Rise of American Business, Industry, and Labor

Rise of American Business, Industry, and Labor

1865-1920

The Big IdeaThe United States developed a prosperous new economy based on the mass production of goods.

economic development expanded in the North and weakened in the South

entrepreneurs became wealthy and powerful government began to regulate business labor unions formed to improve working

conditions

OBJECTIVE

In the post–Civil War United States, corporations grew significantly in number, size, and influence. Analyze the impact of big business on the economy and politics and the responses of Americans to these changes.

CAUSE AND EFFECT

CIVIL WAR•The Civil War stimulated economic

growth in the North

Economic Growth

•Acceleration of northern industrialization to keep up with Unions demand for guns, uniforms

•Improvements in rail system helped speed troop movements

•Farms became more heavily mechanized (dependent upon machinery) as many northern farm workers entered the army

After the war, growing northern factories looked to overseas markets for their goods. In addition , the completion of the transcontinental railroad opened new markets in the West and brought products of western farms and mines east.

from Western farms and mines

to eastern factory citiesCrops

Raw MaterialsNatural Resources

from eastern factory cities to

Western marketsManufactured

goodsFinished products

PAUSE AND REFLECT

1. What is the transcontinental railroad?

2. How did it contribute to economic growth?

Business DevelopmentsThe Growth of Corporations

Sole proprietorsh

ips

•Before the Civil War, sole proprietorships or single owners, and partnerships had controlled most American businesses.

•The mills and factories that came with industrialization required greater capital, or money for investment, than one person or a few partners can raise.

The Growth of

Corporations

•To raise capital for expansion, many businesses became corporations, a business in which many investors can own shares, usually called stocks.

•In exchange for their investment, each stockholder receives a dividend, or part of a corporation’s profits

Growth of Corporations

Corporations allow for the raising of investment

capital to finance growth and expansion

corporations limit investor risk

stockholders receive dividends

If a corporation goes bankrupt, or fails, an investor loses only his investment and is not

responsible for the corporation’s debtsCorporation

As the nation’s economy boomed and industries grew larger during the late 1800s, other forms of business organizations developed. Often the aim of such businesses was to eliminate competition and dominate a particular area of business.

Busin

ess c

ombi

natio

ns fo

rmed

to

elim

inat

e co

mpe

titio

n

MonopolyA company or small group of companies that has complete control over a particular fieldHaving a monopoly in a field allows a company to raise pricesMonopolistic practices led to federal legislation aimed at restoring competitionEx. E.C. Knight Sugar Company

ConglomerateA corporation that owns a group of unrelated companiesConglomerates are usually formed by mergers, a process by which one company acquires legal control over another.Legal and commonplaceEx. General Electric

PoolA pool is formed when competing companies in one field enter into agreements to fix prices and divide businessRailroad companies in the late 1800s formed such pools, which were later outlawed.

Busin

ess c

ombi

natio

ns

form

ed to

elim

inat

e co

mpe

titio

n

TrustA trust is formed when a group of corporations in the same or related fields sometimes agree to combine under a single board of trustees that controlled the actions of all member corporationsShareholders in the trust received dividends from the trust but lost any control over its operationTrusts were later made illegalEx: Standard Oil Trust

Holding CompanyTo circumvent the passage of anti-trust legislation, corporations formed holding companiesThe holding companies bought controlling amounts of stock in different corporations rather than take operations over directly as a trust did

Innovations enabled businesses tomarket their products more effectively

Innovations

Urban areas

New department stores offered

customers a wide variety of goods under

one roofEx. R.H. Macy and Co.Marshall Field and Co.

Rural areas

Mail order catalogs brought manufactured goods to rural areas

Ex. Sears, Roebuck, and Co., Montgomery Ward

New Inventions

New inventions such as the vacuum

cleaner, the telephone, the

electric light bulb, the electric iron, and

the safety razor encouraged mass

consumption.

EntrepreneursWhat is an entrepreneur?

An entrepreneur is an individual who takes responsibility for the organization and operation of a new business venture or enterprise. Entrepreneurs often risk large sums of venture capital in the hope of making enormous profits.

New forms of business organization and innovative ideas from inventors helped American industry grow in the late 1800s and early 1900s. Daring business decisions made by turn of the century entrepreneurs had a great impact on the lives of most Americans.

Andre

w Carneg

ie • Immigrant from Scotland• Became a leader in the steel industry which, was

booming as a result of the growth of railroads• Carnegie sought to control all aspects of the production

of Carnegie Steel through a process called vertical integration

• Retired in 1901 and sold his company for an estimated 400 million dollars

• Believed in The Gospel of Wealth, the idea that the wealthy had a duty to society

• Dedicated the rest of his life to philanthropy, giving away hundred of millions of dollars to charities and underwrote the founding of free public libraries.

