The Rise of Big Business Chapter 4 Section 2 The Rise of Big Business

The Rise of Big Business THE RISE OF BIG BUSINESS TURNED THE US INTO ONE OF THE MOST ECONOMICALLY POWERFUL COUNTRIES IN THE WORLD UNTIL THE MID-NINETEENTH CENTURY MOST BUSINESSES WERE RUN BY ONE PERSON OR FAMILY -INDUSTRIALIZATION CHANGED THIS

Development of Corporations TO TAKE ADVANTAGE OF EXPANDING MARKETS INVESTORS DEVELOPED A FORM OF GROUP OWNERSHIP KNOWN AS CORPORATIONS - A NUMBER OF PEOPLE SHARE THE OWNERSHIP OF A BUSINESS CORPORATIONS HAD THE SAME RIGHTS AS AN INDIVIDUAL: 1. COULD BUY AND SELL PROPERTY 2. COULD SUE IN COURTS 3. INTERESTS COULD BE BOUGHT BY OTHERS

Development of Corporations CORPORATIONS WERE SUITED TO EXPANDING MARKETS: 1. HAD ACCESS TO HUGE AMOUNTS TO CAPITAL (INVESTED MONEY) TO FUND TECHNOLOGY, ENTER NEW INDUSTRIES AND RUN LARGE PLANTS 2. HAD THE ABILITY TO OPERATE IN DIFFERENT REGIONS WITH THE HELP OF RAILROADS AND TELEGRAPH CORPORATIONS WERE AN IMPORTANT PART OF INDUSTRIAL CAPITALISM CENTERED AROUND BUSINESS

COMPETITION TO MAXIMIZE PROFITS CORPORATIONS: 1. DECREASED THE COST OF PRODUCTION BY PAYING THE LOWEST WAGES AND DECREASING THE PRICES PAID FOR RAW MATERIALS 2. SUPPORTED RESEARCH LABS WHERE INVENTORS COULD EXPERIMENT WITH PRODUCTS THAT COULD BRING FUTURE PROFITS 3. ADVERTISED TO INCREASE CUSTORMER BASE 4. CORNELIUS VANDERBILT (RAILROAD TYCOON) GOT COMPETITORS TO PAY HIM TO RELOCATE BECAUSE HIS LOW FARES WERE DRIVING THEM OUT OF BUSINESS

COMPETITION SOME CORPORATIONS TRIED TO GAIN A MONOPOLY (COMPLETE CONTROL OF A PRODUCT OR SERVICE) -WOULD EITHER BUY OUT COMPETITORS OR DRIVE THEM OUT OF BUSINESS -THIS ALLOWED THEM TO SET THEIR OWN PRICES FOR PRODUCT OR SERVICE SOME TRIED TO SET UP CARTELS (BUSINESSES MAKING THE SAME PRODUCT AGREED TO LIMIT PRODUCTION TO KEEP PRICES HIGH

HORIZONTAL AND VERTICAL INTEGRATION BUSINESSMEN CONTINUED TO DEVELOP MORE EFFECTIVE WAYS TO INCREASE PROFITS AND DECREASE COST: 1. HORIZONTAL INTEGRATION (CREATE GIANT COMPANY WITH LOWER PRODUCTIONS COSTS BY CONSOLIDATING MANY FIRMS IN THE SAME BUSINESS)

HORIZONTAL AND VERTICAL INTEGRATION - John D. Rockefeller was one of the first to use this - Illegal in some states to own stocks in different companies - Rockefeller’s lawyer found way to get around law – TRUSTS (companies assign their stock to a Board of Trustees who combine them into a new organization

HORIZONTAL AND VERTICAL INTEGRATION 2. VERTICAL INTEGRATION (GAINING CONTROL OF THE MANY DIFFERENT BUSINESSES THAT MAKE UP ALL PHASES OF A PRODUCTS DEVELOPMENT) - USED BY ROCKEFELLER AND STEEL TYCOON ANDREW CARNEGIE - ALLOWED COMPANIES TO REDUCE COSTS AND CHARGE HIGHER PRICE TO COMPETITORS

