Dow #4 the rise of big business



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Curtin/Freund/Larkin/Soare SS/8 Period DOW #4



THE RISE OF BIG BUSINESS

Assigned: 10.23.15

DUE: 10.30.15
One part of the Gilded Age was The Rise of Big Business. During this time period the situation in America and the world allowed a few people to control all of the industry in the United States. These people are either referred to as “Captains of Industry” or “Robber Barons”. Were they captains of industry because they figured out how to make tons of money while following the rules of the Gilded Age free-for-all or were they robber barons because they lied, cheated and stole their way to wealth? For this assignment you will examine the life, times, business practices and philanthropy of John D. Rockefeller and Andrew Carnegie. You will then make a memorial for both of them explaining if they are either Captains of Industry or Robber Barons. You may decide that one is a Captain of Industry and the other Robber Baron (it is completely your opinion and you cannot be wrong as long as you provide EVIDENCE to support your opinion). This will count for a test grade. Good Luck grasshoppers, the steel and oil industries are depending upon you!

INTRODUCTION

During the late 19th century (the Gilded Age) situations occurred that opened the door for a very few people to become extremely wealthy, while the vast majority of Americans were living well below the poverty line (so far beneath the poverty line they couldn’t even see the line anymore). The characteristics of this time period that allowed this to occur were:



http://2.bp.blogspot.com/-ui1_t_c4srm/tw8swxu7wsi/aaaaaaaaags/k0hrxtkff1e/s1600/political_machine.jpg


  • Political Machines- During this time period certain groups (political machines) controlled the entire political scheme of America (from local all the way to the federal level). These machines picked congressmen, senators and the presidents and thereby all of the people in the government were dependent upon them for their jobs. How does this tie into the rise of big business you ask? The wealthy industrialists that ran the economy during this time period paid the political machines good money to keep the government following a laissez-faire policy. As the businesses helped to run the political machines and the political machines controlled the government, the government continued to pass laws that were favorable to the capitalists. The political machines gained power two ways. One was by trading jobs with immigrants for votes. The other was through intimidation. To give you an idea of how a political machine worked:


The following is taken from TR: The Last Romantic by H.W. Brands. It describes how political machines worked during election time. It tells the story of Joseph Murray, a Democratic Party “thug” who worked for Tammany Hall (the NYC political machine of the Gilded Age).

Joseph Murray had the gift. Irish by birth, Murray had fled his hungry homeland as a toddler during the potato famine, wrapped in his mother’s love but little else; he grew up, as he liked to say, “barefoot boy on First Avenue.” Bare knuckles soon supplemented bare feet, and quick wits complemented both. By the age of fifteen he had developed a following among the young toughs of the East Side. He joined the Union army for the bounty that Abe Lincoln offered; in the bargain he bolstered his reputation as a fighter and a fellow who knew his way about the world.http://www.gwu.edu/~erpapers/teachinger/images/ucsd_tammany.jpg



The politicos of Tammany Hall were always on the lookout for such up-and-comers, and before long they were courting him. He didn’t resist. In an era when each party set up a booth at the precinct’s polling place on election days and passed out the party’s straight ticket to approaching voters, Murray and his gang were assigned the job of beating up the Republican representative early election morning, smashing his booth for kindling, and casting his ballots to the wind. For their efforts the boys received walking-around money; Murray got more regular compensation.”http://cdn.scragged.com/content/nonversioned/images/articles/tammanyhallbosstweed.png



  • Natural Resources and Growth- By the time the Gilded Age rolled around, the American economy was ready to expand. Manifest Destiny had secured all of the land that America would need and the natural resources of the continent were for the most part untouched. The Industrial Revolution was in full swing in England and it was now time for America to join the world stage as a strong, industrialized power. In addition, this was a time period of many new inventions, from Thomas Edison and his light bulb (which allowed factories to be opened at night) to Alexander Graham Bell and his telephone, America was brimming with new inventions, but none of them was more important than the Bessemer Process, which turned iron into steel.

