Age of Big Business Age of Monopolies

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Age of Big Business Age of Monopolies
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BackgroundCapitalism economic system

• Private ownership of the means of production
• Free enterprise to meet the demands
• Profit motive goal to make
• Market price buyers sellers
• Competition

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New Business Culture

• 1. Laissez Faire ? the ideology of the
  Industrial Age.

• Individual as a moral and economic ideal.
• Individuals should compete freely in the
  marketplace.
• The market was not man-made or invented.
• No room for government in the market!

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2. Social Darwinism

• British economist.
• Advocate of laissez-faire.
• Adapted Darwins ideas from the Origin of
  Species to humans.
• Notion of Survival of the Fittest.

Herbert Spencer
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2. 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)
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New Business CultureThe American Dream?

• 3. Protestant (Puritan) Work Ethic
• Horatio Alger 100 novels

Is the idea of the self-made man a MYTH??
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Causes of Rapid Industrialization

• Steam Revolution of the 1830s-1850s.
• The Railroad fueled the growing US economy
• First big business in the US.
• A magnet for financial investment.
• The key to opening the West.
• Aided the development of other industries.

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Causes of Rapid Industrialization

• Technological innovations.
• Bessemer and open hearth process
• Refrigerated cars
• Edison
• Wizard of Menlo Park
• light bulb, phonograph, motion pictures.

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Thomas Alva Edison

• Wizard of Menlo Park

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The Light Bulb
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The Phonograph (1877)
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The Motion Picture Camera
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Alexander Graham Bell
Telephone (1876)
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Alternate Current
George Westinghouse
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The Airplane
Wilbur Wright Orville Wright
Kitty Hawk, NC December 7, 1903
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Model T Automobile
Henry FordI want to pay my workers so that they
can afford my product!
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U. S. Patents Granted
1790s ? 276 patents issued.
1990s ? 1,119,220 patents issued.
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Essential Question

• Industrialization increased the standard of
  living and the opportunities of most Americans,
  but at what cost?

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3 New Vocabulary words

• Monopoly A company that completely dominates a
  particular industry
• Trust a set of companies managed by a small
  group known as trustees, who can prevent
  companies in the trust from competing with each
  other
• Corporation A company recognized by law to exist
  independently from its owners, with the ability
  to own property, borrow money, sue or be sued

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Corporate Monopolies

• Horizontal
• vs.
• Vertical Integration

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New Type of Business Entities
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Age of Big Business Age of Monopolies

• To gain control of a product or business
• Types of monopolies
• Pools (pooling agreements) RRs divide routes
  agree not to compete
• Trusts competing companies run by the same
  Board of Trustees
• Holding companies
• Interlocking directorates
• Mergers/Consolidations
• See slide 23

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New Type of Business Entities

• Trust
• Horizontal Integration ? John D.
  Rockefeller

• Vertical Integration
• Gustavus Swift ? Meat-packing
• Andrew Carnegie ? U. S. Steel

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American Business Leaders
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Andrew Carnegie75 Billion

• Andrew Carnegie came from Scotland with his
  parents in 1848.
• In 1861, at the age of 26, he started up the
  Freedom Iron Company, and used the new Bessemer
  process for making steel
• He formed all of his companies into the Carnegie
  Steel Company in 1899, which controlled raw
  materials, manufacturing, storage, and
  distribution for steel.
• Merged steps of production to cut costs of
  production
• Vertical Integration

Wrote Gospel of Wealth Established free
lending libraries
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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
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John D. Rockefeller192 Billion

• Born in 1839 -started as a bookkeeper
• He established one of the first oil refineries
• 1870With partners, forms a business trust
  Standard Oil
• At its peak, controlled 90 of all oil companies
• Noted for very ruthless tactics price wars,
  intimidation
• Merged companies that produced same product
• Horizontal integration

Later established foundations, scholarships,
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John D. Rockefeller Oil

• Horizontal integration merged companies that
  produced same product
• At one point controlled 90 of the oil refineries
  in the US
• Noted for very ruthless tactics price wars,
  intimidation
• Later established foundations, scholarships,

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Standard Oil Co.
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Cornelius Vanderbilt Railroads

• New York Central Railroad
• Merged railroad lines between NY and Chicago

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Cornelius Commodore Vanderbilt
Cant I do what I want with my money?
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William Vanderbilt

• The public be damned!
• What do I care about the law? Haint I got the
  power?

