Chapter 6 Section 2
Chapter 6 Section 2
ESSENTIAL QUESTIONS
1. Why were American industrialists of the late 1800s called both
“robber barons” and “captains of industry”?
2. How did social Darwinism affect Americans’ views on big business?
3. In what ways did big businesses differ from smaller businesses?
4. How did industrialists gain a competitive edge over their rivals?
THE BIG IDEA
Big business created wealth for its owners and for the nation, but it also
Prompted controversy and concern over its methods.
Chapter 6 Section 2
KEY TERMS:
KEY PEOPLE:
1. Robber Barons
2. Captains of Industry
3. Social Darwinism
4. Oligopoly
5. Monopoly
6. Cartel
7. Vertical consolidation
8. Economies of scale
9. Horizontal consolidation
10.Trust
11.Sherman Antitrust Act
1. John D. Rockefeller
2. Andrew Carnegie
Captains of Industry or Robber Barons?
During the late nineteenth century into the early twentieth century
America experiences a wave of industrialism driven by a group of men
known as industrialists. There is no doubt that these industrialists were
driven by one motive, and that was wealth. However, historians and
others debate the title to be bestowed on these men – that of “captains
of industry” or “robber barons”!
By identifying these individuals as captains of industry, we offer a
positive impression of their achievements as men of inventiveness who
through hard work and ingenious strategies transformed the American
economy of the post-Reconstruction era and the early 20th century.
These men are to also be honored for their charitable activities
(philanthropy).
In extending the title of robber baron to these men, we emphasize the
cruel and self-centered entrepreneurs who took advantage of the
worker, whether it be immigrant, female, or child to accumulate wealth.
The factory was a place where the worker experienced harsh conditions
and poor pay.
ASSIGNMENT: The industrialists of the late nineteenth century and
early twentieth centuries are best characterized as
________________. Defend your choice.
Visit the links below. Read the selections. Create a brief fact sheet on
each of the individuals below.
Describe the contributions to each of the industrialists listed below.
In what ways did they achieve their wealth?
What tactics did they use in “building their empires”?
What were their accomplishments in business?
What was each one’s reputation as a business man?
What philanthropic activities did they support?
Write a response to the prompt: The industrialists of the late
nineteenth century and early twentieth century are best
characterized as ________________. Defend your choice.
Use these Web Sites for your Research:
Write a response to the prompt:
The industrialists of the late nineteenth century
and early twentieth century are best
characterized as ________________.
Include a sentence with 3 supportive ideas.
Defend your choice by providing 3 supportive
paragraphs giving details/explanation with
support from one of the Industrialists.
Andrew Carnegie
Biography of Andrew Carnegie (PBS)
Cornelius Vanderbilt
Cornelius Vanderbilt (Bartleby)
Cornelius Vanderbilt
J. Pierpoint Morgan
JP Morgan (PBS)
Biography of J.P. Morgan
J.P. Morgan
John D. Rockerfeller
John D. Rockerfeller (PBS)
Jay Gould
Jay Gould: Famous Americans
Jay Gould
Henry Frick
Henry Frick (PBS)
Leland Stanford
Leland Stanford (PBS)
James J. Hill
James J. Hill Biography (PBS)
Captain of Industry
Robber Baron
The age of Robber Barons began with an enormous fraud in
the building of the transcontinental railroad in the 1860’s
known as the Credit Mobilier
Thomas Clark Durant and others of the Union
Pacific Railroad formed a company called the
Credit Mobilier of America which was given the
contract to build a portion of the
transcontinental railroad. Credit Mobilier sold or
gave shares of the company to prominent
congressmen, who approved federal subsidies
for the cost of railroad construction. The
company charged the government about twice
the actual cost of construction, making huge
profits for everyone involved. Basically Durant
and others were stealing money from the
government.
