Capitalism & Democracy USHC 4.3

USHC 4.3 Evaluate the role of capitalism and its impact on democracy, including the ascent of new industries, the increasing availability of consumer goods and the rising standard of living, the role of entrepreneurs, the rise of business through monopoly and the influence of business ideologies.

Capitalism Capitalism has played a central role in the development of the United States and the American economy since the first settlers landed Capitalism is an economic system that is characterized by private ownership of property and the use of that property to make a profit for the individual or the corporation acting as an individual.

Capitalism (cont.) As such, capitalism supports the democratic ideal of individual freedom and opportunity. Corporations promoted early industrialization before the Civil War by raising capital through the sale of stock to invest in large scale business ventures.

Corporations Corporations became larger and more powerful through mergers and monopoly Had a greater influence on the economy, politics and government policy Critics began to question the compatibility of large unfettered corporations versus the rights of workers and consumers in a democracy.

New Industries The railroad was the economic engine that drove the economy. The establishment of several transcontinental routes helped to unite the country and promoted economic growth and the development of a national market.

Railroad Effects The railroad industry needed: steel rails wooden railroad ties railroad cars Its ability to transport goods contributed to the growth of: Steel, lumber, meat packing, and coal industries

Railroad Effects (cont.) The railroad brought new settlers through aggressive advertising, land sales, and provided farmers access to markets. New towns grew along its routes and older ones were able to specialize in particular products. Competition caused some railroads to be forced to merge with others to survive.

Captains of Industry When the cut-throat competition drove some railroad companies into bankruptcy, the national economy was thrown into depression Entrepreneurs used new technologies and new business tactics to create large corporations to control their industry

Tactics Used to Control Industry The introduction of the Bessemer process and astute business practices prompted the ascendancy of Andrew Carnegie to control of the steel industry through a vertical integration of his business that gave him a monopoly. Carnegie controlled the steel industry from the mining of iron ore and coal to the steel mill In microeconomics and management, vertical integration is an arrangement in which the supply chain of a company is owned by that 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, wherein a company produces several items which are related to one another. Vertical integration has also described management styles that bring large portions of the supply chain not only under a common ownership, but also into one corporation (as in the 1920s when the Ford River Rouge Complex began making much of its own steel rather than buying it from suppliers).

Tactics Used to Control Industry (cont.) John D. Rockefeller used a variety of tactics in his struggle against his competitors to gain control of the oil industry. He forced railroads to give him kickbacks and rebates that hurt his competitors. He controlled retail outlets and forced them not to sell the products of his competitors.

Tactics Used to Control Industry (cont.) He undersold the market until he drove his competition out and then increased the price of oil. He initiated the business device known as the trust to gain control of the oil refining industry through a horizontal integration. When public concern over monopoly led to the passage of the Sherman Anti-Trust Act, Rockefeller turned to the holding company to continue his monopoly. Horizontal integration is the process of a company increasing production of goods or services at the same part of the supply chain. A company may do this via internal expansion, acquisition or merger.[1][2][3] The process can lead to monopoly if a company captures the vast majority of the market for that product or service.[3] Horizontal integration is orthogonal to vertical integration, where companies integrate multiple stages of production of a small number of production units. A holding company is a company that owns other companies' outstanding stock. The term usually refers to a company that does not produce goods or services itself; rather, its purpose is to own shares of other companies to form a corporate group. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies.

Robber Barons Critics of these entrepreneurs and unfettered capitalism questioned whether the interests of the so-called “Robber Barons” were protected too much by government. Some argue “Robber Barons’ are “Captains of Industry” Unfettered competition led to economic uncertainty and periodic depressions and eventually to a public call for government regulation of monopolistic practices.

Public Reaction Through the democratic process, the voting public pressured the Congress to assert limited control over the power of Big Business through the Sherman Anti-Trust Act. Concerns of the public over the political power of the monopolies later contributed to the Progressive Movement.

Social Darwinism Captains of industry justified their sometime use of cut-throat practices with the ideologies of Social Darwinism (survival of the fittest) and laissez-faire capitalism (government hands off). Contrary to both of these ideologies, captains of industry also advocated government protection of the rights of management against labor and called for high tariffs to protect their monopolies.

American Dream Popular literature such as the Horatio Alger stories of “rags to riches” success provided support for the myth that anyone could make it if they worked hard enough. Andrew Carnegie improved his public image with his advocacy of the Gospel of Wealth and gave away millions to libraries and universities. John D. Rockefeller was also a philanthropist

Effects for Consumers The period ushered in a rise in the standard of living and new consumer products for many Americans All this despite the higher prices that monopolies were able to charge for their products! The harnessing of electricity, the invention of the typewriter and the telephone provided new opportunities for women in the workplace and new conveniences in the home.

Effects for Consumers Deflation and mass production lowered the price of goods. Although mass production was in use in this time period, the assembly line was NOT introduced until 1913 by Henry Ford. Some Americans, including farmers and factory workers, did not enjoy this improved standard of living because of low prices for their crops and low wages for their labor.