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JP Morgan banking finance

• Loaned money to businesses
• Took over bankrupt railroads and merged into
  profitable lines
• Bought Carnegie Steel and merged with others to
  form US Steel

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The Reorganization of Work
Frederick W. Taylor The Principles of Scientific
Management (1911)
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Model T Prices Sales

• Revolutionized auto making by using the assembly
  line to produce more affordable cars

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Wall Street 1867 1900
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of Billionaires in 1900
of Billionaires in 1918
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Robber Barons or Captains of Industry?
Do millionaires/ billionaires have a
responsibility to help the poor?
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Captains of Industry or Robber Barons

• Captain of Industry
• Entrepreneurs, risk takers
• Used the system available resources to make a
  fortune
• Role model
• Philanthropist

• Robber Baron
• Ruthless businessmen
• Exploited workers consumers in order to make a
  profit

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The Robber Barons of the Past
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Who are the billionaires (Robber Barons) of today?
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Forbes 2011
Rank Name Worth Age Source Country
1 Carlos Slim Helu family 74 B 71 telecom Mexico
2 Bill Gates 56 B 55 Microsoft USA
3 Warren Buffett 50 B 81 Berkshire Hathaway USA
4 Bernard Arnault 41 B 62 LVMH France
5 Larry Ellison 39.5 B 67 Oracle USA
6 Lakshmi Mittal 31.1 B 61 Steel India
7 Amancio Ortega 31 B 75 Zara Spain
8 Eike Batista 30 B 54 mining, oil Brazil
9 Mukesh Ambani 27 B 54 petrochemicals, oil gas India
10 Christy Walton family 26.5 B 56 Walmart USA
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Need for Government Regulation of Business
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The Protectors of Our Industries
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Abuses by Railroads

• Pooling Agreements
• Divide the sales territory and fix prices
• Long haul, short haul discrimination
• Charge more for short distances where there is no
  competition
• Rebates and kickbacks to special customers
• Unannounced rate increases
• Free passes to government officials

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Granger laws to help out farmers

• Farmers complained about poor service and high
  rates charged by railroads
• States passed granger laws to regulate
  railroads within the state
• Granger laws were challenged in the Supreme Court
  (Court cases to follow)

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Federal Legislation
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Interstate Commerce Act 1887

• Created the Interstate Commerce Commission to end
  abuse by railroads
• No pools, rebates, special deals
• Public posting of rates, must be fair and
  reasonable
• Set precedent for federal regulation of
  interstate commerce

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Sherman Anti-Trust Act 1890

• Declared combinations in the form of a trust in
  restraint of trade to be illegal (if it lessens
  competition)
• Weak, vague language but set the principle that
  the government should break up monopolies

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Supreme Court Cases
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Munn v. Illinois (1877)

• Background
• State of Illinois had passed Granger Laws to set
  rates of railroads and grain elevators
• Issue
• Did Illinois law deprive railroads of property
  (profits) without due process?

• Decision
• State law was constitutional because the law was
  related to the public interest
• Importance
• Railroad rates continued to be limited by the
  state government

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Wabash, St.Louis, Pacific Railway Co. v.
Illinois (1886)

• Background
• Long-haul, short-haul discrimination by the
  railroads within the state of Illinois (penalties
  were applied)
• Issue
• Could the state regulate railroads on the
  intrastate portion of an interstate trip?

• Decision
• State law was unconstitutional
• The power to regulate interstate commerce belongs
  to Congress
• Importance
• Put pressure on Congress to act if the states
  cant regulate the railroads
• One year after the decision Congress passed the
  Interstate Commerce Act

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United States v. E.C. Knight Co. (1895)

• Background
• American Sugar Refining Co. bought stock in
  smaller companies controlled 90 of sugar
  processed in U.S.
• Issue
• Can Congress regulate manufacturing?
• Can Congress outlaw manufacturing monopolies?

• Decision
• Federal Govt cannot regulate refineries because
  they were manufacturing operations, not directly
  related to interstate commerce
• State govt. can regulate local activities under
  the terms of 10th Amendment
• Importance
• Few attempts made to prosecute corporations in
  restraint of trade (most against unions as
  unreasonable restraint of trade!)