Big Business• Andrew Carnegie• John D. Rockefeller• Jay Gould• John Pierpont (J.P.) Morgan•Corporation: a type of business owned by all the people who buy shares in it (shareholders/stockholders). They elect a board of directors to manage the business. Each shareholder receives a part of the profits in the form of dividends. An important advantage of the corporation is its ability to raise a large amount of money by selling stock to investors. This enables the corporation to build huge factories, buy expensive machinery, and expand nationally and internationally.

Andrew Carnegie• 1899: Carnegie Steel Company manufactured more steel than all the factories in Great Britain.• Carnegie constantly searched for new ways to make better products more cheaply.• He incorporated new machinery and accounting systems that enabled him to track precise costs.• Attracted talented people by offering them stock in the company.

Andrew Carnegie• Carnegie attempted to control as much of the steel industry as he could.

– Vertical Integration: a process in which he bought out all of his suppliers in order to control the raw materials and transportation systems.– Horizontal Integration: companies producing similar products merge

• Having gained control over his suppliers and having limited his competition, Carnegie controlled almost the entire steel industry.

Vertical IntegrationCarnegie Steel

Company

Steel Mills

Ships

Railroads

Purchased by Carnegie Steel

Owns all phases of production

Iron Ore

Horizontal Integration

Standard Oil Company

Independent Oil Refineries

Growth and Consolidation

• Many industrialists pursued horizontal integration in the form of mergers.

– A merger usually occurred when one corporation bought out the stock of another.

• A firm that bought out all its competitors could achieve a monopoly, or complete control over its industry’s production, wages, and prices.

John D. Rockefeller• Established Standard Oil Company• Rockefeller joined with competing companies in trust agreements.

– A trust combined a number of corporations in the same field or in related fields.– Participants in a trust turned their stock over to a group of trustees (people who ran the separate companies as one large corporation)– In return, the companies were entitled to dividends on profits earned by the trust.

• Rockefeller used a trust to gain total control of the oil industry in America.

Jay Gould• A director of the Erie Railroad and, by means of illegal stock and bribery, clawed his way to a controlling interest in a number of railroads.• Gould and fellow tycoon, James Fisk, hatched a scheme to corner the US gold market.

– Gould persuaded President Grant to suspend government gold sales, thereby driving up the price of gold – which Gould and Fisk held in great quantity.– Grant realized what was going on and ordered the Treasury to release $4 million of its own gold to checkmate Gould. –This led to a major financial panic followed by severe economic depression as the inflated price of gold tumbled.

J.P. Morgan• Many of the nation’s railroads, tottered on the verge of bankruptcy.• J.P. Morgan, who had multiplied his family’s already mighty fortune by loaning money to France during the Franco-Prussian War of 1871, rushed to pick up the pieces.• By 1900, Morgan had acquired half the rail trackage in the nation.•Most of the rest of the railroads were owned by Morgan’s friends, and together, they fixed freight prices at exorbitant levels.

– There was little shippers could do but pay.

Robber Barons• Rockefeller reaped huge profits by paying his employees extremely low wages and drawing his competitors out of business by selling oil at a lower price than it cost to produce it.

– When he controlled the market, he hiked prices far above original levels.– Alarmed at these tactics, critics began to call tycoons robber barons.

** Write your own definition for the word robber baron. **

• Although Rockefeller, kept most of his assets, he still gave away over $500 million.

– Established the Rockefeller Foundation– Provided funds to found the University of Chicago– Created a medical institute that helped find a cure for Yellow Fever.

Sherman Antitrust Act• Sherman Antitrust Act: made it illegal to form a trust that interfered with free trade between states or other countries.• Prosecuting companies was difficult because the act did not clearly define a trust.• If firms felt pressure from the government, they simply reorganized into single operations.

Sherman Antitrust Act•Directions: Read the story about the Antitrust Case Against Microsoft. Then use the Venn diagram to compare and contrast the Sherman Antitrust Act in 1890 and 1999.

•Directions: Think of a company that could be a monopoly today. Write a paragraph that describes the company and the ways in which its practices resemble a monopoly.

Monopolies