1. Expansion of Industry, Railroads, & Big Business

2. Expansion of Industry

3. Natural Resources Fuel Growth
Coal Mines
Forests
Farm Land
Electricity!
1859 – 1st Oil Well drilled in PA (Edwin Drake)
Oil replaced whale blubber
Scientific Management changed production
Immigration – Peaked at 1 M a year in 1905

4. Industrialization
Development of industries for the mechanical mass production of goods
Shift from making goods individually by hand  mass production using interchangeable parts and factories
Led by entrepreneurs – person who organizes, manages, and takes the risk with starting an industry/business
Mid 1800s to 1910s – mass production of raw materials using natural resources and technology
“Second Industrial Revolution”

5. Industrialization and Oil
1859 – Edwin Drake developed the first steam engine oil drill
Made it possible to extract “black gold” directly from the ground
Growth of oil refineries to purify oil (by entrepreneurs)  kerosene and gasoline

6. Industrialization and Steel
Home Insurance Building (1884)
1890s – large iron deposits discovered in Minnesota
Iron contains carbon and bends/rusts easily  need to transform it into steel
Bessemer process – process to make steel, injecting air into iron to remove carbon and impurities
Steel’s uses
Infrastructure (transportation systems) – railroad tracks, bridges
Barbed wire
Farm equipment
Architecture – skyscrapers, rise of modern cities

7. Laissez-faire Economics
The U.S. Gov’t policy was “hands off” so businesses had little gov’t regulation
When gov’t did intervene, it was to aid businesses in starting up or to provide subsidies (like land grants) and protective tariffs.
The U.S. economy was 100% governed by the Laws of Supply and Demand!

8. Inventions Promote Change
Thomas Edison – incandescent light bulb (1880), later invented a system to producing and distributing electrical power
Harnessing the power of electricity  revolutionized American life
Inexpensive, convenient
Businesses - boom in industries, factories could locate anyway, run machines off electricity
Homes - Outward growth of cities, electric appliances
Cities – electric streetcars offered cheap travel

9. Inventions Promote Change
Christopher Sholes – typewriter (1867)
Changes in the workplace
Alexander Graham Bell – telephone (1876)
Changes in communication
New jobs for women
Garment/textile factory work
Clerical and secretarial office work

10. Inventions Promote Change
Samuel F.B. Morse– American inventor credited with the development of the telegraph and Morse Code in 1844.
Interested in gadgetry and electromagnetism, Morse took out a patent for the telegraph.
In 1836, Morse had a working model, which he made improvements to after he learned about similar works done by American physicist, Joseph Henry.

11. Effects of Industrialization and Inventions
Positive
Negative
Freed some labor from backbreaking work in factories
Improved standard of living for workers (shorter days, less dangerous)
New consumer markets
Harm to environment
Depletion of natural resources
Mechanization of factories  reduced human worth

12. Expansion of Big Business

13. Fewer Control More
Mid-late 1800s – some entrepreneurs and companies grew to consolidate and engulf an entire industry
Entrepreneurs – “Robber Barons” – big businessmen of the late 1800s, used ruthless tactics to dominate industries

14. Fewer Control More How did the Robber Barons dominate industries?
Vertical integration – owning all of the steps of producing and selling a good
Ex: owning iron mines, steel factories, and railroads for steel distribution
Horizontal integration – owning all of the companies that manufactures a good (no competition = a monopoly)
Ex: owning all of the steel producing factories
Accomplished by merging – buying all of the stock of another company

16. Andrew Carnegie American industrialist and philanthropist
founded Carnegie Steel Company using the Bessemer process
Practiced vertical integration
Constantly updated technology for maximum production
Pleased employees – stock options, used other incentives to foster friendly competition among workers

17. Andrew Carnegie
Robber Barons were considered to be ruthless and selfish men, HOWEVER Carnegie is generally considered to have been honest and philanthropic.
Basically the only big businessman of the time to NOT earn the Robber Baron title
Gave 98% of wealth to various charities (over $350 million) – centered around education advancements, free and public libraries, and global peace
14 of Carnegie’s trusts and organizations still exist today

