Chapter 15: The Second Industrial Revolution

• A New Capitalist Spirit: (473-474)– The United States operates

under an economic system known as capitalism: in which private business run most industries, and competition determines how much goods cost and workers are paid.

– In the late 1800s, entrepreneurs, or risk taking business people, set out to gain economic wealth by building industries that took advantage of the era’s new technological advances

• A New Capitalist Spirit: (473-474)– Horatio Alger Jr. published a popular

series of novels that reflected the increasing importance placed on individualism

– 1869 Luck and Puck series, were typically based on a rags-to-riches theme.

– Poor children improve their social and financial status through hard work and self-motivation.

– A high regard for self-reliance led many leaders to support the ideal of laissez-faire capitalism: Laissez-Faire means (Hands-Off) “to let people do as they choose.

– The Theory of laissez-faire capitalism calls for NO government intervention in the economy.

– Most business leaders believed that the economy would prosper if businesses were left free from government regulation and allowed to compete in a FREE MARKET

• A New Capitalist Spirit: (473-474

• The idea is sometimes referred to as Free Enterprise: in a free-market economy, supply, demand, and profit margin determine what and how much businesses produce

• These entrepreneurs argued that any government regulation would only served to reduce individuals’ prosperity and self-reliance

• A New Capitalist Spirit: (473-474)

– Critics Respond: • Some critics of this

theory argued that the rapid industrialization of factory life was harmful and unjust to the working class

• A New Capitalist Spirit: (473-474)

– Critics Respond:• Karl Marx, a German

philosopher, Marx proposed a political system that would remove the inequalities of wealth. He developed a political theory, later called Marxism, that called for the overthrow of the capitalistic economic system

• A New Capitalist Spirit: (473-474)– Critics Respond:

• Marx argued that capitalism allowed the bourgeoisie – the people who own the means of production – to take advantage of the proletariat, or the workers

• He formed Communism: this theory proposes that individual ownership of property should not be allowed. In a communist state, property and the means of production are owned by everyone in the community

• The community in turn ideally provides for the needs of all the people equally without regard to social rank.

• A New Capitalist Spirit: (473-474)– Critics Respond:– Social Darwinism: (474)

• Business leaders began to embrace the emerging theory of Social Darwinism: Originally proposed by English social philosopher Herbert Spencer, social Darwinism adapted the ideas of Charles Darwin’s biological theory of natural selection and evolution

• Social Darwinists argued that society progressed through natural competition.

• The “fittest” people, businesses, or nations should and would rise to positions of wealth and power. The “unfit” would fail.

• According to this view, society should allow the weak and less fit to fail and die, and that this is not only good policy, but morally right. SURVIVAL OF THE FITTEST

• The Corporation: (474-475)– Corporations: corporations had existed

in one form or another since colonial times– In a corporation, organizers raise money

by selling shares of stock, or certificates of ownership, in the company

– Stockholders – those who buy the shares – receive a percentage of the corporation’s profits, known as dividends

– Andrew Carnegie: urged young men to invest in stocks.

– Although stockholders could earn large profits from the companies, they played little or no part in the corporation’s daily activities

• The Corporation: (474-475)– Corporations have several

advantages over partnerships and family-owned businesses

1. A corporation’s organizers can raise large sums of money by selling stock to many people

2. Unlike small-business owners, stockholders enjoy limited liability

3. A corporation is a stable organization because it is not dependent on a specific owner or owners for its existence

• The Corporation: (474-475)– Trust: a group of

companies turn control of their stock over to a common board of trustees. The trustees then run all of the companies as a single enterprise.

– This practice limits overproduction and other inefficient business practices by reducing competition in an industry

• The Corporation: (474-475)– If a trust gains exclusive

control of an industry, it holds a monopoly

– Monopoly: with little or no competition, a company with a monopoly has almost complete control over the price and quality of a product

• Carnegie and Steel: (475-476)– Steel leader Andrew Carnegie was a

master at utilizing these new business strategies.

– Economics of scale: Carnegie realized that buying supplies in bulk and producing goods in large quantities he could lower production costs and increase profits.

– Carnegie also used vertical integration – that is, he acquired companies that provided the materials and services upon which his enterprises depended.

– As an example, Carnegie purchased the iron and coal mines, which provided the raw materials necessary to run his steel mills

– Carnegie retired as the world’s richest man

• Rockefeller and Oil: (477)– John D. Rockefeller Founder of the

Standard Oil company– The oil-refining industry was composed

of numerous small, fiercely competitive companies. Arguing that such competition was inefficient, Rockefeller set out to gain control of the oil industry

– Rockefeller used vertical integration to make his company more competitive. He acquired barrel factories, oil fields, oil-storage facilities, pipelines, and railroad tanker cars.

– By owning these companies that contributed to each stage of the oil refining, Rockefeller was able to sell his oil for a cheaper price than his competitors

• Rockefeller and Oil: (477)– Rockefeller’s main method of

expansion was called horizontal integration – one company’s control of other companies producing the same product (oil)

– Standard Oil was one of the nations first TRUSTS

– Rockefeller forced most of his rivals to sell out.

– By 1880 the Standard Oil Company controlled some 90% of the country’s petroleum-refining capacity

• The Railroad Giants: (477-479)

• Cornelius Vanderbilt: (478)– Vanderbilt was a pioneer of the

railroad industry– By providing more efficient

service, Vanderbilt took advantage of the growing demand for rail transportation.

– At the time of his death in 1877, Vanderbilt controlled more than 4,500 miles of railroad track. His personal fortune was estimated at $100 million

• The Railroad Giants: (477-479• George Westinghouse: (478-

479)– He made a large fortune in the

railroad industry– He established the Westinghouse Air

Brake Company– The air brake was an important safety

feature for the railroad industry– The brake made it possible for trains

to haul more cars and to travel at greater speeds

– Within five years of the invention, more than 7,000 passenger cars were equipped with the compressed air-brake

• The Railroad Giants: (477-479– George Pullman: he

designed and manufactured railroad cars that made long-distance rail travel more comfortable.• Sleeping cars, dining

cars, and luxurious cars for wealthy passengers

• Mass Marketing: (479-480)• Marketing helped to sell products• Marketing Products: (479-480)

– With the rapid growth of manufacturing, companies developed new ways of persuading consumers to purchase their products

– Companies also used advertising to promote their products: magazines, newspapers, and roadside billboards

– The increase in the use of advertising and brand names helped create a new lively consumer culture in the United States

• Mass Marketing: (479-480)• The department store: (480)

– Department stores carried a wide variety of products under one roof.

– Marshall Fields in Chicago– Department stores became a

special domain for women, both as places to work and as places to shop

– Most famous chain store was founded by Frank W. Woolworth in 1879