Robber Barons or Captains of Industry?

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Robber Barons or Captains of Industry?

Near the end of the 1800s a handful of men controlled much of the country's wealth. While their contributions to American industrialization are immeasurable, many people at the time described these industrialists as "robber barons" who would stop at nothing to increase their wealth at the expense of others. Some of these men, however, used their great fortunes to create institutions, which have supported medical research that led to cures for diseases and educated countless numbers of disadvantaged people.

One of the earliest and most successful industrialists of the 1800s was John D. Rockefeller, commonly referred to as the richest man in history. Rockefeller was one of the first people to realize the importance oil would play in American society. He invested most of his money in petroleum. By the time others realized the value of oil, Rockefeller had already gained control over so much of that natural resource that he could manipulate prices to eliminate his competitors. Rockefeller accomplished this by lowering the price of his oil every time a competitor entered the market. Without the ability to make a profit, the competition would often sell its oil holdings to Rockefeller.

With little competition, Rockefeller soon grew wealthy from the world's increasing demand for oil. After some time, many people began to accuse Rockefeller of holding a monopoly on the oil industry. A monopoly enabled him to destroy or absorb any business that competed with his Standard Oil Company. In 1911 the United States Supreme Court ruled Standard Oil was in violation of the Sherman Antitrust Act, which forbids companies from conspiring to force out competitors. The court ordered that Standard Oil be broken into several smaller companies. Rockefeller, however, still owned large shares of each company.

Throughout his life, Rockefeller gave millions of dollars to charities. In 1884, Rockefeller contributed money to found Spelman College in Atlanta, Georgia, a college for African-American women. Rockefeller also was a major contributor to the University of Chicago and Johns Hopkins University in Baltimore, Maryland. Rockefeller donated more than $500 million to charity throughout his life.

Andrew Carnegie was another successful industrialist of the 19th century. Carnegie was born in Scotland and began his career in railroads. After some time, Carnegie realized the steel industry offered greater wealth because steel was used in all sorts of industries. Carnegie founded a steel company in Pittsburgh, Pennsylvania, and began making large sums of money providing steel needed for railroad tracks, steam locomotives, bridges, and manufacturing machines.

As his contemporary, John D. Rockefeller, had used his dominance of the oil industry to control prices, Carnegie used his control of the steel industry to destroy competitors through his ability to control prices. Also like Rockefeller, Carnegie was often accused of heavy-handed tactics. In 1892 during the Homestead Strike, Pinkerton detectives Carnegie's company had hired killed a number of strikers. Although Carnegie was out of the country at the time, strikers blamed him for the bloody standoff.

Andrew Carnegie spent the last part of his life giving away the millions of dollars he had made during his career. Heavily committed to education, Carnegie funded the Tuskegee and Carnegie institutes. In addition, Carnegie's lifelong love of books led him to donate funds to build more than 3,000 public libraries in America and Scotland. Even after his death, the charitable contributions from Carnegie's estate continued to provide money to worthy causes. Carnegie is responsible for more than $4.3 billion in charitable contributions. This makes him one of the greatest philanthropists in history.

While steel and oil were critical to the industrialization of the Unites States, none of this would have been possible without the money to develop these industries. J.P. Morgan provided much of the money that fueled America's industrialization. He was one of the most powerful bankers of all time and specialized in making failing businesses profitable. This process became known as "Morganization."

Morgan was also a wise investor and invested much of his money into steel, oil, and railroad companies. These investments rewarded him with huge profits. Morgan's critics complained he made his money from hard-working people who had struggled and saved to create profitable businesses. Morgan countered that if these people were so successful, they would have made their loan payments. Had they done this, Morgan said, he would never have taken over and reorganized their businesses.

Morgan's power extended to President Grover Cleveland. In 1895 the United States Treasury was almost out of gold, and President Cleveland turned to Morgan for help. Morgan engineered a business deal that infused $65 million worth of gold into the treasury and prevented a devastating economic panic in the United States.

Throughout his life, J.P. Morgan was a major contributor to medical schools such as Harvard and Trinity colleges. In addition, Morgan donated much of his art collection to the Metropolitan Museum of Art and the American Natural History Museum.

The legacies of Rockefeller, Carnegie, and Morgan are complex. On one hand, these men were merciless businessmen who had no qualms about destroying competitors to expand their financial empires. Their charitable contributions in life and death, however, are still saving lives and educating the underprivileged.

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Robber Barons or Industrial Statesmen?
1. Who was known as the richest man in history? How did he make his fortune?

2. What term describes a situation where one company controls an entire industry and is so big and powerful that all of its competitors are destroyed?

3. J.P. Morgan was well known for restructuring businesses that had failed. What term was coined to describe this process?
4. What name was given to industrialists who controlled much of the nation’s wealth? Do you believe this was a fair term to use to describe them? Why or why not?

