Rise of Big Business

Capitalism• Privately owned

business

• Pros?• Cons?

• Laissez-faire – • Hands off policy of

the government

Entrepreneurs• Risk takers who start their own

business

• Andrew Carnegie –

• John Rockefeller -

Andrew Carnegie

• As railway supervisor, invested in iron mills, factories that made sleeper cars and locomotives, and companies that built railway bridges

• Later opened own steel company in Pittsburg

John D. Rockefeller

• Built oil refineries• By 1870 Standard Oil

was the largest oil refinery in the US

• Bought out competition

• By 1880 Standard Oil controlled 90% of oil refining industry in US

Corporation• Organization owned by many but

treated as one person– Own property, make contracts, pay taxes,

sue, and be sued• Stockholders owned shares of stock thus owning

part of the company• Advantages?• More money to invest in new technology, hire

large workforce, purchase machines, and increase efficiency– Cost of manufacturing is decreased by producing goods faster in

large quantities

Vertical Integration vs. Horizontal Integration

• Vertical – Company owns all of the businesses it depends on for operation

• Horizontal – Company buys out firms that do the same business to create one large corporation

• Examples? – Carnegie = coal mines, limestone quarries, iron ore

fields– Rockefeller = own 90% of oil refining industry by

buying out competition

Vertical/ Horizontal Integration

Monopoly• Single company controlling an

entire market• Problem: price increases

because no competition• States started to make it illegal

for one company to own stock in another to prevent monopolies

Trusts• New ways of merging businesses that did not

violate new laws• Stockholders give stock to trustees• Stockholders would then receive a share of the

trust which entitled them to a portion of the profits

• Allows one person to manage another’s property• Trustees could control a group of companies as

if they were one large merged company• Not illegal because trustees made the decisions

and they did not own stock

Social Darwinism• ‘Survival of the Fittest’• Stronger people,

businesses, and nations would prosper. Weaker ones would fail.

• Society progressed and became better because only the fittest survive

Robber Baron vs. Captain of Industry

• Robber Baron – entrepreneurs that built fortunes by swindling investors and taxpayers, bribing gov’t officials and cheating

• Captain of Industry – devoted time and fortune to helping society

–Examples?

Holding Company

• Owns the stock of companies that produce goods

• They do not produce anything• Manages companies it owns thus merging

them into one large enterprise

Investment Banking

• Most successful was J.P. Morgan

• Helped companies issue stock

• Companies sell large amounts of stock to investment bank at a discount– Investment bank finds people

willing to buy the stock– Ex. JP Morgan bought out

Carnegie Steel and merged with other companies creating US Steel Company