Part of the route Credit
Mobilier was
responsible for
constructing
The age of Robber Barons began with an enormous fraud in
the building of the transcontinental railroad in the 1860’s
known as the Credit Mobilier
• The scandal was uncovered by a New York newspaper in 1872.
The Speaker of the House James G. Blaine created a
congressional committee to investigate.
• The investigation uncovered involvement by several
congressmen and led to the censure of two House members,
implicated outgoing vice president Schuyler Colfax, incoming
vice president Henry Wilson, and Representative James A.
Garfield. Garfield denied the corruption charges and was later
elected president.
• The scandal exposed the degree to which corruption existed in
politics, and how far “robber barons” would go to increase
profits.
Cornelius Vanderbilt and James Fisk are shown in a race
for control of New York's rails during the Erie War.
Vanderbilt
Fisk
The Erie War: the battle for control of the Erie Railroad
Company 1866-1868
• Cornelius Vanderbilt, who owned the New York Central Railroad,
wanted to take over the Erie Company. Drew, Gould, and Fisk
prevented this by issuing fake shares of stock which Vanderbilt
purchased in hopes of gaining majority control of the company.
The price of the shares was highly inflated and Vanderbilt lost
millions in the process.
• Vanderbilt fought back by appealing to the politicians he had
been bribing in New York to arrest the men. Drew, Gould, and Fisk
escaped to New Jersey and upon their return proceeded to bribe
the same politicians into preventing the sale of the Erie line to
Vanderbilt.
• This bitter war resulted in: monetary losses for Vanderbilt and
many other investors, victory for Drew, Gould, and Fisk, and a
lack of profitability for the Erie line for many more decades.
Cornelius Vanderbilt 1794-1877
•Law? Who cares about the law. Hadn't I got the power?
—Comment alleged to have been made by Cornelius
Vanderbilt, when warned that he might be violating the law
Newspapers called him the “Worst
Man in the World” because he gained
great wealth through dishonest means,
often bribing elected government
officials and threatening or plotting
against opponents.
He pioneered the practice of declaring
bankruptcy as a business strategy. He
used stock manipulation and insider
trading (now illegal).
He was one of the architects of a
consolidated national railroad and
communication system. One of his
major achievements was to lead
Western Union to dominance in the
telegraph industry.
Jay Gould
1836-1892
Classic
Robber Baron
Gould was famous for saying,
"I can hire one half of the working class
to kill the other half."
Jay Gould
1836-1892
Classic
Robber Baron
John Pierpont Morgan 1837-1913
Hated competition and instability in
the economy and dedicated his career to
brokering and financing deals that
yielded consolidations in the electric
and steel industries
In 1901 created U.S. Steel, the world's
first billion-dollar corporation
By the early 1900s, Morgan controlled
almost all of the major industries in the
U.S. and had a large stake in the
financial and insurance industries
J.P. Morgan lived his life on a large scale, spending massive
amounts of money, gambling, on “toys” like yachts, huge
parties, palatial homes and art. One of his famous quotes, “If
you have to ask how much it costs you can’t afford it”, typifies
his beliefs about money.
Morgan as the piper that people of various professions &
nationalities, including some countries in the distance, are
following.
John D. Rockefeller 1839-1937
In 1862 met and went into business with
Samuel Andrews who had developed a better
and cheaper way of refining crude petroleum.
They named the company Standard Oil.
Rockefeller negotiated his first major deal
to lower his cost of transporting oil and
refined oil by guaranteeing the railway
company sixty carloads a day. This allowed
him to lower the prices he charged for oil, his
sales skyrocketed, and in less than a year
some of his competitors went out of business.
Rockefeller bought out Andrews for a million
dollars and eventually monopolized oil refining
in Cleveland.
John D. Rockefeller 1839-1937
Rockefeller dominated the oil industry
across the nation by putting local
companies out of business through his
aggressive maneuvering and lower prices.
By 1890 Standard Oil was a monopoly
that could fix its own prices and terms of
business because it had no competitors.
Rockefeller was worth about $9 billion
dollars ($190 billion in 2002 dollars).
