Rise of Big Business
The new technological advances led to entrepreneurs seeking to gain
economic wealth by building industries that took advantage of the advances.
They could secure enormous profits. There was a great belief in self-reliant
individualism. Horatio Alger, Jr, became famous for his stories about young
boys who started with nothing and built financial empires through hard work and
discipline. They were called rags to riches stories. These business leaders
who wanted the government to stay out of the economy promoted the ideal of
laissez-faire capitalism “let the people do as they choose”. They felt that the
economy would do better if the government did not intervene. This is called free
enterprise. If the government intervened, it would reduce the prosperity of
individuals and their self-reliance.
Rapid industrialization of factory life was harmful and unjust to the
working class. Karl Marx (the father of Communism) proposed a
political system where all persons would share the wealth. It
called for the overthrow of the capitalist system. His critical
analysis of capitalism was called ‘Das Kapital’ and was published
in 1867.
Social Darwinism
The theory of Social Darwinism was embraced by many of the business
leaders. Their argument was that people were like the animal kingdom in that
some people were more ‘fit’ than others The ‘fit’ people would prosper and the
‘unfit’ would fail. Following survival of the fittest, one would be better off not
helping the ‘unfit’ members of society.”
The Corporation
Corporation – a form of business organization where rganizers raise money by
selling shares of stock in the company and the stockholders receive a percentage of
the company’s profits (dividends).
One can make money off a business without actually working for that business.
Advantages of corporations:
a. Selling stock can raise large amounts of money.
b. Stockholders enjoy limited liability because the corporation is an entity to itself.
Trusts where formed by allowing a board of trustees to control stock in
companies that made the same product. If trusts were allowed to form, it
decreased overproduction and limited competition. This was unfair to the
worker.
Trusts could become a monopoly, which means a company has almost complete
control over the price and the quality of a product.
Carnegie and Steel
Born in 1835. Immigrated to the United States in 1848. Worked at a cotton mill for $1.20 a week. Became
private secretary to a railway company superintendent at age 17. Saved his money and invested wisely He
decided to invest his money in the steel industry. He didn’t know much about steel, but did know how to run
an iron business. He hired the best people and worked them relentlessly to produce. He used vertical
integration to control costs. Purchases included mines, steamship lines, and railroads. He could produce more
at a lower cost so he was able to undersell his competition. Formed Carnegie Steel in 1901 and sold his
company to J. P. Morgan nearly 500 million dollars. Carnegie believed in the “Gospel of Wealth”. He felt that
the rich were morally obligated to use their wealth in a way that helped all of society. He donated 350 million
of his wealth to establish public libraries and other institutions that helped people better their lives.
Rockefeller and Oil
He was one of the founders of the Standard Oil Company. His road to wealth was
much like that of Carnegie. He used vertical integration to gain control of nearly all
the resources needed to get crude oil to the refinery and the finished product to the
consumer. He also used horizontal integration by building a trust that controlled other
oil companies that Standard Oil could not purchase. By 1880, Standard Oil controlled
90% of the country’s petroleum refining capacity. He had a monopoly.
The Railroad Giants
Vanderbilt – he made his first fortune in shipping but after the Civil War when it was obvious that railroads
were the transportation of the future, he invested more in railroads. Eventually, he controlled lines that
connected Chicago, Cleveland, New York, and Toledo.
Westinghouse – His air brake company supplied all other trains with the needed safety device. Five years
after the invention, 7,000 cars were equipped with the air brake.
Pullman – he designed and manufactured railroad cars that made long-distance travel comfortable. Built
sleeping cars, dining cars, and luxurious private cars. He built a factory south of Chicago and developed a
company town, which proved to be unfair to workers.
Mass Marketing
All the new inventions, cutting of production costs, and reduction of competition increased profits, but
owners also looked to developed new methods for marketing, which would increase sales.
Marketing Products
Names, packaging, and logos were important for marketing. Advertising was used in magazines,
billboards, and newspapers
The Department Store
A new type of store sprang up in cities that offered numerous types of goods rather than just specializing in
one type of product. They were called department stores and were the precursor to today’s Wal-Marts.
Macy, Wanamaker, and Marshall Fields are examples. Also chain stores (Wal-Mart is an example today)
started developing. Woolworth’s was one of the first.