“I owe the public nothing…”J. P. Morgan

THE GILDED AGE

Setting the stage• 19th Century Long term trends

– rural, agrarian to an urban, industrial market economy

– Market Revolution: selling goods commercially instead of subsistence living:expansion of free enterprise

– Industrial Revolution: • specialization of jobs (craft trades decline)

• massive scale

– population shifted from country to city

– massive immigration to supply labor

Italian immigrants

Setting the stage• Short term factors

– new ways of doing business

– new businessmen--Captains of Industry

– few government regulations of big business

John D. Rockefeller

Mass transportation in the form of the Railroads.

Mass communication in the form of the Telegraph.

Cheap Energy in the form of Coal

U.S. MODERN ECONOMY: A PRODUCT OF THREE FACTORS:

By and large: a laissez faire system. Extremely rapid growth, giant scale, massive financing, and little or no rules for the game.

1. Steam Revolution of the 1830s-1850s.

2. The Railroad fueled the growing US economy:•First big business in the US.•A magnet for financial investment.•The key to opening the West.•Aided the development of other industries.

3. Technological innovations.•Bessemer and open hearth process•Refrigerated cars•Edison •“Wizard of Menlo Park”•light bulb, phonograph, motion pictures.

Various causes of rapid industrialization

5. Unskilled & semi-skilled labor in abundance.6. Abundant capital.7. New, talented group of businessmen [entrepreneurs] and advisors.8. Market growing as US population increased.9. Government willing to help at all levels to stimulate economic growth. (mostly by staying out of it)10. Abundant natural resources.

Various causes of rapid industrialization

Patents granted

Impact of Railroads

After Civil War, Railroad industry was booming—USA’s first big business

May 10, 1869- “Golden Spike” unites Central Pacific with Union Pacific (East and West)

Result: 1st transcontinental railroad

By 1883- 4 transcontinental routes

Significance: Faster movement of ideas, goods, people; growth of markets;

1892 Map showing R.R. lines, drainages, cities, towns, borders, timezones.

Railroad Corruption and FarmersMidwestern farmers -extremely high rates charged by railroad companiesResult: National Grange, to unite farmers and demand for better rates1870s, Grange had over 800,000 members1887- Interstate Commerce Commission gave the Fed. Gov’t power to regulate railroad prices (ICC)Significance: Gov’t intervention in private industry (Populist Party)

Where do weget steel?

New ways of doing business• Can government match the growth of big

business in America?

New Businessmen

• Captain of Industry

• American folk heroes

• Economic leadership as a patriotic service

• The Horatio Alger, or “rags to riches” myth-Andrew Carnegie

• America: you can leave your past behind and begin fresh

Dig on my ride?Henry Ford.

New Businessmen

• Three perspectives on the new leaders in business– Captains of Industry– Robber Barons– Philanthropists

Which one is true?

New ways of doing business: 1870-1900

• Vertical integration

• if you own a railroad, then buy out your suppliers or other relevant factors in your business:coal and iron mines

ore freighters

railroads

benefit: more efficient, less expensive

• Horizontal consolidation

• if you own a railroad, then buy out your competitors, in other words, all of the other railroad businesses:

– benefit: wipe out competition, establish a monopoly

Goal: monopoly

New Ways of Doing Business: The Corporation

Key features--a sizable group of people “shareholders”--charter from state legislature --form a corporation--limited risk(several shareholder investors)--massive growth and size--immortal(investors come and go)--Supreme Court 1818, 1819—limited risk and charters are legally acceptable

What is a trust?--a “mega corporation”--a combination of smaller corporations--wipe out competition

Standard Oil “Mother of Trusts”Rockefeller—combines with other corporation--exchanged stock for trust certificates--firms participated to benefit each other--Sherman Anti-trust Act of 1890 outlaws this--corporations respond with “holding companies”--difficult to combat corporate attempts at monoploy

In 1886, the Supreme Court set a precedent that has been interpreted to mean that corporations have the same rights as living persons under the Fourteenth Amendment to the Constitution.*

By 1900, two-thirds of all manufactured goods were being produced by giant corporations. Swift and Armour dominated meat packing, the Duke family controlled tobacco, and Andrew Carnegie took over every aspect of steel production.

Corporations become a permanent fixture

New Businessmen

• Robber Barons

• immoral, greedy, corrupt

• illegal business activities, ie “stock watering”

• disregard for benefits of a free market

• Gould-a “master of trick and deceit”

• J. P. Morgan “I owe the public nothing”

Jay Gould, Railroad Tycoon

New Ways of Working• Frederick Taylor and Scientific

Management

• Belief: workers will try to get away with the minimum=lack of productivity Goal: industrial efficiency

• Apply scientific methods to labor and management

• Eliminate time waste, unnecessary tasks self-training

• Workers are now trained in the “one best way”

• Pay schedule, standard methods

Justifying the New Ways

• Philanthropists• philanthropy “love of human

beings”• “gospel of wealth”-the rich have

a duty to give back to humanity• Rockefeller-established the

Rockefeller foundation• Carnegie-founded 2, 500 public

libraries, helped to build what’s now the World Court

• “he who dies rich, dies disgraced”

Andrew Carnegie

Leland Stanford

Consequences

• Concentration of power into a few, large corporations

• Appearance of holding companies and trusts -both are ways to evade governmental control

• Increase in corruption and bribery in the government

• Exploitation of child labor

• Increase in philanthropic activity

• Social awareness

The Example of Railroads

• Speed

• Distance

• Year round

• Requires large, complex business--ie, corporation--Vanderbilt, Carnegie

• Standardization--time: effects on business

• From iron to steel (British import-American steel)