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“The Rise of Big Business”. Industrialization in the United States 1860s – 1900s. Cornelius Vanderbilt . John D. Rockefeller. Andrew Carnegie. J. P. Morgan. Thomas Edison . Samuel Gompers. The BIG Picture!. - PowerPoint PPT Presentation
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Industrialization in the United States1860s – 1900s
“The Rise of Big Business”
“Captains of Industry”
Railroads
CorneliusVanderbilt
Steel
AndrewCarnegie
Oil
John D.Rockefeller
Banking
J.P.Morgan
Technology
ThomasEdison
Unions
SamuelGompers
Andrew Carnegie
John D. Rockefelle
rSamuel Gomper
s
Cornelius Vanderbil
t Thomas Edison
J. P. Morgan
The BIG Picture!Businessmen such as
Carnegie, Rockefeller, Ford and Morgan developed new methods to expand business!
New business methods, help from the gov’t and “Captains of Industry” begin to take control of the U.S. economy...
1870
1880
1890
1900
020,00040,00060,00080,000
100,000120,000140,000
U.S. Businesses, 1870-1900
U.S. Busi-nesses, 1870-1900
New Business Methods: Advertising
Department Stores…1862, A.T. Stewart, NYCShopping becomes a
pastime!Urban consumers.
Mail-Order Catalogs…Montgomery Ward,
ChicagoSears & Roebuck,
1890sRural consumers.
New Business Methods: Rise of Corporations!Rise of corporations fueled the rise of “big business…”
Small businesses could not compete! Shut down in “hard times”
Proprietorship Partnership CorporationWho owns
it?1 person 2 or more Investors,
stockholdersHow is money raised?
* Savings, loans from banks * Partners invest own money, loans from bank
* Stock is sold, loans from bank
Advantages
* Easy! * Low fixed cost…* Small facilities!
* Partners share resp…* Low fixed cost…
* Limited liability for investors…* Low operating cost…
Disadvantages
* Difficult to raise money…* Limited opportunities for growth…* Owner has unlimited liability…* High operating costs…
* Disagreeing partners… * Owners have unlimited liability…* High operating costs…
* High fixed costs… * Large facilities and equipment…
Corporation: organization owned by many people but treated by law as though it were a person. Stockholders buy stock…Raise money, spread the risk! (vs. partnership,
proprietorship)
Created Economies of Scale…Could produce goods more efficiently, which allowed to
the rise of “big business”
Produce more goods @ cheaper price, continue to operate in harsh economic times, drive out small competition!
New Business Methods: Rise of Corporations!
New Business Methods: Help from the Gov’tSanta Clara County v.
Southern Pacific Railroad CompanySCOTUS, 14th
Amendment and Corporations…
Received protection just as individuals would!
New Business Methods: “Pooling”Competition created problems; low prices for
consumers!!!
Railroad pools:associations of competing railroads “for the
purpose of a proper division of the traffic at competitive points and the maintenance of equitable rates that may be agreed upon.”
Interstate Commerce Act, 1887
New Business Methods: BIG Business!By 1870s, competing businesses were merging
together, creating “big business”1. Mergers, Consolidation of Industry2. Creation of Trusts3. Holding Companies
Example of consolidation:1870, Rockefeller’s Standard Oil Company
owned 2% of the country’s crude oil…By 1880 – it controlled 90% of U.S. crude oil!
How did it do so???
3 New Business PracticesMonopolies:
Single company achieves control of an entire market!
Many states begin outlawing…
Trusts:Legal maneuver allowing
trustee to control several companies & run them as one.
Holding Companies:Produce no actual
product.Controls several
companies, merging into one large enterprise!
1. Monopolies
VERTICAL INTEGRATION“Carnegie Steel”
Steel Refineries
Railroad Lines
Raw Materials
Limestone Quarries
Iron Ore Fields
Coal Mines
HORIZONTAL INTEGRATION
“Standard Oil Company”
Refinery Refinery Refinery
2. Trusts
… by creating Trusts! Stocks would be traded in for trust certificates.
“Super-Corporation” created from many small corporations!
Standard Oil, 1882 – first TRUST!
New Business Methods: Trusts
New Business Methods: Investment BankingJ.P. Morgan
Buy large blocks of stock from companies looking to sell… (discounted)
Re-sell the stock for profit!
These investment bankers became interested in holding companies and trusts…
United States Steel, 1901
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