BUSINESS and INDUSTRY1870-1920

NEW PROCESSES

Steel Oil

Effects on Industry Effects on Industry

•Expansion of railroad industry•Stronger material for building bridges and taller buildings•Allowed construction of machinery for factories•1873 - 115,000 tons of steel produced•1910 – 24 million tons of steel produced•U.S. was now worlds top producer of steel•U.S. transformed by steel into a modern industrial economy

•Oil used as lubricant for factory machinery•Resulted in production of kerosene for light•Led to development of gasoline and other fuels•Major sources of energy, fueling a revolution in transportation and industry•Exxon Mobil, Gulf Oil, Texaco

BIG BUSINESSBig business thrived during the late 1800’sHuge inequalities between the rich and the

poor – unequal distribution of wealth

Corporations

•Industries grew, need for more expert management•Began to organize as corporations – business with legal status of an individual•Owned by people who buy stock, board of directors makes decisions, corporate officers run day to day operations•Can raise large sums of money by selling stock in a company•Use money earned from stock sale to expand•Not dependent upon a single owner for it’s existence•To gain control of an industry some formed trusts – companies agree to merge, company run by board of trustees, all participants split profits•Monopoly – trust gained complete control over an industry eliminating all competition

BIG BUSINESS BARONS

Rockefeller VanderbiltOil

•Standard Oil – started as a refinery•Vertical integration – acquiring companies that support his business which kept costs low and profits high•Horizontal integration – taking over companies in the same business•1879-Standard Oil refined 90% of all U.S. oil•Gave away over half of his earnings to charities

CarnegieSteel Shipping

•Telegraph operator•Formed Carnegie Steel Company•Vertical integration, buying in bulk, producing in large quantities•Owned what he needed to produce – raw materials, railroads for transporting, coal fields to fuel furnace•By end of century Carnegie Steel dominated steel industry•Wealthy had a duty towards the rest of society•Education, music, libraries

•Began investing in railroads during the Civil War•4500 miles of track•Steamship lines dominated shipping•Supported very few charities•Gave only $1 million ($260 million today) to Central University – now Vanderbilt University

LABOR PRODUCTIVITY

Discuss specific factors that impact labor productivity.

Analyze how the demand for labor is influenced by labor productivity.

What is labor productivity?

output per worker – how much does each worker in a factory produce in a given period of time

EFFECTS OF INCREASED LABOR PRODUCTIVITY ON COSTS:

Lowers average costs Competition amongst factories Business longevity Higher profits

EFFECTS OF INCREASED LABOR PRODUCTIVITY ON WAGES:

Higher wages and job security for more productive workers

Unemployment for less productive Decrease in workers if additional

output cannot be sold

Advantages of Specialization and Division of Labor:

Very skilled workers at one particular step New equipment and machinery to enhance

specialization Improved product quality Rise in productivity

Disadvantages of Specialization and Division of Labor:

Lack of employee motivation Lack of knowledge for multiple jobs/skills Loss of jobs

Why is increasing labor productivity important to individuals and to the economy?

Higher output = Higher consumption=highly productive labor force

Higher Income Levels = higher standard of living

both personal living standards and national living standards related directly to labor productivity

Effects of the 19th Century

Monopolies

Monopoly – complete control over an industry19th Century big business leaders established monopolies

iron, steel, oil, railroadsRailroads prominent among these industriesMassive consolidationsSome Americans feared economic power of large corporations (farmers)

reduce competitionrestrict traderedistribute income away from workers and farmers

Fear of business collusion (secret agreements) motivated federal government

Government ActionTrusts had become very popularTrust – arrangement between two or more firms in the same industry to reduce competitionTrusts also formed in an attempt to increase profitsFarmers angry about monopolies and trusts in railroad and financial industries

railroads charged higher rates for farmers to ship

govt. gave land grants and low interest loans to RRInfluenced Government to pass antitrust laws1890 – Sherman Anti-Trust Act

govt. break up businesses with market domination

regulate economic power for big business

Sherman Act and Clayton Act of 1914continue to be in use todaygovernment still prohibits formation of

monopolies

Competition – big businesses now faced with more competitionForced to reduce costs – savings to consumers – increase sales – more profitFear of reduced profits and competition motivated many U.S. companiesBehavior is opposite of what monopolists would do

Costs and Benefits of Anti-Trust Laws

COSTS BENEFITS

Competition can keep prices lowBusinesses unable to restrict the amount of output in order to boost profitsConsumers can pay less for goodsConsumers can purchase more of a product if prices are lower

Large scale production much more efficient for businessesPotentially lower cost to produceLarger firms can possibly produce a larger amount of goods than smaller businessesDifficult for small businesses to succeedConsumer choices narrowedConsumer purchasing power reduced