The Rise of Big Business
Unit 2.2: The Growth
of Big Business
Gilded Age
1870s-1900
The Rise of Big Business
Warm Up
1. Imagine you are Bill Gates – What would
you do with your money? Write it down on
a separate sheet of paper.
2. Read the “Gospel of Wealth” and answer
the 3 questions.
3. Compare your response to question 1 and
question 2. Would Carnegie approve of
your decisions??? Why or why not.
New Forms of Business Organization
• During the Gilded Age, business &
industry were transformed:
– Massive corporations replaced small, family
businesses
– Managers were hired to make factories run
more efficiently
– New business models, such as “trusts” &
“holding companies,” integrated various
businesses under 1 board of directors
Robber Baron or
Captains of Industry
Robber Baron
1: an American capitalist of the latter part of the 19th
century who became wealthy through exploitation
(as of natural resources, governmental influence, or
low wage scales)
2: a business owner or executive who acquires
wealth through ethically questionable tactics
Captain of Industry
1: the head of a great industrial enterprise
The Rise of Big Business
Robber Barons or Captains of
Industry
• Robber Barons –
negative view of big
business
• As cruel and ruthless
• Would stop at nothing
to achieve great wealth
The Rise of Big Business
Robber Barons or Captains of
Industry
• Captain of Industry –
view that the same
men were ingenious
and industrial leaders
• Transformed the
American economy
• Praised for their
charity
“Robber
The “Robber
Barons”
Barons”
of theofGilded
the Past
Age
The Rise of Big Business
New Business Organization:
Board of Trustees (Trust)
Board of
Trustees
Company
Manager
Employees
Employees
Employees
Employees
“Trusts” use a board of trustees
to manage a company
New Business Organization:
The Holding Company
Holding
Company
Company
A
Company D
Company E
Company
B
Company F
Company
C
Company G
Company H
“Holding companies” oversee & manage
other subsidiary companies
Monopolies
• Corporate mergers led to giant
companies called monopolies:
– Companies that control nearly all of a
particular industry
– Because most monopolies of the Gilded
Age were run by boards of trustees,
monopolies became known as “trusts”
– Monopolies led to a new generation of
U.S. millionaires
Trust v Monopoly
• Trust Stockholders of several competing
corporations turn in their stock to trustees in
exchange for a trust certificate entitling them to a
dividend. Trustees ran the companies as if they
were one.
• Monopoly The natural goal of any business to
make as much profit as it can and to eliminate its
competition. When a corporation eliminates its
competition it becomes what is known as a
"monopoly."
Entrepreneurs
• Risk-Takers
• Businessmen who took their money and
talents to launch new ventures
• Capitalism: 1800 businessmen believed in
private businesses running industries
without government intervention
• Competition determines prices and wages
• Market Economy: Supply & Demand
The Rise of Big Business
Social Darwinism
• Origins of Species
1859
• Charles Darwin
• All animal life had
evolved by a process of
Natural Selection
• Only the strong survive
to reproduce
The Rise of Big Business
Social Darwinism
• Free Competition in the
economy, like natural
selection, would ensure
survival of the fittest
• Society should do as little
as possible to interfere
with people’s pursuit of
success
The Monopolists
• Monopolists justified their wealth:
– The “Gospel of Wealth” argued that it is
God's will that some men attained great
wealth
– Social Darwinism taught that natural
competition weeds out the weak & the
strong survive
– Gov’t should embrace a laissez-faire (hands
off, no regulations) attitude towards “big
business”
The Rise of Big Business
Growth and Consolidation
• Monopoly- complete
control over
production, quality,
wages, and prices
The Rise of Big Business
Robber Barons or Captains of
Industry
• Andrew Carnegie
• Gospel of Wealth –
people should be free to
make as much money as
they can. However, after
they make it, they should
give it away
The Rise of Big Business
Carnegie Steel Story
• Arrive in American as
a penniless Scottish
immigrant
• Began to work to
assist his family
• 1865 Andrew
Carnegie was making
$50,000
The Rise of Big Business
Carnegie Steel
• Entered steel business
• Stole Bessemer Process from
Brits
• 1889 Established Carnegie
Steel Company
• Controlled suppliers and
competition
• 1899 Carnegie Steel produced
more than Great Britain
• Carnegie Steel produced 80%
of nation’s steel
The Monopolists
• Andrew Carnegie
created the Carnegie
His company
Steel
Company:made more
– He than
converted
to thefactories
steel
all the
Bessemer
process
of Great
Britain
& was able to
out-produce his competition &
offer better quality steel at
lower prices
– He mastered vertical
integration to lower his
production costs
Andrew
Carnegie’s
Carnegie
did not pay his
employees
rise from a very
poormuch &
did not
allow unions in
Scottish
his factories…
immigrant
to
one of …but
the richest
he was a
men
in the worldwho gave
philanthropist
was thetogreat
money
New York City
libraries,
colleges, &
example
of the
performingDream”
arts institutions
“American
The Rise of Big Business
Robber Barons or Captains of
Industry
• Carnegie once stated, “I
entered this life poor and I
wish to leave it the same.”
