Rise of Big Business

Chapter 24

Industrial Progress

• Manufacturing took the place of agriculture in dominance of U.S. economy by 1900

• New technologies, railroads, equipment, factories spurred industry

• Per capital income increased over 2% a year (though this was uneven)

• People spurning public service to go into business

Dominant Industries

• New England and Midwest: Iron, steel, transportation equipment

• West: Natural Resources

• South: Textiles

Bessemer Process

• Increase in steel production

• Reduced need for skilled workers

• Price of steel drops from $100/ton in mid-1870s to $12/ton in 1890

• 1.5 million tons on railroads

Causes of Rapid IndustrializationCauses of Rapid Industrialization

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

2. The Railroad fueled the growing US economy:

First big business in the US. A magnet for financial investment.

The key to opening the West. Aided the development of other industries.

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

2. The Railroad fueled the growing US economy:

First big business in the US. A magnet for financial investment.

The key to opening the West. Aided the development of other industries.

4. Unskilled & semi-skilled labor in abundance.

5. Abundant capital.6. New, talented group of businessmen

[entrepreneurs] and advisors.7. Market growing as US population

increased.8. Government willing to help at all

levels to stimulate economic growth.9. Abundant natural resources.

4. Unskilled & semi-skilled labor in abundance.

5. Abundant capital.6. New, talented group of businessmen

[entrepreneurs] and advisors.7. Market growing as US population

increased.8. Government willing to help at all

levels to stimulate economic growth.9. Abundant natural resources.

Causes of Rapid IndustrializationCauses of Rapid Industrialization

Railroads and Communication

• Government set aside 180 million acres of land for railroads

• Transcontinental railroad completed in 1869• 192,000 miles of track by 1900• Telegraph lines• New banks allow investments• Cornelius Vanderbilt made millions in

railroads

New Financial BusinessmanNew Financial Businessman

The Broker: J. Pierpont Morgan

The Broker: J. Pierpont Morgan

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

Industrial Age.1. 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!

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!

U. S. Patents Granted

U. S. Patents Granted

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

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

Thomas Alva EdisonThomas Alva Edison

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

The Light BulbThe Light Bulb

The Phonograph (1877)

The Phonograph (1877)

The Ediphone or Dictaphone

The Ediphone or Dictaphone

The Motion Picture Camera

The Motion Picture Camera

Alexander Graham BellAlexander Graham Bell

Telephone (1876)Telephone (1876)

The Gospel of Wealth:

Religion in the Era of Industrialization

The Gospel of Wealth:

Religion in the Era of Industrialization

Russell H. Conwell

Russell H. Conwell

$ Wealth no longer looked upon as bad.

$ Viewed as a sign of God’s approval.

$ Christian duty to accumulate wealth.

$ Moral duty to help others

$ Wealth no longer looked upon as bad.

$ Viewed as a sign of God’s approval.

$ Christian duty to accumulate wealth.

$ Moral duty to help others

“On Wealth”“On Wealth”

Andrew CarnegieAndrew Carnegie

$ Inequality is inevitable and good.

$ Wealthy should act as “trustees” for their “poorer brethren.” (Gospel of Wealth)

$ Inequality is inevitable and good.

$ Wealthy should act as “trustees” for their “poorer brethren.” (Gospel of Wealth)

Social Darwinism 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.”

British economist.

Advocate of laissez-faire.

Adapted Darwin’s ideas from the “Origin of Species” to humans.

Notion of “Survival of the Fittest.”

