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Standard 5.1 – Developments in Business and Industry. Monopolies, Rockefeller, Carnegie, and a rising standard of living. The Rise of the “Corporation”. Will also be called monopolies, holding companies, trusts, “management” and “Big Business” Business oganization Has legal rights
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Standard 5.1 – Developments in Business and Industry Monopolies, Rockefeller, Carnegie, and a rising standard of living
The Rise of the “Corporation” • Will also be called monopolies, holding companies, trusts, “management” and “Big Business” • Business oganization • Has legal rights • Limited liability of owners • Raises revenue through sale of stock • A group of owners
Early Corporate history • Joint Stock Companies • During 1600s Virginia company settled in new world • Wealthy pooled money to limit risks • Pre-Civil War corporations functioned in same way • In late 19th century new industries emerged because of government help • Became much more powerful and thus we see a “rise” in corporations
New Industries of the Post-Civil War period • The Railroad drove the US Economy • Transcontinental routes united the country • Promoted a national ‘market’
Railroads and industry • Steel, coal & wood needed for RRs • Quicker transport allowed meatpacking industry
Railroads and settlers • RRs granted about 1 mile on both sides of tracks • Needed settlers to make it valuable • Aggressively advertised • Especially in Europe which led to higher immigration • Led to New towns along the routes • Older towns could specialize in specific products • Farmers had new access to markets • RRs will eventually be accused of price gouging
RRs and Competition • RRs had to compete with each other for potential customers
Railroads and competition • Railroads competed for people’s businesses • Led to cuts in rates (prices) • Some went bankrupt • Others forced to merge together • When several RRs went bankrupt the nation was thrown into depression
A revelation in the RR business model • Some RRs realized that a merger could lead to a monopoly • A monopoly could lead to very high profits • Used rebates (bribes) and kickbacks to manipulate the law • Pushed supporters into office • Could drive out competitors by slashing prices • Meanwhile keep a profit by raising rates elsewhere • Western Farmers felt the main force of these tactics
More entrepreneurs - Carnegie • 1st to utilize the Bessemer Process to make STEEL • Technical innovations are vital to economic success! • Used Vertical Integration to develop a Monopoly
Vertical Integration • Controlled the steel industry from the mining of iron ore to the steel mill to the transportation systems taking the steel to market
Rockefeller (“Reck-a-fellow”) • Controlled the Oil Industry • Used “dirty” tactics to create a Horizontal Monopoly • Forced RRs to provide Kickbacks and rebates • He got better rates which hurt competitors • Controlled retail outlets and refused to sell to competitors • Drove competition out of business by slashing prices • Then increased prices soon after
Rockefeller’s legal manipulations “Let us Prey” • Horizontal Integration • Owned all of the production of one product • Created the “Trust” • Small oil company stockholders gave their control to a board of directors in Standard Oil Company • This board would then consolidate and eliminate competition in given areas • Allowed higher prices and no alternatives Oil Plant A Oil Plant C Oil Plant B Oil Plant D
The Government attempts to control monopolies • The Sherman Anti-Trust Act • Concerned about the corruption of “bad” monopolies • Failed to differentiate between good and bad though • Needed a controlling device • “forbade combinations in restraint of trade” • No organizing to eliminate competition • Wait, isn’t this what a labor union does? (yup) • Too many loopholes to be effective • The holding company – similar to a trust
Robber Barrons • Industrialists had to fight a bad image • Robber-Barons that stole from the public
Captain of Industries • Wanted to be seen as smarter and more talented (Social Darwinism) • Had been created with inherent talents to be successful • Part of Social Darwinism • Only the “fittest survive” • They were successful because they were better • Conversely poor were poor because of some “natural” weakness or flaw • Disregards social, cultural, legal factors
Carnegie and the Gospel of Wealth • Gospel of Wealth • Carnegie wrote a letter saying it since God had provided them with the ability to make money they had a duty to prove themselves morally responsible • Give to charities, take care of poor, etc…
Why did the “people” put up with this? • We will see later that they all didn’t • Unions, strikes, anti-trust acts, etc… • Those that did bought in to several myths • Social Darwinism – thought that they were talented and could thus become one of the rich • Horatio Alger and “rags-to-riches” stories – anyone can become rich and powerful if they work hard enough • Carnegie was an example of rags-to-riches • Can it happen? Yes. Will it? Probably Not • Think High School Basketball player becoming next Lebron…
Contradictions of the Monopolist • Government should stay out of their way! • Wanted to be seen as height of Social Darwin pyramid • Advocated laissez-faire capitalism • Government should not regulate businesses • But, Government should help when… • Labor unions threatened their business • They wanted tariffs to protect monopolies
Still this time period is not all bad • There is a rise in Standard of Living • Many new consumer products • Electricity was harnessed • Typewriters and telephones are debuted • Allows new opportunities for women in the workplace • Deflation and mass production allowed lower prices on the new goods • No assembly line yet (Ford in 1913 is first use)
