This, then, is held to be the duty of the man of wealth: First, to set an example of modest, unostentatious living, shunning display or extravagance; … and, after doing so, to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer… to produce the most beneficial results for the community—the man of wealth thus becoming the mere trustee and agent for his poorer brethren, bringing to their service his superior wisdom, experience and ability to administer, doing for them better than they would or could do for themselves.— From "Wealth," by Andrew Carnegie, North American Review (1889)

Law? Who cares about the law. Ain't I got the power?— Comment alleged to have been made by Cornelius Vanderbilt, when warned that he might be violating the law

Pioneers of Industry

OR

Robber Barons?

Were these men Captains of Industry, without whom this country could not have taken its place as a great industrial

power, or were they Robber Barons, limiting healthy competition and robbing from the poor to

benefit the rich?

Where do we draw the line between unfair business

practices and competition that leads to innovation, investment, and improvement in the standard

of living for everyone?

Would the industrial economy have succeeded

without entrepreneurs willing to take competition to its

extremes?

Andrew Carnegie

• Rags to riches story• Head of steel industry• Always looked for

better product at lower cost1.Hired people to

improve steel quality2.Undersold competitors3.Bought out rival

plants• “Integrated operation”• Carnegie Steel part of

U.S. Steel Corporation• Sold in 1901 for $250

mil

Vertical Integration

Within an industry

Raw materials

Production

Distribution

Horizontal Integration

Across an industry

mergers

•Buying part of a company•Receive dividends (interest)• Risky vs. Safe

Expensive to purchaseMove money quickUnstable- Make money quick- Lose money quick

Ex: Technology .coms

Cheaper to purchaseLong term investmentsStable-Slow to make money

Ex: Electric Companies Toliet Paper

•Didn’t make steel but instead…•Sold stock in itself (and their good reputations)

•Used that money to buy control of companies that were making steel

•Two companies combine to form one

•Retains power but reduces competition–Why is competition important?

Other companies followed suit

Cornelius Vanderbilt

JP Morgan

JD Rockefeller

Pros of Big Business

• Raises productivity• More efficient (no middle man)

• Better product• Increase in product• Creates more jobs• Funds public institutions

Cons of Big Business

• Reduces competition• Increases prices• Drains resources• Lives “above” law• Poor working conditions• Pays low wages

Railroad Workers - first ever strike 1877

And Grange Movement involvement

And the government intervened

• Sherman Anti-trust Act–All mergers that restrain competition are illegal

– MONOPOLY - objective of the game?

• Standard Oil Company– Broke apart into comp. (Exxon, Mobile, Chevron…)

• U.S. Steel Corporation– broke apart by region (Scranton, Bethlehem, Pgh)

• Movie production companies– Produce or distribute (RKO, Paramount, MGM, Universal, 20th Cent. Fox, Columbia, Warner Bros.)

• Bell Telephones– By region and service: long distance, local, mobile, research, development (Bell Atlantic, Bell Pacific…)

• Charles Darwin’s theory– Natural Selection & Survival of the Fittest

• Used to explain success - Carnegie & Rockefeller

• Stated rich were rich because they were fit to live and poor were poor because they weren’t

• Herbert Spencer–Gov’t to leave business alone; fittest will survive

• Horatio Alger– if worked hard, could be successful…