Andrew Carnegie 1835-1919
Later invested in the Bessemer process for making cheap
steel and came to dominate the industry with the
Carnegie Steel Corporation
Different from other robber barons in the sense that he did
support worker’s right to organize even though he
violently broke up a strike at his Homestead Plant in
1892
Richest man in the world after Rockefeller
Author of The Gospel of Wealth in which he argued that the
wealthy had an obligation to give away their money.
Spent the last part of his life donating money to create
over 3,000 public libraries worldwide as well giving to
education including the creation and major funding of
several universities
The Gospel of Wealth:
Religion in the Era of Industrialization
$ Wealth no longer
looked upon as bad.
$ Viewed as a sign of
God’s approval.
$ Christian duty to
accumulate wealth.
$ Should not help the
poor.
Russell H. Conwell
“On Wealth”
Andrew Carnegie
$ The Anglo-Saxon race
is superior.
$ “Gospel of Wealth”
(1901).
$ Inequality is inevitable
and good.
$ Wealthy should act as
“trustees” for their
“poorer brethren.”
Carnegie attacks the rich, presumably because of his belief
that the rich have a duty to help the poor, as he advocated
in Gospel of Wealth.
• This, then, is held to be the duty of the man of
wealth: First, to set an example of modest,
unostentatious living, shunning display or
extravagance; … and, after doing so, to
consider all surplus revenues which come to
him simply as trust funds, which he is called
upon to administer… to produce the most
beneficial results for the community—the man
of wealth thus becoming the mere trustee and
agent for his poorer brethren, bringing to their
service his superior wisdom, experience and
ability to administer, doing for them better
than they would or could do for themselves
• —From "Wealth," by Andrew Carnegie, North American Review
(1889)
The millions made by the robber barons is at the
expense of the workers
Robber Barons
Robber Baron is an insult term used to describe a class of
enormously rich businessmen that emerged in the post civil
war era. Today300
they would be known as
279 billionaires. They
were both admired and hated at the time. They used
250
ruthless, unscrupulous, and often illegal methods to create
monopolies and200develop overwhelming economic power and
1865
control
their
industries.
Inknown
the late
1800’s aleaders
handfuland
of
Someover
of the
more
commonly
industrial
1900
150
these businessmen
over
90 percent
total
U.S.
bankers whocontrolled
were called
Robber
Baronsof
include:
2004
wealth.
100
 Andrew Carnegie
50
 John D. Rockefeller
22
3
 Cornelius and0William Vanderbilt
 Jay Gould
Total number of billionaires
shows the comparison in the number
 J. PierpontChart
Morgan
 Jim Fisk
 Daniel Drew
of billionaires from 1865 through 2004
How rich were the “robber barons”
compared to Microsoft founder Bill Gates?
200
180
160
140
120
100
80
60
40
20
0
Rockefeller
Carnegie
Vanderbilt
Bill Gates
Jay Gould
JP Morgan
James H. Hill
$ billions $
Contemporary political cartoon comparing robber barons of
the 19th century with robber barons from the Middle Ages
http://safari.mciu.org/SAFARI/montage/playlistedit.php?playlistkeyindex=360&location=local
New Forms of Business Organization
Business Consolidation – Corporations in the same type of business joined
together to create large combinations.
Advantages – Control competition, control prices, and maximize profits
Monopoly – Dominance in or control of a market for certain goods
Interlockingordirectorate
boards
of directors
which share
at
services by–aTwo
single
company
or combination
of companies.
least one director in common; illegal if the two companies are
competitors. (J.P. Morgan)
Corporation Pools – Competing firms agree to divide the market, establish
prices, and place profits in a common pool or fund. These arrangements,
which first emerged in the railroad industry, were also known as “gentlemen’s
agreements. (Railroads)
Impact of Corporate Evolution
Trust
– is a formattempted
of business
combination
in which
stockholders
affiliated
The
corporation
to eliminate
cutthroat
competition
and of
business
companies turn over their securities and their authority to a board of trustee.
instability.
