Big Business

During the Industrial Revolution

Andrew Carnegie• Scotsman, immigrated to United States as child• Became one of the first industrial moguls to

make his own fortune – “American Dream”• Donated nearly all of his lifetime profits,

philanthropist• Carnegie steel company:

- business boomed in the late 19th century- success was in large part to Carnegie’s

management practices- Carnegie attempted to CONTROL as

much of the steel industry as he could

How did Carnegie control so much of the steel industry?• Vertical integration

- buyout suppliers to control means of production

Example: Carnegie bought coal fields, iron mines, ore freighters and railroad lines. He controlled every step in the production of STEEL

How did Carnegie control so much of the steel industry?• Horizontal integration:

- integration of companies that produce similar products merge

Example: Carnegie purchased, or bought out, the business of his competition (monopolized market)

How did Carnegie control so much of the steel industry?• Summary:

- bought all the means of production (vertical)- bought the competition (horizontal)

• Result: - Carnegie owned almost the entire steel industry in the late 19th century

How is this bad for consumers?

Social Darwinism• What is Social Darwinism? - It grew out of Darwin’s “Theory of Evolution.”

- Became used to explain evolution of society, “best adapted individuals survive”- Popular belief that signs of riches was God’s favor

- Reflected the Protestant work ethic, personal responsibility- Used to justify “laissez faire” capitalism, in which big business grew without government control- Made sense to 4,000 millionaires in United States in late 19th century

Growth and Consolidation of Business• Why did businesses grow and consolidate so

much during this period?- Horizontal integration: mergers increased and monopolies formed

Ex: U.S. Steel, owned by JP Morgan, bought out Carnegie Steel in 1901 for $492 million - Another example of horizontal integration:

Ex: Standard Oil merged with other companies through a trust agreement (illegal mergers) to gain control of Oil industry

John D. Rockefeller• Established Standard Oil company• Used horizontal integration to gain control of

the entire oil industry• By 1880, Standard Oil controlled 90% of oil

refining • As an employer, he made millions yet paid

workers low wages• He controlled the market, thus was able to

hike prices• Labeled a Robber Baron, why?

Sherman Anti-trust Act (1890)• Made it illegal to form a trust that interfered

with free trade between states or other countries

• However! Difficult to enforce, not easy to define trusts

• Trusts continued until the “Trust Buster” Teddy Rooseveltpassed more anti-trust legislation in 1906