So all of these issues joined together made it possible for a very select few to control everything. Were they playing by the rules of the time period and just smarter and better equipped than everybody else, or were they liars, cheaters and thieves who robbed their way to the money? You decide!


IMPORTANT VOCAB:

Stock- A share in a corporation. A person would purchase stock to make money. When the company makes money, you make money.

Corporation- A large company with stock holders.

Trust- When several large companies join together under one board to control prices.

Monopoly-When a company has complete control of an industry and can charge whatever it likes for goods.


John D. Rockefeller

John D. Rockefeller was born on July 8, 1839 in upstate New York. Born in modest circumstances his family moved to Ohio when he was 14 years-old. He dropped out of high school at 16, to take a six-month business course that he finished in less than three. He found a job shortly after, working as a book-keeper for $3.57 a week. By 1859 he saved over $2,000 and bought a stake in the first oil well to be drilled in Cleveland, Ohio. By 1865, he was able to buy out all of his partners (five in all) for the total sum of $72,500 (not bad for a kid who was making less $200 a year only 10 years earlier). As the oil industry expanded so did Rockefeller’s wealth and power and by 1870 he formed the Standard Oil Company with a start-up investment of $1,000,000. By 1872 Standard Oil Company had control of every refinery in Ohio and some in New York. By 1882, Rockefeller merged all of his properties to form the Standard Oil Trust. There were 42 shareholders in this corporation (with Rockefeller being the largest majority holder by far) for a total start-up capital of $70,000,000. By 1911, when Standard Oil Trust was finally dissolved by the Supreme Court, Rockefeller owned 90% of the US oil industry and was worth well-over $1,000,000,000 (the first billionaire in American history). For the most part Standard Oil was brought down by one person, Ida Tarbell, a journalist who did an expose of Standard Oil and its business practices; the following is adapted from her work.john_d_rockefeller4http://ecx.images-amazon.com/images/i/51kxokr5bwl._sl500_ss500_.jpghttp://photos.state.gov/libraries/usinfo/3234/week_4/042508_chapter5_200.jpg


As oil is a free commodity, it is simply lying in the ground, the only expenses are removing the oil from the ground and transporting it. The cost of removing the oil and refining it is the same for everybody. All competitors have the same cost for finding oil, drilling oil, and refining oil. Standard Oil, however, is able to put all competitors out of business because of the special deal that it has with the railroad companies. John D. Rockefeller made a deal with the railroad companies in the 1870s to supply them with free oil in exchange for free shipping. It seemed the perfect deal, the railroad companies needed oil for their business and the oil companies needed the railroad companies to transport their oil. By cutting out the only real cost that oil companies have, Standard Oil is able to undersell all of their competitors.http://siliconcowboy.files.wordpress.com/2011/05/standard-octopus-2.gif
Because of this set-up, Standard Oil has a distinct advantage over all of the competition and this enables to use this extra money against the competition. When Standard Oil opens a facility in a new area it has a distinct advantage over all of the competition. It slashes it prices (because of the railroad privileges and its very deep pockets) and waits until all of the competition cannot compete anymore. Once a company cannot compete with the prices that Standard Oil is able to sell its oil at, Standard Oil buys out the struggling company and makes it a part of the Standard Oil Trust. Once there is no more competition in a given area, Standard Oil has a complete monopoly over the industry and is able to charge any price it chooses for its oil (raising its pricing to astronomical figures). By eliminating all competition it literally controls the price of oil. There are no other choices, so the people are the ones that lose. Standard Oil then continued this policy in the next town, and the next town, and so on and so forth. It was only a matter of time before John D. Rockefeller controlled 90% of the American oil industry.http://angam.ang.univie.ac.at/class/vo/vo02/standardoil.jpg

