4.2 Growth of Big Business Angela Brown http://faculty.uml.edu/sgallagher/sgallagher/Small22Jan1900.JPG

Bellringer 2: Define a “big business” and a “mom and pop” business. Discuss how the two differ. Learning Targets: I Can… Analyze different methods that businesses used to increase their profits. Describe the public debate over the impact of big business. Explain how the government took steps to block abuses of corporate power.

Section Focus Question How did big business shape the American economy in the late 1800s and early 1900s? Witness History: CD 2 # 31 From Rags to Riches Andrew Carnegie excerpt from The Gospel of Wealth Why do you think Carnegie believed that a man who dies rich is “disgraced”? Why did so many people admire Carnegie?

Robber Barons or Captains of Industry “Robber barons” implies that the business leaders built their fortunes by stealing from the public. (Ex. Natural resources, interpreting laws in their favor, driving competitors to ruin, paying workers meager wages, etc.)

The term “captains of industry,” suggests that the business leaders served their nation in a positive way. (Ex. Building factories, raising productivity, expanding markets, founding and funding outstanding museums, libraries, and universities etc.) Both view of America’s early big business contain elements of truth.

Andrew Carnegie Captain of the Steel Industry In 1865, at the age of 30, Carnegie was making $50,000 a year. He wanted to invest his wealth. During the early 1870’s, near Pittsburgh, he founded the first steel plants to the Bessemer process. The Carnegie Steel Company was established in 1889.

Andrew Carnegie http://www.columbia.edu/cu/lweb/img/assets/4815/Copy%20of%20ANDREW.jpg

Carnegie soon controlled the American steel industry, from the mines that produced iron ore to the furnaces and mills that made pig iron and steel. He even bought up the shipping and rail lines necessary to transport his products to market.

Carnegie the Philanthropist Carnegies message was simple: People should be free to make as much money as they can. After they make it, however, they should give it away. Carnegie had donated the money for roughly 3,000 free public libraries, supported artistic and research institutes, and set up a fund to study how to abolish war. http://www.spartacus.schoolnet.co.uk/USA carnegie2.JPG

By the time he died in 1919, he had given away some $350 million. Still not everyone approved of his methods. Workers protested against his labor practices and many others doubted the sincerity of his good works. http://www.carnegiecarnegie .com/c-c-logo.jpg

Social Darwinism A theory soon emerged that applied Darwin’s theory to the struggle between workers and employees. Social Darwinism held that society should do as little as possible to interfere with peoples pursuit of success. If government would stay out of the affairs of business those who were most “fit” would succeed and become rich. Society as a whole would benefit from the success of the fit and the weeding out of the unfit.

Most Americans agreed that the government should not interfere with private businesses. As a result, the government neither taxed businesses’ profits nor regulated their relations with their workers.

*Corporations Develop A number of people share ownership of a business. If a corporation fails, the investors lose no more than they had originally invested. Corporations have the same rights as individuals. It can buy, sell, or sue in court. If a person chooses to leave the corporation others buy out their interests.

Gaining a Competitive Edge Monopolies and Cartels Some companies set out to gain a monopoly or complete control of a product or service. Once consumers had no other place to turn for a given product or service, the sole remaining company would be free to raise its prices. Toward the end of the 1800s, federal and state governments passes laws to prevent certain monopolistic practices.

Political leaders refused to attack the powerful business leaders. Sometimes industrialists prospered by taking steps to limit competition with other firms. One way was to form a cartel- a loose association of businesses that make the same product. Members of a cartel agreed to limit the supply of their product and thus keep prices high.

The Standard Oil Trust Oil had become a major industry after Edwin L. Drake proved that it could be extracted from the ground through a well at Titusville, Pennsylvania, in 1858. Events in Pennsylvania excited John D. Rockefeller. He had become rich from a grain and meat partnership during the Civil War. In 1863 Rockefeller built an oil refinery near Cleveland, Ohio. http://antiqueshopsinohio.com/images/famous_people_photos/ John%20D.%20Rockefeller.jpg

In 1870 Rockefeller and several associates formed the Standard Oil Company of Ohio. Rockefeller persuaded his railroad friends to give him refunds on part of the cost of transporting his oil. He was then able to set Standard Oil’s prices lower than those of his competitors. As he sold more oil, he was able to undersell his competitors by charging even less. He soon had enough money to buy out his competitors.

Trusts State laws prohibited one company from owning the stock of another. Samuel Dodd had an idea. In 1882 the owners of Standard Oil and companies allied with it agreed to combine their operations. They would turn over their assets to a board of nine trustees. The board of trustees managed the companies as a single unit called a trust. 40 companies joined the trust. Because the companies did not officially merge, no laws were violated.

*Interstate Commerce Commission ICC created in 1887 to oversee railroad operations due to the industries unjust business practices. The first federal body created to monitor American Business Corps. ICC could only monitor railroads that crossed state lines. ICC could require the railroads to send their records to Congress for review.

Sherman Anti-Trust Act In 1890 Congress responded by passing the Sherman Antitrust Act. This law outlawed any combination of companies that restrained interstate trade or commerce. The law was ineffective for nearly 15 years. The federal government rarely enforced it. The law’s vague wording made it hard to apply in court. The act was successfully applied toward labor unions. Federal officials argued that labor unions restrained trade because workers were combining to gain an advantage.

Methods of Industrial Control Horizontal consolidation is bringing together many firms that were in the same business. (Ex: Rockefeller’s use of Standard Oil) Vertical consolidation or gaining control of the many different businesses that make up all phases of a product’s development was used by Andrew Carnegie. By controlling all stages of steel production he could charge less because of economies of scale. As production increases, the cost of each item produced is often lower.

Effects on American Society Industrial giants continued to sidestep the law. Politicians did not have the will to crack down on them. These firms contributed mightily to the United States rising level of wealth. Rapid industrial growth did place strains on the economy. In 1893 a period of expansion rapidly ended. Nearly 500 banks and more than 15000 businesses had failed, and the economy sank into a four-year depression.

Economists call such a “boom or bust” period a business cycle. One cause of the depression that began in 1893 was a panic. The resulting unemployment caused widespread misery, especially among workers and their families.

Analyzing Textbook Resources What is the legacy of the business tycoons? Comparing viewpoints on page 109. Study and answer compare questions 1 and 2. New Ways of Doing Business on page 111. Read and answer the Thinking Critically question. Andrew Carnegie: Wealth (1889) Primary Source on page 113. Read and answer Thinking Critically questions 1 and 2.

Exit Slip Suppose you are a small business owner in competition with a cartel or monopoly in the 1800s. Write a paragraph that explains the difficulties the business faces. 1. Why might the philanthropy of rich business men affect people’s opinion of them? What assumption does Social Darwinism make about the poor, who were exploited by big business? Why did the federal regulations on railroads and businesses have little effect? What does his tell you about the relationship between government and big business?