The Trusts

1. Industrial Supremacy The Trusts

2. The Corporation • After the Civil War, industrialists started to realize that even the wealthiest among them could not raise enough capital to finance large-scale projects • Companies started to sell stock to the public • Americans saw buying stock as a good investment because of the limited liability • Benefit from company’s profits, but not responsible for its debts

3. Horizontal & Vertical Integration • Horizontal Integration • The combining of a number of firms engaged in the same enterprise into a single corporation • Example: the merger of many different railroad companies into one • Vertical Integration • The taking over of all different businesses on which a company relied for its primary function • Carnegie Steel

4. Andrew Carnegie • A Scottish immigrant from modest origins who opened his own steel plant in 1873 • He quickly dominated the industry by making deals with the railroads and buying out his competition • Vertically integrated all phases of the steel processing business • From “mine to market”

5. Rockefeller’s Standard Oil • Combination of horizontal and vertical integration • Standard Oil Company was formed in 1870, and within just a few years, it acquired 80% of the refineries in Cleveland, as well as others in Pennsylvania, New York, and Maryland • To vertically consolidate his business, Rockefeller built his own barrel factories, pipelines, terminal warehouses, and owned its own freight cars • Justified consolidation as a way to escape the cutthroat competition of the modern economy

6. The Trust Agreement • Stockholders in individual corporations transferred their stock to a small group of trustees in exchange for shares of the “trust” itself • Owners of trust certificates would receive a share of the profits of the trust, but had no real influence on the trustees • Trustees could exercise their control over a large number of companies, usually controlling entire industries • Started by John D. Rockefeller, but perfected by J.P. Morgan

7. Myth of the Self-Made Man • The number of millionaires in the U.S. grew exponentially after the Civil War, and many of these millionaires attributed their success to the values of capitalism and individualism • While this was true for some (Carnegie, Rockefeller), many “self-made millionaires” actually started out with many of the advantages of wealth and privilege • Many also liked to attribute their success to pure hard work, but, in fact, many used ruthless and corrupt practices to attain their wealth and power

8. Social Darwinism • Applied Darwin’s theories of evolution to human society • Only the fittest survived and thrived in the market place • Industrialists attained their power through hard work, ingenuity, and thrift • Those who failed to be successful were lazy, irresponsible, or careless

9. The Gospel of Wealth • “With great power comes great responsibility” • 1901 book by Andrew Carnegie • Anything that the wealthy have in excess of their own needs should be used for the good of the community • Carnegie and several other Captains of Industry donated large sums of money for libraries, schools, institutions to help the poor help themselves, and other public services

10. Critics • Lester Frank Ward • Civilization was not governed by natural selection, but by human intelligence • People could shape society as they wished • Henry George • “So long as the increased wealth which modern progress brings goes but to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent.” • Edward Bellamy • Looking Backward: novel set in 2000 • US economy had become one giant trust controlled by the government • The government then distributed the wealth of the industrial economy equally among the people • Cooperation replaced competition, and class divisions disappeared

11. The Problems of Monopoly • While most Americans agreed with the ideas of capitalism, they began to attack monopolies as inherently un-capitalistic • Argued that monopolies inflated prices and destabilized the economy • Monopolies hindered individuals from rising to prosperity like the Robber Barons had done • Increasing gap between rich and poor • 1% of families controlled 88% of wealth • 80% of Americans were in the middle to lower-middle class • 10 million lived below the poverty line