The Birth of Corporate America Up until the late 1800s, most businesses were owned directly by one person or a few partners. Then advances in technology made many business owners want to buy new equipment to help their factories run more efficiently. Business owners needed to find a way to get more money to invest their businesses. One way that businesses acquired this money was to form a corporation. A corporation is a business owned by investors who buy part of the company through shares of stock. Investors give the corporation some money to help the business improve. If the business does well, the investor gets to share in the profits (through the stock market). A corporation has some advantages over a privately owned business:
By selling stock to investors, a business can raise large amounts of money to make improvements (buy new equipment, build new factories) which will help it make more profits.
Banks view corporations as more stable than businesses. Banks are more likely to loan money to corporations than privately owned businesses.
A corporation limits risks to investors (unlike if the investors opened their own business). If a corporation goes bankrupt, the investors may lose some money but not as much as if it was a privately owned business (i.e. investors are not responsible for paying a corporations debts).
Corporations were formed in every imaginable industry – textiles, oil, steel, farming equipment, railroads, etc… The main goal of these corporations was to maximize its profits (meaning their goal was to make the most money possible). Corporations devised many different ways to maximize their profits.
Monopoly in Real Life… Many corporations found that one of the best ways to make money was to put all of their competitors out of business. A company that wipes out all of its competitors is called a monopoly. John D. Rockefeller controlled a powerful oil corporation (called the Standard Oil Company). He opened his first oil refinery in 1863 (an oil refinery is a factory that turns the crude oil that comes out of the earth into a useable substance). Rockefeller began using his investors’ money to buy all of the oil refineries in the country. If a competitor refused to sell Rockefeller his refinery, Rockefeller would find a way to put his rival out of business (i.e. setting up secret deals with the railroad companies). By 1880 Rockefeller’s Standard Oil Company owned over 95% of the oil refineries in the country. The monopoly allowed Rockefeller to set very high prices for oil and people had no choice but to pay those high prices because they couldn’t buy oil from anyone else.
Rockefeller and other corporate monopolies became very wealthy through this practice (very, very, very wealthy). Even when the economy was going through recessions and depressions, the monopolies remained quite profitable. Rockefeller’s fortune was estimated to be over $2 billion when he died (which is a lot of money when you compare it to the railroad workers’ wage of a fourteen cents an hour).
Government Aid to Corporations… Monopolies were one method that corporations used to maximize their profits, but they used other tactics too. The government helped corporations in a couple of different ways. The government provided corporations with subsidies. A subsidy is government money given to a business when the government feels that helping that business is in the best interest of the whole country. The government wanted businesses to be profitable because it would help boost the economy of the country (and make our nation more stable and powerful). The government gave millions of acres of free land to businesses (especially railroad corporations).
The government had a very “laissez faire” (hands off) attitude when it came to regulating business. The government did not interfere with the economy or establish laws that regulated businesses very much. The government believed that if businesses were left alone, they would regulate (police) themselves. This allowed businesses to use whatever tactics necessary to maximize their profits.
The 14th Amendment was passed during the Reconstruction Era. The amendment stated that all people born in the United States were entitled to the rights guaranteed in the U.S. Constitution. The Amendment was intended to secure equal rights for African Americans following the abolition of slavery. However, soon after the Amendment was ratified, the Supreme Court began to demolish it as a protection for blacks and to develop it as a protection for corporations. By 1886 the Supreme Court accepted the argument that corporations were “persons” and their money and property was to be protected by the U.S. Constitution. After this ruling it became very difficult for states to pass laws regulating businesses (i.e. states could not tell a monopoly to lower its prices). Between 1890 and 1910 the Supreme Court 93% of the cases it heard regarding the 14th Amendment were from corporations and only 7% were from African Americans.
Cutting Expenses to Maximize Profits… Another way that corporations sought to maximize their profits was to run their factories as cheaply as possible. Some factories cut costs by requiring workers to bring their own tools or to bring coal to heat the factories. Others refused to buy safety equipment to protect the workers. It was common for workers to be hurt (or even killed) on the job due to a lack of safety equipment. Railroad workers lost hands, feet and fingers from being crushed between cars. In 1889 government records show that 22,000 railroad workers were killed or injured on the job! Corporations were not required to compensate employees who had been injured while working. Corporations maximized their profits by keeping wages very low. In the 1880s the average weekly wage was less than $10, barely enough to pay a small family’s expenses. The government’s laissez faire view of the economy meant that few laws were enacted to protect the rights of workers (i.e. there were no child labor laws, minimum wage requirements or worker safety laws at the time).
The Result? Corporations made huge profits in the late 1800s and early 1900s. The economic growth that occurred during this period helped to make our country stronger. Additionally a very small percentage of our population grew very wealthy (men like Andrew Carnegie and John Rockefeller).
Name: U.S. History
The Gilded Age, Part 2:
Reflection Questions Directions: Use the Gilded Age Part 2, The Birth of Corporate America handout to answer the following questions.
Which of the following best defines “corporation”?