Ch 9, Sec 2-3: The Railroads and Big Business

Objectives How did the railroads create industrial growth? Analyze how the railroads were financed and how they grew Analyze how large corporations came to dominate American Business Evaluate how Andrew Carnegie’s innovations transformed the steel industry.

Growth of Railroads Pre-Civil War-35,000 miles of track By ,000 miles of track Pacific Railway Act – Gov’t gave land to 2 railroad companies to build the transcontinental railroad

Transcontinental RR: Union Pacific RR Started in Omaha, Ne Problems: mountains, desert, lack of money, natives, worker differences Workers- 10,000 immigrants (Irish), miners, farmers, ex-cons

Transcontinental RR: Central Pacific Started in California Sold to 4 men who had a dream of connecting the country Problems-lack of materials and workers Workers-10,000 Chinese immigrants Materials-shipped around S. America from East coast of U.S.

End Result of the Transcontinental RR Increase of immigrants Rise in factory production of steel Rise in timber and coal sales Allowed the country to be connected from one coast to the other

Cornelius Vanderbilt Railroad tycoon Bought small RR companies to make his company bigger First direct line from NY to Chicago Built NY’s Grant Central terminal

Problems with RR’s Local times conflicted with train schedules Led to train collisions Solution-created 4 time zones in 1883

Benefits of a connected RR system Trains had the same technology across the nation Bigger trains could go anywhere Safety increased Lowered the cost of shipping goods United Americans in different regions

How did they pay for the new RR’s? Tycoons spent their own money Banks/companies invested into small RR’s Gov’t gave land grants to companies: – Land was then sold to people/companies to raise money for the RR company – Made building RR’s dirt cheap if not free

Robber Barons Business men who cheated, bribed, or tricked others into giving up land, info, or money Caused the stock market to go crazy Bribed corrupt gov’t officials to give out more land grants – Ex: Credit Mobilier Scandal

Change of Power: Rise of Big Business By 1900, corrupt RR’s were losing power and factories/big companies were gaining power Big companies were run by corporations

What’s a corporation? An organization owned by many people but treated by law as though it were a single person Run by stockholders Sell and buy stock Not regulated by the gov’t after the Civil War

Advantages of Corporations Large amounts of money Could buy new technology Made products cheaper for bigger profits Could remain open even in bad times – High fixed costs-loans, taxes, mortgage – Low operating costs-wages, raw materials, supplies

Question You are a small company producing shoes. Nobody is buying shoes right now and your business is going bankrupt. What are your options to survive? Talk with your neighbors and come up with the best solution.

Possible Question Solutions Sell your company to a big corporation Sell your shoes for less to gain the customers Close your business and then open it up when people are buying shoes Make an agreement with other shoe companies so nobody cuts the prices forming a “pool”

Andrew Carnegie Immigrant from Scotland Gained knowledge in the RR business Started buying every company that had a connection to the RR business – Iron mills, sleeping car and train builders, etc Sold everything to gain a monopoly on the steel industry-U.S. Steel

Vertical Integration in Big Business Companies would buy all companies that dealt with their product Ex: Dairy Queen-buy dairy cows, sugar farms, candy companies and packaging factories Benefit-big companies were paying less for supplies for the big/final product – Carnegie-U.S. Steel

Horizontal Integration in Big Business Bigger businesses buy out smaller businesses to create one large company Ex: Rockefeller created Standard Oil by buying up all of the other oil refineries Benefit-control prices and corner the market for big profits

Create your own company With a partner, write down (on your starter sheet) two ways to get a monopoly on a business of your choice using horizontal and vertical integration.

Rise in trusts To prevent monopolies, congress made it illegal for companies to buy stocks in other companies Business owners started trusts to get around this – Businesses would “manage” stocks for another company without buying out that company

Holding Companies A company that does not produce anything Buys a majority of stocks in other companies and control their decisions of what they produce

Results of Big Business New forms of advertising – Newspapers and magazines Rise in chain stores – Simple stores offering goods at cheaper prices Department Stores – New idea-lots of products under one roof Mail Order Catalogs – Sears, Roebuck and Montgomery Ward