Chapter 6 Section 2

Rise of Big Business

New Capitalist Spirit

Capitalism– private ownership of most industries

Competition determines price of goods and wages

By late 1800’s businesspeople looked to gain wealth by taking advantage of technological advances

Horatio Alger

Wrote books describing idea of self reliant individiualism

1869 Luck and Pluck series– based on a rags to riches theme

Laissez-Faire Capitalism

No government intervention in economyLiteral translation “hands off”

Businesses would let competition determine prices and wages

Free enterprise system– supply and demand, profit margin determine what and how much to produce

Critics Respond

Rapid industrialization is harmful and unjust to the working class

Karl Marx– German philosopher Proposes a system that removes inequities of wealth Communism proposes that individual ownership of

property not be allowed Property and production are owned by the

community and it provides for needs of all “capitalism allowed bourgeoisie to take advantage of

proletariat”

Social Darwinism

Adapted Charles Darwin’s theory on natural selection and Evolution

Society progresses through natural selection The “fittest” would and should rise to positions of wealth

and power The “unfit” would fail Any attempt to assist poor or less capable would slow

social progress Religious leaders echoed support– wealth became a sign

of Christian virtue

“Natures cure for most social and political diseases is better than man’s”

Nicholas Murray Butler

Corporations

At close of Civil War businesses are owned by individuals, families or partnerships

Not enough capital to manage new industries Definition

Organizers raise money by selling shares of stock in company

Stockholders receive % of profits– called dividends Stockholders had little or no part of daily operations

Advantages of corporations

Could raise large sums of moneyStockholders held limited liability–

not responsible for corporations debtStable organization– not dependent

on owner for its existenceProblems– where competition was

fierce, prices and profits fluctuate

Jay Gould

Worked as grocery clerk

Invested in railroad stock and earned $77 million

Trusts

Corporations band together to form trusts Turn control of business over to board of

trustees Trustees run business as one large company Limits overproduction by reducing competition Develops monopolies or complete control over

price and quality of product

Andrew Carnegie

Born in 1835 in Scotland Immigrated to United

States in 1848 at age of 12

Worked in cotton miles for $1.20/week in 1848

At 17 became private Secretary to railroad superintendent

Carnegie Steel

Began investing to raise money which he used to get into steel industry

Began empire in 1860’sKnew nothing about production but

hired experts to run company

Vertical Integration

Own the companies that provide materials and services you depend on

Iron and coal mines for ore Steamships and railroads to transport products By 1899 Carnegie organizes Carnegie Steel

Company Sold it to J.P. Morgan in 1901 for $500 million

Gospel of Wealth

“Rich are morally obligated to benefit their fellow citizens”

Donated $350 million to charities across the country

John D. Rockefeller

Ran Standard Oil CompanyStarted in 1863 at beginning of oil

boomPracticed vertical integration like

CarnegieSet out to control the oil industry

“Competition was inefficient”

Horizontal Integration

Control of other companies producing oil Drove others out of business by making deals

with suppliers/transportation at cheaper rates than others

Became first trust in U.S. in 1899 By 1880 controlled 90% of all oil production Like Carnegie– donated vast sums to charity

$530 million total

Cornelius Vanderbilt

Prior to Railroad– operated shipping business By 1869 gained control of New York Central and

2 others that connected New York City Soon controlled lines between Chicago,

Cleveland, New York, and Toledo Provided more efficient service by combining

small railroads By 1877 controlled 4,500 miles of track Personal fortune of $100 million

George Westinghouse

1869 at age of 23 established Westinghouse Air Brake Company

After public demonstration of effectiveness of air brake his business grew

By 1874 air brake was on 7,000 passenger cars

George Pullman

Built Railroad cars to make travel more comfortable

Built company town south of Chicago in 1880 Hoped to encourage educated, healthy, peaceful

and virtuous workers Provided homes, stores, church, library, theatre,

medical offices and athletic fields strictly controlled daily life in company town

Mass Marketing

Persuade consumers to purchase products Brand names– name recognition

“Standard Oil”– implies standard for industry Packaging to set products apart

Helped create consumer culture Montgomery Ward and Sears, Roebuck and

Company– develop mail order catalogs

Department Store

Variety of products under one store Buy in bulk and set cheap prices

Marshall Field– Chicago R.H. Macy– New York John Wanamaker– Philadelphia

Becomes domain of women Hired as workers Enticed to shop

Chain Stores

Branch stores in many citiesWoolworths– Frank Woolworth in

1879By 1900 had 59 stores around

country