Controlling only 90% of the industry, however, did not seem to be enough for Standard Oil. As the railroad industry and Standard Oil became more and more friendly, Rockefeller sent out his men to sit on the boards of all the biggest railroad companies. These railroad companies, acting as a part of the Standard Oil Trust, set up favorable schedules for the Standard Oil shipments and unfavorable schedules for every other oil company. They would create direct routes from the Standard Oil refineries to the pipelines. The railroads would then make it next to impossible for anybody else’s oil to reach the oil pipelines. In fact, by 1892 Standard Oil bought the vast majority of the oil pipelines (all 35,000 miles of it) and closed them off to the competition. If a competing company was somehow able to transport their oil into the pipeline it was still very unlikely to reach the market, as Standard Oil thugs would open the pipeline and spill all of the oil. All of these factors, made it virtually impossible for competing companies to ship their oil.

Finally, when enough people complained about the Standard Oil Trusts practices Congress set forth in motion the creation of the Interstate Commerce Commission. The job of the ICC was to control trade across state lines to make sure that no company was doing anything illegal. The power and the influence of Standard Oil in Washington D.C., however, was felt from the get-go. The ICC was first proposed in 1876, but Standard Oil and their friends in the Senate kept it from going into effect until 1887. The ICC then took testimony against Standard Oil in 1889, and gave orders to change the practices of Standard Oil in 1892, which Standard Oil dutifully ignored. The ICC then reconvened about Standard Oil in 1895 at which time Standard Oil Company’s lawyers kept the case in the courts until 1911 (35 years after the first proposal of the ICC) when the Supreme Court ordered dissolution of Standard Oil into 38 separate companies. http://www.cannabisculture.com/forums/uploads/842443-rock7.gifhttp://www.historyteacher.net/ahap/images/bigbusiness.jpg

In the end, Standard Oil had a virtual monopoly on American oil for over 40 years. The winners were John D. Rockefeller and the men of his executive board who all became extremely wealthy (with Rockefeller being the first billionaire ever in world history). The losers were the competition and the American public. As the public always loses when there is no competition in a market. When one company dominates, it can sell its product for any price it chooses as the public has no alternative.http://www.micheloud.com/fxm/so/monopoles3.jpg


ANDREW CARNEGIE
Andrew Carnegie was born in Durnfermline, Scotland on November 25th, 1835. His parents were of the upper-middle class of Scotland and over-indulged him. So much so that they told him he did not have to attend school at all (which he didn’t until he decided to go to school at the age of 8). When the Carnegie family emigrated to America in 1848, Andrew only had 5 years of formal schooling in a classroom with a 180 students in it. The family settled in western Pennsylvania and Andrew immediately went to work.andrew_carnegie

At the age of 13 Carnegie began working in a bobbin factory making $1.20 a week for 12 hour days, 6 days a week. Not content to continue making this measly salary, Andrew began to attend night classes to better acclimate himself to American life and education. While working as a bobbin boy (he would dip bobbins into an oil bath in the factory boiler), the manager noticed his intelligence and work ethic and promoted him to messenger boy in the telegraph department. Working in the telegraph department he made many contacts and one of them was with The Pennsylvania Railroad who hired Carnegie as the president of the company’s (Tom Scott) personal secretary. Carnegie soon proved himself as being a very capable assistant and became second in charge of the company. By 1855, the twenty-year-old Carnegie was in charge of the entire division. By the age of 24, Carnegie was appointed Superintendent of the Pittsburgh Division. All the while he was making contacts with people in the railroad, steel and telegraph industries.