• Gave away $325 million =
90% of his wealth
• Carnegie Hall in NY City
• Carnegie Foundation
• 3,000 libraries across the
US
The Rise of Big Business
Holding Company
• J.P. Morgan very
successful banker
• Bought Carnegie Steel
in 1901 for $500
million
• Changed name to US
Steel
• Became the largest
business organization
Vertical & Horizontal Integration
New Forms of Business Organization
• Corporations in the Gilded Age used
mergers to increase profits
– Companies used horizontal integration to
buy similar companies to reduce
competition
– Vertical integration allowed companies to
buy companies that supply raw materials or
transportation for their products
The Rise of Big Business
Standard Oil Trust
• Established by John D.
Rockefeller
• Was able to undersell his
competitors by charging
less
• Purchased oil refineries
and created horizontal
consolidation
The Rise of Big Business
Vertical Integration
• Controlling all
steps to change
raw materials
into finished
products
The Rise of Big Business
Vertical Integration
• Own iron and coal mines
• Bought railroads,
trucking and shipping
lines
• Bought warehouses
Horizontal Merger
“Cornering the Market”
• Between 1866-1868, Daniel Drew conspired with James Fisk and Jay
Gould, whom he brought on the board, to issue spurious Erie Railroad
shares, thus "watering down" the stock.
• Cornelius Vanderbilt bought a large quantity.
• Vanderbilt lost more than $7 million in his attempt to gain control
over Erie Railway Company.
• Gould returned most of the money.
• Vanderbilt conceded control of the railroad to the trio. They were
involved with the corrupt Tammany Hall political party machine, and
made Boss Tweed a director of the Erie Railroad. Tweed (who later
died in prison for embezzlement and fraud), in return arranged
favorable state legislation in Albany for them, legalizing the newly
issued shares.
Vanderbilt against Fisk
Cornelius Vanderbilt
• Built his wealth in railroads and
shipping
• He began his business by
ferrying freight and passengers
between Staten Island and
Manhattan
• New York Central Railroad
The Rise of Big Business
Standard Oil Trust
• Drove competitors out of
business by selling oil lower
than cost to make it
• After competitor are driven
out
• prices skyrocketed to recoup
loss
The Rise of Big Business
John D. Rockefeller &
Phylanthropy
• Rockefeller gave away
$500 million
• Founded the University
of Chicago which found
cure for yellow fever
• Land for United
Nations
The Monopolists
• John Rockefeller created
the Standard Oil Company
–He used horizontal
integration to create a
petroleum company that monopolized
the oil industry, lowered costs &
improved quality
–By 1879, Standard Oil sold 90% of all
U.S. oil & sold to Asia, Africa, & South
America
Rockefeller was
labeled a “robber
baron” who took
advantage of
immigrant
workers, driving
…but Rockefeller gave away
his
competition
$500 million to charities,
created the Rockefeller out of business, &
Foundation, & founded theused his fortune to
influence the
University of Chicago
national gov’t…
The Rise of Big Business
Standard Oil Trust
• Rockefeller was so
successful at his
death his personal
fortune was
estimated at
• $815,647,796
The Rise of Big Business
The Government Response
• 1890 Sherman Antitrust Act
• Outlawed any combination of companies
that restrained interstate trade
• Banned monopolies
• Was not effective against trusts
• Pro business courts had to interpret law
• U.S. Government would investigate anticompetitive behavior