Golden Age of Industry Part II

The Rise of Big BusinessThe Birth of Corporate America

Theories of Business

• Laissez-faire capitalism– Calls for no government regulation of

business.– Business leaders believed if businesses were

freed from government regulation, the economy would prosper.

Theories of Business

• Social Darwinism – the idea advanced by English social philosopher Herbert Spencer.

• Based on Charles Darwin’s theories of natural selection.

• Argues that society progresses through competition

Social Darwinism

• Advances the idea that the “fittest” people, businesses, or nations will rise to positions of wealth and power.

• The “unfit” people, businesses, or nations will fail.

• Social Darwinists also believed that to help the poor or less capable only slows social progress.

Social Darwinism

• The theory was even supported by many religious leaders.

• Baptist minister Russell H. Conwell declared, “you ought to get rich, and it is your duty to get rich…To make money honestly is to preach the gospel.”

• What message does this send?

The Birth of Big Business

• Big business was a new business model.• Prior to the Civil War most businesses

were sole proprietorships – meaning a single owner – or partnerships – businesses owned by two people.

• These business models proved to be inadequate to finance the new industries that were developing such as railroads or steel mills.

Corporations

• The idea of the corporation has been around since colonial times.

• The corporation is owned by many individuals who buy stock, or a share, of the company.

• Stockholders receive a percentage of the profits in the form of dividends.

Advantages of the Corporation

• Can raise enormous sums of money.• There is limited liability – the stockholders

are not responsible for the corporation’s debt.

• Corporations are stable organizations. They are not dependent on owners to exist.

Rise of the Trust

• The trust became one of the most hated symbols of Big Business in American History.

• The business trust came about as a way to provide stability during the fiercely competitive economic climate of the late 1800’s.

The Trusts

• Trusts function by having a groups of companies turn over control of their stock to a board of directors.

• The board of directors then run the various companies as a single enterprise.

• If the trust could gain exclusive control of a single industry, it would have a monopoly.

• What modern day corporation has been accused of being a trust?

Andrew Carnegie

• Immigrated from Scotland in 1848.

• Watched his father struggle to adapt to a new culture and way of life as America was in the process of becoming an industrial nation.

Andrew Carnegie• The Carnegie family

lived in abject poverty after immigrating.

• Carnegie’s father tried to earn a living as a weaver.

• Carnegie’s mother told him and his brother Tom that “they must become honorable and respectable men, yet not remain impoverished.”

Carnegie

• Worked two jobs as a child to help support his family.

• His next job was as a delivery boy for O’Reilly Telegraph Company. He carefully studied this business and all of its customers as he worked.

• He taught himself to be a telegraph operator.

Carnegie

• He was self-educated.• He went to night school to learn double-

entry bookkeeping.• He set about to educate himself by

reading “great books and literature” such as Shakespeare.

Carnegie and the Pennsy

• His major break came between 1853 and 1865 when he worked for the great eastern railroad, The Pennsylvania Railroad.

• He worked as the assistant to the western division’s supervisor, Thomas Scott, one of the best business minds of the era.

Carnegie and the Pennsy

• Carnegie learned during his years on the Pennsy how changes in one part of a business would effect another.

• He learned the necessity of knowing how all the parts of an industry worked individually and in relationship to one another.

• Learned how to invest from Thomas Scott.

Henry Bessemer and Carnegie

• In 1872 Carnegie traveled to England to witness firsthand how the Bessemer Process worked.

• He formed Carnegie, McCandless, and Company, the forerunner of Carnegie Steel.

• Carnegie hired excellent business managers and drove them mercilessly.

A Bessemer Converter

Carnegie’s Contributions to Industry

• Economies of Scale – by purchasing supplies in bulk and producing goods in large quantities, costs can be lowered and profits increased.

• Vertical integration – the practice of acquiring companies that provided materials and services that his enterprises depended on, for example iron ore and coal mines.

Carnegie Steel Company

• Formed in 1889 when Carnegie merged all of his interests, steel mills, mines, steamship lines, and railroads into one corporation.

• He sold it to J.P. Morgan in 1901 for $500 million dollars and retired, the world’s richest man.

Carnegie’s Wealth

• He made excellent steel at a low price.• He amassed unbelievable wealth for that

era.• He did it in part because of the low wages

and living conditions he provided his workers.

Skibo Castle

The Carnegie Residence In New York

Carnegie The Philanthropist

• Gave away all but 10% of his fortune which he set aside for his family.

• 2,811 public libraries, 1,946 of which were in the United States.

• Gave away 8,000 organs to churches.• Established the Carnegie Foundation with

an endowment of $125 million dollars.

John D. Rockefeller – The Oil Tycoon

• Established the practice of horizontal integration- one company’s owning of other companies involved in the same industry.

• What Rockefeller could not buy, he drove out of business by making deals with suppliers to receive lower prices on supplies and freight rates.

John D. Rockefeller

• A 1901 Puck cartoon satirizing Rockefeller and his empire. He stands on the base of his empire, Standard Oil. His crown is decorated with his other holdings.

Famous Quotes From John D. Rockefeller

• “God gave me my money. I believe the power to make money is a gift from God…to be developed and used to the best of our ability for the good of mankind. Having been endowed with the gift I possess, I believe it is my duty to make money and still more money to use the money I make for the good of my fellow man according to the dictates of my conscience.

Rockefeller and Anti-trust

• In 1911 Standard Oil was dissolved following a Supreme Court decision.

• Rockefeller retired that year.• He was worth $1 billion.

Rockefeller

• By 1899 he controlled 90% of American oil refining capacity.

• Annual profits had reached $45 million.• In his later years he spent much of his

fortune as a philanthropist. One newspaper even commented he was in competition with Andrew Carnegie to see who could give the most money away.

A Man of Contradictions

• Rockefeller was an utterly ruthless business man who was quoted as saying “competition was a sin.”

• He would do whatever was necessary to drive a competitor out of business.

• He practiced: monopolization, rate wars, rebates from railroads, and intimidation.

A Man of Contradictions

• Rockefeller was deeply religious.• He was a devout Baptist.• He gave large amounts of money to

religious organizations.• He gave the matching challenge grant to

establish the University of Chicago, which was founded to be a Baptist college.

Famous Quotes From John D. Rockefeller

• “I do not think there is any other quality so essential to success of any kind as the quality of perseverance. It overcomes almost everything, even nature.”

• I believe that every right implies a responsibility; every opportunity, an obligation; every possession, a duty.”

Famous Quotes From John D. Rockefeller

• “I always try to turn every disaster into an opportunity.”

• “Don’t be afraid to give up the good to go for the great.”

Government and Big Business

• The Industrialists frowned on intervention by Government.

• Welcomed government promotion of the new industrial order. Protective steel tariffs are one such example.

• Public pressure brings about the Sherman Anti-trust Act which outlaws the formation of trusts.

Mass Marketing & Mail Order

• The Industrialists use advertising to increase demand for their products.

• John Wanamker, Marshall Field, and R.H. Macy open Department Stores.

• Mail order is now possible thanks to the RPO and REA service provided by railroads.

• Wards and Sears.