Capitalism and Big Business

Capitalism and Big BusinessWhat is Capitalism?a type of economy

ownership of the means of production, distribution, and exchange of wealth is made by private individuals or corporations

opposite of public or state-owned wealth (i.e. socialism)

The Principles of Capitalism

1. Private PropertyResources and businesses are owned by private citizens or corporations (NOT the government)

2. CompetitionDifferent companies can make the same product

Companies compete with each other to make the best product at the lowest price

3. Profit MotiveGoods are made and sold in an effort to make a profit

4. Freedom of Enterprisethe economy will regulate itself through supply and demand, (a.k.a. market forces)

no need for government intervention or regulation (i.e. laissez-faire)

5. Freedom of ContractIdea that individuals, or corporations, should be free to bargain the terms of their own contracts

6. Consumer SovereigntyConsumers use their purchasing power to help determine what companies should produce

Also let companies know when they are unhappy with a product by going elsewhere

Benefits of CapitalismEncourages innovation and invention (i.e. entrepreneurship)

Ideally provides the best possible product at the cheapest price

Helped the U.S. become one of the strongest & wealthiest nations in the worldDrawbacks of Capitalism1. Potential for greed and corruption = development of monopolies and trusts

2. Misuse/abuse of labor force and the environment

3. Large divide between the rich & poor; growth of slums

4. Workers lost pride in their workBig Business in the late 1800s

Development of CorporationsNew form of group ownership

Perfect for expanding risky businesses

Allowed for huge amounts of capital (i.e. money and/or resources) to be pooled togetherFunded new technologyBegan new industriesRan larger plantsBusiness Competition in the late 1800s led tomonopolies = an attempt to control or eliminate any competition that threatens the growth of your businesshorizontal integration

Consolidation of many firms in the same business

Example: John D. Rockefeller and Standard Oil Company

Holding Companies

Corporation that does nothing but buy out the stock of other companiesHolding Company buys controlling stock of operating companiesControls operating companies output, prices, etcTrust Joining with competing companies in a trust agreementStock is turned over the Board of TrusteesBoard runs separate companies as one large corporationStockholders elect of Board of Trusteesvertical integration

Gain control of the many different businesses that make up all phases of a products development

Total power over quality and cost of the finished productBy 1901, Carnegie owned 80% of all U.S. steel productionThe success of big business was dependent uponExploiting workers low wages, long hours, harsh work conditions

Ruthlessly driving competitors out of business

Pro-business governmental policies

You DecideRobber Barons?Captains of Industry?