Expansion of Industry, Railroads, & Big Business

Expansion of Industry

Natural Resources Fuel Growth Coal Mines Forests Farm Land Electricity! 1859 – 1st Oil Well drilled in PA (Edwin Drake) Oil replaced whale blubber Scientific Management changed production Immigration – Peaked at 1 M a year in 1905

Industrialization Development of industries for the mechanical mass production of goods Shift from making goods individually by hand  mass production using interchangeable parts and factories Led by entrepreneurs – person who organizes, manages, and takes the risk with starting an industry/business Mid 1800s to 1910s – mass production of raw materials using natural resources and technology “Second Industrial Revolution”

Industrialization and Oil 1859 – Edwin Drake developed the first steam engine oil drill Made it possible to extract “black gold” directly from the ground Growth of oil refineries to purify oil (by entrepreneurs)  kerosene and gasoline

Industrialization and Steel Home Insurance Building (1884) 1890s – large iron deposits discovered in Minnesota Iron contains carbon and bends/rusts easily  need to transform it into steel Bessemer process – process to make steel, injecting air into iron to remove carbon and impurities Steel’s uses Infrastructure (transportation systems) – railroad tracks, bridges Barbed wire Farm equipment Architecture – skyscrapers, rise of modern cities

Laissez-faire Economics The U.S. Gov’t policy was “hands off” so businesses had little gov’t regulation When gov’t did intervene, it was to aid businesses in starting up or to provide subsidies (like land grants) and protective tariffs. The U.S. economy was 100% governed by the Laws of Supply and Demand!

Inventions Promote Change Thomas Edison – incandescent light bulb (1880), later invented a system to producing and distributing electrical power Harnessing the power of electricity  revolutionized American life Inexpensive, convenient Businesses - boom in industries, factories could locate anyway, run machines off electricity Homes - Outward growth of cities, electric appliances Cities – electric streetcars offered cheap travel

Inventions Promote Change Christopher Sholes – typewriter (1867) Changes in the workplace Alexander Graham Bell – telephone (1876) Changes in communication New jobs for women Garment/textile factory work Clerical and secretarial office work

Inventions Promote Change Samuel F.B. Morse– American inventor credited with the development of the telegraph and Morse Code in 1844. Interested in gadgetry and electromagnetism, Morse took out a patent for the telegraph. In 1836, Morse had a working model, which he made improvements to after he learned about similar works done by American physicist, Joseph Henry.

Effects of Industrialization and Inventions Positive Negative Freed some labor from backbreaking work in factories Improved standard of living for workers (shorter days, less dangerous) New consumer markets Harm to environment Depletion of natural resources Mechanization of factories  reduced human worth

Expansion of Big Business

Fewer Control More Mid-late 1800s – some entrepreneurs and companies grew to consolidate and engulf an entire industry Entrepreneurs – “Robber Barons” – big businessmen of the late 1800s, used ruthless tactics to dominate industries

Fewer Control More How did the Robber Barons dominate industries? Vertical integration – owning all of the steps of producing and selling a good Ex: owning iron mines, steel factories, and railroads for steel distribution Horizontal integration – owning all of the companies that manufactures a good (no competition = a monopoly) Ex: owning all of the steel producing factories Accomplished by merging – buying all of the stock of another company

Andrew Carnegie American industrialist and philanthropist 1873 - founded Carnegie Steel Company using the Bessemer process Practiced vertical integration Constantly updated technology for maximum production Pleased employees – stock options, used other incentives to foster friendly competition among workers

Andrew Carnegie Robber Barons were considered to be ruthless and selfish men, HOWEVER Carnegie is generally considered to have been honest and philanthropic. Basically the only big businessman of the time to NOT earn the Robber Baron title Gave 98% of wealth to various charities (over $350 million) – centered around education advancements, free and public libraries, and global peace 14 of Carnegie’s trusts and organizations still exist today