The stockholders receive trust certificates and the board of trustees exercises
full control
of the
business.
Oil pioneered
thisthat
formconcentrated
of business
What
emerged
was
a systemStandard
of economic
organization
consolidation
in 1882.
D. Rockefeller)
Power
in the hands
of a (John
few men,
bankers such as J.P. Morgan and
Industrial
magnets such
as Andrew
Holding Company
– In this
form of Carnegie.
business organization, a company owns
Sufficient stock in other companies and is thus able to dominate their activities
Public Reaction to Big Business
1. Early, most Americans agreed that the government should not interfere
with private businesses. As a result, the government neither taxed
businesses’ profits nor regulated their relations with their workers.
2. By the 1880s and 1890s opinions changed quickly as Big Business
exploited human and natural resources to accumulate great amounts of
wealth. Few people truly liked trusts and other large business
organizations.
3. The people knew that big business did not have consumer or worker
interests at heart.
4. Rapid industrial growth did lead to strains on the economy. The country
experienced periods of Economic Depression in the 1870s, 1880s, and
1890s.
Laissez-faire
Social Darwinism
Individualism
Laissez faire
■Term originated in France during the
Enlightenment
■Based on the idea that the
government should not
intervene in business or the
economy; instead natural law or
market forces would regulate
■Adam Smith popularized the term and
concept in his book Wealth of Nations
in 1776
■This approach was embraced
by industrialists during this era
who did not want the
government to regulate them in
any way
Herbert Spencer
“Social Darwinism”
Spencer, an Englishman, was a
philosopher who is best
remembered for his ideas that have
become known as “Social
Darwinism”.
“Each individual
should be allowed
to do as he or she
wills as long as it
doesn’t infringe on
the rights of
another person.”
Social Darwinism advocated laissezfaire capitalism, an economic system
that allows businesses to operate
with little government interference.
Spencer believed that competition
was “the law of life” and resulted in
the “survival of the fittest”, a phrase
he used years before Darwin.
Spencer argued in his various
writings that society is best served
when its fittest members operate
without opposition.
Herbert Spencer
“Social Darwinism”
Unlike Darwin, Spencer also believed
that individuals genetically pass on
their learned characteristics to their
children. This meant the fittest
persons inherited positive qualities
such as intelligence, the desire to
own property, and the ability to
accumulate wealth. On the other
hand, the unfit inherited laziness,
stupidity, and immorality.
Spencer argued that the number of
unfit would eventually disappear
because of their inability to
effectively compete with the fit. He
was against any government aid to
the poor because it interrupted the
correct evolution of civilization.
Spencer’s Social Darwinism
Opposed government aid to the poor because he believed
it bred immorality
Against a public school system since it forced taxpayers to
pay for the education of other people's children
Opposed laws regulating housing, sanitation, and health
conditions because they interfered with the rights of
property owners
Disease was punishment for the ignorant and should not
be tampered with
Against most taxation because it interfered with the
natural evolution of society
Advocated a laissez-faire system in which there was no
government regulation of private enterprise
Spencer was against any legislation that regulated
working conditions, maximum hours, and minimum wages
because they interfered with the property rights of
employers. He believed labor unions took away the
freedom of individual workers to negotiate with employers
2. Social Darwinism in
America
$ Individuals must
have absolute
freedom to struggle,
succeed or fail.
William Graham Sumner
Folkways (1906)
$ Therefore, state
intervention to
reward society and
the economy is
futile!
New Business Culture:
“The American Dream?”
3. Protestant (Puritan) “Work Ethic”
 Horatio Alger [100+ novels]
Is the idea of the “self-made man” a MYTH??
Individualism
The idea that a person should not
rely upon others for success
This philosophy was evident from
the beginning of United States history
Author Horatio Alger made this
concept the theme of his books in
which a poor young man is able to
create wealth and success through his
hard work
Later the term “rugged
individualism” becomes popular
Horatio Alger
PLEASE DO NOW!
