The Rise of Big Business

The Rise of Big Business How did Capitalism and Capitalists transform the American Economy?

The Hook Make an effort to connect all the information in this presentation to the hook… “Technology of the late 19th Century was used by capitalists who organized resources to build huge industries and personal fortunes.”

Objectives Describe the economic system of capitalism and note how its supporters and critics felt about this system Explain how business entrepreneurs developed methods of organizing capital (money) and other resources to build huge corporations. Describe the efforts of Andrew Carnegie, John Rockefeller, Cornelius Vanderbilt, George Pullman, Frank Woolworth and George Westinghouse transformed the American economy. How do these objectives connect to the hook for this section?

Capitalism, Free Enterprise and the American Economy • From its early history, the American nation supported and protected private property and the freedom of individuals to conduct commerce (trade) with minimal interference • The pursuit of happiness in the Declaration of Independence meant the ability to earn money. • Traditional belief of American freedom- you can earn your way to riches no matter of your birth • Up though the Civil War, businesses were traditionally small and the owner worked side by side his employees • Businesses required limited capital and marketed locally • The economic demands of the Civil War and new technologies would press industries to grow in capacity

Some Thoughts about Capitalism: Supporters • In Support of Capitalism • Individuals take risks with their wealth in order to make more wealth • Motivated by self-interest, people work hard to build and protect property • People will work to develop skills, products and ideas that are in great demand and will be discouraged from skills, products and ideas whose values are low or declining • A Capitalist Solution to improving the economy • Laissez Faire- Hands off- government offers little or no regulation of business… • Individuals able to gain great riches by assuming risks • Successful risks and rewards benefit society at large • Focus on economic liberty • Accept that capitalism has losers and that competition should be the only force in the marketplace (social Darwinism)

…and Critics • Capitalist Critics • Individuals who accumulate wealth and use increasing economic power to protect and gain more wealth. • The business class (bourgeoisie) take advantage of powerless workers (proletariat) and make money on their labor • Capitalism increases the imbalances in wealth and eventually, the competition will narrow to few players and most people are too poor to consume products • A proposed Solution… • Socialism- system where businesses are owned by government with the focus on economic equality • Communism- A system of government by which the government eliminates capitalist elements of private enterprise and private property through force and to direct economic activity based on need rather than demand (the interest and ability to purchase a good)

In Support of Large Scale Capitalism: America in the 19th Century • Capitalism and industry made Britain the world’s most wealthy nation by 1800- “A nation of shop keepers” • Capitalism made few people very rich but forced displaced farmers to accept jarring poverty in dangerous employment • Poverty of industrial England memorialized in the work of Charles Dickens • Darwin and evolution-Theories that higher forms of life evolved through an environmental struggle- Survival of the Fittest • Sociologist Herbert Spencer applied evolutionary theory to society and capitalism • New ideas and hard work provides wealth. • Weaker people lose the survival of the fittest and become extinct

Technology, Capital and Big Business • Emerging technologies of the late 19th century required larger scale investment and wider networks of communication • Transportation and communication technologies required long distance interdependence • Development of a national standard time necessitated • Ideas and products can move throughout the nation with relative ease- National markets • Emerging technologies involved much larger scale production- more capital than one person could provide • Corporations- Many people pool resources (capital) by purchasing shares of a company (stocks) • Allows many small investors to support an enterprise • Limited liability laws- You can not be held liable for a loss any greater than your investment • Corporations could outlive an entrepreneur- more stable

The Rise of Trusts: Corporations on Steroids • Competition between corporations was fierce • Corporations attempted to organize in ways they could defeat competition by… • Organizing and taking control of all inputs and distribution networks of a product (e.g. coal, rail lines, coke plants, iron mines and steel mills in the production of steel) Vertical Integration • Organizing and controlling an entire industry by buying out or burying the competition and forcing them out of business Horizontal Integration • Companies that could not compete failed- social darwinism…

What is the point of this political cartoon?

Capitalism and Industrialization: Part of a Global Movement • The Industrial Revolution began in Britain in the 1750’s • Geographic advantages- transportation and coastline • Political advantages- limited government and protection of property • Invention and the support of practical technology • Resources- Iron and coal • Labor- advancements in farming provided cities with growing numbers of workers • Ideas of industrial capitalism spread to Northern Europe and America (Northeastern U.S.) • Conditions supporting industrialism in Britain present in US • Early industrialism challenged artisans whose skills would become near worthless

Industrialism Comes to America • Textile industry technology smuggled out of Britain to New England (1820’s) • Used water power to produce textiles • Young women and children did much of the work • Invention of the sewing machine in 1846 made clothing much less expensive • Steamboats and trains begin to connect northeastern cities in the 1830’s- Connecting people and markets • The Civil War pushed manufacturers to find more efficient ways to produce goods

Carnegie, Steel and Vertical Integration: The Making of the World’s Richest Man • Scottish immigrant believed that the steel industry would be a rapidly growing business after the Civil War • New technology Bessemer Process could make steel quicker and less expensively. • Growing cities and the railroad would be a market for steel • Organized his company vertically- controlling mines and transportation facilities • Was able to produce steel inexpensively • Pittsburgh became the steel capital of the world

The Pain of Economic Revolution • “Twenty-five years after the death of Abraham Lincoln, America had become, in the quantity and value of her products, the first manufacturing nation on the world.”Andrew Carnegie • The transformation of the American economy created opportunity for riches and poverty- Divergence of wealth and opportunity and interests- The seeds of conflict • Jarring changes for working class Americans

What does this slide say about Carnegie’s statement?

