The Rise of Big Business

Mr. HoodU.S. History

Because of Industrialization we see the development of expanding markets.

That means that old markets were expanded and new markets developed, such as trade between nations with new products.

To take advantage of this corporations were formed.

Expanding Markets

New Industry Develops

A corporation is when a number of people share ownership of a business.

If a corporation experiences economic problems, the investors lose no more than they had originally invested. This was a perfect solution to the challenge of expanding businesses.

Corporations have the same rights as an individual. If one person leaves, the group can buy out his interests.

Corporations

Corporations worked to maximize profits.

They decreased costs by paying workers the lowest possible wages they could.

Many began to advertise to increase their potential consumer base.

Gaining an Edge

Like J.P. Morgan, the heads of some corporations supported research laboratories where inventors could experiment with products and methods that could bring profits in the future.

Others, like Cornelius Vanderbilt, who was a self-made businessman in the railroad industry, started out in the steamboat business. He cleverly got his competitors to pay him to relocate because his low fares were driving them out of business.

Gaining an Edge

Capitalism at Work

Monopoly-complete control of a product or service.

Corporations bought out their competitors or drove them out of business. This gave consumers no choice in buying a given product or service.

The sole remaining business chose what prices it wanted its goods to sell for, allowing for huge profits.

Monopoly

Cartel-in this arrangement, businesses making the same product agree to limit their production and thus keep prices high.

Some corporations came up with other methods, for example:

John D. Rockefeller, an oil tycoon, made deals with rail lines so that he could stuff his competition. He would sell oil to the rail lines for cheap as long as they did not buy his competitors oil.

Cartel

Monopoly

Horizontal Integration-John D. Rockefeller was one of the first businessmen to use this practice. The goal was to create a giant company with low production costs by buying out all surrounding competition.

Vertical Integration-gaining control of the many different businesses that make up all phases of a product’s development. Practice put in place by steel tycoon Andrew Carnegie.

Horizontal and Vertical integration

Horizontal-if you are an oil tycoon, you buy out all of the other oil companies around you.

Vertical Integration-if you are an oil tycoon, you buy all of the individual parts of the supply chain; such as, oil wells, railroads, refineries, and gas stations. (Kind of like an Empire)

Horizontal and Vertical Integration

Ohio state law prevented one company from owning stock in another, meaning that Rockefeller could not buy out his competitors and complete his horizontal integration.

But his lawyer came up with a plan to get around the law, called a trust.

Trust-companies assign their stock to a board of trustees, who combine them into a new organization. The “trustees” run the organization and pay themselves a part of the profit.

John D. Rockefeller and the Trust

Soon, consumers, workers, and the federal government came to feel that systems like trusts, cartels, and monopolies gave powerful businessmen an unfair advantage.

From this a great debate arose, one that still exists today.

Where these men “Robber Barons” or “Captain’s of Industry”?

“Robber Barons” or “Captain’s of Industry”

“Robber Barons”- called this by people who disagreed with their practices, said that these men killed small businesses, harmed consumers because of high prices, and they swindled the poor.

“Captain’s of Industry”-some felt these men served the country positively. That they were good “capitalists”. Factories, steel mills, and railroads created jobs for the needy and created a larger working force. The economy was fueled and efficient business practices were passed down.

Also, men like Carnegie, Rockefeller, and Vanderbilt were Philanthropists. They build universities, museums, and libraries.

“Robber Barons” or “Captain’s of Industry”

“Robber Barons” “Captains of Industry”

Charles Darwin- came up with the idea of “survival of the fittest” this principle was beginning to be applied to the world of American Capitalism.

People began to apply it to the idea that a wealth was a measure of one’s inherent value and those who had it were the most “fit”.

People who believed in the laissez-faire system thought that the government should stay out of economic factors, including not providing assistance to the poor.

Social Darwinism

Social Darwinism

Interstate Commerce Commission (ICC)- first ever federal body set up to monitor American business practices. Could only monitor railroads that crossed state lines, and it could not make laws or control the railroads transactions.

Sherman Antitrust Act-outlawed any trust that operated “in restraint of trade or commerce among the several states.”

Both of these began a trend toward federal limitations on corporations’ power.

Government Regulations