1830s: Change in Gov’t Economic Policy

Big Business (5.3)2e. Analyze continuity and change in eras over the course of United States history.

1830s: Change in Gov’t Economic Policy Before 1830s: no large corporations allowed w/o charter During/after 1830s: general incorporation laws passed allowing formation of corporations

Two Types of Costs Fixed Costs: costs a Co. has to pay, whether or not it is operating (e.g. loans) Operating Costs: costs that occur when running a co. (i.e. wages)

Corporation • Definition: organization owned by many people but treated by law as though it were owned by a single person • Characteristics: • 1) can own property • 2) pay taxes • 3) issue stock to raise large amts. of money

Advantages of Corporations • 1) Economies of Scale • Definition: Situation in which Corps make goods more cheaply b/c they produce so much, so quickly, using large manufacturing facilities • 2) Stability of Operation • Can continue operating in poor economic times by cutting prices to increase sales, rather than shutting down

Advantages of Corporations (cont.) • 3) Position of Strength in the Marketplace • Able to negotiate contracts/rebates from other businesses (e.g. RR) thus lowering costs

Vertical Integration • Buying all of the different businesses a company depends for operation • Benefit: saving money while enabling co. to grow even bigger (don’t have to pay for materials needed to make product)

Horizontal Integration • Combining many firms engaged in same type of business into 1 large Corp • Alt. method of Horizontal Integration: • Pools: agreements to maintain prices @ certain level • Bad b/c they eliminate competition • Usually don’t last long due to one member of pool lowering prices to get greater share of market

Holding Company Co. that does not produce anything itself but owns stock in companies that do produce goods same as Wall Street brokerage firm (e.g. Goldman Sachs)

The Notable “Robber Barons” • 1) Andrew Carnegie • Immigrant from Scotland who became involved w/ RR Industry • met Bessemer, who had invented a new process to make high quality steel efficiently & cheaply • Result: made millions in Steel Industry • 2) John D. Rockefeller • Built oil refineries rather than trying to drill for oil • Owned Standard Oil Company • 1880: refined 95% of oil in US

The Notable “Robber Barons” (cont.) • 2) J.P. Morgan • Est. practice of Investment banking • Morgan created US Steel- 1st Billion dollar company in US History • Today Morgan Stanley Chase is one of largest investment banks in US

Monopolization • Oligopoly: market dominance by a few • Monopoly: single company that achieves control of an entire industry/market • Standard Oil (1880s) • AT&T (1984) • Walmart (20??)

Arguments For & Against Monopolies • For • Monopolies make goods cheaply and thus sell products more cheaply • Against • Monopoly can charge whatever it wanted for its products • Monopoly eliminates competition

Trusts • legal concept that allowed 1 person to manage another person’s property • method of merging companies rather than owning companies • Allowed Standard Oil to become even larger w/o being classified as a Monopoly

From Production to Distribution • 1) Printed Advertisements • Newspapers (large display ads) • 2) Department Stores • brought different products into 1 central location. Made shopping a more glamorous and exciting experience • 3) Chain stores • group of similar stores owned by same co.; purpose was to offer thrift, low-priced items rather than glamour. • 4) Mail order catalogs • offered goods and services to people who lived in rural areas (e.g. Sears and Roebuck, Montgomery Ward)

1830s: Change in Gov’t Economic Policy