Herbert SpencerHerbert Spencer

Social Darwinism Continued

• Poverty was a result of competition (and laziness)

• Social Darwinists were against reform that would end this

Reform Darwinists

• Group that challenged Social Darwinism

• Pointed out social costs and loss of Christian values in competition

• Big business needed to be broken up

• Places of highest degree of material progress had the most poverty

Rise of Big Business

• Big business dominating• Big businesses had large amounts of capital,

could afford technologies, big factories, risk taking, and hire the hundreds of workers needed to compete

• Rise of big business meant more jobs, more mass-produced goods and lower prices

• Some big businesses made more money than some states

Big Business

• No one person could afford the costs of many of the businesses

• Required many investors and help from government

New Type of Business Entities

New Type of Business Entities

1. Pool Agreement to divide the business in an area and share the profits.

2. MergerTwo or more businesses combine into one larger company

3. Trust Smaller businesses allow a larger company to take their stock and control by the end of Gilded Age, most of Big businesses/corporations were

4. automatically assumed to be trusts

1. Pool Agreement to divide the business in an area and share the profits.

2. MergerTwo or more businesses combine into one larger company

3. Trust Smaller businesses allow a larger company to take their stock and control by the end of Gilded Age, most of Big businesses/corporations were

4. automatically assumed to be trusts

New Type of Business Entities

New Type of Business Entities

Trust: Horizontal Integration John D. Rockefeller

Trust: Horizontal Integration John D. Rockefeller Vertical Integration:o Andrew Carnegie U. S. Steel

Vertical Integration:o Andrew Carnegie U. S. Steel

Standard Oil Co.Standard Oil Co.

U. S. Corporate Mergers

U. S. Corporate Mergers

Federal Government and Big Business

• Laissez-Faire, especially when Grover Cleveland was President

• 2/3 of country’s industrial goods by 1900

• 2% of companies made 50% of products

Big Business and Competition

• Big business leaders try to eliminate competition

• Competition means lower prices and less profits

• Big business leaders tried to eliminate competition and form monopolies

• Tried to recover lost profits by slashing wages• Railroad companies tried pools and set prices

with some success• Government: Laissez-Faire

Result of Laissez-Faire

• U.S. economy grows and becomes a dominant force world wide

• Growing gap between rich and poor• Lack of competition bad for consumers• Increased unionization (usually ending in

union failures and violence)• Government corruption• Call for reform and push for government to do

something to regulate big business!

Relative Share of World Manufacturing

Relative Share of World Manufacturing

The Protectors of Our Industries

The Protectors of Our Industries

The ‘Robber Barons’ of the Past

The ‘Robber Barons’ of the Past

The Grange The Grange MovementMovementThe Grange The Grange MovementMovement

First organized in the 1870s First organized in the 1870s in the Midwest, the south, and in the Midwest, the south, and Texas.Texas.

Set up cooperative Set up cooperative associations.associations.

Social and educational Social and educational components.components.

Succeeded in lobbying for Succeeded in lobbying for “Granger Laws“Granger Laws.”.”

Rapidly declined by the late Rapidly declined by the late 1870s1870s..

Supreme Court Supreme Court DecisionsDecisions

Supreme Court Supreme Court DecisionsDecisions

Munn vs. IllinoisMunn vs. Illinois (1877): (1877): States could regulate businesses States could regulate businesses (railroads) within their borders(railroads) within their borders

Wabash, St. Louis, & Pacific Wabash, St. Louis, & Pacific Railroad Company vs. Railroad Company vs.

IllinoisIllinois (1886): (1886): States could States could not regulate interstate not regulate interstate commerce--it was a federal commerce--it was a federal government responsibilitygovernment responsibility

Interstate Commerce Act (1887)

• Prohibited rebates and pools and required railroads to publish their rates openly.

• Forbade discrimination against shippers• Outlawed charging more for a short haul than

a long one.• Set up Interstate Commerce Commission to

administer the law• First attempt of federal government to

regulate big busness

Sherman Anti-Trust Act (1890)

• Republican Act• Contracts, combinations and conspiracies to

restrain trade or commerce is illegal• Vagueness of language made it difficult to

enforce• Actually used to outlaw unions• Will not be used to regulate big business until

1914

U.S. v. E.C. Knight (1895)

• Supreme Court ruled that a sugar company that owned 90% of the industry did not violate the Sherman Anti-Trust Act because the act applied to commerce not manufacturing.– Took power away from Sherman Anti-Trust

Act– Act will not be used effectively until 1914.