In 1856, Carnegie bought his first stocks and with the dividends that he made he invested in the oil industry. He operated an oil well in Pittsburgh for 5 years, making a nice profit before he sold his share to his partners for a nice chunk of change. During this time he noticed a problem in the American infrastructure (buildings and railroads). The wooden railroad tracks that were being used were inefficient and dangerous (as they sometimes caught fire as the oil spilled on the track). In 1865, with the money from the sale of his oil company Carnegie decided to quit his job with the Pennsylvania Railroad and concentrate his energy into the steel industry (so sure he was that after the Civil War the United States was going to invest its time and money into the building of the transcontinental railroad).http://theblogthatbuiltamerica.files.wordpress.com/2012/10/keystone_0076.jpghttp://oi54.tinypic.com/15s78u8.jpg

http://mweconomics.pbworks.com/f/carnegie-steel-flowchart.jpg

When Carnegie got into the steel industry he immediately went about organizing his business under what he called vertical integration. Before Carnegie the steel industry was highly specialized, meaning one mill produced the pig iron, another converted the pig iron to bars and slabs, other mills then rolled railroad iron, manufactured plates, nails, and so on. Transferring the iron from one establishment to another significantly slowed down the production of finished goods and added to the costs because of all the middlemen. Having worked in the railroad business for 10 years, however, Carnegie knew that efficiency and speed were the keys to making a business successful. Because of this, he took all of the different mills and locations and put them into one place (that is what vertical integration is). As Carnegie streamlined his business, he was able to lower his costs and increase his profits. As the profits increased, Carnegie expanded his business and continued to expand until he controlled all of Pennsylvania’s steel industry. With the contacts he made in the railroad industry he was able to create special deals. He supplied the steel for the railroad industries and the railroads, in turn, gave him preferable schedules and rates (thereby allowing Carnegie Steel to charge less than his competitors and put them out of business).

While Carnegie worked hard to cut costs and put his competitors out of business, he also worked his workers extremely hard. As he was the only plant around (Carnegie Steel was a monopoly in the steel industry), his workers with knowledge in the production of steel had no choice but to work for him. Laborers in his factories worked 12 hour days, 364 days a year (with only the 4th of July off). He was also extremely cheap with his pay. In 1895, the year that Carnegie himself made $292,000,000, he paid his workers less than $7.00 a week. In addition, not happy with the already plum deal he was getting from the railroad companies, Carnegie began to buy up as many railroad companies as he could and block his competitors from using them to ship their goods on the rails and from building any new rail lines with their steel. Through all of his wheeling and dealing Carnegie Steel controlled 90% of the US Steel industry by 1901 when he sold his company to J.P. Morgan for $480,000,000.
PHILANTHROPYhttp://pbs.org/now/enterprisingideas/images/philanthropy.jpg

Towards the end of their lives Rockefeller and especially Carnegie began to give away their wealth. When wealthy industrialists give away their wealth for charitable causes it is known as philanthropy.


Rockefeller gave away most of his wealth to the founding of educational facilities and to stop the spread of infectious diseases. The Rockefeller Institute for Medical Research made significant advances in the treatment of spinal meningitis, pneumonia, infantile paralysis, influenza, African sleeping sickness, blood transfusion, blood vessel surgery, hookworm diseases and the identification of DNA. http://upload.wikimedia.org/wikipedia/en/thumb/9/94/rockefeller_university_seal.gif/200px-rockefeller_university_seal.gif
Andrew Carnegie also became a philanthropist, giving up to $330,000,000 of his $400,000,000 fortune away. While giving away the vast majority of his fortune, Carnegie followed a policy he called, The Social Gospel of Wealth. According to this philosophy, Carnegie stated that, “any man who dies wealthy dies in disgrace.” With this as his belief, Carnegie went about the business of philanthropy with a-gusto, giving away 85% of his wealth to many public facilities, especially to the building of libraries. An immigrant himself, Carnegie believed that education was the best way to help immigrants become a part of the American mainstream. Overall, he built 2,509 libraries in the English-speaking world. He also gave away his money to facilities that he believed would help the public good (universities, hospitals, parks, concert halls and swimming pools).http://gildedageperiod2.wikispaces.com/file/view/library.jpg/69473687/library.jpghttp://fortuneaskannie.files.wordpress.com/2011/06/andrew_carnegie_philanthropy_cartoon.jpg


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