The Rise of Big Business- The Incorporation of America

Causes of Rapid Industrialization Steam Revolution of the 1830s-1850s The Railroad fueled the growing US economy: First big business in the US A magnet for financial investment The key to opening the West Aided the development of other industries Technological innovations Bessemer and open hearth process Refrigerated cars Edison “Wizard of Menlo Park” light bulb, phonograph, motion pictures

Causes of Rapid Industrialization Unskilled & semi-skilled labor in abundance Abundant capital New, talented group of businessmen [entrepreneurs] and advisors Market growing as US population increased Government willing to help at all levels to stimulate economic growth Abundant natural resources

New Types of Business Entities Pool: 1887 Interstate Commerce Act  Interstate Commerce Commission created

New Types of Business Entities Trust: Horizontal Integration  John D. Rockefeller and Andrew Carnegie Vertical Integration: Gustavus Swift - Meat-packing Andrew Carnegie - Steel John D. Rockefeller - Oil

New Types of Business Entities

New Business Culture Laissez Faire  the ideology of the Industrial Age Individual as a moral and economic ideal Individuals should compete freely in the marketplace The market was not man-made or invented No room for government in the market

The Reorganization of Work The Principles of Scientific Management (1911) Replace rule-of-thumb work methods with methods based on a scientific study of the tasks Scientifically select, train, and develop each employee rather than passively leaving them to train themselves Provide "Detailed instruction and supervision of each worker in the performance of that worker's discrete task" Divide work nearly equally between managers and workers, so that the managers apply scientific management principles to planning the work and the workers actually perform the tasks Frederick W. Taylor

The Reorganization of Work The Assembly Line

Social Darwinism British economist Advocate of laissez-faire Adapted Darwin’s ideas from the “Origin of Species” to humans Notion of “Survival of the Fittest” Herbert Spencer

Social Darwinism in America Individuals must have absolute freedom to struggle, succeed or fail. Therefore, state intervention to reward society and the economy is futile! William Graham Sumner

The Gospel of Wealth Wealth no longer looked upon as bad Viewed as a sign of God’s approval Christian duty to accumulate wealth Should not help the poor Russell H. Conwell

The Gospel of Wealth "I say that you ought to get rich, and it is your duty to get rich.... The men who get rich may be the most honest men you find in the community. Let me say here clearly .. . ninety-eight out of one hundred of the rich men of America are honest. That is why they are rich. That is why they are trusted with money. That is why they carry on great enterprises and find plenty of people to work with them. It is because they are honest men. ... ... I sympathize with the poor, but the number of poor who are to be sympathized with is very small. To sympathize with a man whom God has punished for his sins ... is to do wrong.... let us remember there is not a poor person in the United States who was not made poor by his own shortcomings. ..." -Russell Conwell from his speech- “Acres of Diamonds”

New Business Culture and the American Dream Protestant (Puritan) “Work Ethic” Horatio Alger (100+ novels)

Robber Barons or Captains of Industry?

Cornelius “Commodore” Vanderbilt Becomes captain of the railroad industry by consolidating several of the major trunk lines Most of these lines led into Chicago or New York Reduced the amount of railroad companies, making coordinating transportation easier Can’t I do what I want with my money?

William Vanderbilt The public be damned! What do I care about the law? Ain’t I got the power?

John D. Rockefeller Becomes king of the oil industry Takes advantage of the 1860s oil rush in PA by creating Standard Oil in 1870 Used the latest tech. and efficient practices By 1881 S.O. controlled 90% of oil refineries

Standard Oil

Andrew Carnegie Dominated the steel industry after coming to the U.S. as a poor Scottish immigrant-perfect example of the “American success story” Worked his way up through the railroad industry and was able to purchase stock along the way Started his own steel company in Pittsburgh using the Bessemer Process Increased production of steel from 13,000 tons in 1860 to 1.4 million tons by 1880 By 1900 Carnegie Steel had 20,000 employees and was the largest steel company Sold his company to JP Morgan in 1900 for $400 million

Iron and Steel Production

Carnegie’s Beliefs about Wealth The Anglo-Saxon race is superior “Gospel of Wealth” (1901) Inequality is inevitable and good Wealthy should act as “trustees” for their “poorer brethren”

John Pierpont (J.P.) Morgan Gained prominence as an investment banker who invested European capital ($) in promising American businesses Through his investments (ex. buying stock) he was able to gain positions on the boards of many of the companies- allowing him to shape the direction of the businesses Bought what will become U.S. Steel which will become the first billion dollar corporation

Meat Packing Industry Gustavus Swift (Chicago) and Philip Armour (Minneapolis) dominated the meat packing industry Swift used Vertical Integration which allowed his company to control all of the steps in the process (from moo to chew)

% of Billionaires in 1900

% of Billionaires in 1918

Regulating the Trusts 1877  Munn. v. IL 1886  Wabash, St. Louis & Pacific Railroad Company v. IL 1890  Sherman Antitrust Act in “restraint of trade” “rule of reason” loophole 1895  US v. E. C. Knight Co.