Chapter 13: The Expansion of American Industry Section 2: The Growth of Big Business

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Chapter 13: The Expansion of American Industry

Section 2: The Growth of Big Business
“Without huge amounts of capital, businesses could not build factories or market their inventions. To succeed, business leaders often combined funds and resources to create large companies. Thus was born the age of big business.” (pg. 467)

I. Robber Barons or Captains of Industry

A. “Robber Barons” – suggests business leaders built their fortune by

stealing from the public.

  1. drained the country of natural resources

  2. persuaded officials to interpret laws in their favor

  3. drove their competition into the ground

  4. terrible wages and conditions for their employees

B. “Captains of Industry” – did positive things for the country

a. increased the supply of goods by:

1. Building factories

2. Raising productivity

3. Expanding markets

b. created new jobs

c. raised the standard of living

d. Est. museums, libraries, and universities

C. John D. Rockefeller

a. Formed the Standard Oil Co. in 1870

b. Gave over $500 million to charities and other institutions

D. Andrew Carnegie

a. Called his philosophy the “Gospel of Wealth”

1. People are free to make as much money as they can

2. Once it is made it should be given away

b. More then 80% of his fortune went towards education

1. More then 3,000 public libraries worldwide

II. Social Darwinism

A. The application of Darwin’s theory of evolution to all of society

a. “Natural Selection” “Only the Strong Survive”

b. society should not interfere with people’s pursuit of success

c. if the gov’t stayed out of it those who were most “fit” would

Succeed and become wealthy

d. society would benefit from their success, and from weeding

All of those who were unfit

B. Most Americans agreed the gov’t shouldn’t interfere

a. gov’t did not tax a businesses profit

b. gov’t did not regulate relations with workers

III. Business on a Larger Scale

A. How big business differs from earlier businesses in the US

a. Larger pools of capital

1. Needed huge sums of capital to run them

2. High start up costs limited smaller businesses

b. Wide geographical span

1. Had assets in several regions throughout the country

c. Broader range of operations

1. Combined multiple operations

2. Responsible for almost all stages of production

d. Revised role of ownership

1. Owners hired professional managers to run the show

e. New methods of management

1. New systems of formal, written rules

2. Created specialized departments within the company

i. accounting, payroll, human resources, etc.

IV. Gaining a competitive edge

A. New market structures

a. Oligopoly – a market that is dominated by a few large firms

1. found in industries where the start up costs are high and only a few companies are able to compete

b. Monopoly – companies set out to gain total control of a product or service

1. Buy out the competition (or drive them out)

c. Cartel – a loose association of businesses that make the same product

1. Agreed to limit the supply to keep prices high

B. Carnegie Steel

a. Vertical Consolidation – gaining control of all business that make up all phases of a products development

b. Carnegie put this into practice in the steel industry

1. Led to very low production costs, which enabled him to offer his steel at a lower cost to the consumer

2. Economies of Scale – as production increases the cost of each item produced is lower

C. The Standard Oil Trust

a. Horizontal Consolidation – bringing together many firms in the same business to form one large company

1. Rockefeller wanted to do this, but it was illegal!!

c. Trust – a group of separate companies placed under the control of a single managing board

1. Didn’t violate the law because the firms didn’t merge

2. 40 companies eventually joined Rockefeller’s trust

D. The Government Response

a. Sherman Anti-Trust Act, 1890 – outlawed any combination of companies that restrained trade

1. Ineffective for 15 years due to vague wording

2. Courts were pro business and interpreted the law in their favor

3. Businesses successfully used the law in their early battles with labor unions

i. workers were combining to gain an advantage!

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