THE RISE OF BIG BUSINESS

JOHN D ROCKEFELLER JP MORGAN

ANDREW CARNEGIE

CORNELIUS VANDERBILT

13.2

CORPORATION

MONOPOLY

CARTEL

HORIZONTAL INTEGRATION

TRUST

THE RISE OF BIG BUSINESS

VOCABULARY

VERTICAL INTEGRATION

SOCIAL DARWINISM

ICC

SHERMAN ANTITRUST ACT

THE CORPORATION DEVELOPS

• Investors developed a form of group ownership known as a corporation in order to take advantage of expanding markets.– Corporation- a number of people share ownership

of a company

• Corporations had the same rights as individuals– They could buy and sell property– They could sue in court

• Corporations had access to huge amounts of capital– This allowed them to fund new technology

– They could expand into new industries

– They could operate ventures in many different areas of the country and around the world

• Corporations became the backbone of the global free market system

Standard Oil Refinery

GAINING A COMPETITIVE EDGE

• Corporations worked to maximize profits– Paid lowest wages possible

– Advertised widely

– Invested in research and development (R&D)

– Cut prices to drive out competition• Cornelius Vanderbilt built his $143 billion dollar fortune starting

with a steamship line. He lowered his fares so much so that his competitors paid him to leave.

• Corporations tried to gain a monopoly– Monopoly- complete control of a product or service– Corporations either bought competitors or drove them

out of business– Once the competition was eliminated, they could set

their own prices

• Some corporations worked with other businesses to form a cartel– Cartel- Businesses making the

same product agree to limit production in order to keep prices high

• John D Rockefeller made deals with railroads to refuse service to his rivals in the oil industry, thereby driving them out of business

HORIZONTAL AND VERTICAL INTEGRATION

• Horizontal Integration– Consolidating many firms in the same business– To circumvent laws forbidding corporations owning

stock in other corporations, Rockefeller devised the trust• Trust- Companies assign their stock to a board of trustees, who

combine them into a new corporation. The trustees run the organization, paying themselves dividends on the profits.

• Vertical Integration– Control of the many different businesses that make up all

phases of a product’s development

DEBATING THE ROLE OF BIG BUSINESS

“Robber Barons” or “Captains of Industry?”

•Trusts, cartels and monopolies gave an unfair advantage to big business

•Small businesses were bought up or squeezed out

•Consumers were harmed by high prices set by cartels and monopolies

•Factories, steel mills and railroads provided jobs for an expanding workforce

•The development of efficient business practices and support for R&D benefitted the economy, stimulated innovation and made the US an economic leader

•Many business leaders were philanthropists

SOCIAL DARWINISM CATCHES ON

•Charles Darwin published On the Origin of Species (1859)

•Natural Selection-only the fittest animals survive

•Social Darwinism-Wealth is a measure of one’s inherent value and those that have it are most fit

•Social Darwinists believed that government interference in business would disrupt natural selection

•They believed the most ambitious people would rise to the top, therefore, the government should not waste public funds on the poor

•This theory sparked economic, ethnic, racial and sexual discrimination

THE GOVERNMENT IMPOSES REGULATIONS

• Due to complaints of unfair business practices in the RR industry, the US Senate created the Interstate Commerce Commission (ICC) in 1887– Set up to monitor business operations– Could only monitor RR’s that crossed state lines– Could require all RR’s to send records to Congress for

review

• In 1890, the Senate passed the Sherman Antitrust Act– Outlawed any trust that restrained trade or commerce – Largely ineffective, as businesses claimed labor unions

restrained trade

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