1. Big Business
Chapter 3 Section 3

2. The Rise of Big Business
By 1900 we had gone from a few people owning a business to big business dominating the economy
Corporation: organization owned by many people but treated as it were owned by one
People who own it are called stockholders b/c they own shares of the company called stock
Issuing stock allowed companies
to raise money for big projects
spread out the financial risk

3. The Rise of Big Business
1830s states no longer had to issue charters so corporations grew
With money from stocks corporations could:
Invest in new technology
Hire larger workforce
Purchase many machines
Increase their efficiency

4. The Rise of Big Business
2 kinds of costs
Fixed and operating
Fixed – has to pay whether operating or not such as a mortgage/rent on the building
Operating – wages, shipping, buying materials

5. The Rise of Big Business
Big corporations Advantages:
Produce more goods cheaply and efficiently
Operate in poor economic times by cutting prices to increase sales rather than shutting down
Negotiate rebates from railroads to lower their operating costs
Small businesses with high operating costs could not compete with large businesses
Some people thought corporations were being unethical for driving small companies out

6. Consolidating Industry
Low prices made buyers happy
Business owners didn’t like the competition
Companies organized pools
Agreed to keep prices at a certain level
Courts suspicious of pools because it interfered with competition
Companies that formed pools had no legal rights
Pools didn’t last long because someone would lie and try to dupe the others and make money- dishonesty

7. Andrew Carnegie Scottish immigrant.
Worked his way up from a clerk to head of his own steel company.
Realized he could make a lot of money by investing in companies that served the railroad industry
Bought shares in iron mills and factories that made sleeping cars
By his early 30s he was making $50k a year

8. Andrew Carnegie
Used the Bessemer process to produce steel cheap and efficiently
Founded Carnegie Steel Co. in Pittsburg
Bought up resources needed to produce steel: iron fields, coal mines, railroads.
Known as Vertical Integration
Gave away most of his fortune.

10. John D. Rockefeller Grew up in rural New York State.
Invested in oil refineries.
Founded Standard Oil Co.
Bought up nearly every refinery in the US to dominate the industry (bought out his competitors)
Known as Horizontal Integration
Helped start the University of Chicago.
SO Ohio-now BP; Amoco-BP; SONY-Mobil; SO NJ-Exxon; SOCA-Chevron; SO Atlantic-Arco; Continental Oil Co.-Conco; Oh Oil Co.-Marathon

12. John D. Rockefeller
Horizontal integration: buy the companies that are not doing well to create a larger organization
By 1880 he had a monopoly or controlled most of the industry
SO Ohio-now BP; Amoco-BP; SONY-Mobil; SO NJ-Exxon; SOCA-Chevron; SO Atlantic-Arco; Continental Oil Co.-Conco; Oh Oil Co.-Marathon

13. New Business Organizations
Fear monopolies b/c they could charge whatever they wanted
Some liked them b/c if monopolies didn’t keep prices low, competition would reappear
Became illegal to own stock in another company – one company could not buy stock in another…. This was to prevent monopolies and to try to stop horizontal integration

14. Trusts 1882 – Standard Oil… 1st one Didn’t violate the law
Legal agreement that allows one person to manage another person’s property
Trustee: person who manages property
Standard Oil stockholders give their stock to trustees
Stockholders get shares in the trust – and a portion of the trust’s profit
Trustees did not own the stock they just managed it

15. Holding Companies Accelerated the rise of big business
Corporations that chartered in New Jersey could own stock in other businesses without any special legislative action
Holding Companies – does not produce anything Owns stock the stock of companies that do produce goods
Manage the companies it owns and merges them into one large enterprise

16. Investment Banking Increased size of corporations
1890s – investment bankers put new holding companies together
JP Morgan
Companies would sell a lot of stock to investment bankers at a discount and the investment bankers would sell it for a profit

17. Investment Banking
Interested in selling stock in holding companies that had merged many of America’s big business
JP Morgan bought out Carnegie
Merged Carnegie steel with other companies and created United States Steel Company

18. Trusts Trusts were used to get around prohibitions against monopolies.
Monopolies are when one company/person controls all or most of the market for a product or industry.
A present day example: Microsoft for computers; Apple for cell phones.
A small group controlled all (or most) of the companies in a particular industry.
Can fix prices, control competition so that the individual companies do not hurt each other.
Trusts enabled Morgan to control most of America’s basic industries by 1900.

19. Selling the Product Retailers had to expand
New products; retailers had to attract new customers
NW Ayer and Son – advertising in newspapers and magazines
$90 million on advertising
Grand Depot – “largest space in the world devoted to retail on a single floor”- Department Store
Chain stores started appearing
Woolworth’s ; Montgomery Ward; Sears