6.6 Industrial Capitalism

nation's first big business, The American Railroad Association, time zones, consolidation, Cornelius Vanderbilt, Jay Gould, watering stock, rebates, pools, bankruptcy, J. Pierpont Morgan, interlocking directorates, Andrew Carnegie, vertical integration, United States Steel, John D. Rockefeller, Standard Oil, monopoly, trust, horizontal integration, holding company, laissez-faire, Adam Smith, Social Darwinism, survival of the fittest, William Graham Sumner, Protestant work ethic, "self-made men", Horatio Alger Jr

railroads

• first big business

• a combination of business leadership, capital, technology, markets, labor, and government support

• the government provided low-interest loans and millions of acres of land to railroad companies

• national market for goods encouraged mass production and consumption and economic specialization

• promoted the growth of other industries (ex. coal, steel)

other things railroads did

• The American Railroad Association divided the country into 4 time zones - railroad time became standard time

consolidation of competing railroads

• formed integrated trunk lines aka major routes between large cities (ex. New York Central Railroad, Baltimore and Ohio Railroad, Pennsylvania railroad)

• reduced inefficiency

• Cornelius Vanderbilt - merged local railroads into the New York Central Railroad

problems and corruption

• watering stock - inflating the value of corporation assets and profits before selling stock to the public

• rebates - discounts offered to favored shippers while smaller customers were overcharged

• pools - companies increased profits by colluding to fix rates and share traffic with competing companies

regional railroad monopolies

• financial panic → railroads forced into bankruptcy

• J. Pierpont Morgan led bankers to control and consolidate bankrupt railroads

• interlocking directorates - the same directors ran competing companies, whole system controlled by a few powerful men

• railroad power regulation attempts ineffective

industrial empires

• Andrew Carnegie steel company

  • vertical integration

  • bought by J. Pierpont Morgan’s steel combination United States Steel

• John D. Rockefeller’s Standard Oil Trust

  • monopoly - a company facing little to no competition from other companies

  • extorted rebates from railroad companies and forced rival companies to sell out

strategies to gain control over markets

• trust - an organization/board that manages the assets of other companies

• horizontal integration - one company takes over all competitors in a specific industry

• vertical integration - one company takes control of all stages of production

• holding company - company created to own and control diverse companies (ex. J. Pierpont Morgan)

Laissez-Faire capitalism

rejecting government involvement in business

conservative economics

• Adam Smith - economist who argued in The Wealth of Nations for the efficiency of the “invisible hand”, motivation by own self interests to be fair to customer

• Social Darwinism - survival of the fittest, wealth concentrated in fit

  • William Graham Sumner - helping poor interferes with laws of nature and weakens society

• Protestant work ethic - belief that success is God’s reward for hard work (ex. John D. Rockefeller)

• “self made men” - Andrew Carnegie, Thomas Edison, Horatio Alger Jr novels (young man gets rich from hard work and a little bit of luck)

business influence outside the U.S.

became more involved in international affairs for business interests