📜History of American Business Unit 6 – Rise of Big Business & Monopolies

Key Players and Industries

• Andrew Carnegie pioneered vertical integration in the steel industry, controlling raw materials, transportation, and manufacturing
  • Acquired iron ore mines and coal fields to ensure steady supply of resources
  • Built a network of railroads to efficiently transport materials to steel mills
• John D. Rockefeller dominated the oil industry through horizontal integration, acquiring competing companies to form the Standard Oil monopoly
  • Leveraged economies of scale to reduce production costs and undercut competitors
  • Controlled over 90% of the U.S. oil refining capacity at its peak
• J.P. Morgan financed and consolidated major industries, including railroads and steel, through his banking empire
  • Arranged mergers and acquisitions to create large, efficient corporations
  • Served as a stabilizing force during financial crises, organizing bailouts and restructuring
• Cornelius Vanderbilt built a vast transportation empire, focusing on steamships and railroads
  • Established a monopoly on steamship routes between New York and California during the Gold Rush
  • Acquired and consolidated competing railroad lines, creating the New York Central Railroad
• The railroad industry experienced rapid growth and consolidation, becoming a key driver of economic development
  • Connected distant markets and facilitated the transportation of goods and people
  • Encouraged the growth of other industries, such as steel, coal, and agriculture

Economic Factors Driving Growth

• Abundant natural resources, including coal, iron ore, and oil, provided the raw materials necessary for industrial growth
• Rapid population growth and urbanization created a large domestic market for goods and services
  • Immigration from Europe brought a steady supply of labor to factories and mines
  • Urbanization concentrated consumers in cities, making it easier to distribute products
• Westward expansion opened up new markets and sources of raw materials
  • Transcontinental railroads connected the East and West coasts, facilitating trade and settlement
  • Homestead Act of 1862 encouraged settlers to claim and develop land in the West
• Laissez-faire economic policies promoted free market competition and limited government intervention
  • Low taxes and minimal regulations allowed businesses to grow and innovate without constraints
  • Government subsidies and land grants supported the development of railroads and other industries
• Post-Civil War stability and unity provided a conducive environment for economic growth
  • Absence of internal tariffs and trade barriers facilitated the creation of a national market
  • Increased federal power and authority ensured a stable legal and financial system

Technological Innovations

• Bessemer process revolutionized steel production by making it faster, cheaper, and more efficient
  • Involved blowing air through molten iron to remove impurities and create high-quality steel
  • Enabled mass production of steel for railroads, buildings, and machinery
• Electricity transformed manufacturing, transportation, and communication
  • Electric motors powered factories, increasing productivity and enabling the use of assembly lines
  • Electric streetcars and subways improved urban transportation and facilitated the growth of cities
  • Telegraph and telephone allowed for rapid communication over long distances
• Refrigeration technology improved food preservation and distribution
  • Allowed for the safe transportation of perishable goods over long distances
  • Enabled the growth of the meatpacking industry and the rise of companies like Swift and Armour
• Advances in oil drilling and refining techniques increased the efficiency and profitability of the oil industry
  • Rotary drilling rigs could drill deeper and faster than traditional cable-tool rigs
  • Cracking process broke down heavy crude oil into lighter, more valuable products like gasoline
• Typewriters and cash registers streamlined office work and financial transactions
  • Typewriters increased the speed and legibility of written communication
  • Cash registers provided a secure and efficient way to handle money and track sales

Business Strategies and Practices

• Vertical integration involved controlling all stages of production, from raw materials to finished products
  • Ensured a steady supply of resources and reduced costs by eliminating middlemen
  • Example: Carnegie Steel Company owned iron ore mines, coal fields, railroads, and steel mills
• Horizontal integration involved acquiring or merging with competing companies to increase market share and reduce competition
  • Created economies of scale, allowing companies to produce goods more efficiently and at lower costs
  • Example: Standard Oil Company acquired over 40 competing oil refineries to dominate the market
• Trusts were formed to coordinate the activities of multiple companies in the same industry
  • Allowed companies to fix prices, divide markets, and limit competition
  • Example: The Sugar Trust controlled over 90% of the U.S. sugar refining capacity
• Pools were informal agreements among companies to fix prices, divide markets, or limit production
  • Lacked the legal structure and enforcement mechanisms of trusts
  • Example: The Beef Pool controlled the prices and distribution of meat products
• Predatory pricing involved selling goods below cost to drive competitors out of business
  • Once competitors were eliminated, the company could raise prices and recoup losses
  • Example: Standard Oil used predatory pricing to force rival oil companies to sell out or face bankruptcy

