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’

Land Grant System

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

How important were the Railroads?

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

Own the RRs that transportFinished steel

Own the Steel Mill which uses the ore

Mining of Ore and Coal

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

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

Rockefeller’s legal manipulations “Let us Prey”

Oil Plant A

Oil Plant B

Oil Plant C

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 Industriali

sts 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)