THE INDUSTRIAL REVOLUTION By 1900, the U.S. was the leading industrial nation in the world as millions left rural areas to work in the city This happened.

THE INDUSTRIAL REVOLUTION By 1900, the U.S. was

the leading industrial nation in the world as millions left rural areas to work in the city

This happened due to an abundance of natural resources, a booming

population, new inventions and the free enterprise system

Inventions and Innovations• There were many groundbreaking inventions and innovations in the

late 19th and early 20th centuries, especially once electricity was controlled.– Thomas Alva Edison invented the phonograph, and perfected the

large scale electric generator along with Nicola Tesla (Edison usually gets most of the credit, but many historians believe Tesla was the true genius behind both the lightbulb and the generator!). Edison also worked with Lewis Latimer, the guy who invented the carbon filament that created the first incandescent lightbulb, and together they invented the first long life lightbulb.

– Cyrus Field laid the first transoceanic telegraph cables, making intercontinental communication possible.

– In 1876, Alexander Graham Bell developed the first telephone, which revolutionized communication by increasing the scale and speed of nationwide communications.

Inventions and Innovations• George Westinghouse invented the alternating current (AC) electrical

system still used today, which allows for electricity to be controlled and distribute to wherever a person wants it sent to (i.e. turning on the light switch directs the electricity to the lights, while flipping it off stops the current). His company eventually invented hydroelectric power systems.

• In 1868 Thaddeus Lowe invented the ice machine, which became the basis for refrigeration technologies.

• Gus Swift invented the first refrigerated railcar in 1877.• In 1882 the Edison Electric Company began supplying electrical

power to New York City. Today, I own 1000 shares of this company, which is now named Consolidated Edison (ED).

• In 1886, a NY woman figured out a way to electrically wash clothes – yes, Josephine Cochrane invented the first washing machine!

The Wright Brothers

A major advancement occurred in the field of transportation occurred on December 17, 1903 in Kitty Hawk, North Carolina when the Wright Brothers flew the first airplane

Andrew Carnegie (1835-1919)Steel Industry

• Began his business and management career on the Pennsylvania Railroad.

• His steel foundries used the new Bessemer furnace technology to begin vertically and horizontally integrating his firm within the steel industry. Soon, he had a virtual monopoly over the steel industry as he used cost accounting to guide his pricing strategy and so was able to drive costs and prices down, making him the undisputed king of steel.

Andrew CarnegieCourtesy of The General Libraries, The

University of Texas at Austin.

Edison and the Light BulbIn 1879, American inventor Thomas

Edison developed the first light bulb. The invention led to the wide spread use of electrical power and factories being able to run at night.

Edison is considered one of the most prolific inventors in history, holding

1,093 U.S. patents in his name.

This in turn produced more jobs and more

product, which led to lower prices.

The Transcontinental Railroads• In 1865 the US had 35,000 miles of railroad tracks laid down.

That number would soon shoot sky-high, as over 200,000 miles of railroad tracks were laid by the turn of the century (1900). The building of the transcontinental railroads began with the passage of the Pacific Railway Act of 1862. It wasn’t an easy process; engineering mistakes, angry Indians, bad weather, and money shortages were just some of the problems this undertaking faced. On May 10, 1869, the two transcontinental railroads, the Central Pacific and the Union Pacific, were joined together, finishing the first version of the transcontinental railroad system. Eventually other, smaller railroad lines would be built that would link the northern and southern halves of America, but this was where it all started.

Chicago North and St. Louis SouthAll the Way to The Pacific Ocean

Free Enterprise SystemThe free enterprise system

is an economic system whereby citizens of a nation are free to run a business (aka enterprise) the way they want to without government interference. The system is based on the laissez-faire theory, literally meaning “hands off” in French, translating top government keeping its hands off of business dealings.