Formation of Monopolies and Trusts

• Standard Oil Trust, formed by John D. Rockefeller, monopolized the oil industry through horizontal integration and predatory pricing
  • Controlled over 90% of the U.S. oil refining capacity at its peak
  • Disbanded in 1911 after being found in violation of the Sherman Antitrust Act
• U.S. Steel Corporation, created by J.P. Morgan through the merger of several steel companies, became the world's largest steel producer
  • Controlled over 60% of the U.S. steel market
  • Vertically integrated, owning iron ore mines, coal fields, railroads, and steel mills
• American Tobacco Company, led by James B. Duke, monopolized the cigarette industry through acquisitions and marketing innovations
  • Controlled over 90% of the U.S. cigarette market
  • Pioneered the use of advertising and brand-name products to increase demand
• American Sugar Refining Company, also known as the Sugar Trust, dominated the sugar refining industry
  • Controlled over 90% of the U.S. sugar refining capacity
  • Used predatory pricing and exclusive dealing contracts to eliminate competitors
• International Harvester Company, formed through the merger of several agricultural equipment manufacturers, monopolized the farm machinery industry
  • Controlled over 80% of the U.S. market for harvesting machines
  • Engaged in price discrimination, charging higher prices to farmers in regions with limited competition

Government Response and Regulations

• Sherman Antitrust Act of 1890 prohibited trusts and combinations in restraint of trade
  • Aimed to promote competition and prevent monopolies
  • Initially enforced inconsistently, with early cases focusing on labor unions rather than big business
• Interstate Commerce Act of 1887 regulated railroads to prevent price discrimination and monopolistic practices
  • Created the Interstate Commerce Commission (ICC) to oversee railroad rates and practices
  • Required railroads to publish their rates and prohibited rebates and preferential treatment
• Clayton Antitrust Act of 1914 strengthened the Sherman Act by prohibiting specific anticompetitive practices
  • Banned price discrimination, exclusive dealing contracts, and mergers that substantially lessened competition
  • Exempted labor unions and agricultural organizations from antitrust laws
• Federal Trade Commission Act of 1914 established the Federal Trade Commission (FTC) to investigate and prevent unfair competition
  • Empowered the FTC to issue cease-and-desist orders against companies engaging in unfair or deceptive practices
  • Complemented the enforcement of antitrust laws by the Department of Justice
• Elkins Act of 1903 and Hepburn Act of 1906 further regulated railroads and strengthened the powers of the ICC
  • Elkins Act prohibited railroads from granting rebates and made both the giver and recipient liable for violations
  • Hepburn Act gave the ICC the power to set maximum railroad rates and required companies to adopt uniform accounting practices

Social and Economic Impact

• Rise of big business and monopolies led to increased income inequality and the concentration of wealth in the hands of a few industrialists
  • Widened the gap between rich and poor, creating a new class of industrial millionaires
  • Led to the growth of urban slums and poor working conditions for factory workers
• Monopolistic practices often resulted in higher prices and reduced quality for consumers
  • Lack of competition allowed companies to charge higher prices and provide inferior products
  • Example: Standard Oil's monopoly led to higher kerosene prices, which disproportionately affected low-income households
• Industrialization and the growth of big business contributed to the rise of organized labor and the labor movement
  • Workers formed unions to negotiate better wages, hours, and working conditions
  • Strikes and labor unrest became more common as workers sought to balance the power of big business
• Philanthropic efforts by wealthy industrialists, such as Andrew Carnegie and John D. Rockefeller, had mixed impacts
  • Donated millions to charitable causes, including education, libraries, and scientific research
  • Critics argued that philanthropy was used to improve public image and deflect criticism of business practices
• Economic concentration and the power of big business influenced politics and policy
  • Industrialists and financiers used their wealth and influence to shape legislation and regulations in their favor
  • Political corruption and the influence of money in politics became a growing concern

Legacy and Modern Implications

• Antitrust laws and regulations developed during this period continue to shape business practices and government oversight today
  • Sherman Act and Clayton Act remain the foundation of U.S. antitrust law
  • FTC and Department of Justice continue to enforce antitrust laws and prevent anticompetitive practices
• Lessons learned from the rise of big business and monopolies inform modern discussions about corporate power and income inequality
  • Concerns about the concentration of economic power and its impact on democracy and social welfare persist
  • Debates about the appropriate level of government intervention in the economy continue
• Industrialization and the growth of big business laid the foundation for the modern American economy
  • Innovations and business practices developed during this period, such as mass production and vertical integration, continue to shape industries
  • Legacy of industrial infrastructure, including railroads and factories, remains an important part of the economic landscape
• Philanthropic foundations established by industrialists, such as the Carnegie Corporation and the Rockefeller Foundation, continue to support various causes
  • Fund education, scientific research, and cultural institutions
  • Raise questions about the influence of private wealth on public policy and the democratic process
• Tension between the benefits of economic growth and the costs of economic concentration continues to shape public discourse and policy debates
  • Balancing the need for innovation and efficiency with concerns about inequality, consumer welfare, and democratic accountability remains a challenge
  • Policymakers and the public grapple with how to harness the benefits of big business while mitigating its negative impacts