Big Business Rises

Rise of Big Business and Laissez-Faire

  • Late 1800s: A few businessmen built massive companies that changed the U.S. economy.

  • Public Anger: People hated how these leaders grew so big and crushed competitors.

  • Government Role:

    • Started with laissez-faire (a hands-off policy with no rules for business).

    • Eventually forced to step in and make laws because big companies destroyed fair competition.

  • Bakery Example:

    • Imagine owning the only bakery in town with no other option for 30 miles30\,\text{miles}.

    • You control the market: you can slowly raise prices to make more profit.

    • Customers have no choice, so you set the rules.

Corporations and Stockholders

  • Single Owner vs. Corporation:

    • Single owner risks their own house and savings.

    • Corporation is owned by many investors who buy stocks (shares).

  • Limited Liability:

    • Stockholders only lose the money they put into stocks if the company fails.

    • Example: If you invest 100 dollars100\,\text{dollars} in stock, you can only lose that 100 dollars100\,\text{dollars}. Your home and savings stay safe.

Vertical Integration: Controlling Every Step

  • Definition: One company owns every step of making a product, from raw materials to final sales.

  • Goals: Cut out middle buyers, lower costs, and keep product quality high.

  • Steel Industry Example:

    • Iron ore mines (raw materials)

    • Ships and trains (transport)

    • Steel mills (manufacturing)

    • Sales networks (selling)

  • Andrew Carnegie: Scottish immigrant who used vertical integration to control the U.S. steel industry in the late 1800s.

Horizontal Integration: Buying Competitors

  • Definition: Buying out or absorbing all rival companies doing the exact same job.

  • Goal: Eliminate competition to control the whole market.

  • John D. Rockefeller (Standard Oil):

    • Focused on oil refineries (turning crude oil into usable oil).

    • Bought out competing refineries so crude oil producers had no other choice.

  • Quick Summary:

    • Vertical: Owns top-to-bottom (raw material to customer) to save money.

    • Horizontal: Owns side-to-side (all competitors) to stop competition.

  • Modern Examples: Disney buying Hulu, T-Mobile buying Sprint, CVS buying local pharmacies.

Monopolies, Trusts, and Cartels

  • Monopoly: One company controls an entire industry. This is illegal under U.S. law.

  • Trust:

    • Used to bypass anti-monopoly laws.

    • Multiple companies hand management to a small board of trustees.

    • The board runs all companies together as one unit.

  • Cartel:

    • Independent companies agree to fix prices and limit output so everyone makes high profits.

    • Modern Example: OPEC (oil-producing countries like Saudi Arabia and Iran set global oil supply and prices).