Chapter 14 Notes
10/22/03
Carnegie and Steel
Scot who immigrated to United States 1848
Est. first monopoly in steel business
Knew little about making steel, knew how to run a business, had skillful managers, drove them
relentlessly/had modern machinery
Real Success in reducing Production Costs
Buying in Bulk – cut production costs/increase profits principle known as economy of scale
Also used vertical integration – acquired all companies that provided materials and services – iron mines,
coal mines, mills, steam shiplines, railroads
*controlled business at every stage of production*
could lower prices – beat competitors – 1901 world’s richest man
Andrew Carnegie –
Economies of scale
Vertical integration
John Rockefeller
Horizontal integration
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who are they
what did they do
how did they do it
significance
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Andrew Carnegie was an American industrialist of the late 1800s. He owned the first steel monopoly and
thus gained himself a hefty fortune. By vertical consolidation, in which one company controls business
at every stage of production, he reduced production costs and could offer lower prices than his
competitors. His success is important, because he established the first steel monopoly and showed that
vertical consolidation could indeed lead to success.
John Rockefeller was yet another American industrialist of the late 19 th century. He first became rich during
the Civil War, and by 1870, he had formed the Standard Oil Company of Ohio. As the company sold
more oil, they undersold their competitors. He convinced his railroad friends to give him illegal refunds,
and by saving money there, he was able to make his prices lower than his competitors. Soon enough,
he had compiled enough money to buy out his competitors. Rockefeller invented the trust, and in 1882,
forty companies agreed to turn over their assets in exchange for a share of the profits. Through
horizontal integration, Rockefeller soon became one of the richest men in the world.
monopoly – control of a commodity or service extending to the elimination of competition and the fixing of
prices
cartel – loose association of businesses supplying the same product, often formed secretly; its members
agree to limit supplies to keep prices high
trust – combination of companies that turn over their assets to a board of trustees to control prices and
competition in a particular industry
holding company – a corporation that controls other companies by holding their stocks
horizontal consolidation – process of creating one giant business by bringing together smaller firms in the
same field
vertical consolidation – control of all phases of a product’s development, from raw materials to delivery of the
finished products
10/24/03
proprietorship – business owned by one person
partnership – two or more own a business
corporation – new larger business
Proprietorship
Partnership
Advantages
Make all of the decisions
Keep all profits yourself
Make your own hours
Can’t get fired from company
Set your own hours
Get a large part of the profit
Work is shared
Disadvantages
Have to invest your own money
Hard to make your business successful
Liable for entire business
Lots of competition from large businesses
Must compromise with partner on decisions
Profit is shared
Corporation
Liability is shared
Benefits and insurance provided for
Name recognition
More security with job/company
Not liable for losses
Get less of the profit
Have bosses/managers
Several Advantages to Corporations
1) Enormous sums of money or capital
2) Limited liability – not responsible for debt
3) Stable organization – exist no matter who owns stock – continues on
19th Century
Trusts began to form
Stocks turned over to a Board of Directors
Trust is run as a single enterprise
They have exclusive control of an industry = monopoly
capitalism – economic system based on a free market and private property or businesses
socialism – economic system in which the government owns all property and business
Laissez-Faire Capitalism
Theory calls for no government regulation of economic matters
Most business leaders believed if the business was free from government regulation that business
would prosper
Social Darwinism – Herbert Spencer
Charles Darwin’s Theory of Evolution, natural selection applied to society
“Only the Strong Survive”
Society progresses through competition and the fittest nations, businesses, or people would rise to
the top
The Organization of a Trust
Company B
Company A
First used by John D.
Rockefeller, stockholders of
competing corporations A-F
turn over a controlling portion
of their stock to the Board of
Trustees in exchange for trust
certificates. Ownership of
companies A-F remains the
same, but management is now
with the Board of Trustees.
Company C
Board of Trustees
Companies A, B, C, D, E, F
are directed as one
company by the Board of
Trustees.
Alphabet Company,
Inc.
A
B
C
D
Company D
E
F
Company F
Company E
11/11/03
Socialism is an economic and political philosophy that advocates collective or government ownership of
factories and property. (Communism)
Capitalism is an economic system based on the free market and private property.
German philosopher Karl Marx – criticized capitalism in his book “The Communist Manifesto”. He calls for
overthrow of capitalism by the workers. Most Americans disagreed – threatened deep-rooted American
ideals – freedom, private property
Most looked not to socialism, but to labor unions
AFL
Sought to organize only skilled workers in a network
of smaller unions, each devoted to a specific craft
Open to African Americans in theory, but many
unions found ways to exclude them
Opposed women members because their
participation in the work force lowered wages
Primarily focused on wages, hours, and working
conditions
Force employers into collective bargaining
Knights of Labor
Organize all working men and women into a single
union, including farmers, factory workers, whitecollar workers
Actively recruited African Americans
Pursued broad social reforms, such as equal pay for
equal work, eight-hour workday, end to child labor
11/14/03
Employers took measures to stop unions – forced workers to sign yellow dog contracts – workers would not
join unions or participate in a strike.
The first major dispute in the United States was a railroad strike in 1877.
3 Major Strikes
Haymarket Strike – Chicago – 1886
Homestead Strike – Homestead, PA – 1892
Pullman Strike – near Chicago – 1894
Haymarket Strike – 1886
Workers wanted an eight-hour workday at the McCormick Reaper Factory
scabs – strikebreaker – replace workers to keep the factory running
Scabs and workers fight, police came to break up the fight, but were rather brutal in breaking it up.
To protest, anarchists, political radicals that oppose all government on the grounds that it limits individual
liberty and acts in the interest of the wealthy, called for a rally in Haymarket Square – someone threw a
bomb into the police formation – police open fire – citizens return fire – dozens of deaths on both sides
– opinion of labor unions change – seen as riot
Homestead Strike – 1892
AFL associated iron/steel workers union negotiated a labor contract with Andrew Carnegie’s Steel Co.
Summer 1892 – Henry Clay Frick, his partner, tried to cut wages – union in Homestead, PA, called a strike
Frick called in Pinkertons – a private police force known for its ability to break strikes – moved in from
barges on the Monogahela River
Both sides open fire, causing death and injury on both sides – At first, the nation felt bad for the workers –
however, after a failed assassination attempt of Frick, public opinion changed – labor unions, again,
were seen as violent
Carnegie, U.S. Steel, would remain without unions until the 1930’s
Pullman Strike – 1894
Last of the 3 major strikes - *turning point in government’s relationship with unions*
George Pullman – benevolent industrialist – built a company town for his workers near Chicago – included a
bank, school, water/gas systems, comfy homes
Depression 1893 – Pullman cut wages by 25% and laid off workers. Meanwhile, he kept rent prices the
same – some workers went to protest, and they got fired – Pullman refused to negotiate
Founder of the American Railway Union, Eugene V. Debs, called for a strike among the railway workers, as
well as the Pullman Co. workers
Debs instructed strikers not to interfere with the mail – It’s a federal offense – the workers did not listen.
There was complete disruption of Western R.R. Traffic owners turned to the government, the mail had
to go through
President Cleveland sent in troops – 12 deaths and many arrests, including Debs
The strike fell apart – lack of leadership
Pullman Strike established an important pattern – owners filed for court orders against unions – federal
government responded – denying recognition – helped limit union gains