rise of big business. capitalism privately owned business pros? cons? laissez-faire – hands off...
TRANSCRIPT
Rise of Big Business
Capitalism• Privately owned
business
• Pros?• Cons?
• Laissez-faire – • Hands off policy of
the government
Entrepreneurs• Risk takers who start their own
business
• Andrew Carnegie –
• John Rockefeller -
Andrew Carnegie
• As railway supervisor, invested in iron mills, factories that made sleeper cars and locomotives, and companies that built railway bridges
• Later opened own steel company in Pittsburg
John D. Rockefeller
• Built oil refineries• By 1870 Standard Oil
was the largest oil refinery in the US
• Bought out competition
• By 1880 Standard Oil controlled 90% of oil refining industry in US
Corporation• Organization owned by many but
treated as one person– Own property, make contracts, pay taxes,
sue, and be sued• Stockholders owned shares of stock thus owning
part of the company• Advantages?• More money to invest in new technology, hire
large workforce, purchase machines, and increase efficiency– Cost of manufacturing is decreased by producing goods faster in
large quantities
Vertical Integration vs. Horizontal Integration
• Vertical – Company owns all of the businesses it depends on for operation
• Horizontal – Company buys out firms that do the same business to create one large corporation
• Examples? – Carnegie = coal mines, limestone quarries, iron ore
fields– Rockefeller = own 90% of oil refining industry by
buying out competition
Vertical/ Horizontal Integration
Monopoly• Single company controlling an
entire market• Problem: price increases
because no competition• States started to make it illegal
for one company to own stock in another to prevent monopolies
Trusts• New ways of merging businesses that did not
violate new laws• Stockholders give stock to trustees• Stockholders would then receive a share of the
trust which entitled them to a portion of the profits
• Allows one person to manage another’s property• Trustees could control a group of companies as
if they were one large merged company• Not illegal because trustees made the decisions
and they did not own stock
Social Darwinism• ‘Survival of the Fittest’• Stronger people,
businesses, and nations would prosper. Weaker ones would fail.
• Society progressed and became better because only the fittest survive
Robber Baron vs. Captain of Industry
• Robber Baron – entrepreneurs that built fortunes by swindling investors and taxpayers, bribing gov’t officials and cheating
• Captain of Industry – devoted time and fortune to helping society
–Examples?
Holding Company
• Owns the stock of companies that produce goods
• They do not produce anything• Manages companies it owns thus merging
them into one large enterprise
Investment Banking
• Most successful was J.P. Morgan
• Helped companies issue stock
• Companies sell large amounts of stock to investment bank at a discount– Investment bank finds people
willing to buy the stock– Ex. JP Morgan bought out
Carnegie Steel and merged with other companies creating US Steel Company