L6: The Gilded Age: The Birth of the Corporation 1870s-1900

An Economic History of the United States

AgendaObjective:To understand1. How the Industrial

Revolution gave way to the Gilded Age

2. The structure of corporations.

3. The central role of corporations and corporate owners in the Gilded Age.

Schedule: 1. Discussions & Lecture

Homework:Readings on

laissez-faire and individualism Due L7

Green = Thurs 3/5Purple = Fri 3/6

The Industrial Revolution Goes Full Steam Ahead

• By 1870, the American economy was growing considerably into a national market providing mass produced products made in factories.

• The growth and development of the national economy that Federalists/Republicans had long dreamed of was made possible by the invention of the railroad

Railroads Grow With Government Support

Government provided land and cash grants to companies to develop two railroad systems.

Central Pacific Railroad◦ Begin in Sacramento, CA◦ Broke ground January 1863

Union Pacific Railroad◦ Begin in Omaha, NE◦ Broke ground in late 1863 but no tracks laid until

1865Transcontinental Railroad: Connecting of

these two railroads Meeting place: Promontory Summit, UT

Transcontinental Railroad

• Central Pacific Railroad (Chinese immigrants) and Union Pacific Railroad (Irish immigrants)

• Meet at Promontory Point, Utah in 1869• Casualties – 2,000 dead; 20,000 injured• Pay – Approx. $50.00/month (Irish);

Approx. $ 35.00/month (Chinese)• Railroad lines now connect the Atlantic

and Pacific

The Industrial Revolution Morphs Into A Gilded Age

• By 1870, the American economy was growing considerably into a national market providing mass produced products made in factories.

• But, most the ownership of these factories were still held as sole proprietorships.• What is a sole proprietorship?

• Why is it difficult for a sole proprietorship to own run of these factories?– Consider: Costs?, What

happens if there is a loss?, Raising capital? What happens if the owner retires or dies?

How does the Industrial Revolution Morph into the Gilded Age?

• The problems associated with running a factory (or factories) under a sole proprietorship, give way to need to create a new business structure better matched to govern the needs of large, national, industrial enterprises.

• That business model: The Corporation

• It is the introduction of the corporation and its associated tensions that define the Gilded Age; that move us from the Industrial Revolution to the Gilded Age.

CorporationOwnership & Direction: Share-Holders; in proportion to the number

of shares owned

Profits Accrue To: Share-Holders; in proportion to the number of shares owned

Losses Incurred To: Share-Holders; losses cannot exceed the amount they paid for their share (limited liability)

Revenue is Raised By: Selling Stock

Life of the Company: Perpetuity

Corporations

• Why is the creation of a corporation necessary in an industrializing, nationalizing economy?

Structure of Corporations During The Gilded Age

• Corporations tended to be structure in one of three unique ways during the Gilded Age

• We will talk about three structures:– Horizontal Integration– Vertical Integration–Monopoly

Vertical Integration

Horizontal Integration

Vertical and Horizontal Integration in the The Steel Industry: The Case of

U.S. Steel

Companies incorporated by U.S. Steel (vertical

integration), as well as related industries absorbed by the company (horizontal

integration).

Monopoly

Andrew Carnegie• Worked his way up in the

factory system.• Started Carnegie Steel• Used vertical integration

and low to keep costs and down and his profits up

• Believed in the “social gospel”

• Net worth $298.3 billion in todays dollars

• Gave away 90% of his fortune

J.P. Morgan• He began a series of

consolidations in the railroad and other industries, leading the formation of colossal corporations including US Steel and General Electric.

• Controlled 70% of steel industry, 20% of all corporations trading on wall street, the 3 largest insurance companies in the country, and several banks.

• His philosophy was that only ruthless competition would lead economic stability.

• Net worth of $310 billion• Organized the Metropolitan

Museum of Art and the Museum of Natural History

John D. Rockefeller • Rockefeller built a massive fortune

in the oil industry using practices including swallowing up competitors and negotiating exclusive deals with railroad companies.

• In 1911, Standard Oil's monopoly was dissolved in a Supreme Court decision based on the 1890 Sherman Anti-Trust Act.

• Rockefeller was often maligned in the press and some perceive him as one of the most hated figures of his day.

• Rockefeller’s net wroth was $318.3 billion, making him the richest person in all of world history

• By the time of his death, Rockefeller, a devout Baptist, had given away over $500 million in philanthropic pursuits.

Cornelius Vanderbilt• Born poor in 1794• Started working on ferries

and rose his way up until he owned more than 100 ferries

• Expanded into ocean liners• Expanded into railroads• Worth $185 billion dollars

Gave very little away to charity– $50,000 church– $1 million to great

Vanderbilt University• Disinherited all of his sons

but 1, who inherited 95% of his estate

So What is The Gilded Age?• The ascendency of

corporations helps usher in a new age in American history…Gilded Age!

• Refers to the decades between the end of reconstruction and the turn of the century (about 1870 to 1900).

• Defining feature is the creation of the corporation and its consequences

The Gilded Age: What is it?

What makes it gilded?

Entities in American Society Post-Gilded Age