As a Team, discuss how Laissez
Fair and Social Darwinism
contributed to the Growth of
Industry during the late 1800s.
Second Industrial Revolution defined
U.S. became an industrial giant
Horizontal versus vertical integration
Trusts
Technology
and
Inventions
Corporate
business
organization
LaissezFaire
attitude of
Abundant
resources
Second
Industrial
Revolution
government
Capital
for
investment
Large
labor
supply
National
market
Large corporations developed in two major ways:
horizontal or vertical integration
Horizontal (Consolidation) integration is the growth of a
business through acquiring additional business activities
in the same industry. A business either combines with
other similar companies or buys them, called “mergers
and acquisitions”.
The benefits to the firms that horizontally integrate
include cheaper operating costs because production is on
a larger scale, increased market control of the product
including over suppliers and distributors, and greater
control over treatment of workers.
An example of this form of expansion would be Standard
Oil’s acquisition of almost all oil refineries around the
U.S.
Large corporations developed in two major ways:
horizontal or vertical integration
Vertical Consolidation (integration) is the
growth of a business through the acquisition of
the materials that make the product, the
factories that manufacture the products
including the machines needed to produce the
product, as well as the distribution channels to
take the product to market.
This allows the business to control all aspects
of the industry and provides large profits.
An example would be Carnegie Steel’s control
of raw materials, production of steel,
transportation, and companies that made
products out of steel.
How trusts worked
A trust was a business entity designed to create
a monopoly over an industry.
Some were formally organized as trusts under
the law. They were created when corporate
leaders convinced, often through coercion, the
shareholders of all the companies in one
industry to turn over their shares of a
corporation to a board of trustees, in exchange
for dividend-paying certificates.
The board would then manage all the companies
in "trust" for the shareholders.
Sherman Antitrust Act (1890)
First federal act that outlawed monopolistic
business practices.
Any combination “in the form of trust or
otherwise that was in restraint of trade or
commerce among the several states, or
with foreign nations” was declared illegal.
Persons forming such combinations were
subject to fines of $5,000 and a year in jail.
Individuals and companies suffering losses
because of trusts were permitted to sue in
federal court for triple damages.
The law was not immediately effective because
of the lack of definitions of “trust,”
“combination,” “conspiracy,” and
“monopoly”.
Sherman Antitrust Act (1890)
Five years later, the Supreme Court ruled in
United States v. E. C. Knight Company that
the American Sugar Refining Company had
not violated the law since it was only
manufacturing the product, even though
the company controlled about 98 percent of
all sugar refining in the U.S.
The law was not effectively used until
President Theodore Roosevelt’s “trust
busting” campaigns at the turn of the
century.
Most recently used in the 1990s against the
Microsoft computer software company.
Modern ‘Robber Barons’??
Causes
Features
1.
Effects
1.
1.
2.
2.
2.
3.
3.
3.
4.
Methods
1.
4.
4.
5.
Growth of
Big Business
Gov’t
Relations
1.
2.
3.
2.
4.
Name __________________
Period _____
Causes
1.Period of
invention
2.Technology
3.Shrewd Business
people
4.Investors
5.Create large
companies
Methods
1. Vertical
consolidation
2. Horizontal
consolidation
3. Formation of trusts
4. Underselling
competitors
Features
Effects
1. Large amounts
of capital
2. Diversification to
encompass the total
production of a product
3. Revised role of ownership
& management
4. New management
methods
1. U.S. became
wealthy
2. Created thousands
of jobs
3. Created new products
at low costs
4. Safety and well
being of labor was
not a priority
Growth of
Big Business
Gov’t
Relations
1. Most Americans
agreed that gov’t
should not interfere
with private business
2. End of 1800s, fed. &
state gov’t passed laws
to prevent monopolistic
practices