Vertical IntegrationIntegration of all aspects of production in a single industry

ResourcesOre depositsCoal and iron

mines

Transportation

shippingrailroads

Steel Mills

Carnegie Steel

Rise of Big Business

John D. Rockefelle

r• Entered the oil-refining business during the Civil War• Believed competition was wasteful and used ruthless business

practices to eliminate competitors• By 1882, his Standard Oil Company controlled over 90

percent of American oil refining• In 1882, he formed the Standard Oil Trust to control more

aspects of oil production (horizontal integration)• Gave away hundreds of millions of dollars to charities including

a gift of $80 million dollars to the University of Chicago

Horizontal IntegrationCombination of competing companies in the same industry

Standard Oil Trust

Independent Oil

Refinery

Independent Oil

Refinery

Independent Oil

Refinery

Independent Oil

Refinery

Rise of Big Business

J. Pierpont Morgan

• Trained as a banker, J. P. Morgan made a fortune as a financier (somebody who makes loans to growing businesses)

• He took control of many bankrupt railroads in the late 1800s, reorganized them, and made a profit

• Controlled electrical, insurance, and shipping companies

• Bought Carnegie Steel in 1901, merged it with other steel companies, and created United States Steel, America’s first billion dollar company

Henry

Ford

• Founder of Ford Motor Company

• His introduction of the Model T automobile revolutionized transportation and American industry

• His moving assembly-line permitted mass production of cars, significantly lowering the cost of production

• Paid workers higher wages

Entrepreneurs

Industrialization and the changes associated with it caused attitudes toward business to change. The tremendous wealth some entrepreneurs gained during the late 1800s, as well as the cut-throat business methods they used, led some Americans to rethink their traditional attitudes toward business. Both traditional and new philosophies were used to explain and justify the accumulation of wealth and the practices used to achieve it.

Attitudes toward Business

Attitudes toward Business

Laissez Faire• Supporters of late 19th

century economic growth restated the older principle of laissez-faire, or non-interference, the idea that the government should not interfere in the economic workings of the nation

• Believed that a free-enterprise system, in which private individuals make the economic decisions, is most efficient

• During the late 1800s, economists restated the importance of laissez-faire to economic growth.

• Government interference was minimal for much of this period

Social Darwinism• Laissez-faire capitalists

found justification for their beliefs in new scientific theories

• Charles Darwin had developed his theory of evolution, describing how animal species live or die by a process of natural selection

• Other writers, drawing upon Darwin’s theories, created a philosophy called Social Darwinism

• Life is a struggle for the “survival of the fittest”

• Unregulated business would see weak business fail and healthy businesses thrive

• Government regulation of business would interfere with this natural process

• Government programs to aid the poor would also violate natural law

Horatio Alger Myth• Traditional attitudes were

reflected in books by the popular writer Horatio Alger

• Alger’s works reinforced the ideas of social mobility and meritocracy

• His most famous works follow the adventures of shoeshine boys, newspaper peddlers, and orphans in their rise to middle-class “respectability,” security, and comfort through honesty, thrift, hard work, self-reliance, and luck

PAUSE AND REFLECT

How was Social Darwinism applied to business competition?

Widening of the Gap betweenthe Rich and Poor

Robber Barons or Philanthropists?

ROBBER BARONS PHILANTHROPISTS

The growing (widening) gap between the rich and poor led some Americans to criticize the government’s laissez-faire policies and those who profited from them.

ROBBER BARONS Critics condemned the wealthy

entrepreneurs as robber barons, those who gained their wealth by ruthless methods in their dealings with competitors at the expense of the poor and the working class

The lavish lifestyles of the wealthy at this time fed such criticism

Mark Twain criticized the period as the Gilded Age because of the way in which the rich spent freely to show off their wealth, a practice known as conspicuous consumption

PHILANTHROPISTS• Public criticism and a sense of

social responsibility led entrepreneurs to use part of their wealth to benefit society

• In 1889, Andrew Carnegie authored an essay, The Gospel of Wealth, in which he wrote “he who dies rich, dies disgraced.”

• People like Carnegie and Rockefeller became philanthropists, donating vast sums of money to charities and institutions such as schools, museums, libraries, and orchestras

The New Robber Barons?Corporate Greed Under Attack





OBJECTIVE

What factors led the government toward regulating businesses in the late 1800s?