Pittsburgh: Hell With the Lid Off • Pittsburgh was the ideal place to build the steel industry • Coal fields nearby • River transportation • Iron ore from Midwest could be transported on Great Lakes • Central location to markets • Growing supply of labor • The steel industry transforms Pittsburgh and steel transforms America • Pictures: Pittsburgh in 1850 (Population 46,600) and 1902 (Population 321,000) • Peak population nearly 700,000 in 1950 • Industrialization would revolutionize the role of cities in America- more later…

John D. Rockefeller: Organizing Oil • Oil industry develops in Northwest PA by small scale investment • Edwin Drake’s discovery in Titusville started a wave of small investors to explore and refine oil in PA • Small refiners engaged in chaotic competition • John D. Rockefeller became the largest refiner in Cleveland • Rockefeller incorporated in oil business (brought in investors) and began to take control of the American oil industry • By 1880, Rockefeller’s Standard Oil controlled 90% of the American oil industry- Monopoly ended competition • Standard oil was broken up in the early 20th century • Now is Chevron, Amoco, Sunoco and Conoco-Phillips

How Did Rockefeller Gain Control of the Oil Industry? • Corporation provided the wealth to buy out competitors • Forced railroads to offer rebates to his company • This enabled Standard Oil to “dump” oil in markets where competitors refused to cooperate or sell out to his company • Horizontal Integration- Controlled the entire industry • Rockefeller saw this as establishing order in this new industry. Competition wasteful and ruinous • Critics condemned his practices and unfair and harmful to the public’s interest • Ida Tarbell exposed his practices to the public- more later…

The Hook: Rockefeller and Industrialization • “Technology of the late 19th Century was used by capitalists who organized resources to build huge industries and personal fortunes.” • How does this picture connect what we have learned about Standard Oil to the hook for this chapter?

Cornelius Vanderbilt: Putting the Rail Industry on Track • The growth of railroads were a both cause and effect of industrial growth in America • Rail lines linked resources, labor and markets. • Growing rail industry created demand for steel as well as a means to transport finished goods • Created a national market for goods • Standardized lines created a national transportation system • Cornelius Vanderbilt controlled 4500 miles of track- mostly in the east • Would ruin rivals by building parallel lines- “The Public be damned!”

Growth of Rail Roads in United States

George Pullman and the Company Town • George Pullman built a business in Chicago that designed and constructed passenger cars for rail lines. • Pullman sought to create a company town for workers of his growing business • Controlled town- all aspects of life- Paternalism • Charged rents and set prices in company owned stores

George Westinghouse: The Inventor as Industrialist • Westinghouse applied his practical skill as an engineer to the growing rail industry • The airbrake • Switch and signal technology • Became a rival to Edison in commercial electricity • Advocated AC current instead of DC that was used by Edison • Westinghouse continues to be in competition with Edison's General Electric • Westinghouse would develop the first commercial radio broadcast in Pittsburgh in 1920 KDKA

Thomas Edison: More than a Wizard • Edison was successful in marketing the many inventions he developed. • His biggest battle- the (electric) current war fought with George Westinghouse • Edison worked with DC current (cars and small electronics run on DC) • DC is hard to distribute over long distances • Edison sought to make the public fear AC • Developed the first electric chair to prove AC was dangerous • Edison video of the dangers of AC • Westinghouse’s advocacy of AC current won the day…

Frank Woolworth: Marketing • Frank Woolworth brought to retail what Vanderbilt brought to railroads • Standardized the retail experience. • Presentation and price important in selling goods • Bought in bulk and passed discount 5 and 10 stores • Offered an increasing variety of affordable goods made possible by industrialization • Built a chain of 1000 stores between 1879 and 1919- The Walmart of his day

The Hook: Rockefeller Westinghouse, Woolworth, Edison and Vanderbilt • “Technology of the late 19th Century was used by capitalists who organized resources to build huge industries and personal fortunes.” • Write a 5 word phrase that hooks each of these people to the hook

Carnegie and the Gospel of Wealth • Philanthropy- literally lover of man kind • A philanthropist donates wealth to social causes to improve the social condition- Examples… • The Social Gospel- Huge wealth given to industrialists was God’s blessing- Those who accumulated wealth had a solemn obligation to direct that wealth to help those in need. The rich are trustees of wealth • Carnegie- A man who dies rich dies in disgrace • Money should not be given directly to the poor • This would increase dependency of poor • Create social ladders for poor • Libraries, universities, parks, museums and other institutions of social improvement

Examples of Philanthropy in the 19th Century • Andrew Carnegie • Gave 350 Million • Over 2500 libraries • Carnegie-Mellon University • Institutes and trust funds supporting education and world peace • Carnegie Hall- New York • Bought church organs but no money directly to churches • John D. Rockefeller • Gave 550 Million • 80 million to the University of Chicago • Supported many colleges with huge grants • Focus on institutes of public and international health • Rockefeller and Carnegie money continue to work today

The Hook: Rockefeller Westinghouse, Edison and Vanderbilt • “Technology of the late 19th Century was used by capitalists who organized resources to build huge industries and personal fortunes.” • How does the concept of philanthropy hook to the content of this lecture? How does it hook to us today?

The Rise of Big Business