Age of Big Business Age of Big Business Age of MonopoliesAge of Monopolies

Background:Background:Capitalism – economic systemCapitalism – economic system

Private ownership of the means of Private ownership of the means of productionproduction

Free enterprise – to meet the Free enterprise – to meet the demandsdemands

Profit motive – goal to make $Profit motive – goal to make $ Market price – buyers & sellersMarket price – buyers & sellers CompetitionCompetition

New Business CultureNew Business CultureNew Business CultureNew Business Culture1.1. Laissez Faire Laissez Faire the ideology of the the ideology of the

Industrial Age. Industrial Age.1.1. Laissez Faire Laissez Faire the ideology of the the ideology of the

Industrial Age. Industrial Age.

Individual as a moral and Individual as a moral and economic ideal.economic ideal.

Individuals should compete Individuals should compete freely in the marketplace.freely in the marketplace.

The market was not man-made The market was not man-made or invented. or invented.

No room for government in the No room for government in the market!market!

Individual as a moral and Individual as a moral and economic ideal.economic ideal.

Individuals should compete Individuals should compete freely in the marketplace.freely in the marketplace.

The market was not man-made The market was not man-made or invented. or invented.

No room for government in the No room for government in the market!market!

2.2. Social DarwinismSocial Darwinism2.2. Social DarwinismSocial Darwinism British economist.British economist. Advocate of Advocate of

laissez-fairelaissez-faire.. Adapted Darwin’s Adapted Darwin’s

ideas from the ideas from the “Origin of “Origin of Species” to Species” to humans.humans.

Notion of Notion of “Survival of the “Survival of the Fittest.”Fittest.”

British economist.British economist. Advocate of Advocate of

laissez-fairelaissez-faire.. Adapted Darwin’s Adapted Darwin’s

ideas from the ideas from the “Origin of “Origin of Species” to Species” to humans.humans.

Notion of Notion of “Survival of the “Survival of the Fittest.”Fittest.”

Herbert SpencerHerbert Spencer

2.2. Social Darwinism in Social Darwinism in AmericaAmerica

2.2. Social Darwinism in Social Darwinism in AmericaAmerica

William Graham SumnerFolkways (1906)

William Graham SumnerFolkways (1906)

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

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

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

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

New Business Culture:New Business Culture:“The American Dream?”“The American Dream?”

New Business Culture:New Business Culture:“The American Dream?”“The American Dream?”

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

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

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

Causes of Rapid Causes of Rapid IndustrializationIndustrializationCauses of Rapid Causes of Rapid IndustrializationIndustrialization

1.1. Steam Revolution of the 1830s-1850s.Steam Revolution of the 1830s-1850s.

2.2. The Railroad fueled the growing US The Railroad fueled the growing US economy:economy:

First big business in the US.First big business in the US. A magnet for financial investment.A magnet for financial investment. The key to opening the West.The key to opening the West. Aided the development of other Aided the development of other

industries.industries.

1.1. Steam Revolution of the 1830s-1850s.Steam Revolution of the 1830s-1850s.

2.2. The Railroad fueled the growing US The Railroad fueled the growing US economy:economy:

First big business in the US.First big business in the US. A magnet for financial investment.A magnet for financial investment. The key to opening the West.The key to opening the West. Aided the development of other Aided the development of other

industries.industries.

Causes of Rapid Causes of Rapid IndustrializationIndustrializationCauses of Rapid Causes of Rapid IndustrializationIndustrialization

3.3. Technological innovations.Technological innovations. Bessemer and open hearth Bessemer and open hearth

processprocess Refrigerated carsRefrigerated cars Edison Edison

o ““Wizard of Menlo Park”Wizard of Menlo Park”o light bulb, phonograph, light bulb, phonograph,

motion pictures.motion pictures.

3.3. Technological innovations.Technological innovations. Bessemer and open hearth Bessemer and open hearth

processprocess Refrigerated carsRefrigerated cars Edison Edison

o ““Wizard of Menlo Park”Wizard of Menlo Park”o light bulb, phonograph, light bulb, phonograph,

motion pictures.motion pictures.

Thomas Alva EdisonThomas Alva EdisonThomas Alva EdisonThomas Alva Edison

““Wizard of Menlo Park” Wizard of Menlo Park” ““Wizard of Menlo Park” Wizard of Menlo Park”

The Light BulbThe Light BulbThe Light BulbThe Light Bulb

The Phonograph The Phonograph (1877)(1877)

The Phonograph The Phonograph (1877)(1877)

The Motion Picture The Motion Picture CameraCamera

The Motion Picture The Motion Picture CameraCamera

Alexander Graham BellAlexander Graham BellAlexander Graham BellAlexander Graham Bell

Telephone (1876)Telephone (1876)

Alternate CurrentAlternate CurrentAlternate CurrentAlternate Current

George WestinghouseGeorge Westinghouse

The AirplaneThe AirplaneThe AirplaneThe Airplane

Wilbur Wright Orville WrightWilbur Wright Orville Wright Wilbur Wright Orville WrightWilbur Wright Orville Wright

Kitty Hawk, NC – December 7, 1903Kitty Hawk, NC – December 7, 1903 Kitty Hawk, NC – December 7, 1903Kitty Hawk, NC – December 7, 1903

Model T AutomobileModel T AutomobileModel T AutomobileModel T Automobile

Henry FordI want to pay my workers so that they

can afford my product!

