4.2 Growth of Big Business

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4.2 Growth of Big Business

• Angela Brown

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Bellringer 2

• Define a big business and a mom and pop
  business.
• Discuss how the two differ.
• Learning Targets I Can
• Analyze different methods that businesses used to
  increase their profits.
• Describe the public debate over the impact of big
  business.
• Explain how the government took steps to block
  abuses of corporate power.

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Section Focus Question

• How did big business shape the American economy
  in the late 1800s and early 1900s?
• Witness History CD 2 31
• From Rags to Riches
• Andrew Carnegie excerpt from The Gospel of Wealth
• Why do you think Carnegie believed that a man who
  dies rich is disgraced?
• Why did so many people admire Carnegie?

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Robber Barons or Captains of Industry

• Robber barons implies that the business leaders
  built their fortunes by stealing from the public.
  
• (Ex. Natural resources, interpreting laws in
  their favor, driving competitors to ruin, paying
  workers meager wages, etc.)

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• The term captains of industry, suggests that
  the business leaders served their nation in a
  positive way.
• (Ex. Building factories, raising productivity,
  expanding markets, founding and funding
  outstanding museums, libraries, and universities
  etc.)
• Both view of Americas early big business contain
  elements of truth.

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Andrew Carnegie

• Captain of the Steel Industry
• In 1865, at the age of 30, Carnegie was making
  50,000 a year.
• He wanted to invest his wealth.
• During the early 1870s, near Pittsburgh, he
  founded the first steel plants to the Bessemer
  process.
• The Carnegie Steel Company was established in
  1889.

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Andrew Carnegie
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• Carnegie soon controlled the American steel
  industry, from the mines that produced iron ore
  to the furnaces and mills that made pig iron and
  steel.
• He even bought up the shipping and rail lines
  necessary to transport his products to market.

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Carnegie the Philanthropist

• Carnegies message was simple People should be
  free to make as much money as they can. After
  they make it, however, they should give it away.
• Carnegie had donated the money for roughly 3,000
  free public libraries, supported artistic and
  research institutes, and set up a fund to study
  how to abolish war.

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• By the time he died in 1919, he had given away
  some 350 million.
• Still not everyone approved of his methods.
• Workers protested against his labor practices and
  many others doubted the sincerity of his good
  works.

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Social Darwinism

• A theory soon emerged that applied Darwins
  theory to the struggle between workers and
  employees.
• Social Darwinism held that society should do as
  little as possible to interfere with peoples
  pursuit of success.
• If government would stay out of the affairs of
  business those who were most fit would succeed
  and become rich.
• Society as a whole would benefit from the success
  of the fit and the weeding out of the unfit.

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• Most Americans agreed that the government should
  not interfere with private businesses.
• As a result, the government neither taxed
  businesses profits nor regulated their relations
  with their workers.

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Corporations Develop

• A number of people share ownership of a business.
• If a corporation fails, the investors lose no
  more than they had originally invested.
• Corporations have the same rights as individuals.
• It can buy, sell, or sue in court.
• If a person chooses to leave the corporation
  others buy out their interests.

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Gaining a Competitive Edge

• Monopolies and Cartels
• Some companies set out to gain a monopoly or
  complete control of a product or service.
• Once consumers had no other place to turn for a
  given product or service, the sole remaining
  company would be free to raise its prices.
• Toward the end of the 1800s, federal and state
  governments passes laws to prevent certain
  monopolistic practices.

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• Political leaders refused to attack the powerful
  business leaders.
• Sometimes industrialists prospered by taking
  steps to limit competition with other firms.
• One way was to form a cartel- a loose association
  of businesses that make the same product.
• Members of a cartel agreed to limit the supply of
  their product and thus keep prices high.

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The Standard Oil Trust

• Oil had become a major industry after Edwin L.
  Drake proved that it could be extracted from the
  ground through a well at Titusville,
  Pennsylvania, in 1858.
• Events in Pennsylvania excited John D.
  Rockefeller.
• He had become rich from a grain and meat
  partnership during the Civil War.
• In 1863 Rockefeller built an oil refinery near
  Cleveland, Ohio.

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• In 1870 Rockefeller and several associates formed
  the Standard Oil Company of Ohio.
• Rockefeller persuaded his railroad friends to
  give him refunds on part of the cost of
  transporting his oil.
• He was then able to set Standard Oils prices
  lower than those of his competitors.
• As he sold more oil, he was able to undersell his
  competitors by charging even less.
• He soon had enough money to buy out his
  competitors.

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Trusts

• State laws prohibited one company from owning the
  stock of another.
• Samuel Dodd had an idea. In 1882 the owners of
  Standard Oil and companies allied with it agreed
  to combine their operations. They would turn
  over their assets to a board of nine trustees.
• The board of trustees managed the companies as a
  single unit called a trust.
• 40 companies joined the trust. Because the
  companies did not officially merge, no laws were
  violated.

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Interstate Commerce Commission

• ICC created in 1887 to oversee railroad
  operations due to the industries unjust business
  practices.
• The first federal body created to monitor
  American Business Corps.
• ICC could only monitor railroads that crossed
  state lines.
• ICC could require the railroads to send their
  records to Congress for review.

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Sherman Anti-Trust Act

• In 1890 Congress responded by passing the Sherman
  Antitrust Act. This law outlawed any combination
  of companies that restrained interstate trade or
  commerce.
• The law was ineffective for nearly 15 years. The
  federal government rarely enforced it.
• The laws vague wording made it hard to apply in
  court.
• The act was successfully applied toward labor
  unions. Federal officials argued that labor
  unions restrained trade because workers were
  combining to gain an advantage.

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Methods of Industrial Control

• Horizontal consolidation is bringing together
  many firms that were in the same business. (Ex
  Rockefellers use of Standard Oil)
• Vertical consolidation or gaining control of the
  many different businesses that make up all phases
  of a products development was used by Andrew
  Carnegie.
• By controlling all stages of steel production he
  could charge less because of economies of scale.
• As production increases, the cost of each item
  produced is often lower.

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Effects on American Society

• Industrial giants continued to sidestep the law.
• Politicians did not have the will to crack down
  on them.
• These firms contributed mightily to the United
  States rising level of wealth.
• Rapid industrial growth did place strains on the
  economy.
• In 1893 a period of expansion rapidly ended.
• Nearly 500 banks and more than 15000 businesses
  had failed, and the economy sank into a four-year
  depression.

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• Economists call such a boom or bust period a
  business cycle.
• One cause of the depression that began in 1893
  was a panic.
• The resulting unemployment caused widespread
  misery, especially among workers and their
  families.

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Analyzing Textbook Resources

1. What is the legacy of the business tycoons?
   Comparing viewpoints on page 109. Study and
   answer compare questions 1 and 2.
2. New Ways of Doing Business on page 111. Read and
   answer the Thinking Critically question.
3. Andrew Carnegie Wealth (1889) Primary Source on
   page 113. Read and answer Thinking Critically
   questions 1 and 2.

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Exit Slip

• Suppose you are a small business owner in
  competition with a cartel or monopoly in the
  1800s.
• Write a paragraph that explains the difficulties
  the business faces.
• 1. Why might the philanthropy of rich business
  men affect peoples opinion of them?
• What assumption does Social Darwinism make about
  the poor, who were exploited by big business?
• Why did the federal regulations on railroads and
  businesses have little effect? What does his tell
  you about the relationship between government and
  big business?