The Rise of Big Business

Chapter 6 section 2

US economic systemPrivate business run most industries, and

competition determines how much goods cost and workers are paid

In the late 1800s, entrepreneurs built industries that took advantage of the eras technological advancements

Capitalism

Laissez-faire “leave it alone” economicsMost business leaders believed that the

economy would prosper if businesses were left free from government regulation and allowed to compete in a free market

Free enterprise

Karl Marx was a critic of capitalism

Under communism, the individual ownership of property should not be allowed

Property and the means of production are owned by everyone in the community

The community in turn provides for the needs of all the people equally without regard to social rank

Communism

Business leaders embraced this theorySociety progressed through natural

competition The “fittest” people, businesses, or nations

should and would rise to positions of wealth and power

The “unfit” would fail

Social Darwinism

Existed in one form or another since colonial times

Organizers raise money by selling shares of the stock, or certificates of ownership, in the company

Stockholders receive a percentage of the corporation’s profits, known as dividends

Andrew Carnegie-urged young men to invest in stocks as he had

Corporation

Where competition was fierce, prices and profits tended to rise and fall wildly

Corp. responded by forming trustsA group of companies turn control of their

stock over to a common board of trusteesThe trustees then run all of the companies as

a single enterpriseThe practice limits over production and other

inefficient business practices by reproducing competition in an industry

Trust

If a trust gains exclusive control of an industry

Little or no competition, a company with a monopoly has almost complete control over the price and equality of a product

Monopoly

Steel leaderInvested in stock

(bridges, RR, iron, oil, telegraph lines)

Gave him the capital to invest in steel

Reduced production cost “economies of scale”

Carnegie and Steel

Carnegie used this idea to control costs

He acquired companies that provided the materials and services upon which his enterprises depended

He purchased the iron and coal mines which provided raw materials necessary to run his steel mills

He bought steamship lines and RR to transport the steel

Vertical integration

Standard Oil CompanyHe used vertical integrationHorizontal integration-one

company’s control of other companies producing the same product

Standard Oil Company tried to control the oil refineries it didn’t own

Developed the one of the nation’s first trusts

Rockefeller and Oil

Pioneer of the railroad industry

Controlled lines between Chicago, Cleveland, New York and Toledo

Purchased smaller lines and then combined them

By the time of his death in 1877, he controlled more than 4,500 miles of track

Worth $100 million

Vanderbilt

Railroad giantDesigned and

manufactured railroad cars that made long-distance rail travel more comfortable

Passenger-railroad- car-industry

Sleeping cars, dining cars and luxurious cars

Pullman