Henry FordI want to pay my workers so that they

can afford my product!

U. S. Patents U. S. Patents GrantedGranted

U. S. Patents U. S. Patents GrantedGranted

1790s 276 patents issued. 1790s 276 patents issued.

1990s 1,119,220 patents issued. 1990s 1,119,220 patents issued.

Essential QuestionEssential QuestionEssential QuestionEssential Question

Industrialization Industrialization increased the standard increased the standard

of living and the of living and the opportunities of most opportunities of most

Americans, Americans, but at what costbut at what cost??

Industrialization Industrialization increased the standard increased the standard

of living and the of living and the opportunities of most opportunities of most

Americans, Americans, but at what costbut at what cost??

3 New Vocabulary words…3 New Vocabulary words… MonopolyMonopoly:: A company that A company that

completely dominates a completely dominates a particular industryparticular industry

Trust:Trust: a set of companies a set of companies managed by a small group managed by a small group known as trustees, who can known as trustees, who can prevent companies in the trust prevent companies in the trust from competing with each from competing with each otherother

CorporationCorporation:: A company A company recognized by law to exist recognized by law to exist independently from its owners, independently from its owners, with the ability to own property, with the ability to own property, borrow money, sue or be suedborrow money, sue or be sued

Corporate MonopoliesCorporate Monopolies

Horizontal Horizontal

vs.vs.

Vertical Vertical IntegrationIntegration

New Type of Business New Type of Business EntitiesEntities

New Type of Business New Type of Business EntitiesEntities

Age of Big Business – Age of Age of Big Business – Age of MonopoliesMonopolies

To gain control of a product or businessTo gain control of a product or business Types of monopoliesTypes of monopolies

– Pools Pools (pooling agreements) RR’s – divide (pooling agreements) RR’s – divide routes & agree not to competeroutes & agree not to compete

– *Trusts *Trusts – competing companies run by the – competing companies run by the same Board of Trusteessame Board of Trustees

– Holding companiesHolding companies– Interlocking directoratesInterlocking directorates– Mergers/ConsolidationsMergers/Consolidations

** See slide # 23 See slide # 23

New Type of Business New Type of Business EntitiesEntities

New Type of Business New Type of Business EntitiesEntities

2.2. TrustTrust:: Horizontal IntegrationHorizontal Integration John D. John D.

Rockefeller Rockefeller

2.2. TrustTrust:: Horizontal IntegrationHorizontal Integration John D. John D.

Rockefeller Rockefeller Vertical Integration:

o Gustavus Swift Meat-packingo Andrew Carnegie U. S. Steel

Vertical Integration:o Gustavus Swift Meat-packingo Andrew Carnegie U. S. Steel

American Business LeadersAmerican Business Leaders

Andrew CarnegieAndrew Carnegie$75 Billion$75 Billion

Andrew Carnegie came from Scotland Andrew Carnegie came from Scotland with his parents in 1848. with his parents in 1848.

In 1861, at the age of 26, he started up In 1861, at the age of 26, he started up the Freedom Iron Company, and used the the Freedom Iron Company, and used the new Bessemer process for making steel new Bessemer process for making steel

He formed all of his companies into the He formed all of his companies into the Carnegie Steel Company in 1899, which Carnegie Steel Company in 1899, which controlled raw materials, manufacturing, controlled raw materials, manufacturing, storage, and distribution for steel.storage, and distribution for steel.– Merged steps of production to cut Merged steps of production to cut

costs of productioncosts of production– Vertical IntegrationVertical Integration

Wrote “Gospel of Wealth”

Established free lending libraries

““On Wealth”On Wealth”““On Wealth”On Wealth”

Andrew CarnegieAndrew Carnegie

$ The Anglo-Saxon race The Anglo-Saxon race is superior.is superior.

$ ““Gospel of WealthGospel of Wealth” ” (1901).(1901).

$ Inequality is Inequality is inevitable and good.inevitable and good.

$ Wealthy should act as Wealthy should act as “trustees” for their “trustees” for their “poorer brethren.”“poorer brethren.”

$ The Anglo-Saxon race The Anglo-Saxon race is superior.is superior.

$ ““Gospel of WealthGospel of Wealth” ” (1901).(1901).

