Rise of Big Business: Theories of Capitalism Rise of Capitalism Capitalism Defined Private businesses run most industries. Profits drive business. Law High price, increased production. Low price, reduced production. Law of Supply (Business Owners). of Demand (Buyers). High price, decreased demand. Low price, increased demand. Conservative Economic Theories Laissez Faire Economic Theory Adam Smith, The Wealth of Nations, 1776. Government does not have to be involved. “Hands off” policy of the government. Adam Smith http://www.biografiasyvidas.com/biografia/s/fotos/smith_adam.jpg Conservative Economic Theories Laissez Faire Economic Theory Allow businesses to do what needs to be done with little government intervention. Government regulation will reduce prosperity and self-reliance. The Wealth of Nations http://www.ibiblio.org/ml/covers/WealthNations.jpg Conservative Economic Theories Social Darwinism Natural selection and survival of the fittest should be applied to the economy. Concentration Darwinian Theory http://www.flyfishingdevon.co.uk/salmon/year3/psy339evaluationevolutionary-psychology/darwin-ape.jpg of wealth in the hands of the “fit” was a benefit to the human race as a whole. Conservative Economic Theories Social Darwinism Professor William G. Sumner of Yale. Help for the poor was misguided because it interfered with the laws of nature. Would only weaken the evolution of the species by preserving the unfit. Social Darwinism http://cache.eb.com/eb/image?id=24413&rendTypeId=4 Conservative Economic Theories The Gospel of Wealth: God Gave Me My Riches The use of religion to justify the wealth of successful industrialists. John D. Rockefeller: “God gave me my riches.” John D. Rockefeller http://www.chelationtherapyonline.com/anatomy/images/JDRd.jpg Conservative Economic Theories The Gospel of Wealth: God Gave Me My Riches ...To Use for the Common Good Andrew Carnegie, Wealth. Argued that the wealthy had a Godgiven responsibility to carry out projects of civic philanthropy for the benefit of society. Andrew Carnegie, King of Steel http://cache.eb.com/eb/image?id=70619&rendTypeId=4 Rise of Capitalism New Ways of Doing Business Mergers Horizontal Merger Combining two or more companies competing in the same industry. Example: If Coke & Pepsi would merge. Vertical Merger Combining companies that are involved in different stages of production of a certain product. Example: Steel. Carnegie bought iron and limestone mines in Minnesota, coal fields in Pennsylvania and West Virginia, railroad lines from Cleveland and Erie to Pittsburgh, and barge companies on the Three Rivers and Great Lakes. . Merger Cartoon http://www.cartoonstock.com/newscartoons/cartoonists/dbr/lowres/ dbrn449l.jpg Rise of Capitalism New Ways of Doing Business Monopolies A company gains near exclusive control of an industry. Little or no competition. Controlled the price and quality of a product. Mr. Monopoly http://blogs.usatoday.com/photos/uncategorized/blogmonopoly.jpg Rise of Capitalism New Ways of Doing Business Advertising Targeted what people wanted or needed through catchy slogans, bright posters, and catalogs. Early Coca-Cola Ad http://www.antiquetrader.com/mark/content/binary/CocaCola1.jpg Rise of Capitalism New Ways of Doing Business Department Stores & Catalog Shopping Catalog shopping allowed people from across the country to order goods and services from other parts of the country. Department stores. Sears catalog was the most popular. One-stop shopping and services are offered for dry goods. Wanamaker’s, Macy’s, JC Penney, Sears, Kauffmann’s, etc. Woolworth’s Five and Dime Stores. The original Wal-Mart or K-Mart. Offered cheaper goods to the public. Bloomingdale’s First Store http://www.kipnotes.com/bloomies1ststore.jpg Rise of Big Business: The Robber Barons John D. Rockefeller Oil Refining Formed the Standard Oil Trust. Destroyed competition through “horizontal integration” and price slashes. Rockefeller’s Oil Trust http://aftermathnews.files.wordpress.com/2007/07/rockefeller_octopus.jpg H. I.—Mergers within the same industry to gain control. Lower prices leads to more control of the market. By 1880, controlled 90% of the nation’s oil refining capacity. Supported the arts, medicine, and education. Andrew Carnegie Steel, Coal, Iron Started poor, but invested wisely. Built up enough capital to invest in steel. Used the Bessemer process to produce strong steel more cheaply. Used “vertical integration” to gain control. Purchase companies involved in the production of materials for certain projects. The Gospel of Wealth. The rich were morally obligated to use wealth for fellow citizens. Andrew Carnegie http://www.libraryhistorybuff.org/images/pic-carnegie-cartoon-72.jpg John Pierpont Morgan Banking, Railroads, Steel Son of a rich banker. Bailed the U.S. out of financial problems. Used his profits from banking to buy into other industries. John Pierpont Morgan Bailing out the US Gov’t. http://blogs.usatoday.com/photos/uncategorized/blogmonopoly.jpg Bought Carnegie Steel in 1903 for $500 million. Used companies to drive out competition. Very, very ruthless. Cornelius Vanderbilt Railroads Started as a shipping company. Bought small railroads during the Civil War. Provided more efficient service by purchasing smaller lines and combining them. Cornelius Vanderbilt http://i.a.cnn.net/money/galleries/2007/fortune/0702/gallery.richestameric ans.fortune/images/vanderbilt.jpg George Westinghouse Railroad Brakes, Electricity Produced air brakes for rail cars. Made it safer for trains to haul more cars and travel more quickly. Dominated the air brake market with his patents. George Westinghouse http://www.westinghousenuclear.com/images/timeline_images/1868_you ng_george.jpg George Pullman Railroad Cars Built sleeping and dining cars. Created his own town for his workers, wanting to provide them with their basic needs and encourage an educated, healthy, and peaceful working population. George Pullman http://www25.uua.org/uuhs/duub/images/georgepullman1.jpg Merit Point Question #5 In his “Gospel of Wealth,” Andrew Carnegie articulated the view that A. the wealthy were entitled to their riches and had no responsibility to share it with others. B. only those born into wealth were the real economic leaders of the nation. C. religious leaders had a responsibility to convince their parishioners that success was attainable to those who worked hard. D. capitalism and Christianity were intimately related in the progress of individuals and nations. E. the wealthy were morally obligated to use some of their wealth for the improvement of society.