PowerPoint Presentation

Rise of Big BusinessBy Jack Garrity

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The Rise of Big BusinessBefore the Civil War, the personal wealth of a few people operating in partnership financed most businesses, including many early factories. Most manufacturing enterprises were very small.

By 1900 everything had changed. Big businesses dominated the economy, operating vast complexes of factories, warehouses, offices, and distribution facilities.

ECONOMICSBig business would not have been possible without the corporation.

corporation is an organization owned by many people but treated by law as though it were a single person.

ECONOMICS A corporation can own property, pay taxes, make contracts, and sue and be sued.

ECONOMICS The people who own the corporation are called stockholders because they own shares of ownership called stock.

ECONOMICSIssuing stock allows a corporation to raise large amounts of money for big projects while spreading out the financial risk.

ECONOMICSInvestors bough and sold stock on Wall Street in NYC, which soon became the center of the US economy.

Economies of ScaleMoney raised from stock sale let corporations invest in new technologies, hire a large workforce, and purchase many machines, greatly increasing their efficiency.

Economies of ScaleThis enabled them to achieve what is called economies of scale.

economies of scale: allow corporations to make goods more cheaply because they produce so much so quickly using large factories.

Economies of ScaleCorporations soon put small business out of business as they had an advantage with costs.

Economies of ScaleCorporation can control costs better than small businesses.

Economies of ScaleBusinesses have two kinds of costs fixed costs.

Fixed costs are costs a company has to pay, whether or not it is operating. For example, a company would have to pay its loans, mortgages, and taxes, regardless of whether it was operating.

Economies of ScaleBusinesses have two kinds of costs operating costs (variable).

Operating costs are costs that occur when running a company, such as paying wages and shipping charges and buying raw materials and other supplies.

Economies of ScaleSmall companies usually had very low fixed costs but very high operating costs. If sales dropped, they would shut down and wait for better prices.

ECONOMICSBig corporations had very high fixed costs (it took so much money to build and maintain a factory) and comparably low operating costs.

ECONOMICSBig corporations could produce goods more cheaply and efficiently. They could continue to operate in poor economic times by cutting prices to increase sales, rather than shutting down.

ECONOMICSBig corporations lowered operating costs by negotiating discounts and rebates from the railroads.

ECONOMICSJohn Rockefeller negotiated a 66 percent discount for his Standard Oil with Cornelius Vanderbilt.

ECONOMICSThe discount was Vanderbilts idea as Rockefeller promised to fill all of Vanderbilts trains with oil.

ECONOMICSCorporate factory could sell for lower prices, forcing many small companies out of business.

ECONOMICSRockefeller either forced smaller companies out of business, or forced them to sell them to him for Standard Oil stock.

ECONOMICSMany people criticized corporations for cutting prices and negotiating rebates, arguing that corporations were behaving unethically by using their wealth to destroy small business.

The Consolidation of IndustryBy the 1870s, competition had reduced many industries to a few large and highly efficient corporations.

The Consolidation of IndustryMany corporate leaders did not like the intense competition with other corporations.

The Consolidation of IndustryFalling prices benefited consumers, yet cut profits.

The Consolidation of IndustryMany companies organized pools, or agreements to fix the price of their goods.

The Consolidation of IndustryCompanies that formed pools had no legal protection and could not enforce their agreements in court.

John D Rockefeller and Standard Oil A few business men defeated all their competition, gaining control of a whole market called a monopoly.

Monopoly: complete control of the entire supply of goods or of a service in a certain area or market. : a large company that has amonopoly. : complete ownership or control

How does a monopoly fit into the American ideal of capitalism?

John D Rockefeller and Standard Oil Rockefeller negotiated low rates with all the railroad companies.

John D Rockefeller and Standard Oil However, the railroads lost money and formed a pool against Rockefeller, and charged him normal rates.

John D Rockefeller and Standard Oil Rockefeller cut the railroads out completely by building pipe lines to move his oil.

John D Rockefeller and Standard Oil Railroads had huge losses without Standard Oil, several went out of business.

John D Rockefeller and Standard Oil Now with virtually no transportation costs, Rockefeller used his capital to continue buying up or putting his completion out of business.

John D Rockefeller and Standard Oil He mastered horizontal integration.

Horizontal integration: combining many firms engaged in the same type of business into one large corporation.

John D Rockefeller and Standard Oil By 1880, for example, a series of buyouts had enabled Rockefellers Standard Oil to gain control of approximately 90 percent of the oil refining industry in the US.

John D Rockefeller and Standard Oil Next, Rockefellers monopoly made him the richest man in the USA, with a peak wealth of$318.3 billion.

Andrew Carnegies life illustrates many of the different factors that led to industrialism and the rise of big business.