Why America Industrialized• There were two industrial revolutions. The first occurred in the early

1800’s but it was rather small and didn’t affect many people – up till the Civil War, most people lived on farms. After the war, many people left their farms for the big city factories or to work in coal mines in the Virginia and West Virginia mountains – the believed they could improve their lives by doing so. The truth was in many cases opposite of this, as wages in factories were usually very low forcing entire families, regardless of age, to work exceedingly long hours in horrific conditions just to be able to secure a bit of food and a roof over their heads. Coal mines were dangerous and a major health hazard and were not paying much better. Regardless, this wave of movement from rural areas to urban areas provided a large workforce for businesses to use. This large workforce combined with the America’s vast natural resources and the new ability to harness and control electricity initiated a second, much more important industrial revolution, a revolution that changed America forever for both the better and the worse.

The Birth of Systematic Management• The Labor Question

– Some “Social Gospel” proponents felt that workers should join unions, share in profits, and have arbitration instead of strikes.

– Engineers and others felt that better work methods and systems were the answer, including pay for performance incentive systems.

– The bottom line? Wealthy business owners and stockholders cared little for the workers, but cared greatly for profit margins and government non-intervention. Most politicians were bought and paid for by these wealthy men (many politicians were the wealthy men!) and so there was little help for the regular people who worked for these people.

Economies of Scale• In the early 20th century, big businesses, also known as corporations

dominated the political and economic landscape of America. Corporations are businesses owned by many people, called stockholders. Stockholders invest their money in the corporation, and if the corporation grows and is successful the stock of the company rises in value, and the stockholders make money along with the business itself. This setup allows corporations to be able to raise a great deal of money, differentiating them from smaller businesses. In a corporate structure, individual investors risk is limited to what they invest (limited liability) – the corporation is treated legally like it is a person, allowing the risk to be spread out amongst all investors rather than one or a few people taking on all the risk. All business styles can work and work well, but the advantages of the corporate structure give this type of business advantages smaller businesses cannot compete with.

Monopoly• A monopoly exists when there is only one seller of a

good or service and there is no reasonable alternative available.

• Monopolies are generally unwanted in a free enterprise system as they tend to keep prices high and quality levels of goods and services produced low. In America, only certain types of monopolies are legal.

• Corporations have tried to get around anti-monopoly laws in several ways, disguising their business models so as to attempt to avoid detection by the law.

Big Business and Its Changing Environment• Business & Society

– Matthew Josephson characterized the business leaders of this time as “Robber Barons.” The idea was that these people would use any means necessary to make more money, including mistreating workers and attempting to control government in whatever ways they needed to, legally and/or illegally.

– There is evidence that many business leaders engaged in corrupt practices such as watering down stock prices, bribing of government officials, manipulating stock prices, and conspiracy.

– Their motivation was alleged to be “survival of the fittest” and desire for monopoly.

– Motivation was also drive for economies of scale that led to lower prices.

– The following slides give a brief picture of the so-called Robber Barons (many of whom were not bad guys at all).

Vertical and Horizontal Integration• Vertical integration is where all the smaller companies that supply needed

goods and services to the larger, parent company are owned by the parent company. Usually each member of the supply chain produces a different product or (market-specific) service, and the products combine to satisfy a common need. It is contrasted with horizontal integration. A monopoly produced through vertical integration is called a vertical monopoly.

• Horizontal integration is a strategy where a company creates or acquires production units for outputs which are the same - either complementary or competitive. A typical example would be when a company acquires competitors in the same industry doing the same stage of production for the same good or service. This creates a horizontal monopoly because any company that needs that specific good or service has only one company it can turn to in order to get what it needs.

• Both types of monopolies provide a great amount of pricing control, which is bad for consumers (monopolies create lesser quality and greater prices) but awesome for the monopolistic company!

The Rockefeller’s and Standard Oil• Standard Oil Co. Inc. was an American oil producing, transporting,

refining, and marketing corporation established in 1870. It was the largest oil refiner in the world from the 1880’s until 1911, when the United States Supreme Court ruled that Standard Oil was an illegal monopoly. Standard Oil dominated the oil products market initially through horizontal integration in the refining sector, then, in later years vertical integration; the company also became the first business trust. The Standard Oil trust streamlined production and logistics, lowered costs, and undercut competitors. "Trust-busting" critics accused Standard Oil of using aggressive pricing to destroy competitors and form a monopoly that threatened consumers.