Robber Barons Consolidate Industries Most Robber Barons attempted horizontal integration through mergers  monopolies. Complete control over its industry, therefore can charge any price for the product. How merge? Use a holding company Form a trust agreement

Robber Barons Consolidate Industries Holding Company Trust Agreement Companies’ stocks are owned by a group of trustees that run all of the businesses in the trust  individual companies earned dividends on trust profits (even though trusts were illegal…) Ex: John D. Rockefeller’s Standard Oil Company in the Standard Oil Trust – controlled 90% of oil processing by 1880 Company that just buys all of the stocks of other companies Ex: J.P. Morgan’s United American Steel company bought all steel companies (including Carnegie Steel)  steel monopoly

Vanderbilt – controlled many railroad companies Rockefeller’s Standard Oil monopoly

Robber Barons’ Ruthless Tactics Rockefeller and other Robber Barons reaped huge profits. Paid workers extremely low wages Drove out any competition that didn’t merge by selling oil at a lower cost than it cost to produce it THEN when market was controlled, prices skyrocketed Critics pressured some industrialists to be philanthropic. Rockefeller kept most assets but gave away over $500 million  Rockefeller Foundation, funds to found the University of Chicago, and a medical institute

Sherman Antitrust Act Fed gov’t concerned that expanding corporations and monopolies would hinder competition in a free market. Sherman Antitrust Act (1890) Illegal to form a trust interfering with free trade between states or other countries Did not clearly define “trust” and corporations found loopholes in the law By 1900, gov’t gave up on trying to stop monopolies

How were corporations able to form monopolies? Let’s Use McDonald’s as an example

Beef Cheese Lettuce Onion Sauce Bread Sesame Seeds Pickles What Ingredients are necessary to make a big mac? Beef Cheese Lettuce Onion Sauce Bread Sesame Seeds Pickles How does McDonald’s get all of their ingredients? Do they own their own lettuce farms? Do they own their own cattle ranches? Do they own their own bakery?

NO!! They pay other companies to grow their produce, raise the cattle, bake the bread, and produce all of the other ingredients they need The price McDonald’s charges is driven, in part, by what they have to pay these companies And… in part by the need to attract customers who might, go to the competition instead

What companies does McDonald's compete with? How can McDonald’s attract customers who might go to the competition? 1. Make a better product 2. Lower the price

What can McDonald's do to attract customers? Use cheaper ingredients Operate at a loss Cut down on costs

If McDonald’s was going to cut down on costs without sacrificing product or service, what could they do? Buy up all the other companies they deal with, giving McDonald’s control of the entire process of making and delivering hamburgers

* Buy up all the cattle ranches * Buy up the transport companies * Buy up the farms * Buy up the bakeries * Buy up the transport companies Result? Lower Long-Term Costs

With Lower Costs, McDonald's can lower their prices If they lower their prices enough, what will happen to the competition?

With no competition, what can McDonald's do to prices?

Monopoly With high prices, consumers lose When one company takes control of the entire market, it is called a monopoly

Industrialization Bypasses the South Late 1800s – Post-Reconstruction South remained based in agriculture and struggled to make profits. High tariffs on raw materials and imported goods Lack of skilled workers Fewer railroads Less connectivity for shipping or receiving Less communication Fewer markets

Social Darwinism The “Gospel of Wealth” - Carnegie said “millionaires are the bees that make the most honey” Based on Charles Darwin’s theory of evolution (1859) Social Darwinism – the theory that gov’t shouldn’t interfere with business and the fittest entrepreneurs will become rich & build a strong society

To Do: Read the two historical interpretations on Robber Barons and Captains of Industry (answer the 4 questions). Choose from the four main guys of this time to do your research on (Andrew Carnegie, Cornelius Vanderbilt, J. Pierpont Morgan, and John D. Rockefeller) No one in the same group can do the same guy. Use the links in the classroom assignment to research and fill out the worksheet. Finally, answer the essay question after your research is complete. Share with your group members the information you found on your guy to help you come to a conclusion.