The 2nd Industrial Revolution14.2 The Rise of Big Business

“I was once asked if a big businessman ever reached his objective; I replied that if a man ever reached his objective, he wasn’t a big

businessman.”- Charles Schwab

Focus Your Thoughts . . .

What is “big business”? Give an example.

What conditions create a favorable environment for business?

Think about the quote on the previous page, what do you think Schwab meant?

A Favorable Climate for BusinessHoratio Algers

An American novelist whose characters always seemed to go from “rags to riches” through their own hard work created strong work ethics, and emphasized self-reliant individualism

Led to lots of entrepreneurs Risk takers who use their money and talents

to launch new ventures

Belief in Free Markets Capitalism

An economic system in which private business run most industries and prices and wages are determined by competition.

Laissez-faire (“Let it be”) Business without intervention by the

government.

Social DarwinismIt was obvious that their were inequalities under

a capitalist system; however, many thinkers believed that inequalities were part of a natural order

To explain why some individuals prospered while others did not, economists and business leaders embraced the philosophy of Social Darwinism

Social DarwinismMembers of a species compete for survivalThose best adapted to their environment thrive;

weaker individuals fail Natural selection

Changing Business StructuresProprietorships and Partnerships

At the end of the Civil War, we saw mostly proprietorships and small partnerships Proprietorships – A business run by an individual

owner Partnerships – One or two people run a business

together

Changing Business Structures

Corporations

The massive industries of the late 1800’s needed more expert management

These industries began organizing as corporations; corporations are businesses with the legal status of an individual

Corporations are owned by stockholders, people who buy shares of the company or its stock.

Major business decisions of corporations are made by a board of directors and the board hires officers to deal with the day-to-day operations

Changing Business StructuresThe Advantages of a Corporation

A corporation can raise large sums of money by selling stock; that money can be used to expand the business

Stockholders have limited responsibility for the corporation’s debts, they can lose only the amount of money they have invested

A corporation is not dependent on a single owner for its existence, it can continue to function long after its original founders leave

Changing Business StructuresTrusts and Monopolies

Fierce competition in the marketplace lead competing companies to form trusts

The companies agreed to merge and turn over their separate stocks to a board of trustees and the trustees then ran the group of companies as if it were a single corporation and all the participants split the profits AT&T/Cingular Wireless

When a trust gained complete control over an industry, it held a monopoly; if a trust has a monopoly, that means it has no competition from other firms enabling it to raise prices and lower quality much more easily.

Industrial TycoonsAs businesses grew ever larger, many

corporate leaders amassed staggering fortunes

1. John D. Rockefeller

2. Andrew Carnegie

3. Cornelius Vanderbilt

Rockefeller Rockefeller entered the oil business in 1863

His company, Standard Oil, started as a refinery; however, to increase profits, he engaged in vertical integration – acquiring companies that supplied his business.

Rockefeller bought barrell factories, oil fields, oil-storage facilities, pipelines, and railroad cars

This kept costs low and profits high

To expand his business, Rockefeller also practiced horizontal integration – taking over other companies that produced the same product.

By 1879, Standard Oil refined ninety percent of all U.S. oil.

At one point, Rockefeller’s fortune approached $900 million; however, he gave half of it away to charitable causes, namely education

Carnegie Carnegie lived a true “rags to riches” story

Born in Scotland to parents that hit hard economic times when he was nine

Immigrated to the United States at twelve Advanced quickly in his early jobs and began investing in iron, oil,

railroad, and telegraph industries Founded his own company and rose to the top of the steel

business Because of his parents struggles, Carnegie believed wealthy

people had a duty toward the rest of society which he referred to as The Gospel of Wealth

“This then, is held to be the duty of the man of wealth . . . to consider all surplus revenues which come to him simply as trust funds . . . to

produce the most beneficial result for the community.”

Following in Rockefeller’s Footsteps Carnegie also employed tactics such as vertical integration,

buying supplies in bulk, and producing items in large quantities to maximize profits

By the end of the century, Carnegie Steel Company dominated the U.S. steel industry; Carnegie sold the company in 1901 for $480 million

After retiring, Carnegie also devoted his time to philanthropy and gave away some $350 million, mostly to help fund education

Would Carnegie have subscribed to the tenants of Social Darwinism?

Vanderbilt Vanderbilt began investing in railroads

during the Civil War; by 1872, he owned the New York Central Railroad . . . soon his holdings stretched west to Michigan and north to Canada

At the height of his career, he controlled more than 4,500 miles of track

In addition, he invested heavily in steamship lines and dominated shipping along the Atlantic Coast

Unlike Rockefeller and Carnegie, Vanderbilt supported few charities; the largest gift he ever gave was $1 million to Central University in Nashville, Tennessee which was later renamed Vanderbilt

He left behind an estate of $100 million

A Mixed LegacySome American’s came to view the business tycoons of

the late 1800s as “robber barons”They argued that these entrepreneurs profited unfairly by

squeezing out competitors and using other tough tacticsThey believed their huge mansions and luxurious lifestyles

seemed like ill-gotten reward

Others saw men like Rockefeller, Carnegie, and Vanderbilt as “captains of industry”Admirers credited these tycoons with using their business

skills to make the American economy more productive which in turn made the American economy stronger

Mass MarketingIndustrial tycoons weren’t the only ones looking to

maximize their profits . . .

Many companies that advertised in magazines began targeting their messages to women; they realized women made most purchasing decisions about household goods

Advertisers also tried new approaches to win customers; they came up with clever brand names and slogans and began using media to accompany their advertisements “A pictures worth a thousand words”

The Rise of the Department Store In the cities, department stores

started to emerge and retailers now had the ability to sell many different products under one roof

Gone were the days of trudging from shop to shop to purchase a variety of goods

In addition, because department stores were capable of buying in bulk and thereby received discounts, they were able to pass those discounts on to consumers

Even those who lived in rural communities were able to shop in department stores via catalogs which came directly to their houses

Assignment – Summarizing Social Darwinism (Pg.467)

Give one example of the way in which William Graham Sumner – a professor – attempts to blame the poor for their poverty. In what way might his argument be flawed? How do the words of Walter Rauschenbush – a minister – indicate that he is trying to arouse emotions? How might the professions of these two men influence their opinions of poverty? Which do you agree with? Why? Does this (your opinion) hold true when you consider impoverished communities today?