SECTION 1 Corporations Gain Power Economic Growth Brings Wealth and Poverty November 2011

KEY QUESTIONS: What is a corporation? How did corporations affect business competition? What is a monopoly? What is a trust?

Rise of Corporations: Corporation – business owned by investors through shares of stock. (shareholders or stockholders) allows pooling of money (capital) for larger factories or expansion of factories

Rise of Corporations: corporations can put smaller competitors out of business, or buy them out (can out-produce them) Dividends = payments to shareholders out of profits after expenses are paid

The Oil Industry: Natural resource discovered in Pennsylvania in 1859 John D. Rockefeller and Standard Oil Co. control the industry Eliminate competition

The Oil Industry: Developed Standard Oil Trust 1882 Controlled 95% of oil industry Becomes a “Robber Baron”

Trust: a group of corporations run by a single board of directors. Creates a monopoly (control of all or nearly all of the business of an industry (think Microsoft!)

Reasons for Opposition to Trusts: 1. Reduces competition 2. Prices are higher 3. Companies have no reason to improve products or advance technology

Reasons for Opposition to Trusts: 4. Difficult for new companies to start up 5. Workers felt larger corporations did not care about them, treated them badly

Reasons for Opposition to Trusts: 6. Leaders of big business could buy favors from politicians (government corruption, bribery)

“Bosses of the Senate” – 1889 from Puck Magazine

The Steel Industry: Andrew Carnegie controls steel industry by making best, cheapest steel Uses “vertical integration” to do this. Control every step in the process of making steel

Banks & Industry: large banks loaned money to corporations for expansion J. P. Morgan – most powerful banker of late 1800s-early 1900s bankers helped business during economic hard times with investments

1800s = Unregulated Economy in US. Industries had “ups and downs” of good/bad times. Called the business cycle (“boom and bust”). Depression = long period of very bad times (1873, 1893) characterized by: Spending & investing decrease Workers laid off Reduce production Some businesses close

The Gilded Age: The wealth of a few masked society’s problems: Corrupt politics & politicians Poverty South’s economy & industries grew very slowly