$ Inequality is Inequality is inevitable and good.inevitable and good.

$ Wealthy should act as Wealthy should act as “trustees” for their “trustees” for their “poorer brethren.”“poorer brethren.”

John D. RockefellerJohn D. Rockefeller$192 Billion$192 Billion

Born in 1839 -started as a Born in 1839 -started as a bookkeeper bookkeeper

He established one of the first oil He established one of the first oil refineriesrefineries

1870—With partners, forms a 1870—With partners, forms a business trust: business trust: Standard OilStandard Oil

At its peak, controlled 90% of all At its peak, controlled 90% of all oil companiesoil companies

Noted for very ruthless tactics – Noted for very ruthless tactics – price wars, intimidationprice wars, intimidation

Merged companies that produced Merged companies that produced same productsame product Horizontal integrationHorizontal integration

Later established foundations, scholarships,

John D. Rockefeller – OilJohn D. Rockefeller – Oil– Horizontal Horizontal

integration –integration – merged companies merged companies that produced same that produced same productproduct

– At one point At one point controlled 90% of controlled 90% of the oil refineries in the oil refineries in the USthe US

– Noted for very Noted for very ruthless tactics – ruthless tactics – price wars, price wars, intimidationintimidation

– Later established Later established foundations, foundations, scholarships,scholarships,

Standard Oil Co.Standard Oil Co.Standard Oil Co.Standard Oil Co.

Cornelius Vanderbilt – RailroadsCornelius Vanderbilt – Railroads

– New York Central New York Central RailroadRailroad

– Merged railroad Merged railroad lines between NY lines between NY and Chicagoand Chicago

Cornelius Cornelius [“Commodore”] [“Commodore”]

VanderbiltVanderbilt

Cornelius Cornelius [“Commodore”] [“Commodore”]

VanderbiltVanderbilt

Can’t I do what I want with my money?Can’t I do what I want with my money?

William VanderbiltWilliam VanderbiltWilliam VanderbiltWilliam Vanderbilt

$ The public be damned!

$ What do I care about the law? H’aint I got the power?

$ The public be damned!

$ What do I care about the law? H’aint I got the power?

JP Morgan – banking & financeJP Morgan – banking & finance

– Loaned money to Loaned money to businesses businesses

– Took over bankrupt Took over bankrupt railroads and railroads and merged into merged into profitable linesprofitable lines

– Bought Carnegie Bought Carnegie Steel and merged Steel and merged with others to form with others to form US SteelUS Steel

The Reorganization of The Reorganization of WorkWork

The Reorganization of The Reorganization of WorkWork

Frederick W. TaylorThe Principles of Scientific Management (1911)

Frederick W. TaylorThe Principles of Scientific Management (1911)

““Model T” Prices & Model T” Prices & SalesSales

““Model T” Prices & Model T” Prices & SalesSales

– Revolutionized auto making by using the Revolutionized auto making by using the assembly line to produce more affordable carsassembly line to produce more affordable cars

Wall Street – 1867 & Wall Street – 1867 & 19001900

Wall Street – 1867 & Wall Street – 1867 & 19001900

% of % of BillionaireBillionaires in 1900s in 1900

% of % of BillionaireBillionaires in 1900s in 1900

% of % of BillionairBillionair

es in es in 19181918

% of % of BillionairBillionair

es in es in 19181918

Robber Barons Robber Barons or Captains of or Captains of

Industry?Industry?

Do millionaires/ billionaires have a responsibility to help the poor?

““Captains of Industry” Captains of Industry” or or

“Robber Barons”“Robber Barons” Captain of IndustryCaptain of Industry Entrepreneurs, risk Entrepreneurs, risk

takerstakers Used the system & Used the system &

available resources available resources to make a fortuneto make a fortune

Role modelRole model PhilanthropistPhilanthropist

Robber BaronRobber Baron Ruthless Ruthless

businessmenbusinessmen Exploited workers Exploited workers

& consumers in & consumers in order to make a order to make a profitprofit

The The ‘Robber Barons’‘Robber Barons’ of of the Pastthe Past

The The ‘Robber Barons’‘Robber Barons’ of of the Pastthe Past

Who are the billionaires (Robber Barons) Who are the billionaires (Robber Barons) of today?of today?

