Bell Ringer Write these down and respond on a separate sheet of paper: Why is competition between business so important to the American economy? What did men like Carnegie, Rockefeller and JP Morgan do to stifle competition?

Chapter 6, Section 2 September 7, 2010 Money for nothing (and your chicks for free…) Big Business and Industry in the late 1800s Chapter 6, Section 2 September 7, 2010

Horatio Alger Alger was an incredibly successful author in the late 1800s who wrote books that appealed to both workers and their bosses. All of Alger’s plots were pretty much the same. A poor kid catches a break and uses hard work to become successful. Is this really possible? Is this the “American Dream?”

What is a corporation? A CORPORATION is a business owned by many people, but acts as though it was owned by a single person.

Advantages to a corporation Can sell STOCK, or shares of the corporation, to raise money. Stockholders are not responsible for the debts of the business, only the money that they put into it.

Corporations had higher FIXED COSTS – loans, taxes, etc Corporations had higher FIXED COSTS – loans, taxes, etc. but lower OPERATING COSTS – the costs that it takes to run a company. Goods could be made quickly in large factories. Because of this, corporations made goods CHEAPLY (thus bigger profits).

BESSEMER PROCESS In 1875, Henry Bessemer created an easier and less expensive way to make steel. Steel was used for railroads. Buildings, and bridges. Andrew Carnegie uses this process to build a steel company in Pittsburgh.

ANDREW CARNEGIE Born in Scotland and comes to the U.S. in 1848. Example of the “American Dream.” Starts work in a factory at $1.20 per week. Works hard, gets promoted, and gets a break – given $600 for his first investment. Buys shares of stock in iron mills and factories. Begins to concentrate on making STEEL in 1875.

Social Gospel Andrew Carnegie claimed that it was the moral duty of those with wealth to use their wealth to help society. He was specific about the fact that this is voluntary action and not required by law.

VERTICAL INTEGRATION Carnegie’s steel companies used VERTICAL INTEGRATION. Here, a company owns all of the different businesses it needs for production. EXAMPLE: Carnegie owned iron ore mines, coal fields, railroads, and steel mills. If he owned all this, he kept production costs LOW.

Social Darwinism Carnegie described his success in a philosophy we know today as Social Darwinism. This idea basically says that the strong will survive in a laissez faire economy and that that economy should not be regulated and that the weak will not make it or will have to find another profession or do their job better in order to make a living.  

JOHN D. ROCKEFELLER 1870 – Forms the STANDARD OIL COMPANY. The nation’s largest oil company. Rockefeller uses vertical integration, but he also uses HORIZONTAL INTEGRATION.

HORIZONTAL INTEGRATION With Horizontal integration, you own all of the companies in a particular field. Example: By 1880, Rockefeller controls 80% of the oil industry in the U.S. This can lead to a MONOPOLY – where one company owns all of a product. Monopolies are bad, because there is NO COMPETITION. A company can set whatever prices it wants.

TRUSTS In many states, monopolies become illegal. To get around this, companies form TRUSTS – a way to own businesses without violating the law.

Sherman Anti Trust Act By the 1890s, the government was becoming concerned that expanding corporations would stifle competition. Since the was no clear definition of what a trust was, the government had difficulty enforcing the act, and the Supreme Court threw out most of the cases the government brought against corporations. Government eventually gave up and consolidation of businesses continued.

Railroad Robber Barons Some RR entrepreneurs get their fortune by illegal means. Often BRIBERY was used with members of Congress to get land grants for RRs. JAY GOULD is one of the worst examples of these ROBBER BARONS.

Credit Mobilier Scandal 1872 – A construction group known as the Credit Mobilier company bribes Congress to give RR contracts to the Union Pacific. Cred Mob makes $$ off of this. An example of corruption with RRs during this time.