• John D. Rockefeller was the founder, chairman and majority stockholder. In 1911, after the Standard Oil trust was dissolved into 33 smaller companies, Rockefeller became the richest man in the world. Other notable Standard Oil principals include Henry Flagler, developer of Florida's Florida East Coast Railway and resort cities, (including Miami).

Trusts and Trust Busting• A trust occurs when one person owns a company but allows another

person to manage their company. That person is called a trustee. What Standard Oil did was have major stockholders of the company give their stock over to a group of trustees that would manage their shares of stock in return for more shares of stock and profits made by the company. This created a system where the trustees could control various companies vertically and/or horizontally as if it were one huge company, thus creating an even larger form of monopoly.

• As stated previously, monopolies are only good for the monopolists; they are generally bad for everyone else. As a result politicians in the late 19th century passed laws to regulate monopolies and trusts, making many of these business arrangements illegal. Later, the three Progressive Presidents such as Theodore Roosevelt, William Howard Taft, and Woodrow Wilson became known as trust busters, in other words, politicians who went after monopolists and tried to bust up, or break up their monopolies.

American Anti-Trust Laws• The main Federal anti-trust statutes are the Sherman Anti-

Trust Act of 1890, the Clayton Anti-Trust Act of 1914, and the Federal Trade Commission Act of 1914. These laws accomplished three things. First, they restrict the formation of cartels and prohibit collusion (where corporations get together with one another, usually to either fix prices or wages or both, to the detriment of consumers and workers). These practices are considered to be practices restraint of trade and anti-competitive (price fixing) or detrimental to workers (wage fixing). Second, they restrict the ability of companies to merge with other companies or acquire other companies in order to lessen competition. Third, they forbid the creation of certain types of monopolies as well as the abuse of certain tactics to abuse monopoly power.

The Gospel of Wealth• This was the title of an article written

by Andrew Carnegie in 1889 that describes the responsibility of philanthropy by the wealthy.

• The key, according to Carnegie, is distributing one’s fortune in a way that it will always be put to best use, rather than be wasted on worthless expenditures.

• Carnegie put his philosophy into practice through a program of financial “endowments” to build public libraries, known as 'Carnegie libraries' in cities and towns throughout the United States and the English-speaking world. The idea was to provide people with the tools to better themselves.

Big Business and Its Changing Environment

• Famous Philanthropists– John D. Rockefeller –

given half a billion dollars by the time of his death as well as establishing the Rockefeller Foundation.

– Rockefeller is pictured here in 1907 beside a building.

John D. RockefellerChicago Daily News negatives collection, DN-0051595. Courtesy of the Chicago Historical Society

Big Business and Its Changing

Environment

• Famous Philanthropists– Andrew Carnegie – gave

away $350 million by the time of his death in addition to his libraries, university, and the Carnegie Foundation.

– Authored “The Gospel of Wealth” a book which urged the wealthy to give generously to the poor and to the less fortunate. This stance stood in stark contrast to the Social Darwinists led by Herbert Spencer.

Andrew Carnegie Courtesy of The General Libraries, The

University of Texas at Austin.

Social DarwinismHerbert Spencer an American sociologist and who fathered the idea of Social Darwinism. His doctrines of “survival of the fittest,” “laissez faire” and the "night watchman state" became the conventional wisdom of most English speaking social theory from 1890 to 1920, celebrated by sociologists such as W. G. Sumner and by robber barons such as Andrew Carnegie. Spencer saw individualism and competition as the key to social progress, and he argued that government programs are ineffective and lead to dependency. The individualism and the biological reductionism of Social Darwinism was in conflict with the basic insight that human behavior is socially shaped by culture, families, religion, class, gender, schools, organizations and other groups.