The Rise of The Rise of

BIGBIG BUSINESS

11stst Industrial Revolution Industrial Revolution (Pre-Civil War)(Pre-Civil War)

• Most business were family-owned• Produced goods for local or

regional markets.

A textile A textile factory factory

producing producing children’s children’s clothing in clothing in Baltimore, Baltimore,

MDMD

Transcontinental RailroadTranscontinental Railroad

Effects of Effects of TranscontinentTranscontinental R.R. Systemal R.R. System

• Created a nationwide market for goods.– What effect would this have on businesses?

• Allowed business to locate farther west.– How did this result in the economic growth of

the United States?

• Americans begin settling the West• West & East become interdependent

Rapid Economic Growth Rapid Economic Growth After the Civil WarAfter the Civil War

• Output of goods rises 7% per year after the Civil War.

• 1865: U.S. produces $2 Billion in goods

• 1900: U.S. produces $13 Billion in goods– U.S. most productive nation in world

by 1900!

American economy American economy depended on depended on

ENTREPRENEURSENTREPRENEURSPeople who take risks to create new

businesses using their’s (and others) money and talents

America’s Economic America’s Economic System Encouraged System Encouraged

Entrepreneurial Spirit and Entrepreneurial Spirit and Led to GrowthLed to Growth

What system of economics do we have in the U.S.?

CAPITALISM

What is Capitalism?What is Capitalism?• Most industries are run by private

businesses. – Government does not control

production/sale of goods.

• Businesses run by private individuals– Government does not control businesses

• Prices of goods determined by competition– Government does not regulate prices

How Competition How Competition Determines PricesDetermines Prices

The Jones Hat Co. produces & sells derby hats for $50 per hat

The Connolly Hat Co. starts up and produces hats cheaper & sells derby hats for $39.99 per hat.

WHAT EFFECT WILL THIS HAVE ON THE JONES HAT COMPANY?

Competition Regulates Competition Regulates PricesPrices

•To stay competitive, Jones Hat Company must lower prices.

REMEMBERREMEMBER

COMPETITION COMPETITION REGULATES REGULATES

PRICES!PRICES!Modern day example: Cell Phone Companies

Costs of Basic Cell Phone Costs of Basic Cell Phone PlansPlans

(Competition Regulates (Competition Regulates Prices!)Prices!)

THINK!THINK!Why are food prices high at the

Student Union?

Laissez-Fair?Laissez-Fair?HANDS OFF!

Government does not interfere in businesses

Allows competition to regulate prices

Think: Why should government take a “laissez-fair” approach

to business?

Business Structures Business Structures The way businesses were owned The way businesses were owned

& organized& organized

1.Proprietorship & Partnerships

Business completely run by one person or two people.

• Typically smaller businesses• One/Two people completely

responsible for businesses

Business Business StructuresStructures

2. Corporation Company that is owned by stockholders

(people who buy a share (%) of a business).– Stockholders elect a Board who makes

major business decisions– Board hires officers to run day-to-day

operations.– Show on Board

Why Businesses Why Businesses IncorporateIncorporate

• Allows the business to raise more money to expand (stocks)

• Owners not responsible for debt or failure of business

• Stockholders only liable for their share• Business not dependent on one

person & can continue after the founder is gone

3. Trusts & Monopolies

Trust – Merging of competing companies to create larger & more productive company.

Monopoly – When a trust gained complete control over an industry.

Business Business StructuresStructures

TrustTrust

Bought smaller oil Bought smaller oil companiescompanies

Controlled Controlled 90% 90% of all U.S. of all U.S. oil by 1879oil by 1879

2 Ways Businesses Got 2 Ways Businesses Got

BIGBIG1.Vertical Integration

2.Horizontal Integration

VERTICAL

INTEGRATION

HORIZONTAHORIZONTALL

INTEGRATIOINTEGRATIONN

The Industrial The Industrial TycoonsTycoons

(The Robber Baron’s, Captains of (The Robber Baron’s, Captains of Industry)Industry)Entrepreneurs who grew industrial

empires & accumulated tremendous wealth (often using questionable practices)

Andrew CarnegieAndrew Carnegie• Immigrated to U.S.

from Scotland at 12• Worked as a

“telegraph boy” for a Pittsburgh railroad

• Began investing in his 20’s/30’s and gained wealth

• 1870’s: Invested in steel

Carnegie Steel Carnegie Steel CompanyCompany

• Adopted & improved the Bessemer process

• Carnegie’s philosophy:– 1. Constant innovation (new technology to

reduce operating costs)– 2. Always sell product cheaper than

competitors– 3. Retain profits to take advantage of

opportunities (buying competitors).

Dominated throughDominated through

VERTICAL VERTICAL INTEGRATIONINTEGRATION

Carnegie integrated every phase of steel production

Owned iron ore mines in Minnesota

Ships to transport iron ore

Railroads transported raw materials in and finished steel out

Carnegie’s Vertical Integration:1.Improved efficiency2.Controlled the quality of his product at every stage of production3.Lowered costs by reducing “middle-man” fees and supply costs

Steel: Stronger & More Steel: Stronger & More ShapeableShapeable

Carnegie’s WealthCarnegie’s Wealth

• 1900: Carnegie Steel produced ¼ of all steel produced in the United States.

• 1900: Carnegie Steel Co. made a profit of nearly $42 Million

• Carnegie sold his share of Carnegie Steel Co. to J.P. Morgan for

$400 Million

Carnegie the Carnegie the Philanthropist Philanthropist

• After 1900, Carnegie spent the rest of his life giving his money away to worthy causes.

• Gave away $350,695,653 to worthy causes before his death.

• Gave away his last $30 million after his death

PhilanthropyPhilanthropy• Funded the construction of

3,000 libraries throughout the world

• Funded the construction of universities

• Funded the construction of Carnegie Hall in NYC

Other TycoonsOther Tycoons

John D. RockefellerJohn D. Rockefeller• Founder of Standard Oil

Company• Grew by Vertical &

Horizontal Integration

• Bought competitors until he controlled 90% of U.S. oil

Broken up under Sherman Anti-Trust Act in Broken up under Sherman Anti-Trust Act in 1911 in 34 companies1911 in 34 companies

Other TycoonsOther Tycoons

Cornelius VanderbiltRailroad Tracks

George Pullman Designed RR Cars

(Sleeping Car)

J.P. MorganFinancier, Corporate

Consolidator

Akron Akron ConnectionConnection

Akron becomes “Rubber Capital of the World” during 2nd Industrial Revolution

1900 1898

Firestone ParkFirestone Park

Stan Hywet Stan Hywet Home of Frank SeiberlingHome of Frank Seiberling