Test Tuesday12/4Rise of Industry & Big Business

Chapter 19

Big BusinessSection2

AgendaAgendaWednesday, November 28, 2012Wednesday, November 28, 2012

DO NOW:DO NOW: Sit QuietlySit Quietly

CLASS ACTIVITY:CLASS ACTIVITY:1)1)Homework Questions Homework Questions

ReviewReview

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IntroductionIntroduction

John D. Rockefeller was one of a new John D. Rockefeller was one of a new breed of business leaders who grew up breed of business leaders who grew up in the late 1880in the late 1880’’s. They were ruthless, s. They were ruthless, had imagination and vision about the had imagination and vision about the future of big business. Together, these future of big business. Together, these leaders shaped the emerging leaders shaped the emerging businesses and industries.businesses and industries.

I. The Steel IndustryI. The Steel Industry

Growing railroads after the Civil War fueled the growth of the steel industry

Reason: Steel rails did not wear as quickly as iron rails

A.A. Bessemer ProcessBessemer Process1. Steel makers produced strong Steel makers produced strong steel at a lower coststeel at a lower cost = railroads began to use steel rails

One thing leads to another …

2. New steel mills sprang up 2. New steel mills sprang up throughout the mid-west.throughout the mid-west.**Pittsburgh, PAPittsburgh, PA became the became the steel steel making capitol of the making capitol of the nationnation3. Steel brought jobs and 3. Steel brought jobs and prosperity to Pittsburgh and prosperity to Pittsburgh and other steel townsother steel towns

Sounds good, so what are the Sounds good, so what are the negatives?negatives?

NegativesNegativesa) Air pollution from smoke stacksa) Air pollution from smoke stacksb) Soot became a prevalent sightb) Soot became a prevalent sightc)Water pollutionc)Water pollution

B. B. Andrew Carnagie:Andrew Carnagie: Scottish immigrant Scottish immigrant turned millionaireturned millionaire1. Career defined the 1. Career defined the ““History of History of American IndustryAmerican Industry””;; a complete a complete success storysuccess story

What a Guy! …Carnagie, that is.What a Guy! …Carnagie, that is.

2. In Homestead, PA, steel mills used the . In Homestead, PA, steel mills used the Bessemer Process to manufacture steel.Bessemer Process to manufacture steel.

3. Good relationships with railroad owners 3. Good relationships with railroad owners lead to HUGE profits.lead to HUGE profits.

4. Barons used profits to buy out competition 4. Barons used profits to buy out competition in other phases of industry (like in other phases of industry (like steamships)steamships)

5. 5. Vertical integrationVertical integration allowed Carnagie to allowed Carnagie to gain an advantage over other steel gain an advantage over other steel companiescompanies

What is vertical integrationvertical integration?Vertical integration:Vertical integration: having control of all having control of all

the steps required to change raw the steps required to change raw materials to finished productsmaterials to finished products6. 1862: Carnagie formed the Carnagie Steel Company.7. By 1900: Carnagie’s steel company was turning out more steel than all of Great Britain.

Like I said … What a guy!

88. . Carnagie felt that he had Carnagie felt that he had a a ““duty to societyduty to society””a) built public librariesa) built public librariesb) donated charitiesb) donated charitiesc) Post retirement, he c) Post retirement, he donated time to helping donated time to helping peoplepeople

New Ways of Doing BusinessNew Ways of Doing Business1.1. Small factories close Small factories close

due to big factories due to big factories producing goods more producing goods more cheaplycheaply

2.2. Big factories/companies Big factories/companies look to expand in look to expand in marketplace (Sears, marketplace (Sears, Montgomery Ward)Montgomery Ward)

3.3. First First ““Mail OrderMail Order”” in U.S. in U.S. sold goods to western sold goods to western farmers via the railroadfarmers via the railroad

Investment in Business1. As factories expanded,

they needed capitalWhat is capital?Money!2. To raise capital, American

businesses became corporations

What is a corporation?A business owned by investors

How does a corporationcorporation work?Corporation sells stock (shares) to investors Corporation sells stock (shares) to investors

