public. Captains of Industry on the other hand, suggests that the business leaders served their nation in a positive way.

ROBBER BARONS Alarmed at the cut-throat tactics of industrialists, critics began to call them “Robber Barons” Famous “Robber Barons” included Carnegie, Rockefeller, Vanderbilt, Stanford, and J.P. Morgan J.P MORGAN IN PHOTO AND CARTOON

ROBBER BARONS WERE GENEROUS, TOO Despite being labeled as greedy barons, rich industrialists did have a generous side When very rich people give away lots of money it is called “Philanthropy” Carnegie built libraries, Rockefeller, Leland Stanford, and Cornelius Vanderbilt built schools ROCKEFELLER CHAPEL – UNIVERSITY OF CHICAGO

Social Darwinism? Is this fair? http://wotan.liu.edu/~rtalento/riis4.gif Social Darwinism? Is this fair?

Gaining a Competitive Edge New Market Structures: Oligopoly Monopoly Cartel Businesses used techniques such as: Economies of Scale Vertical Consolidation Horizontal Consolidation In their efforts to compete and earn higher profits, industrialists used many methods, fair or unfair, to gain a competitive edge over their rivals. They attempted to pay as little as they could for raw materials, labor, and shipping, hoping to maintain the most efficient business in their industry. Companies such as Carnegie Steel were able to maintain very low production costs. One reason Carnegie Steel could charge less for its product was a phenomenon known as economies of scale. That is, as production increases, the cost of each item produced is lower. As Carnegie Steel expanded, its cost per item went down. p. 240-241

Vertical Integration- a company taking over its suppliers, distributors, and transportation to gain total control over cost and quality of its product.

HORIZONTAL INTEGRATION Additionally, Carnegie bought up the competition through friendly and hostile takeovers This is known as Horizontal Integration; buying companies that produce similar products – in this case other steel companies MERGERS

Horizontal Integration- the merging of companies that make similar products. (Carnegie also attempted this)

BUSINESS GROWTH & CONSOLIDATION Mergers could result in a monopoly (Trust) A monopoly is complete control over an industry An example of consolidation: In 1870, Rockefeller Standard Oil Company owned 2% of the country’s crude oil By 1880 – it controlled 90% of U.S. crude oil CHICAGO’S STANDARD OIL BUILDING IS ONE OF THE WORLD’S TALLEST

Many Americans who were skeptical of trusts and other large corporations began to demand government action to break up the industrial giants. Many government officials did not want to interfere with the “captains of industry” and their contribution to the country’s rising levels of wealth.

LAISSEZ-FAIRE ECONOMICS “HANDS OFF”   One of the guiding principles of capitalism, this doctrine claims that an economic system should be free from government intervention or moderation, and be driven only by the market forces.

SHERMAN ANTI-TRUST ACT In 1890, the Sherman Anti-Trust Act made it illegal to form a monopoly (Trust) Prosecuting companies under the Act was not easy – a business would simply reorganize into single companies to avoid prosecution Seven of eight cases brought before the Supreme Court were thrown out

(REAL TRUST)