The Rise of Big Business Chapter 3 Lesson 3

Robber Barons were accused of being just plain greedy unfair business practices, being above the law, abusing labor with low wages and long hours, having too much, influence on government, simply not caring about the American public, Political Cartoons on Robber Barons

Above the Law

abusing labor with low wages and long hours

Simply not caring about the American public,

having too much, influence on government,

being just plain greedy

Andrew Carnegie Carnegie started penniless, but he made his fortune in steel mills in the Pittsburgh, PA area. He used vertical integration to undercut the competition. He bought his own iron ore fields, coal mines and ships so he could control all phases of steel production. He crushed attempts to form labor unions, paid low wages, and forced laborers to work 12 hour days. The labor strike on Carnegie’s Homestead Steel Mill would be one of the eras most violent.

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John D. Rockefeller Rockefeller started out poor, but made his fortune in oil in Ohio. Kerosene, for lighting, made him millions, later the gasoline industry, would make him even richer. Rockefeller used horizontal integration and ruthless tactics to drive his competition out of business, then he would buy them out. His Standard Oil Co. became a trust, with him owning most of the shares. Later it would be a monopoly as he controlled 90% of all oil refined.

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Philanthropy Carnegie and Rockefeller both made millions at the expense of American public. They paid low wages and demanded long hours of work. As businessmen they didn’t believe in charity, their belief was; ‘help those who help themselves’ Later, both would lead the rich in philanthropy, they gave away millions of their dollars to the public. They built libraries', museums, colleges, and gave college scholarships. Here’s a dime

The Rise of Big Business Corporation Organization owned by many people aka stockholders Selling stock allows corporations to raise money Used the money from stock sales to Buy and create new technology Hire large workforces Purchase machines All of these things

Fixed costs Things you must pay no matter what Loans Mortgage taxes Operating costs Wages Shipping Raw materials

Economies of scale Greater efficiency Cost of manufacturing is decreased by producing goods quickly and in large quantities

Small Business Low fixed costs High operating costs Low sales = temporary shut down Big Business High fixed costs- buildings maintaining large factories Low operating costs (small part of their total costs) Sales slow down they did not shut down Who has the bigger advantage?

Pros and Cons of Big Business Large business is more efficient which leads to lower prices. Hire large numbers of workers. Produce goods in large quantities. Have the resources for expensive research and to invent new items. Unfair competitive advantage. Often exploited workers. Often unconcerned about pollution they may cause. Have an unfair influence on government rules that affect them.

Many family owned small businesses could not compete with large corporations Put out of business

Back to Carnegie Began vertical integration Carnegie decided he didn’t want to pay other companies for coal, lime, and iron... All items needed to manufacture steel He bought coal mines, limestone quarries, iron ore fields Owned all steps of his industrial process

Rockefeller Practiced horizontal integration Combining many firms in the same type of business into one corporation By 1880 Rockefeller’s Standard Oil controlled 90% of the oil refining industry This is called: Monopoly Total control of an industry by one person or company

Americans feared monopolies Large powerful companies that could control prices and manipulate politicians to make sure their competition was eliminated Enter Trusts Stop horizontal integration Many states made it illegal for one company to own stock in another company Rockefeller and Standard Oil found a way around this law by creating a trust Allows one person to manage another person’s property, called a trustee Standard oil stockholders gave their stock to a group of Standard Oil trustees who manage the company in exchange for a portion of the profits

Trustees did not own the stock, only managing the stocks/company Therefore not violating any laws Trustees can then control a group of companies as if they were one large company

Holding Companies