Lecture1:TheRiseofBigBusinessintheGildedAge
FamousphotographtakenbyA.J.Russell,thephotographeroftheUnionPacificRailroad,commemoraBngthe“LastSpike”ofMay10,1869,inPromontorySummit,Utah.Chinese,Irish,andMormonlaborerswerecrucialtothejoiningoftheUnionandCentralPacificlinesthatcompletedthetransconBnentalrailroad.
Somecharacteris8csoftheGildedAge• Conflictbetweencapital(owners)andlabor(workers)inwhichcapitalwinsmostofthetime
• Newbusinessmodelstodealwithincreasedvolumesoftradeandexpandingpopulationsv Ex:Trusts,combinations,andholdingcompaniesv Companiesaremorecomplex,hierarchical,andrunlikebureaucracieswithsalariedmiddlemanagers
• Fiercecompetitionandmoredemandforcesbusinessestocutcostsandusetechnology
• USbecomingworld’sleadingindustrialpower
AntebellumEra GildedAgeTypicalFirm Partnerships,familybusinesses Largercorporation,trusts,
holdingcompanies
Corps.were Artificialcreationsofthestatethatserveapublicfunction
Privateentitiesthatoftenhavetherightsofpersons
Corp.Charter Limited–20-30years;needspecialcharterfromstateleg.
Perpetual;therearegeneralincorporationlaws
Liabilities Unlimited Limited–shareholdersnotresponsibleforalldebts
Customers Morepersonal–soldtofamilies,friends,afewothers
Moreimpersonal–sellingtodistantcustomers
Shareholders Connectedwithmanagement(they’reoftenthesamepeople)
Separatedfrommanagement
Freedom Linkedtoproduction Linkedtoconsumption
Women Separatespheres–stayinhome(middle-classideal)
Workinofficesasclerks,cashiers,accountants,typists
Thisisageneralmodelofoveralltrendsthatmightmasksomecomplexities
WhyBigBusinessatthis8me?� Significantsupportfromthefederalandstategovernments(seenextslide)v DuringCivilWar,southernDemsarenotinCongressv RepublicanPartyconnectedwithBigBusiness
Ø OftencontrolsCongressandthepresidency
� CheapLabor–Immigrants,women,children� AccesstoNaturalResources–oil,coal,iron� NewTechnology–e.g.Edison,Bell� OverseasInvestment–esp.fromGreatBritain
v Criticaltogrowthofrailroads
HowGovernmentshapedtheeconomy� NationalBankingAct–standardizedthebankingsystem� Lucrativewarcontractsgiventonorthernrailroads,financiers,andmanufacturersforsupplyingunionarmy
� PacificRailroadAct–federalandstatesubsidiestorailroadsv Saleofpubliclandsatlowratestotherailroadcompanies
Ø 131millionacres–largerthanthestateofCalifornia(seemap)
v GovtpaidinterestonstocksandbondsthatfundedRxR� Saleofpubliclandsalsohelpedfundcolleges(MorrillLandGrantAct)andfundedwaterinfrastructureprojects
� MorrillTariff–protectedindustry� Eminentdomainlaw>railroadspenalizedlessfordamages� UseofarmytoremoveNativeAmericansfromtheWest
Mapoffederallandsgrantedtotherailroads
Whatwerethebenefitsofrailroads?� Increasedpropertyvalues� Moreaccesstoconsumergoods� Investinginrailroadcompaniesoftenreturnedprofits� Nowthereareshipmentsduringwinterandnighttime� Asignificantstimulustotherestoftheeconomy
v Especiallythecoalandsteelindustryv Buildingrailroadscontributestofurtherdevelopment
� Amoreunifiednationv Urbanandruralareasmoreconnectedv Accesstocasheconomy(betterthanbarterorgold)
� Faster,moreconvenient,andconsistentshipping
Travel8mesbeforetheRxR
HowlongdoesittaketogofromNewYorktoChicago?
Nowaddtherailroad
Nowaddabe#errailroad
Ittakesabout2-3daystotraversetheen8recountrybyrail
Buttherewerealsodrawbacks� Immensepower,widespreadcorruption,andtremendousconcentrationsofwealth!
� Railroadcompaniestookgreatrisksthatimperiledtheeconomy,helpedcausePanicsof1873and1893v Railroadcompanieswerenotfinancialsuccesses–manywentbankruptordidn’tfinish
v Despitethis,theywerebailedoutbythetaxpayer� AccelerateddevelopmentoftheWest
v ThiscamewithenvironmentalcostsandthedisplacementofNativeAmericans
� Thiswasaneraofviolentlaborstrikes,massunemployment,andmillionsofdisaffectedworkers
Railroadsasthefirst“BigBusiness”v Theyamassedalevelof
wealthandpowerthattheFoundingFatherscouldnothavepredicted
v Corporatelobbying
Right:Poli8calCartoon,“Jus8ceintheWeb,”depictsrailroadmagnateJayGouldasaspiderPuckMagazine,July1885
SupremeCourtJusBceStephenJ.Field–theinventorof“corporatepersonhood”–wasfriendswithCollisP.HunBngtonandothertycoons
NewYorkTimes,July15,2007Areweinanew“GildedAge”?
ShouldwecallthemRobberBaronsorTitansofIndustry?
Evidenceforthe“NewGildedAge”� HighpayforCEOs–the“robberbarons”oftoday
v 30to1(1970s)versus300to1(today)v APstudyfoundthattypicalCEOmade$9.6m.in2011
� Monopoly–mergers,acquisitions,andconsolidationv Cablecompanies,banksthatare“toobigtofail”v Doesn’tthiscontradictfreedomofchoice?v Monopolytendstobebadfortheconsumer
� Wealthandincomeinequalityv Iseducationstillaroutetoastablecareer?v Socialadvancementisnowmoredifficultv Seestatisticsonnextslide
Increasinginequalityisaworldwidephenomenon
Theworldtodayissignificantlymoreunequalthanthatofyourparents
