Before the Civil War, most American businesses were owned by a single person or a partnership After the Civil War, industry (mills, factories, railroads, mines) now needed more capital (money) for investment than one person or a few partners could raise. What’s the solution???

CORPORATIONS Purpose Type To raise capital ($$) It is a business in which many investors own shares called stocks In exchange for their investment, each stockholder receives a dividend, or part of the corporation’s profits This limits investor losses If a corporation fails, each investor only loses his or her investment Transportation Railroads Building materials Steel Energy Coal, oil and electricity Communications Telegraph and telephone

MONOPOLY Purpose Company or small group of companies that has complete control over a particular field of business A monopoly often allowed a company to raise prices to almost any level it desired OUTCOMES: Competitors forced out of business Federal legislation tried to control them

What do you see? What do you think the cartoon is saying about these men?

TRUST Purpose Type Group of similar corporations agree to combine their management under a single board of trustees Shareholders in the corporations received dividends from the trust but lost any say in its operation A way to get around laws regulating monopolies Standard Oil Trust

Who were the industrial leaders? Andrew Carnegie – Steel J.P. Morgan – Finance John D. Rockefeller – Oil Cornelius Vanderbilt - Railroads

How did they get so powerful? Maximized profits Formed corporations and trusts to control an entire industry (monopoly power) Got rid of competitors (horizontal integration) Set prices as high as possible Minimized costs Kept worker pay very low with long hours Controlled suppliers and transportation costs (vertical integration) Had no government interference!

LAISSEZ-FAIRE Government should not interfere with business FREE-ENTERPRISE SYSTEM – private individuals make the economic decisions – not government

SOCIAL DARWINISM Based on Charles Darwin's theory of evolution Social Darwinists held that life was a struggle for the “survival of the fittest” Free-enterprise competition would lead to the strongest businesses surviving. Government regulation would let the weak survive. Also, any government programs to aid the poor or workers would violate natural “laws”

Govt Policy towards Business – Was it really “laissez-faire”? industries foreign Expanding industries and growing foreign trade benefited US growth Government policies were designed to aid the growth of business Loansland Loans and land grants to large railroad companies were given High High tariffs that discouraged foreign competition immigration = more workers Few limits on immigration = more workers

ROBBER BARONS OR PHILANTHROPISTS? Those who gained their riches at the expense of the poor and the working class Lavish lifestyles of the wealthy at this time fed criticism Many spent freely to show off their wealth Public criticism and sense of social responsibility led the wealthy to use a part of their wealth to aid society.

Carnegie’s Mansion in NYC

Vanderbilt Mansion, NY

Rockefeller Mansion

SHERMAN ANTITRUST ACT (1890) Why: competitionmonopolies Most corporations and trusts had eliminated most competition and set up monopolies Public Protest What it did: Prohibited monopolies. It prevented any business structure that “restrained trade” Outcome: trusts. Corporations got around the act by forming holding companies rather than trusts.

Clayton Anti-Trust Act (1921) Expanded and “fixed” the Sherman Anti-Trust Act It outlawed price-fixing Exempted unions from the Sherman Anti-Trust Act (will make sense next class)