Lecture1:TheRiseofBigBusinessintheGildedAge

FamousphotographtakenbyA.J.Russell,thephotographeroftheUnionPacificRailroad,commemoraBngthe“LastSpike”ofMay10,1869,inPromontorySummit,Utah.Chinese,Irish,andMormonlaborerswerecrucialtothejoiningoftheUnionandCentralPacificlinesthatcompletedthetransconBnentalrailroad.

Somecharacteris8csoftheGildedAge•  Conflictbetweencapital(owners)andlabor(workers)inwhichcapitalwinsmostofthetime

•  Newbusinessmodelstodealwithincreasedvolumesoftradeandexpandingpopulationsv Ex:Trusts,combinations,andholdingcompaniesv Companiesaremorecomplex,hierarchical,andrunlikebureaucracieswithsalariedmiddlemanagers

•  Fiercecompetitionandmoredemandforcesbusinessestocutcostsandusetechnology

•  USbecomingworld’sleadingindustrialpower

AntebellumEra GildedAgeTypicalFirm Partnerships,familybusinesses Largercorporation,trusts,

holdingcompanies

Corps.were Artificialcreationsofthestatethatserveapublicfunction

Privateentitiesthatoftenhavetherightsofpersons

Corp.Charter Limited–20-30years;needspecialcharterfromstateleg.

Perpetual;therearegeneralincorporationlaws

Liabilities Unlimited Limited–shareholdersnotresponsibleforalldebts

Customers Morepersonal–soldtofamilies,friends,afewothers

Moreimpersonal–sellingtodistantcustomers

Shareholders Connectedwithmanagement(they’reoftenthesamepeople)

Separatedfrommanagement

Freedom Linkedtoproduction Linkedtoconsumption

Women Separatespheres–stayinhome(middle-classideal)

Workinofficesasclerks,cashiers,accountants,typists

Thisisageneralmodelofoveralltrendsthatmightmasksomecomplexities

WhyBigBusinessatthis8me?� Significantsupportfromthefederalandstategovernments(seenextslide)v  DuringCivilWar,southernDemsarenotinCongressv  RepublicanPartyconnectedwithBigBusiness

Ø  OftencontrolsCongressandthepresidency

� CheapLabor–Immigrants,women,children� AccesstoNaturalResources–oil,coal,iron� NewTechnology–e.g.Edison,Bell� OverseasInvestment–esp.fromGreatBritain

v  Criticaltogrowthofrailroads

HowGovernmentshapedtheeconomy�  NationalBankingAct–standardizedthebankingsystem�  Lucrativewarcontractsgiventonorthernrailroads,financiers,andmanufacturersforsupplyingunionarmy

�  PacificRailroadAct–federalandstatesubsidiestorailroadsv  Saleofpubliclandsatlowratestotherailroadcompanies

Ø  131millionacres–largerthanthestateofCalifornia(seemap)

v GovtpaidinterestonstocksandbondsthatfundedRxR�  Saleofpubliclandsalsohelpedfundcolleges(MorrillLandGrantAct)andfundedwaterinfrastructureprojects

� MorrillTariff–protectedindustry�  Eminentdomainlaw>railroadspenalizedlessfordamages�  UseofarmytoremoveNativeAmericansfromtheWest

Mapoffederallandsgrantedtotherailroads

Whatwerethebenefitsofrailroads?�  Increasedpropertyvalues� Moreaccesstoconsumergoods�  Investinginrailroadcompaniesoftenreturnedprofits� Nowthereareshipmentsduringwinterandnighttime� Asignificantstimulustotherestoftheeconomy

v Especiallythecoalandsteelindustryv Buildingrailroadscontributestofurtherdevelopment

� Amoreunifiednationv Urbanandruralareasmoreconnectedv Accesstocasheconomy(betterthanbarterorgold)

�  Faster,moreconvenient,andconsistentshipping

Travel8mesbeforetheRxR

HowlongdoesittaketogofromNewYorktoChicago?

Nowaddtherailroad

Nowaddabe#errailroad

Ittakesabout2-3daystotraversetheen8recountrybyrail

Buttherewerealsodrawbacks�  Immensepower,widespreadcorruption,andtremendousconcentrationsofwealth!

� Railroadcompaniestookgreatrisksthatimperiledtheeconomy,helpedcausePanicsof1873and1893v Railroadcompanieswerenotfinancialsuccesses–manywentbankruptordidn’tfinish

v Despitethis,theywerebailedoutbythetaxpayer� AccelerateddevelopmentoftheWest

v ThiscamewithenvironmentalcostsandthedisplacementofNativeAmericans

� Thiswasaneraofviolentlaborstrikes,massunemployment,andmillionsofdisaffectedworkers

Railroadsasthefirst“BigBusiness”v  Theyamassedalevelof

wealthandpowerthattheFoundingFatherscouldnothavepredicted

v  Corporatelobbying

Right:Poli8calCartoon,“Jus8ceintheWeb,”depictsrailroadmagnateJayGouldasaspiderPuckMagazine,July1885

SupremeCourtJusBceStephenJ.Field–theinventorof“corporatepersonhood”–wasfriendswithCollisP.HunBngtonandothertycoons

NewYorkTimes,July15,2007Areweinanew“GildedAge”?

ShouldwecallthemRobberBaronsorTitansofIndustry?

Evidenceforthe“NewGildedAge”� HighpayforCEOs–the“robberbarons”oftoday

v  30to1(1970s)versus300to1(today)v  APstudyfoundthattypicalCEOmade$9.6m.in2011

� Monopoly–mergers,acquisitions,andconsolidationv  Cablecompanies,banksthatare“toobigtofail”v  Doesn’tthiscontradictfreedomofchoice?v  Monopolytendstobebadfortheconsumer

� Wealthandincomeinequalityv  Iseducationstillaroutetoastablecareer?v  Socialadvancementisnowmoredifficultv  Seestatisticsonnextslide

Increasinginequalityisaworldwidephenomenon

Theworldtodayissignificantlymoreunequalthanthatofyourparents