(stockholders)(stockholders)Profits from stock are used to expand (buy Profits from stock are used to expand (buy

new factories) or equipmentnew factories) or equipmentAs a return for their investment, As a return for their investment,

stockholders receive dividends stockholders receive dividends (shares of (shares of the profit from business)the profit from business)

Stockholders choose a board of directors to Stockholders choose a board of directors to run corporation run corporation (protection for (protection for investment)investment)

** ** Rise of corporations helped Rise of corporations helped American industry grow as American industry grow as thousands invested in stockthousands invested in stock

But, what if the company goes bankrupt?

Stockholders are not liable(responsible) for the debts of corporations, but they DO share in their profits.

II. Role of BanksAfter the Civil War, corporations attracted

large amounts of money from1. Investors2. Loans from banks

*Bankers became leaders of business due to profits made from corporate loans.

J.P. Morgan1) Morgan was the most dominant

figure in the American Banking Industry.

2) 1890’s: Morgan Associates invested large sums of $$ in “troubled” corporations

3) Morgan generates huge profits from his vision of “troubled companies”

4) 1894-98: Morgan gains control of most major rail lines and steel corporations in United States.

5) By 1901: Morgan became head of U.S. Steel Company – worth a cool million $$$

Plentiful ResourcesIndustry could not have expanded so quickly in the United States

without the nation’s rich supply of natural resources.A. Oil “Boom”

1) 1859: Titusville, PA was the nation’s first oil strike.B. Rockefeller and Standard Oil Company

1) Rockefeller invested in first refinery at age 232) Rockefeller knew oil had to be refined (purified) for it to be valuable.

So, how did Standard Oil become a trust?

3) Rockefeller used profits from his refinery to buy competition.

4) After consolidation of competition, he formed the Standard Oil Company of Ohio

5) A clever businessman, he always had an edge on his competition.

Standard Oil quickly became a trust.

What is a trust?A trust is a group of corporations run by a single board of directors

1) Standard Oil trust helped Rockefeller to control the industry.

2) Standard Oil drew investors from smaller companies looking for higher dividends (more $), but they could not choose the board of directors. (traded privilege for profit)

3) Board of Standard Oil took over management of competition

*Standard Oil Trust ended competition in the oil industry.

The Game of Monopoly …Standard Oil Trust created a monopoly

that controlled 95% of the oil refining business in the U.S.

What is a monopoly?A company that controls all or nearly all

of a businessBy the late 1890’s many of the nation’s

most important industries had decided to follow Rockefeller’s lead to become monopolies themselves.

Big Business: Good or Bad?

Free-enterprise system – businesses that are owned by private citizens.

Main Idea: companies compete to win customers through making the best product at a lower price.

A) Trusts and monopolies often put an end to competition

B) Arguments for Competition

Without Competition1) There was no reason for companies to keep low prices or improve products.2) Hard for new companies to start up or compete with trusts3) Many workers were treated badly by large corporations.4) People often worried that rich men would raise prices and influence to buy off elected officials.

“Liberty and monopoly cannot live together”.

What does this mean?

Arguments for Trusts

1) Competition ruins business2) Competition puts people out of work3) Large corporations made goods cheaply

and so helped the customerGovernment reaction1) Very little intervention2) Corporations side stepped many laws

passed by other governments

Arguments for Trusts

• 3) 1890’s: Sherman Antitrust Act was passed to ban the formation of trusts and monopolies

• 4) Unfortunately, the Sherman Antitrust Act was too weak to be effective.

AgendaAgendaThursday, November 29, 2012Thursday, November 29, 2012

DO NOW:DO NOW: Field Trip MoneyField Trip Money CLASS ACTIVITY:CLASS ACTIVITY:Cartoon Analysis Cartoon Analysis Age of Invention PacketAge of Invention Packet

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Observations: Standard Oil Trust

Develop a list of 3 main points that the cartoonist was making about the Standard Oil Company and Big Business