The Rise of Big Business and Government Support of the Industrial Economy

2 Main Topics “Big business“during the 2nd Industrial Revolution – Causes and Characteristics Role of government in support of the Industrial Economy

Topic 1 – Big Business: Causes and Characteristics

6 Factors making for industrial growth natural resources: farm land, oil, coal, iron, copper, precious metals, other minerals, timber work force with skills and experience capital and the means of mobilizing capital technology a transportation system Governmental assistance

Emergence of Big Business Railroads Steel, Oil, Chemicals, Heavy Industries Key Leaders – Carnegie, Rockefeller, Morgan Consolidation of business into Trusts and other monopolies

Economic Changes Development of the industrial corporation. Emergence of finance capitalism. Creation of a class of permanent wage-earners, a proletariat. Rise of the industrial city and emergence of an urban- industrial belt.

Role of the Railroads in Creating 2nd Industrial Rev. Stimulated the iron and steel industry – Why? Stimulated settlement of the West – How? Created the potential for a national market – How? Became a model for other corporations

Railroads: America’s First Big Business Helped to create knowledge and solutions for: Administrative organization Raising capital Labor relations Competition Relation with government

Trust - Defined A form of business merger in which the major stockholders in several companies turn over their stock to a group of trustees. Used to create a semi-legal monopoly over key industries. Advantage = eliminates competition and enhances profits.

Two Kinds of Trusts Trusts were organized in two ways Vertical integration or consolidation – owner owns all the steps and resources that contribute to production Horizontal Integration or consolidation – the owner monopolizes one step of the production process

Carnegie and Rockefeller Vertical Integration = Carnegie. For Homestead Steel, Carnegie owned all the various businesses that helped him make steel – from mines to railroad to steel plant. Horizontal Integration = Rockefeller. At Standard Oil he monopolized over 90% of all oil refineries in the US.

Steel: The Career of Andrew Carnegie

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Carnegie’s formula for success: Use innovation as a competitive device Be an aggressive competitor: "Cut the prices; scoop the market; run the mills full." Integrate operations vertically

Rockefeller’s Rise to Power Began as a salesman for lamp oil. Advocate of consolidation. By 1877, controlled 95% of all oil refineries in America – horizontal integration and monopoly. Architect of Standard Oil Trust.

John D. Rockefeller and Standard Oil

Finance: the career of John Pierpont Morgan

J.P. Morgan – The Banker’s Banker Great advocate of merger Opposed to competition “I like a little competition now and then, I but I like combination a lot better. Interlocking Directorates

Characteristics of Big Business by the early 20th century Supported by government in 19th century, limited in 20th. Vertical Integration Consolidation or monopolization

Consequences of consolidation "Big Business” Bureaucratization Imposed prices based on cost of production plus profit Emergence of advertising as a competitive device An somewhat improved level of stability A long-term decline in the ability to compete

Exceptional Growth, 1865-1917 population increased by nearly 300%, from 36 million to 106 million railroad mileage increased over 1,000% output of manufacturing increased over 1,000% Gross Domestic Product per capita, in constant dollars, increased over 300%

Economic transformation after the Civil War New national market was created based upon the Republican economic agenda Technological Developments allow for a national market to form RR Telephone/Telegraph

Topic 2 - Role of Government Federal Government supported rise of Big Business with: tax policies the tariff immigration policies distribution of the national domain

The tariff: percent of value collected on dutiable imports

The U.S. in 1850

Railroad Land Grants

Agriculture Homestead Act, 1862 (160 acres free after 5 years & modest improvements) Low prices on land for sale: $1.25 or $2.50 per acre

Education Land Ordinance, 1785: reserved one square mile out of every 36 for support of a public school (applied to same territory as Northwest Ordinance) Morrill Land-Grant College Act (1862): land given to states (30,000 acres for each senator and representative) to be used to create a public university

Other land distribution Land given to new, western state governments Coal, mineral, timber lands sold cheaply

Conclusion: Role of Federal Government in Economic Development Not a period of laissez faire or hands off capitalism without government intervention Federal government a full partner in economic growth. Result: very rapid expansion of the entire economy.

American Business before the Civil War

Emergence of factories before the Civil War

Big Business after the Civil War

"Big Business" after the Civil War Capital intensive Separation of ownership and control Vertical integration, bureaucratization, monopolization