Standard 5.1 – Developments in Business and Industry Monopolies, Rockefeller, Carnegie, and a rising standard of living
Jan 31, 2016
Standard 5.1 – Developments in
Business and Industry
Monopolies, Rockefeller, Carnegie, and a rising standard
of living
The Rise of the “Corporation”
Will also be called monopolies, holding companies, trusts, “management” and “Big Business”
Business oganization Has legal rights Limited liability of owners Raises revenue through
sale of stock A group of owners
Early Corporate history Joint Stock Companies
During 1600s Virginia company settled in new world
Wealthy pooled money to limit risks
Pre-Civil War corporations functioned in same way
In late 19th century new industries emerged because of government help Became much more powerful and
thus we see a “rise” in corporations
New Industries of the Post-Civil War period
The Railroad drove the US Economy
Transcontinental routes united the country Promoted a
national ‘market’
Land Grant System
Railroads and industry Steel, coal
& wood needed for RRs
Quicker transport allowed meatpacking industry
Railroads and settlers RRs granted about 1 mile on both sides of
tracks Needed settlers to make it valuable Aggressively advertised
Especially in Europe which led to higher immigration Led to New towns along the routes Older towns could specialize in specific products
Farmers had new access to markets RRs will eventually be accused of price gouging
How important were the Railroads?
RRs and Competition
RRs had to compete with each other for potential customers
Railroads and competition Railroads competed for people’s
businesses Led to cuts in rates (prices) Some went bankrupt Others forced to merge together
When several RRs went bankrupt the nation was thrown into depression
A revelation in the RR business model Some RRs realized that a merger could lead
to a monopoly A monopoly could lead to very high profits Used rebates (bribes) and kickbacks to
manipulate the law Pushed supporters into office Could drive out competitors by slashing
prices Meanwhile keep a profit by raising rates
elsewhere Western Farmers felt the main force of these
tactics
More entrepreneurs - Carnegie
1st to utilize the Bessemer Process to make STEEL Technical
innovations are vital to economic success!
Used Vertical Integration to develop a Monopoly
Vertical Integration Controlled the steel
industry from the mining of iron ore to the steel mill to the transportation systems taking the steel to market
Own the RRs that transportFinished steel
Own the Steel Mill which uses the ore
Mining of Ore and Coal
Rockefeller (“Reck-a-fellow”)
Controlled the Oil Industry Used “dirty” tactics to create a
Horizontal Monopoly Forced RRs to provide Kickbacks
and rebates He got better rates which hurt
competitors Controlled retail outlets and
refused to sell to competitors Drove competition out of business
by slashing prices Then increased prices soon after
Horizontal Integration Owned all of the production of one product
Created the “Trust” Small oil company stockholders gave their control to a
board of directors in Standard Oil Company This board would then consolidate and eliminate
competition in given areas Allowed higher prices and no alternatives
Rockefeller’s legal manipulations “Let us Prey”
Oil Plant A
Oil Plant B
Oil Plant C
Oil Plant D
The Government attempts to control monopolies The Sherman Anti-Trust Act
Concerned about the corruption of “bad” monopolies
Failed to differentiate between good and bad though Needed a controlling device “forbade combinations in restraint of trade”
No organizing to eliminate competition Wait, isn’t this what a labor union does? (yup)
Too many loopholes to be effective The holding company – similar to a trust
Robber Barrons Industriali
sts had to fight a bad image Robber-
Barons that stole from the public
Captain of Industries Wanted to be seen as smarter and more
talented (Social Darwinism) Had been created with inherent talents to
be successful Part of Social Darwinism
Only the “fittest survive” They were successful because they were better Conversely poor were poor because of some
“natural” weakness or flaw Disregards social, cultural, legal factors
Carnegie and the Gospel of Wealth Gospel of Wealth
Carnegie wrote a letter saying it since God had provided them with the ability to make money they had a duty to prove themselves morally responsible
Give to charities, take care of poor, etc…
Why did the “people” put up with this? We will see later that they all didn’t
Unions, strikes, anti-trust acts, etc… Those that did bought in to several myths
Social Darwinism – thought that they were talented and could thus become one of the rich
Horatio Alger and “rags-to-riches” stories – anyone can become rich and powerful if they work hard enough
Carnegie was an example of rags-to-riches Can it happen? Yes. Will it? Probably Not Think High School Basketball player becoming next
Lebron…
Contradictions of the Monopolist Government should stay out of their way!
Wanted to be seen as height of Social Darwin pyramid
Advocated laissez-faire capitalism Government should not regulate businesses
But, Government should help when… Labor unions threatened their business They wanted tariffs to protect monopolies
Still this time period is not all bad There is a rise in Standard of Living Many new consumer products Electricity was harnessed Typewriters and telephones are debuted
Allows new opportunities for women in the workplace
Deflation and mass production allowed lower prices on the new goods No assembly line yet (Ford in 1913 is first use)