5. Name five institutions that prospered because of charitable contributions from Rockefeller, Carnegie, and Morgan. Do you think their charitable contributions made up for the way these men made their fortunes?

6. Who is a modern-day person you think can be compared with these 19th century industrialists? Why?

Robber Barons or Industrial Statesmen?
In the late 1800s, many giant trusts and monopolies emerged. To this day, historians and economists continue to debate the effects that the business leaders who formed these trusts and monopolies had on the American economy. Some historians believe that these captains of industry undermined the American free enterprise system. While these giants accumulated huge fortunes, small businesses perished. Other historians are quick to defend men such as Rockefeller. In their view, these industrialists helped the economy to grow and to develop new and efficient business and industrial methods.
Rockefeller's Standard Oil Company Cuts Prices to Kill Competition

Throughout her life, muckraker Ida Tarbell was concerned about the lack of competition between the small oil producers of Pennsylvania and Standard Oil Company. In this excerpt, from The History of the Standard Oil Company, Tarbell wrote about how Standard Oil dealt with competition. Her information is based on interviews with former Standard Oil Company employees.
The marketing department of the Standard Oil Company is organized to cover the entire country, and aims to sell all the oil sold in each of its divisions. To elimi­nate competition it had organized an elaborate secret service for locating the quantity, quality, and selling price of independent or competitor shipments. Having located an order for independent oil with a dealer, Standard Oil per­suades the independent dealer, if possible, to cancel the order. If this is impos­sible, Standard Oil threatens "predatory competition," that is, to sell at cost [the amount spent in producing and manufacturing] or less until the rival is worn out. . . . The sureness and promptness with which Standard Oil located their competitors' shipments was remarkable. The ruthlessness [harshness] and persis­tency with which Standard Oil cut and continued to cut their prices drove small independent oil producers to despair.
Adapted from The History of the Standard Oil Company, Ida Tarbell (New York: McClure Phillips and Co., 1904).

  1. According to Ida Tarbell, how did Standard Oil eliminate competition?

  1. If you were an independent oil producer in the late 1800s, how would you have responded to Rockefeller's business methods?

The Positive Contributions of John D. Rockefeller

In his two-volume biography, John D. Rockefeller, The Heroic Age of American Enterprise, histori­an Allan Nevins both criticized Rockefeller and presented him as one of the great pioneers in American industrial history.
This is not to say that much of the criticism heaped upon Rockefeller and the Standard Oil Company was not entirely true. The great combination made a cruel use in its early years, and particularly in 1875-79, of railroad rate discrimi­nations. It practiced espionage. It employed phony independent companies. It used "local price-slashing" to eliminate competitors. Its part in politics was sometimes blameworthy. It paid less attention than it should have to systematic price-reduction. All this can be set off against its constructive achievements. The Standard Oil Company eliminated waste and introduced many economies. It applied the Frasch process which removed sulfur from crude oil and the Burton cracking, or refining process, which doubled the yield of gasoline extracted from crude oil. It standardized products on a high level of quality. It developed valu­able by-products such as kerosene, gas oil, and lubricating oil. It assisted other industries in developing and improving lubricants, such as petroleum jelly. It improved home distribution of its products.
Adapted from John D, Rockefeller, The Heroic Age of American Enterprise, Allan Nevins (New York: Scribner's and Sons, 1940).

  1. List three constructive achievements of the Standard Oil Company.

  1. Based on Tarbell's critical account and Nevins's list of the Standard Oil Company's achievements, do you think Rockefeller had more of a positive or negative affect on the American economy? Explain.

The Gospel of Wealth

Excerpted form Andrew Carnegie’s essay “Wealth” written in 1889.
In the last few hundred years, there has been a revolution. There used to be very little difference between the way of life of a community’s leaders and the ordinary people. Now however, there is a tremendous difference between the palace of the millionaire and the cottage of the laborer.

But this change is really a very good thing. In fact, it’s absolutely necessary for the progress of humanity, because it is the rich who preserve the best literature and art and the other refinements of civilization.

Here’s how to solve the problem of poverty: Don’t pass any laws controlling either how businessmen make money or what they do with it. Most of the community’s money will end up in the hands of a few men, but this is all right if these men consider themselves not as owners of the money but merely as temporary keepers of it. Because these men are wise (or they wouldn’t be rich) they will be able to make good decisions about how to spend the money to help the community. In fact, their decisions will be better than those of the people of the community themselves.

  1. How dies Carnegie view the disparities between the rich and the poor?

  1. How does he suggest solving the problem of poverty?

A Statement by John D. Rockefeller (1903)
The growth of a large business is merely a survival of the fittest. The American Beauty Rose can be produced in the splendor and fragrance which bring cheer to its beholder only by sacrificing the early buds which grow up around it. This is not an evil tendency in business. It is merely the working-out of a law of nature and a law of God.

  1. How does Rockefeller justify his accumulation of wealth?

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