Chapter 6 Section 2
Rise of Big Business
New Capitalist Spirit
 Capitalism– private ownership of most
industries
 Competition
determines price of goods and
wages
 By late 1800’s businesspeople looked to
gain wealth by taking advantage of
technological advances
Horatio Alger
 Wrote books
describing idea of self
reliant individiualism
 1869 Luck and Pluck
series– based on a
rags to riches theme
Laissez-Faire Capitalism
 No government intervention in economy
 Literal translation “hands off”
 Businesses would let competition determine
prices and wages
 Free enterprise system– supply and demand,
profit margin determine what and how much
to produce
Critics Respond
 Rapid industrialization is harmful and unjust to
the working class
 Karl Marx– German philosopher
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Proposes a system that removes inequities of wealth
Communism proposes that individual ownership of
property not be allowed
Property and production are owned by the
community and it provides for needs of all
“capitalism allowed bourgeoisie to take advantage of
proletariat”
Social Darwinism
 Adapted Charles Darwin’s theory on natural selection
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and Evolution
Society progresses through natural selection
The “fittest” would and should rise to positions of wealth
and power
The “unfit” would fail
Any attempt to assist poor or less capable would slow
social progress
Religious leaders echoed support– wealth became a sign
of Christian virtue
“Natures cure for most
social and political
diseases is better than
man’s”
Nicholas Murray Butler
Corporations
 At close of Civil War businesses are owned by
individuals, families or partnerships
 Not enough capital to manage new industries
 Definition
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Organizers raise money by selling shares of stock in
company
Stockholders receive % of profits– called dividends
Stockholders had little or no part of daily operations
Advantages of corporations
Could raise large sums of money
Stockholders held limited liability–
not responsible for corporations debt
Stable organization– not dependent
on owner for its existence
Problems– where competition was
fierce, prices and profits fluctuate
Jay Gould
 Worked as grocery
clerk
 Invested in railroad
stock and earned $77
million
Trusts
 Corporations band together to form trusts
 Turn control of business over to board of
trustees
 Trustees run business as one large company
 Limits overproduction by reducing competition
 Develops monopolies or complete control over
price and quality of product
Andrew Carnegie
 Born in 1835 in Scotland
 Immigrated to United
States in 1848 at age of
12
 Worked in cotton miles for
$1.20/week in 1848
 At 17 became private
Secretary to railroad
superintendent
Carnegie Steel
Began investing to raise money which
he used to get into steel industry
Began empire in 1860’s
Knew nothing about production but
hired experts to run company
Vertical Integration
 Own the companies that provide materials and
services you depend on
 Iron and coal mines for ore
 Steamships and railroads to transport products
 By 1899 Carnegie organizes Carnegie Steel
Company
 Sold it to J.P. Morgan in 1901 for $500 million
Gospel of Wealth
 “Rich are morally
obligated to benefit
their fellow citizens”
 Donated $350 million
to charities across the
country
John D. Rockefeller
Ran Standard Oil Company
Started in 1863 at beginning of oil
boom
Practiced vertical integration like
Carnegie
Set out to control the oil industry
 “Competition
was inefficient”
Horizontal Integration
 Control of other companies producing oil
 Drove others out of business by making deals
with suppliers/transportation at cheaper rates
than others
 Became first trust in U.S. in 1899
 By 1880 controlled 90% of all oil production
 Like Carnegie– donated vast sums to charity
 $530
million total
Cornelius Vanderbilt
 Prior to Railroad– operated shipping business
 By 1869 gained control of New York Central and
2 others that connected New York City
 Soon controlled lines between Chicago,
Cleveland, New York, and Toledo
 Provided more efficient service by combining
small railroads
 By 1877 controlled 4,500 miles of track
 Personal fortune of $100 million
George Westinghouse
1869 at age of 23 established
Westinghouse Air Brake Company
After public demonstration of
effectiveness of air brake his business
grew
By 1874 air brake was on 7,000
passenger cars
George Pullman
 Built Railroad cars to make travel more
comfortable
 Built company town south of Chicago in 1880
 Hoped to encourage educated, healthy, peaceful
and virtuous workers
 Provided homes, stores, church, library, theatre,
medical offices and athletic fields strictly
controlled daily life in company town
Mass Marketing
 Persuade consumers to purchase products
 Brand names– name recognition
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“Standard Oil”– implies standard for industry
 Packaging to set products apart
 Helped create consumer culture
 Montgomery Ward and Sears, Roebuck and
Company– develop mail order catalogs
Department Store
 Variety of products under one store
 Buy in bulk and set cheap prices
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Marshall Field– Chicago
R.H. Macy– New York
John Wanamaker– Philadelphia
 Becomes domain of women
 Hired
as workers
 Enticed to shop
Chain Stores
Branch stores in many cities
Woolworths– Frank Woolworth in
1879
By 1900 had 59 stores around
country