The Rise of Big Business Chapter 13 Section 2 The Rise of Big Business

The Rise of Big Business Introduction - Expansion of the nation’s transportation and communication systems allowed industrial leaders to conduct business on a large scale. Small companies were merged into national operations Business leaders had great wealth and power

A. Business leaders had great wealth and power 1. Critics called them “Robber Barons.” Admirers called them “Captains of Industry”

The Rise of Big Business Business Expansion – Until 1800’s, most business were run by single owners or partnerships, with few employees, that served a local or regional customer

A. Corporations and Investment Bankers - Business expansion in the late 1800’s required large amounts of capital To get capital industrialists created Corporations Businesses that are authorized by law to act as one person 2. A corporation often sells stock Shares of ownership in the business in order to raise capital b. Owners of stock are called shareholders and share in the profits of the corporation

A. Corporations and Investment Bankers 2. A corporation often sells stock c. Owners of stock are called shareholders and share in the profits of the corporation Corporations are run by a board of directors elected by the shareholders

A. Corporations and Investment Bankers 3. To acquire the huge sums of money needed, corporations relied on investment bankers. Investment bankers arrange for the sale of stocks and negotiated loans The most powerful investment banker of the late 1800’s was J.P. Morgan J.P. Morgan believed the most efficient way to earn a profit was through merger of businesses c. Morgan called competition “wasteful”

A. Corporations and Investment Bankers 4. In 1890’s Morgan and other bankers financed the growth of the railroad business and bought control of the industry They increased profits by cutting wages and granting rebates i. Partial refunds or discounts ii. Offered to companies that promised large amounts of business iii. Smaller railroads could not compete and would sell out to bankers

A. Corporations and Investment Bankers b. By 1900, seven railroad systems controlled nearly two thirds of the nations tracks c. This pattern was repeated in other industries John Pierpont Morgan Born: April 17, 1837, Hartford, Connecticut Died: March 31, 1913, Rome, Italy Wall Street Banker Once saved the federal government in 1895 when he loaned the United States more than $60 million dollars Bought Andrew Carnegie’s steel company for $400 million and formed U.S. Steel left much of his wealth to New York Metropolitan Museum of Art,

B. Carnegie and Steel 1. Andrew Carnegie was the son of a poor Scottish weaver a. Became millionaire through investments b. Used money to enter steel business Arrived in America in 1848 at the age of 13. Rose from cotton mill to telegraph operator Became private secretary to superintendent of Pennsylvania Railroad

B. Carnegie and Steel 1. Andrew Carnegie Used telegraph skills to untangle freight and passenger trains. Given stock tip as reward. Mortgaged family home and made fortune

B. Carnegie and Steel 2. Carnegie took every opportunity to cut prices and make a profit which drove out competition Between 1890 and 1900 Carnegie’s mills increased from $5.4 million to $40 million Carnegie invested in the businesses producing the raw materials for his mills Invested in the means of transporting raw materials to factories

B. Carnegie and Steel d. Vertical integration – controlling all aspects of an industry, including raw materials, transportation systems, and all stages of the manufacturing process In 1901 J.P. Morgan bought Carnegie’s company for $1.4 billion e. Carnegie spent the rest of his life as a Philanthropist A person who donates to museums, public libraries and other public works

Andrew Carnegie 1835-1919 Spent life acquiring wealth Retired one of wealthiest men in the World Spent retirement helping others with his wealth Gave to: Carnegie libraries, Carnegie Tech (now Carnegie-Mellon University) and Tuskegee Institute “The man who dies rich dies a disgrace.”

C. Rockefeller and Oil 1. John D. Rockefeller a. In 1860’s he visited Pennsylvania oil fields. Realized that by controlling the claims of several drillers a fortune could be made Horizontal integration – the merger of competing businesses or individual claims in the same business c. Named company Standard Oil

C. Rockefeller and Oil 1. John D. Rockefeller Controlled all aspects of the oil business trying to cut expenses Kept savings for himself d. Created new business organization called trust A legal agreement under which stockholders of different companies in one industry turn over stock to one group of directors called trustees

e. When Rockefeller retired he had a personal fortune of $1 billion C. Rockefeller and Oil 1. John D. Rockefeller e. When Rockefeller retired he had a personal fortune of $1 billion f. Reformers felt trusts endangered the American system of free enterprise John D. Rockefeller (1839-1937) America’s first billionaire Standard Oil broken up in 1911 Rockefeller spent last 40 years retired helping different charities and organizations. Used money to help education, medicine, and science. Help eradicate hookworm and yellow fever. Gave away one-half billion dollars.

III. The Antitrust Movement A. Laissez-faire – Traditionally American’s wanted the government to stay out of business affairs. The policy was called laissez-faire Wealthy Americans felt government should not interfere with capitalism a. The system in which privately owned businesses, farms, and factories compete with one another for profits

A. Laissez-faire 1. Wealthy Americans b. Some business people justified capitalism through the findings of science Charles Darwin’s 1859 theory of evolution was applied to business d. Social Darwinism – an extension of a scientific theory into business, the strong would survive and the weak would fail

A. Laissez-faire 1. Wealthy American Many felt that government should not tax the profits of the companies nor should they interfere in the treatment of workers

Regulating the Railroads –Many worried about the power of big business 1. Farmers were among the first to call for regulation of big business Because of corporate rebates farmers would often have to pay higher rates than businesses did to ship goods b. Farmers also protested the lack of competition among railroads

B. Regulating the Railroads 1. Farmers c. In 1887, Congress responded with the Interstate Commerce Act Law stated that railroads traveling through more than one state had to set rates that were “reasonable and just” ii. Rebates were outlawed iii. Rail rates had to be made public To enforce the terms of the Interstate Commerce Act the Interstate Commerce Commission (ICC) was created

B. Regulating the Railroads 1. Farmers e. ICC lacked power to enforce law Won only one out of sixteen cases brought to court between 1887 and 1905

C. The Sherman Antitrust Act 1. The states tried unsuccessfully to prohibit trusts Because most trusts operated in more than one state, the States turned to the federal government 1890 – The Congress tried to protect free competition by passing the Sherman Antitrust Act The act outlawed “every. . . Form of trust or otherwise” that promoted the “the restraint of trade”

1890 – The Congress tried to protect free competition by passing the Sherman Antitrust Act b. Interference of trade was outlawed c. Act had loopholes Didn’t define “trust” or “restraint of trade” Between 1890 and 1900 only 18 cases under act were tried and government lost most of them

3. 1890- Congress tried to protect free competition c. Act had loopholes iii. Trusts could dissolve and reform into new trusts or corporations iv. Government stopped using the act to fight trusts v. Law was used to stop labor unions from forming strikes, boycotts and other labor tactics

3. 1890 - d. By 1900 giant businesses controlled nearly two fifths of all capital invested in American manufacturing e. Growth of big business led to antitrust movement among reformers