Forbes 2011Forbes 2011Rank Name Worth Age Source Countr

y

1Carlos Slim Helu & family

$74 B 71 telecom Mexico

2 Bill Gates $56 B 55 Microsoft USA

3 Warren Buffett $50 B 81Berkshire Hathaway

USA

4 Bernard Arnault $41 B 62 LVMH France

5 Larry Ellison $39.5 B 67 Oracle USA

6 Lakshmi Mittal $31.1 B 61 Steel India

7 Amancio Ortega $31 B 75 Zara Spain

8 Eike Batista $30 B 54 mining, oil Brazil

9 Mukesh Ambani $27 B 54petrochemicals, oil & gas

India

10 Christy Walton & family $26.5 B 56 Walmart USA

Need for Government Need for Government Regulation of BusinessRegulation of Business

The Protectors of Our The Protectors of Our IndustriesIndustries

The Protectors of Our The Protectors of Our IndustriesIndustries

Abuses by RailroadsAbuses by Railroads Pooling AgreementsPooling Agreements

– Divide the sales territory and fix pricesDivide the sales territory and fix prices Long haul, short haul discriminationLong haul, short haul discrimination

– Charge more for short distances where Charge more for short distances where there is no competitionthere is no competition

Rebates and kickbacks to special Rebates and kickbacks to special customerscustomers

Unannounced rate increasesUnannounced rate increases Free passes to government officialsFree passes to government officials

Granger laws Granger laws to help out farmersto help out farmers

Farmers complained about poor Farmers complained about poor service and high rates charged by service and high rates charged by railroadsrailroads

States passed States passed “granger laws” to “granger laws” to regulate railroads within the stateregulate railroads within the state

Granger laws were challenged in the Granger laws were challenged in the Supreme Court Supreme Court (Court cases to follow)(Court cases to follow)

Federal LegislationFederal Legislation

Interstate Commerce Act – 1887Interstate Commerce Act – 1887

Created the Created the Interstate Commerce Interstate Commerce CommissionCommission to end abuse by to end abuse by railroadsrailroads– No pools, rebates, special dealsNo pools, rebates, special deals– Public posting of rates, must be fair and Public posting of rates, must be fair and

reasonablereasonable– Set precedent for federal regulation of Set precedent for federal regulation of

interstate commerceinterstate commerce

Sherman Anti-Trust Act – 1890Sherman Anti-Trust Act – 1890

Declared combinations in the form of Declared combinations in the form of a trust in restraint of trade to be a trust in restraint of trade to be illegal (if it lessens competition)illegal (if it lessens competition)– Weak, vague language but set the Weak, vague language but set the

principle that the government should principle that the government should break up monopoliesbreak up monopolies

Supreme Court CasesSupreme Court Cases

Munn v. Illinois (1877)Munn v. Illinois (1877)

BackgroundBackground– State of Illinois had State of Illinois had

passed Granger passed Granger Laws to set rates of Laws to set rates of railroads and grain railroads and grain elevatorselevators

IssueIssue– Did Illinois law Did Illinois law

deprive railroads of deprive railroads of property (profits) property (profits) without without due due process?process?

DecisionDecision– State law State law was was

constitutionalconstitutional because the law because the law was related to the was related to the public interestpublic interest

ImportanceImportance– Railroad rates Railroad rates

continued to be continued to be limited by the state limited by the state governmentgovernment

Wabash, St.Louis, & Pacific Wabash, St.Louis, & Pacific Railway Co. v. Illinois (1886)Railway Co. v. Illinois (1886)

BackgroundBackground– Long-haul, short-haul Long-haul, short-haul

discrimination by the discrimination by the railroads within the railroads within the state of Illinois state of Illinois (penalties were applied)(penalties were applied)

IssueIssue– Could the state regulate Could the state regulate

railroads on the railroads on the intrastateintrastate portion of an portion of an interstate interstate trip?trip?

DecisionDecision– State law was State law was

unconstitutionalunconstitutional– The power to regulate The power to regulate

interstate commerce interstate commerce belongs to Congressbelongs to Congress

ImportanceImportance– Put pressure on Put pressure on

Congress to act if the Congress to act if the states can’t regulate states can’t regulate the railroadsthe railroads

– One year after the One year after the decision Congress decision Congress passed the Interstate passed the Interstate Commerce ActCommerce Act

United States v. E.C. Knight Co. United States v. E.C. Knight Co. (1895)(1895)

BackgroundBackground– American Sugar American Sugar

Refining Co. bought Refining Co. bought stock in smaller stock in smaller companies & companies & controlled 90% of controlled 90% of sugar processed in sugar processed in U.S.U.S.

IssueIssue– Can Congress Can Congress

regulate regulate manufacturing? manufacturing?

– Can Congress outlaw Can Congress outlaw “manufacturing “manufacturing monopolies”?monopolies”?

DecisionDecision– Federal Gov’t cannot Federal Gov’t cannot

regulate refineries regulate refineries because they were because they were manufacturing manufacturing operations, not directly operations, not directly related to interstate related to interstate commercecommerce

– State gov’t. can regulate State gov’t. can regulate local activities under the local activities under the terms of 10terms of 10thth Amendment Amendment

ImportanceImportance– Few attempts made to Few attempts made to

prosecute corporations in prosecute corporations in restraint of trade (most restraint of trade (most against unions as against unions as “unreasonable restraint “unreasonable restraint of trade”!)of trade”!)