What is a Trust?

A trust or business trust was a form of business entity used in the late 19th century with intent to create a monopoly. Some but not all were organized as trusts in the legal sense. They were often created when corporate leaders convinced (or coerced) the shareholders of all the companies in one industry to convey their shares to a board of trustees, in exchange for dividend-paying certificates. The board would then manage all the companies in "trust" for the shareholders (and minimize competition in the process). Eventually the term was used to refer to monopolies in general. In 1898, President William McKinley launched the 'trust-busting' era when he appointed the U.S. Industrial Commission. The report of the Commission was seized upon by Theodore Roosevelt, who based much of his presidency on "trust-busting".Prominent trusts included Standard Oil, U.S. Steel and the International Mercantile Marine Company.http://en.wikipedia.org/wiki/Trust_%2819th_century%29

Bookkeeper ($15.00 a week.) Cleveland Ohio.

Saves $800 in 3 years.

Opened Commission House.

Increases assets to $100,000 in 4 years.

1862 invests all in petroleum refining

1859 – Drakes Well in PA

1865 – Number 4 American Export

1859 – Drakes Well in PA

1865 – Number 4 American Export

1870 – Standard Oil of Ohio becomes the largest Refinery in Cleveland.

1890 – Rockefeller controls 90% of the US refining business,

A secret agreement or discount on freight charges. Rockefeller engineered an agreement with certain railroads that stipulated that they would get Standard Oils business if they charged Standard Oil’s competitors 25 – 50% more. (1872) Also, the railroads agreed to give S O the destinations of the competitors product.

What does this do to SO’s competitors?

1.What is the tone of this quote?

2.How did S O force competitors to sell or get out of the business.

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Price / Barrel

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1870

1. Study the swings in oil prices and hypothesize why such swings were unsettling to the oil producers, oil refiners, oil towns, and oil users.

2. Compare the fluctuations in the oil market and their effects on the American society with the fluctuation in oil prices in America today.

During his 98 years, Rockefeller amassed a fortune of almost $ 1 billion.

Standard Oil

• Horizontal Constructed Monopoly

• Spread to other industries – coal, whiskey, and rope.

• Explain how this practice affected the consumer and small operators?

Vertical Business Model

• Not monopolistic.

• Efficiencies created in streamlining the production process tend to bring savings to the consumer.

Standard Oil

Secret Deals

High-pressure tactics

Hid its ownership of companies

Dummy Directors

Rebates.

Rockefeller Responds

Churchgoer and Sunday School teacher.

Methods were not illegal when he used them.

Offered Stock or Cash, advising that the stock had more value.

Rebate are standard practice in other countries. Those who took his advise became rich.

Motive – Hatred of waste, and passion for efficiency.

Good to his workers – paid well, protected jobs in hard times.

One of the first to offer old age pensions.

Philanthropist, by the end of his life Rockefeller gave away over $520 million to worthy causes and charities.

Immigrated from Scotland at 13.

$ 1.20 for working a 72 hour week.

1853 clerk and telegrapher for PA Railroad.

At 23 became superintendent of the western division.

Invested in iron companies

Managed iron bridge company

1873 formed group to build largest most modern steel mill in Pittsburgh.

In using the Bessemer process and the open Hearth Process enabled him to produce high quality steel cheaply.

Surrounds himself with great minds

Research and Development.

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Thousand Tons of Steel

1866

1876

1897

Their efficiency in production brought more goods and lower prices to consumers.

Carnegie Vertical Corp.

• Controlled– Coke production– Iron ore mines– Ships– Railroad– Blast Furnaces – Mills– Factories

• Cheaper Steel• Figure costs to the

penny• Broke Strikes• Philanthropist

Social Darwinism and the Gospel of Wealth

• Natural Selection

• Competition

• Survival of the Fittest– Smartest, Most Cleaver prosper– Protestant Work Ethic.

• Success brought a responsibility to the society – To he who has been given much, much is expected.

End of Lassie Faire Economics

• The Sherman Anti-Trust Act.– Government’s first foray into regulating Big Business

• Little Effect.• But it was a start at regulation.• US v E. C. Knight the Court that the sugar

company was not in violation of the Sherman Anti-Trust Act.

• What signal does this sent to American big business men?

Conclusions

• Two different men become great businessmen by hard work and investment.

• Both take advantage of the laws of the time.• Social Darwinism is their answer to why?• Both subscribe to the responsibilities of the

Gospel of Wealth.• The Government makes its first foray into

regulating Big Business with the Sherman Anti-Trust Act unsuccessfully.