18. Robber Barons Consolidate Industries
Most Robber Barons attempted horizontal integration through mergers  monopolies.
Complete control over its industry, therefore can charge any price for the product.
How merge?
Use a holding company
Form a trust agreement

19. Robber Barons Consolidate Industries
Holding Company
Trust Agreement
Companies’ stocks are owned by a group of trustees that run all of the businesses in the trust  individual companies earned dividends on trust profits (even though trusts were illegal…)
Ex: John D. Rockefeller’s Standard Oil Company in the Standard Oil Trust – controlled 90% of oil processing by 1880
Company that just buys all of the stocks of other companies
Ex: J.P. Morgan’s United American Steel company bought all steel companies (including Carnegie Steel)  steel monopoly

20. Vanderbilt – controlled many railroad companies
Rockefeller’s Standard Oil monopoly

21. Robber Barons’ Ruthless Tactics
Rockefeller and other Robber Barons reaped huge profits.
Paid workers extremely low wages
Drove out any competition that didn’t merge by selling oil at a lower cost than it cost to produce it THEN when market was controlled, prices skyrocketed
Critics pressured some industrialists to be philanthropic.
Rockefeller kept most assets but gave away over $500 million  Rockefeller Foundation, funds to found the University of Chicago, and a medical institute

22. Sherman Antitrust Act
Fed gov’t concerned that expanding corporations and monopolies would hinder competition in a free market.
Sherman Antitrust Act (1890)
Illegal to form a trust interfering with free trade between states or other countries
Did not clearly define “trust” and corporations found loopholes in the law
By 1900, gov’t gave up on trying to stop monopolies

23. How were corporations able to form monopolies?
Let’s Use
McDonald’s
as an example

24. Beef Cheese Lettuce Onion Sauce Bread Sesame Seeds Pickles
What Ingredients are necessary to make a big mac?
Beef
Cheese
Lettuce
Onion
Sauce
Bread
Sesame Seeds
Pickles
How does McDonald’s get all of their ingredients?
Do they own their own lettuce farms?
Do they own their own cattle ranches?
Do they own their own bakery?

25. NO!!
They pay other companies to grow their produce, raise the cattle, bake the bread, and produce all of the other ingredients they need
The price McDonald’s charges is driven, in part, by what they have to pay these companies
And… in part by the need to attract customers who might, go to the competition instead

26. What companies does McDonald's compete with?
How can McDonald’s attract customers who might go to the competition?
1. Make a better product
2. Lower the price

27. What can McDonald's do to attract customers?
Use cheaper ingredients
Operate at a loss
Cut down on costs

28. If McDonald’s was going to cut down on costs without sacrificing product or service, what could they do?
Buy up all the other companies they deal with, giving McDonald’s control of the entire process of making and delivering hamburgers

29. * Buy up all the cattle ranches * Buy up the transport companies
* Buy up the farms
* Buy up the bakeries
* Buy up the transport companies
Result?
Lower Long-Term Costs

30. With Lower Costs, McDonald's can lower their prices
If they lower their prices enough, what will happen to the competition?

31. With no competition, what can McDonald's do to prices?

32. Monopoly With high prices, consumers lose
When one company takes control of the entire market, it is called a monopoly

33. Industrialization Bypasses the South
Late 1800s – Post-Reconstruction South remained based in agriculture and struggled to make profits.
High tariffs on raw materials and imported goods
Lack of skilled workers
Fewer railroads
Less connectivity for shipping or receiving
Less communication
Fewer markets

34. Social Darwinism
The “Gospel of Wealth” - Carnegie said “millionaires are the bees that make the most honey”
Based on Charles Darwin’s theory of evolution (1859)
Social Darwinism – the theory that gov’t shouldn’t interfere with business and the fittest entrepreneurs will become rich & build a strong society

35. To Do:
Read the two historical interpretations on Robber Barons and Captains of Industry (answer the 4 questions).
Choose from the four main guys of this time to do your research on (Andrew Carnegie, Cornelius Vanderbilt, J. Pierpont Morgan, and John D. Rockefeller) No one in the same group can do the same guy.
Use the links in the classroom assignment to research and fill out the worksheet.
Finally, answer the essay question after your research is complete. Share with your group members the information you found on your guy to help you come to a conclusion.