The Federal Government generally held a laissez-faire attitude toward business for much of this period.

• Expanding industries and growing foreign trade seemed to justify such an attitude

• Many business leaders made contributions, both legal and illegal, to the politicians who set federal policies

• A number of government policies were designed to aid the growth of business including loans and land grants to railroad companies, high protective tariffs, tight limits on the amount of money in circulation, few and restrictions (limits) on immigration

Steps toward Government Regulation“The Bosses of the Senate”

Steps toward Government Regulation“One sees his finish unless good government retakes the ship”

Steps toward Government Regulation



Steps toward Government RegulationSeveral factors led the government to take the first steps in the late 1800s toward regulating business:

Government

Regulation of

Business

Periodic downturns in the

economy

Growing criticisms of

practices that saw big business

profit at the expense of the

poor and working class Increasing

grassroots political

pressure for change

Although Government intervention during the late 1800s had limited impact, it did set the course for more federal regulation in years to come.

Supreme Court Decisions During the late 1800s,

railroads developed a number of policies like pools and rebates that discriminated against farmers and small shippers

These groups, such as the Grange, pressured some states to pass laws regulating railroad practices

The railroads sued to have such laws overturned

Supreme Court Decisions

Munn v. Illinois (1877)

the Supreme Court upheld an Illinois law controlling grain elevator rates

the Court ruled that the Constitution recognized a state’s right to a “police power” that permitted a state to regulate businesses “affected with a “public interest.”

Wabash, St. Louis & Pacific Railway Co. v. Illinois (1886)

in the 1886 case Wabash, St. Louis & Pacific Railway Co. v. Illinois, however, the Court ruled that states could not regulate railroad rates on portions of interstate routes that lay within their borders.

the Court based its decision on the Commerce Clause of the United States Constitution.

Under the Constitution, only the federal government can regulate interstate trade.

the decision meant that states could do little to regulate the railroads.


Interstate Commerce Act (1887)

public pressure for reform of railroad policies led Congress to the Interstate Commerce Act

the act set up the Interstate Commerce Commission, a federal regulatory agency, the first of its kind

the agency was charged with regulating railroads in order to ensure fair rates and end railroad abuses such as pools and rebates

although several court decisions limited the effectiveness of the agency early on, the law represents an important first step toward government regulation of business


Sherman Antitrust Act (1890)

by the late 1800s, some large corporations and trusts had eliminated competition in their respective industries

Public concern over the growing power of the trusts and monopolists led to the passage of the Sherman Antitrust Act in 1890

the act sought to restore competition by declaring illegal any business combination or trust “in restraint of trade.”

vague and poorly written, the law was difficult to enforce

In addition, the Supreme Court, in United States v. E.C. Knight Company in 1895, ruled that the Sherman Antitrust Act could not suppress a monopoly “in the manufacture of a good.”

although the government secured few convictions under the Sherman Antitrust Act, the law, as in the case of the Interstate Commerce Act, represents an early step toward government regulation of business

Preparing for the Regents

1. The Interstate Commerce Act and the Sherman Antitrust Act were attempts to limit1 business competition2 labor unions3 monopolies4 tariffs

2. The theory of Social Darwinism was often used to justify1 creation of the Ku Klux Klan2 formation of business monopolies3 use of strikes by labor unions4 passage of antitrust laws

Preparing for the Regents

3. In the late 1800s, the creation of the Standard Oil Trust by John D. Rockefeller was intended to1 protect small independent oil firms2 control prices and practices in the oil refining business3 increase competition among oil refining companies4 distribute donations to charitable causes

4. The Supreme Court cases of Wabash, St. Louis, & Pacific R.R. v. Illinois (1886) and United States v. E.C. Knight Co. (1895) were based on laws that were intended to1 limit the power of big business2 support farmers’ efforts to increase the money supply3 maintain a laissez-faire approach to the economy4 improve working conditions for immigrants

Looking Forward

• Interstate Commerce Act

• Sherman Antitrust Act

Early steps toward

government regulation of

business

• Established an important

precedent for federal

regulation of interstate commerce

Shift toward greater federal regulation of business in the years

to come• Federal Trade Commission

(1914)• Securities and Exchange

Commission (1932)• Equal Employment

Opportunity Commission (1964)

• Environmental Protection Agency (1970)

Major Federal Regulatory Agencies

TODAYWhat is the ideal balance between governmentregulation and laissez-faire?

Interests of

Business

Interests of

Society

Laissez- Faire

Government

Regulation

Today

Today

Today

Today

Today

Documents

Rise of American Business, Industry, and Labor