Andrew Carnegie and Steel

He immigrated to the USA from Scotland, the son of a poor hand weaver in 1848.

Andrew Carnegie and Steel

At age 12, he worked as a bobbin boy in a textile factory earning $1.20 per week. He became a messenger in a telegraph office, then Thomas Scotts secretary.Andrew Carnegie and Steel

When Scott became President of Pennsylvania Railroad, Carnegie became superintendent. Andrew Carnegie and Steel

Andrew Carnegie and Steel He utilized vertical integration to increase his wealth.

vertically integration: a corporation buys all ofthe different businesses on which it depends for its operation.

Andrew Carnegie and Steel Carnegie increased profits by investing in companies that served the railroad industry.

Andrew Carnegie and Steel He bought shares in iron mills and factories that made sleeping cars for the railroad.

Andrew Carnegie and Steel When Scott proposed bridging the Mississippi River, Carnegie entered the business that would make him legendary.

Andrew Carnegie chose steel to build the bridge, but steel was slow to produce and expensive. Andrew Carnegie and Steel

He searched the US and the world for a better way to make steel.Andrew Carnegie and Steel

In England selling railroad stock, he met the English Scientist Henry Bessemer, who had created a new way of making mass produced steel.Andrew Carnegie and Steel

He concentrated his investments in the steel industry, opening a steel company in Pittsburgh in 1875 , using the Bessemer process. Andrew Carnegie and Steel

He finished the bridge, yet people thought it unsafe, until he created a publicity stunt to calm their worries.Andrew Carnegie and Steel

He finished the bridge, yet people thought it unsafe, until he created a publicity stunt to calm their worries.Andrew Carnegie and Steel

He finished the bridge, yet people thought it unsafe, until he created a publicity stunt to calm their worries.Andrew Carnegie and Steel

He soon had more orders than he could fill for his steel.Andrew Carnegie and Steel

Yet, Scott went bankrupt when Rockefeller built his pipeline, Scott soon passed, Carnage would never forgive Rockefeller. Andrew Carnegie and Steel

Bankrupt a person or organization declared in law as unable to pay their debts.

Railroads and factories needed steel, yet cities demanded the most.Andrew Carnegie and Steel

Andrew Carnegie and Steel He mastered vertical and horizontal integration.

Andrew Carnegie and Steel Instead of paying companies for coal, lime, and iron, Carnegies company bought coal mines, limestone quarries, and iron ore fields.

Andrew Carnegie and Steel He bought the railroads around Pittsburg, and built neighborhoods for workers.

Andrew Carnegie and Steel He bought up his competitors or put them out of business.

Why did cities demand so much steel?Andrew Carnegie and Steel

The great waves of immigration from Europe.Andrew Carnegie and Steel

Before building max 10 floors

After buildings over 100 floors

Brooklyn bridge 1825m suspension bridge1883Empire State Building 102 stories 1931

Andrew Carnegie1835 1919

Eventually, he sold US Steel, becoming the richest man in the worldAndrew Carnegie and Steel

Many people resented the Captains of Industry, arguing that they used unfair business practices, used government money, and did little to improve society.

Andrew Carnegie He spend the rest of his life giving his money away.Wealthy should act as trustees for their poorer brethren.

80% of fortune went to free education.

At time of death, he had given almost all of his money away

Andrew CarnegieHe built public libraries all across AmericaFree learning for everyone.

Andrew Carnegie

In NYC, he built Carnegie Hall,

Still the best concert hall in usa today

Trusts By 1890, many Americans began to fear the power of monopolies.

Trusts To preserve competition and prevent horizontal integration, many states made it illegal for one company to own stock in another .

Trusts So, Standard Oil formed the first trust to get around the intent of the law.

Trust: is a legal concept that allows one person to manage another persons property.

Trustee: A person who manages another persons property.

Trusts Instead of buying a company outright, Standard Oil had stockholders give their stocks to a group of Standard Oil trustees.

Trusts In exchange, the stockholders received shares in the trust, which entitled them to a portion of the trusts profits. Since the trustees managed stock, not owning it, they were not violating any laws.

Holding Companies In 1889, New Jersey increased the rise of big business with a new general incorporation law.

Holding Companies This law allowed corporations chartered in New Jersey to own stock in other businesses.

Holding Companies Many companies immediately used the New Jersey law to create a new organization called a holding company.

Holding company: a company that owns stock in other companies, it does not produce anything itself

Holding Companies The holding company controls all of the companies it owns, effectively merging them into one large enterprise.

Holding Companies By 1904 the United States had 318 holding companies. Together these giant corporations controlled over 5,300 factories and were worth more than $7 billion.

The United States Industrializes By 1914 the nations gross national product (GNP) had increased 8 times.

Next time.Workers and the Labor movement

End