BUSINESS and INDUSTRY 1870-1920

NEW PROCESSES Steel Oil Expansion of railroad industry Effects on Industry Effects on Industry Expansion of railroad industry Stronger material for building bridges and taller buildings Allowed construction of machinery for factories 1873 - 115,000 tons of steel produced 1910 – 24 million tons of steel produced U.S. was now worlds top producer of steel U.S. transformed by steel into a modern industrial economy Oil used as lubricant for factory machinery Resulted in production of kerosene for light Led to development of gasoline and other fuels Major sources of energy, fueling a revolution in transportation and industry Exxon Mobil, Gulf Oil, Texaco

Big business thrived during the late 1800’s Huge inequalities between the rich and the poor – unequal distribution of wealth Corporations Industries grew, need for more expert management Began to organize as corporations – business with legal status of an individual Owned by people who buy stock, board of directors makes decisions, corporate officers run day to day operations Can raise large sums of money by selling stock in a company Use money earned from stock sale to expand Not dependent upon a single owner for it’s existence To gain control of an industry some formed trusts – companies agree to merge, company run by board of trustees, all participants split profits Monopoly – trust gained complete control over an industry eliminating all competition

BIG BUSINESS BARONS Rockefeller Carnegie Vanderbilt Oil Steel Shipping Standard Oil – started as a refinery Vertical integration – acquiring companies that support his business which kept costs low and profits high Horizontal integration – taking over companies in the same business 1879-Standard Oil refined 90% of all U.S. oil Gave away over half of his earnings to charities Telegraph operator Formed Carnegie Steel Company Vertical integration, buying in bulk, producing in large quantities Owned what he needed to produce – raw materials, railroads for transporting, coal fields to fuel furnace By end of century Carnegie Steel dominated steel industry Wealthy had a duty towards the rest of society Education, music, libraries Began investing in railroads during the Civil War 4500 miles of track Steamship lines dominated shipping Supported very few charities Gave only $1 million ($260 million today) to Central University – now Vanderbilt University

LABOR PRODUCTIVITY Discuss specific factors that impact labor productivity. Analyze how the demand for labor is influenced by labor productivity.

What is labor productivity? output per worker – how much does each worker in a factory produce in a given period of time

EFFECTS OF INCREASED LABOR PRODUCTIVITY ON COSTS: Lowers average costs Competition amongst factories Business longevity Higher profits EFFECTS OF INCREASED LABOR PRODUCTIVITY ON WAGES: Higher wages and job security for more productive workers Unemployment for less productive Decrease in workers if additional output cannot be sold

Advantages of Specialization and Division of Labor: Very skilled workers at one particular step New equipment and machinery to enhance specialization Improved product quality Rise in productivity Disadvantages of Specialization and Division of Labor: Lack of employee motivation Lack of knowledge for multiple jobs/skills Loss of jobs

Why is increasing labor productivity important to individuals and to the economy? Higher output = Higher consumption=highly productive labor force Higher Income Levels = higher standard of living both personal living standards and national living standards related directly to labor productivity

Effects of the 19th Century Monopolies

Monopoly – complete control over an industry 19th Century big business leaders established monopolies iron, steel, oil, railroads Railroads prominent among these industries Massive consolidations Some Americans feared economic power of large corporations (farmers) reduce competition restrict trade redistribute income away from workers and farmers Fear of business collusion (secret agreements) motivated federal government

Government Action Trusts had become very popular Trust – arrangement between two or more firms in the same industry to reduce competition Trusts also formed in an attempt to increase profits Farmers angry about monopolies and trusts in railroad and financial industries railroads charged higher rates for farmers to ship govt. gave land grants and low interest loans to RR Influenced Government to pass antitrust laws 1890 – Sherman Anti-Trust Act govt. break up businesses with market domination regulate economic power for big business

Sherman Act and Clayton Act of 1914 continue to be in use today government still prohibits formation of monopolies Competition – big businesses now faced with more competition Forced to reduce costs – savings to consumers – increase sales – more profit Fear of reduced profits and competition motivated many U.S. companies Behavior is opposite of what monopolists would do

Costs and Benefits of Anti-Trust Laws Large scale production much more efficient for businesses Potentially lower cost to produce Larger firms can possibly produce a larger amount of goods than smaller businesses Difficult for small businesses to succeed Consumer choices narrowed Consumer purchasing power reduced Competition can keep prices low Businesses unable to restrict the amount of output in order to boost profits Consumers can pay less for goods Consumers can purchase more of a product if prices are lower