Rise of Big Business in the Late 1800s

DEVELOPMENT OF BUSINESS AND INDUSTRY

• Corporations had been used prior to the Civil War to raise capital through the sale of stock to invest in large business ventures.

• Corporations did not “rise” during the late 19th century they became more powerful as they grew through monopolies and mergers.

• This led to a greater influence on the economy, politics, and government policy

Factors of Production

• Land• Labor• Capital• Technology• Entrepreneurship

New Business Culture1. 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!

2. 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

2. Social Darwinism in America

William Graham SumnerFolkways (1906)

$ Individuals must have absolute freedom to struggle, succeed or fail.

$ Therefore, state intervention to reward society and the economy is futile!

New Business Culture:“The American Dream?”

3. Protestant (Puritan) “Work Ethic” Horatio Alger [100+ novels]

Is the idea of the “self-made man” a MYTH??

RAILROADS

• Railroads were the economic engine that drove the economy.

• Transcontinental Railroad helped unite the country and promote

economic growth and thedevelopment of a national market.

• Created a need for steel rails, wooden railroad ties, railroad cars

and transportation for goods

Continued

• This contributed to the growth of the steel, lumber, coal, and meatpacking industries

• Railroad also brought new settlers through advertising, land sales, and provided farmers access to markets.

• Most famous of the transcontinental routes was the Transcontinental Railroad built in 1869 uniting East with West.

Entrepreneur•People who organize, operate, and assume the risk for a business venture

Entrepreneurs

• Used new technologies and new business tactics to create large corporations– Trusts John D. Rockefeller

• Standard Oil

New Type of Business Entities

Trust: Horizontal Integration John D.

Rockefeller Vertical Integration:

o Gustavus Swift Meat-packing

o Andrew Carnegie U. S. Steel

HORIZONTAL INTEGRATION

• Used by Rockefeller and Standard Oil to create a monopoly.

• In this business tactic a company buys up those companies that compete with it so that it controls the market and can charge whatever it wantsCompany A Company B Company C monopoly

Vertical Integration

• Used by Andrew Carnegie in the steel industry• This tactic involves buying all the businesses

involved in the production of your product• The point is that you never have to buy raw

materials from anyone else and it saves money

Mines

transportation

Steel mill

New Financial Businessman

The Broker: J. Pierpont Morgan

Cornelius [“Commodore”] Vanderbilt

Can’t I do what I want with my money?

Robber Barons

• The men who controlled these large industries• Rockefeller forced railroads to give him kickbacks and

rebates• Carnegie controlled the steel industry• They had contacts in government and were able to get

government to leave them alone• They got this name because of their crooked cutthroat

tactics• This term soon was used to identify any wealthy

entrepreneur no matter what industry they were in.

LAIZZEZ FAIRE

• Concept that government should keep its hands off the economy (business) and let it regulate itself

• Based on Charles Darwin’s concept of survival of the fittest or SOCIAL DARWINISM

• The basic idea is that those businesses that survive do so because they are the strongest. Those that do not survive die because they are weak.

• Government aided these businesses through protective tariffs.

CAPTAINS OF INDUSTRY

• The industrialists regarded themselves as captains of industry.

• Carnegie was also a philanthropist. (someone who gives money to public/charitable causes)

• According to his “Gospel of Wealth” he believed it was the responsibility of the wealthy to make sure their money was put to good use serving others, rather than being spent on frivolous pursuits

The Gospel of Wealth:Religion in the Era of

Industrialization

Russell H. Conwell

$ 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.

What About the Rest of the Country?

• Some saw the wealth enjoyed by the few as being at the expense of those who remained in poverty

• While business leaders grew rich, the working class was left with harsh working conditions and low pay.

• Child labor was harsh and most children had to work to help support their families.

Gilded Age

• This period in the late 1800s became known as the “Gilded Age”.

• Phrase came from Mark Twain who used it to illustrate a time in which it appeared that a layer of prosperity was covering the poverty and corruption that existed in much of society.

What About the South?

• The South saw an increase in industrialization.• Whereas northern industry focused on things like oil

and steel, the South focused on mass production of goods directly related to agricultural products like tobacco and cotton.

• Textile mills boomed in the South as did the tobacco industry (American Tobacco Co. owned by the Duke family)

• Buck Duke also went on to form the Southern Power Co. to further develop the Carolinas.

Steel in the South

• Birmingham, AL became known as the “Pittsburgh of the South”

• Had great resources of iron ore• Bessemer process and proximity to natural

resources made it an ideal location for steel production

• Influential leaders in the South realized that it would have to industrialize to survive and prosper in the 20th century.

Cultural and Economic Effects of Industrialization

• Despite higher prices there was a rise in the standard of living

• Inventions such as Edison’s light bulb made electricity more widely available.

• Electric lights, vacuum cleaners, typewriters, and the telephone made it possible for women to work outside the home.

• Mass production caused prices to drop making these conveniences available to a larger part of the population

cont

• Technological advances such as the electric trolley fueled the rise of a middle class and suburbs by allowing people to live further out

• Businesses thrived also in international markets

• As business leaders increased their profits they began to invest in other countries, eventually pulling the nation into international conflicts

The ‘Bosses’ of the Senate

The Protectors of Our Industries

The ‘Robber Barons’ of the Past

Government Regulation

• Early attempts at government regulation of business were limited – tariffs and intervening in labor disputes on the side of business

• 1877 Interstate Commerce Commission formed to regulate railroad rates

• 1890 Sherman Antitrust Act – made monopolies illegal (Wasn’t really used successfully until Teddy Roosevelt attacked big business)