Cornelius Vanderbilt Chapter 6 Section 3

Objectives: Identify business and

management strategies that led to big business.

• Explain Social Darwinism

• Identify methods that led to monopoly

Big Business Emerges

Carnegie controlled more steel production than all of Great Britain.

Management Techniques◦ How to make better products at cheaper prices

1. Accounting led to cost controls 2. New production techniques led to faster steel

production 3. Gave managers stock ownership in companies These steps reduced costs and increased production.

Andrew Carnegie’s Business Innovations

Attempted to control entire steel industry◦ Vertical Integration

bought suppliers, controlling every stage of production

◦ Horizontal consolidation bought out competitors, companies producing similar

products merge Carnegie controlled 80% of the nation’s

steel production. He was the second richest man in the world.

Carnegie Business Strategy

Vertical Integration Model

Horizontal Integration

Natural Selection- Charles Darwin’s idea of evolution.

◦ weeded out the weak, enabled the strong to survive

Idea helped explain income inequalities. Led to idea that government should not

interfere with business Appealed to the Protestant work ethic

Work hard, save money, show that you are saved.

Social Darwinism

Social Darwinism: ◦ Riches are a

sign of God’s favor

◦ Poor and lazy people get what they deserve.

It justified the income gap between the incredibly rich and the incredibly poor.

Social Darwinism explains• Laissez-Faire Economics: government

non-interference of business• The failures of the poor • The extreme income and wealth gap• Winners and losers

Monopolies and oligopolies form◦ Monopoly-one person or firm controls the market◦ Oligopoly-a few control the market.◦ Holding companies- buy stock in other

companies to control them. ◦ John D. Rockefeller

Established Standard Oil, monopolized the oil industry

Trusts-companies that put their stock ownership into a trust run by one Trustee. They reap the profits in return.

◦ The Trusts start to control everything.

Growth and Consolidation

Rockefeller’s Standard Oil has tentacles reaching everywhere

Trusts even control Congress

The term “Robber Baron” comes from the feudal lords of the Middle Ages. They control all aspects of life.

Sold products at below cost to drive competition out of business ◦ Paid employees low wages, reinvested profits to

buy out the competition. ◦ This is the business model of the late 1800’s.

The ultimate game of Monopoly.

Robber Barons

John D. Rockefeller –controls the government

Once they gained control of an industry, ◦ they raised prices dramatically for huge profits◦ Railroads were pressured to reduce prices by

farmers. (Populist Movement) Barons donated large parts of their fortunes

to charities. (Gospel of Wealth)◦ Rockefeller: University of Chicago, medical

research◦ Carnegie: Libraries across America, Carnegie Hall,

Carnegie Foundation

Robber Barons

Fairfield, Iowa received $40,000 to build the first Carnegie Library west of the Alleghany's.

Carnegie eventually gives over $41million to build libraries across America.

First Carnegie Library in Iowa

Attempt to bust up the Trusts. Monopoly forming is illegal.◦ Enforcement was difficult because “trust” could

not be defined well enough for the courts. ◦ Business dissolved trusts and formed new ones

that didn’t fit the definition. Enforcement slowly ends due to frustration. Business consolidation increases.

Sherman Antitrust Act

Teddy Roosevelt-Trust Buster Roosevelt

became know as the “Trust Buster” trying to break up monopolies.

South still recovering from the Civil War◦ Lacked money for investment Had few cities with sufficient population

for large industry. Few Southerners had money to invest in

business, banks still in the North. Railroads were controlled by Northerners Overbuilding of railroads caused many

railroads to go bankrupt. Vanderbilt bought them up and consolidated the industry.

Boom bypasses the South

Lack of skilled workers due to lack of schools in the South.

Both Northern and Southern laborers were exploited by Robber Barons.◦ Exploitation drew them together in a nationwide

labor movement to demand rights.

Social Causes

Beginning of Labor Movement

Labor fights big business by using their own technique of horizontal integration. ◦ There is strength in

numbers. ◦ Unionization is illegal at

first. Seen as building monopoly.