“The Business of America is Business”

The Rise of Big Business By 1900, businesses completely dominated the economy. There were vast complexes of factories, warehouses, and distribution facilities. Big business depended on the corporation which was an organization owned by many people, but treated by law as if it were one person. Corporations sold stocks to their stockholders – shares of ownership.

Economies of Scale With the money they raised from the sale of stock, corporations could invest in new technologies, hire larger workforces, and thereby greatly increase their efficiency. This enabled them to achieve economies of scale – decreasing the cost of manufacturing by producing goods quickly in large quantities.

Big Business Booms Big businesses had several advantages: Could produce more cheaply and efficiently. Could cut prices to increase sales rather than shutting down. Could negotiate rebates from RR further lowering their operating costs. As a result many small businesses were forced into bankruptcy during this time.

Competition leads to Pools The intense competition for pricing caused some business owners to organize themselves into pools – which were pricing agreements. Pools generally didn’t last b/c one member usually broke the agreement, and they weren’t protected by the court system.

The Captains of Industry The wealthiest businessmen of the time were: Andrew Carnegie – U.S. Steel Cornelius Vanderbilt – RR industry John D. Rockefeller – Standard Oil Company J.P. Morgan – Investment Banking These men made their money by organizing monopolies.

Forming Monopolies To form a monopoly the businessman bought every business that had something to do with his production. When a single company achieves control of an entire market they have a monopoly.

Example – Form an Automobile Trust What companies would you need to control to control the industry completely?

Trusts and Holding Companies A trust was a way to merge companies that did not violate the anti-monopoly laws. The person who manages the company is a trustee who don’t own stock = no laws violated. A holding company doesn’t produce anything itself, but owns stock in the companies that do the production. The holding company then effectively merges all the companies into one large enterprise.

Advertising the Product Because companies were getting so large retail stores also had to expand. Huge illustrated ads began appearing in newspapers throughout America. Chain stores began to appear in large cities. To reach people who lived in rural areas mail-order catalogs became very popular and widespread (Sears and Woolworths were the largest of these stores.)