The rise of big business
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The Rise of Big Business. LAISSEZ FAIRE. An economic belief supported by the U.S. that opposes the government regulating business. In the late 1800’s businesses operated without much government regulation. This is known as laissez-faire economics.

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The rise of big business

The Rise of Big Business


The rise of big business

LAISSEZ FAIRE

  • An economic belief supported by the U.S. that opposes the government regulating business.

  • In the late 1800’s businesses operated without much government regulation. This is known as laissez-faire economics.

  • Laissez-faire means ‘allow to be’ or the government stays out of a person’s business in French.

  • Laissez faire supports our economic system of capitalism


The rise of big business

CAPITALISM

  • Economic system characterized by private property ownership

  • Individuals and companies compete for their own economic gain (Profit)

  • Capitalists determine the prices of goods and services.

  • Production and distribution are privately or corporately owned.

  • Reinvestment of profits

  • Supports laissez faire and the “free enterprise” system


The rise of big business

SOCIALISM

  • Economic system based on cooperation rather than competition

  • Many Americans opposed capitalism and believed a socialistic economy would better suit the US because some capitalists were corrupt.

  • Believes in government ownership of business and capital (money, natural resources)

  • Government controls production, sets wages, prices and distributes the goods. No profit or competition.

  • Opposite of laissez faire and capitalism


The rise of big business

US GOVERNMENT ASSISTS INDUSTRY

MORRILL TARIFF ACT, 1862To protect and encourage American industry, Congress passed this tariff after the South seceded from the Union.

NATIONAL BANKING SYSTEM, 1863To stimulate the economy and set up a banking system, Congress passed this act which was a significant step towards a unified, national banking system until replaced by the Federal Reserve in 1913.

MORRILL ACT, 1862To promote education, Congress provided grants of public lands to the states for support of education. “Land-grant colleges”

LAND GRANTS TO RAILROADSUS Govt. donated land to railroad companies to encourage growth of this mode of transportation. US Govt. donated approx. 160 million acres of land…….


The rise of big business

BUSINESS ORGANIZATIONS

  • Corporation:form of business consisting of a group of people authorized by law to act as a single person and with the ability to sell shares of stock to raise “capital”

  • Shareholders or stockholders:investors who invest their money into a corporation who each receive a share of ownership in proportion to the amount they invested

    • if the corporation makes a profit---than investor gets a “dividend” or a share of the profit.

  • Limited liability:Important aspect of a corporation is limited liability. Shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held liable for the company's debts.

  • “Risk is spread over the shareholdersso if the company goes bankrupt, the loss is not so devastating”


The rise of big business

FORMATION

Individual or person decides to operate a business

OWNERSHIP

Individual

CONTROL AND MANAGEMENT

By owner or persons delegated by

the proprietor

NET PROFITS

LOSSES

Profits to owner

Losses absorbed by owner

UNLIMITED LIABILITY

PROPRIETORSHIP

Key Terms to Note about Businesses-Owning


The rise of big business

FORMATION

By agreement between associates (partners)

OWNERSHIP

Jointly by two or more individuals; or by terms of partnership agreement

CONTROL AND MANAGEMENT

By partners or persons they delegate

NET PROFITS

LOSSES

Shared according to partnership agreement

UNLIMITED LIABILITY

PARTNERSHIP

Key Terms to Note about Businesses-Owning


The rise of big business

FORMATION

Organized by associates and legalized through state charter

OWNERSHIP

Stockholders, according to number of shares

CONTROL AND MANAGEMENT

Through Board of Directors, elected by the stockholders (usually one vote per share of stock held)

NET PROFITS

AND LOSSES

Dividends: to stockholders = profits

Lose: only the amount invested by stockholders according to number of shares

LIMITED LIABILITY

CORPORATION

Key Terms to Note about Businesses-Owning


The rise of big business

Industrialization & the Rise of Big Business

  • Who were the Big Business Tycoons?

  • Andrew Carnegie – steel

  • Cornelius Vanderbilt – railroads

  • John D. Rockefeller – oil

  • J.P. Morgan - banking

    “Rags to Riches”

  • What does this mean?


Rags to riches the exception not the rule

Rags to Riches? The exception, not the rule!