ROBBER BARONS AND CAPTAINS OF INDUSTRY CONSUMERS, WORKERS, AND THE GOVERNMENT THOUGHT TRUSTS, CARTELS, AND MONOPOLIES WERE UNFAIR BECAUSE OF THE BIG BUSINESSMEN’s ABILITY TO SWINDLE THE POOR THEY BECAME KNOWN AS “ROBBER BARONS”

ROBBER BARONS AND CAPTAINS OF INDUSTRY THOSE WHO BELIEVED THAT BUSINESS LEADERS SERVED THE NATION POSITIVELY REFERRED TO THE LEADERS AS “CAPTAINS of INDUSTRY”

ROBBER BARONS AND CAPTAINS OF INDUSTRY (cont.) REASONS FOR THEIR BELIEFS: 1. PROVIDED JOBS 2. SUPPORTED THE DEVELOPMENT OF TECHNOLOGY BENEFITTING THE ECONOMY, STIMULATING INNOVATIONS, AND HELPING THE US BECOME A STRONG INTERNATIONAL LEADER 3. CARNEGIE, ROCKEFELLER, AND VANDERBILT WERE IMPORTANT PHILANTHROPISTS - DONATING MONEY FOR SEVERAL PROJECTS LIKE UNIVERSITIES, MUSEUMS, AND LIBRARIES THAT WOULD HELP THE DISADVANTAGED RISE TO WEALTH

SOCIAL DARWINISM 1859 Charles Darwin wrote “On the Origin of Species” (animals evolve through natural selection and only the fittest survive to reproduce)

SOCIAL DARWINISM (cont.) YALE PROFESSOR WILLIAM GRAHAM SUMNER APPLIED THE THEORY TO AMERICAN CAPITALISM -SOCIAL DARWINISM – WEALTH WAS A MEASURE OF ONE’s VALUE AND THOSE WHO HAD IT WERE THE MOST FIT.

SOCIAL DARWINISM (CONT.) SOCIAL DARWINISM WAS USED TO JUSTIFY MANY BELIEFS AND CONDITIONS: SUPPORTERS OF THE LAISSEZ FAIRE ECONOMIC SYSTEM ARGUED THAT THE GOVERNMENT SHOULD STAY OUT OF PRIVATE BUSINESS -INTERFERENCE WOULD DISRUPT NATURAL SELECTION

SOCIAL DARWINISM (cont.) 2. SUPPORTERS OF SOCIAL DARWINISM BELIEVED THE NATION WOULD GROW STRONG BY ALLOWING MEMBERS TO RISE UP TO THE TOP -THROUGH PUBLIC FUNDS TO ASSIST THE POOR WAS WRONG 3. USED TO FUEL DISCIMINATION -BELIEVED POOR LIVING CONDITIONS OF MINORITIES WAS EVIDENCE OF THEIR UNFITNESS

Government Regulations THE RAILROAD INDUSTRY WAS KNOWN FOR ITS UNFAIR BUSINESS PRACTICES US SENATE CREATED THE “INTERSTATE COMMERCE COMMISION (ICC) TO OVERSEE RAILROAD OPERATIONS -THE FIRST FEDERAL BODY TO OVERSEE AMERICAN BUSINESS OPERATIONS

Government Regulations THE ICC: COULD ONLY MONITOR RAILROADS THAT CROSSED STATE LINES COULD NOT CONtROL OR MAKE LAWS ABOUT RAILROAD TRANSACTIONS. COULD REQUIRE THE RAILROADS TO SEND RECORDS TO CONGRESS SO THEY COULD INVESTIGATE UNFAIRNESS

Government Regulations GOVERNMENT ALSO BECAME INVOLVED IN REGULATING TRUSTS -SENATE PASSED THE “SHERMAN ANTITRUST ACT” THIS OUTLAWED ANY TRUST THAT OPERATED IN RESTRAINT OF ANY TRADE OR COMMERCE AMONG STATES RARELY ENFORCED THE “SHERMAN ANTITRUST ACT” BEGAN A TREND TOWARD FEDERAL LIMITATIONS ON THE POWER OF CORPORATION