  • 95% of executives & financiers in the US around 1900 came from upper class backgrounds

  • Fewer than 3% started as poor immigrants or farm children

  • 2% of US Industrialists came from working-class origins

  • By 1910, the top 1% control 1/3 (33%) of all personal income.

  • Huge differences in the proportion of wealth eventually leads to conflict in the Gilded Age


How did they make it

How did they “make it”?

Why were their corporations so successful?

What strategies did they use to make money?

Were those strategies legal?


The rise of big business

Some tried to gain “monopolies”…

  • To gain complete control of a product or service; consumers have no other choices

    Some corporations formed pools or “cartels”…

  • Businesses making the same product work together, agree to limit production to keep prices high


The rise of big business

BUSINESS ORGANIZATIONS

  • Trusts or Monopoly

  • Companies in related fields combine under the direction of a single board of trustees.

  • Shareholders had no say.

  • Outlawed today.


The rise of big business

TRUSTS AND MONOPOLIES

  • BIGGER IS BETTER

  • A trust or monopoly controls an entire industry

  • Make product cheaper

  • Lower prices to customer

    • Is this true?


The rise of big business

Other ways to increase profits include:

  • “Horizontal Integration”

  • Buying out rival businesses to gain more control of an industry

  • “Vertical Integration”

  • Gaining control of the many different businesses that make up all phases of a product’s production


Vertical and horizontal integration

Vertical and Horizontal Integration

Why is this a potentially dangerous business practice?

Are there any businesses that do this today?


The rise of big business

Coke fields

Coke fields

Coke fields

Coke fields

Coke fields

purchased by Carnegie

purchased by Carnegie

purchased by Carnegie

purchased by Carnegie

purchased by Carnegie

Iron ore deposits

Iron ore deposits

Iron ore deposits

Iron ore deposits

purchased by Carnegie

purchased by Carnegie

purchased by Carnegie

purchased by Carnegie

Steel mills

Steel mills

Steel mills

purchased by Carnegie

purchased by Carnegie

purchased by Carnegie

Ships

Ships

purchased by Carnegie

purchased by Carnegie

Railroads

purchased by Carnegie

VERTICAL AND HORIZONTAL INTEGRATION

Vertical Integration You control all phases of production from the raw material to the finished product

Horizontal IntegrationBuy out your competition until you have control of a single area of industry

MONOPOLY


The rise of big business

Rockefeller used vertical integration to build his empire, Standard Oil

  • Forests

  • Barrel-Making Shops

  • Tank Cars/Railroads

  • Oil Wells/Pipelines

  • Retail Outlets


Advantages vertical integration

Advantages Vertical Integration

  • You are always in control of supply of the products you need

  • In control of labor cost, land/resources

  • Always in control of the cost

  • Schedule your production of autos because you are in control of all factors

  • Can you give another example of this?


Other vertical integrations

Other Vertical Integrations

  • Boeing

  • Anheiser-Busch: all grown by own producers

  • McDonald’s: own cattle ranches

  • Oil companies

  • AOL Time Warner


Horizontal integration

Horizontal Integration

  • Examples

    • Standard Oil

    • Carnegie Steel

    • Swift & Company: meat producers

    • United Fruit Company: bananas

    • Dole Pineapple

Horizontal IntegrationBuy out your competition until you have control of a single area of industry


Modern day examples of horizontal integration

Modern Day Examples of Horizontal Integration

  • Microsoft

  • PG & E

  • Comcast

  • Starbucks

  • De Beers


The rise of big business

ROBBER BARRONS

robber

  • Extortion: Forced against your will

  • Rebates: discount or refund on “freight charges”

  • Drawbacks / Kickbacks:Standard Oil gave certain railroads all its shipping business if it agreed to charge Standard Oil 25% to 50% less than its competitors

  • Buyouts:Larger corporations forced smaller businesses to sell out

  • Congresswas “bought out” by the monopolies

  • Spies:Stealing your competitor's ideas

Small businessescomplained “monopolies” eliminated fair competition


The rise of big business

Robber Baron

  • Tycoons that bought out small businesses, formed monopolies & cartels, and swindled the poor

    Captains of Industry

  • Big businesses provided jobs, strengthened the economy, improved technology, and donated money to universities, charities, etc.

  • ***Andrew Carnegie’s “Gospel of Wealth”

    • Philanthropy


The rise of big business

ENTREPRENEUR

  • A person who organizes, operates, and assumes the risk for a business venture


The rise of big business

“Robber Barons”

Business leaders built their fortunes by stealing from the public.

They drained the country of its natural resources.

They persuaded public officials to interpret laws in their favor.

They ruthlessly drove their competitors to ruin.

They 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.

They increased the supply of goods by building factories.

They raised productivity and expanded markets.

They created jobs that enabled many Americans to buy new goods and raise their standard of living.

They also created museums, libraries, and universities, many of which still serve the public today.

CAPTAINS OF INDUSTRY OR ROBBER BARONS


The rise of big business

  • "The growth of large business is merely a survival of the fittest…the American Beauty rose can be produced in splendor and fragrance which brings cheer to its beholder only by sacrificing the early buds which grow up around it. This is not an evil tendency in business. It is merely the working out of the law of nature and the law of God."

    -John Rockefeller


The rise of big business

“Social Darwinism”

  • What argument is Rockefeller trying to make with his statement?

  • What are the main arguments being made by the ‘survival of the fittest’ Social Darwinism philosophy?

  • What are your thoughts?


Social darwinism

Social Darwinism

  • 4,000 Americans became millionaires during the Gilded Age.

  • Used Darwin’s Theory of Natural Selection to explain the economic evolution of human society.

  • Wealth was the result of strong work ethic.

  • The poor are lazy and inferior and deserved no aid.

  • Supported laissez-faire.

Herbert Spencer


Social darwinism1

Social Darwinism

  • Social Darwinists believed that companies struggled for survival in the economic world and the government should not tamper with this natural process.

  • The fittest business leaders would survive and would improve society.

    • Belief that hard work and wealth showed God’s approval and those that were poor were lazy and naturally a lower class.


The rise of big business

SOCIAL DARWINISM

1. All living things have always competed for survival. Survival of the fittest.

2. All living things have evolved over millions of years as a result of genetic changes.

3. Some plants and animals developed traits that helped them survive.

1. Every human activity individuals compete for success.

2. The unfit or incompetent lose and the strong or competent win.

3. These winners make up a natural upper class.

4. Hard worked paid off, and lazy were inferior.


Social darwinism in america

Social Darwinism in America

Individuals must have absolute freedom to struggle, succeed or fail.

Therefore, state intervention to reward society and the economy is futile!

William Graham SumnerFolkways (1906)


The rise of big business

  • “The right of the working-men to combine and to form trades-unions is no less sacred than the right of the manufacturer to enter into associations and conferences with his fellows…”

  • “I quote from the Gospel of Wealth published twenty-five years ago. This then is held to be the duty of the man of wealth. First: to set an example of modest, unostentatious living, shunning display; to provide moderately for the legitimate wants of those dependent upon him, and after doing so, to consider all surplus revenues which come to him simply as trust funds, which he is strictly bound as a matter of duty, to administer in the manner which in his judgment is best calculated to produce the most beneficial results for the community. The man of wealth must become a trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer.”

    -Andrew Carnegie


The rise of big business

GOSPEL OF WEALTH


The gospel of wealth religion in the era of industrialization

The Gospel of Wealth:Religion in the Era of Industrialization

  • Wealth no longer looked upon as bad.

  • Viewed as a sign of God’s approval.

  • Christian duty to accumulate wealth.

Russell H. Conwell


On wealth

“On Wealth”

  • The Anglo-Saxon race is superior.

  • “Gospel of Wealth” (1901).

  • Inequality is inevitable and good.

  • Wealthy should act as “trustees” for their “poorer brethren.”

Andrew Carnegie


Gospel of wealth

Gospel of Wealth

  • Capitalists used Social Darwinism to justify their success

    • Social Darwinism also coincided with the ideas of Adam Smith, especially concerning the laws of supply & demand and free markets

  • Carnegie wrote The Gospel of Wealth (1901) which claimed wealthy people have power but also an obligation to society

  • Baptist preacher Russell H. Conwell preached about “Acres of Diamonds” – everyone who wanted to be rich had the opportunity

  • Horatio Alger’s “Luck and Pluck” manual pushed the idea of rags-to-riches at the time to encourage everyone (think Jackson)


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