Trust Titans Economics and Economic Leaders of the Gilded Age
Rise of the Corporation • In order to create the large industries that the growing nation needed, a more refined business model was required. • The corporation was used. • Sells stock, or a portion of the company, to investors who receive a portion of the profit the company makes and/or can sell their shares for a profit if the company does well.
Corporations • Corporations allowed many people to participate in a company, but only risk their investment. • Investors do not lose any more money if the company goes bankrupt. • Corporations were ideal for Railroads, Steel, and many other new industries of the Gilded Age.
Captains of Industry • The richest business leaders became known as “Captains of Industry” “Trust Titans” and “Robber Barons.” • Andrew Carnegie invested in steel mills. • John D. Rockefeller invested in oil. • George Pullman invented sleeper cars for railroads. • J.P. Morgan invested in banks, railroads, and steel. • Cornelius Vanderbilt invested in railroads, particularly in the Northeast.
George Pullman • Invented a sleeper car for trains. • These luxury cars were used by nearly all the railroads. • Pullman built a town for his workers to live.
Cornelius Vanderbilt • Amassed fortune of $100 million in the railroads. • Donated money to start Vanderbilt University. • Helped Consolidate railroads in the East. • Had a hand in over 16 different Railroads, mostly located in NY.
Andrew Carnegie • Scottish immigrant. • Worked his way up from a clerk to head of his own steel company. • Used the Bessemer process to produce cheap steel. • Founded Carnegie Steel Co. • Bought up resources needed to produce steel: iron fields, coal mines, railroads. • Known as Vertical Integration • Gave away most of his fortune.
John D. Rockefeller • Grew up in rural New York State. • Invested in oil refineries. • Founded Standard Oil Co. • Bought up nearly every refinery in the US to dominate the industry. • Known as Horizontal Integration • Helped start the University of Chicago.
John P. Morgan • Banker. • He bought up railroads, steel plants, and other industries. • Bought out Carnegie Steel and several other steel companies to form US Steel—largest company in the world at that time. • Biggest driver in the use of Trusts.
Robber Barons • These Trust Titans did not always use legal ways to build their fortunes. • Rockefeller dropped prices below cost in order to drive his competition out of business. • Used their size to force railroads to give them cheaper rates than their competitors.
Trusts • Trusts were used to get around prohibitions against monopolies. • Monopolies are when one company/person controls all or most of the market for a product or industry. • A present day example: Microsoft for computers; Apple for MP3 Players. • A small group controlled all (or most) of the companies in a particular industry. • Can fix prices, control competition so that the individual companies do not hurt each other. • Trusts enabled Morgan to control most of America’s basic industries by 1900.
Captains of Industry • Some believed in Social Darwinism, the idea that only fittest people survived—that poor people were that way because they were lazy or incapable. • Others believed in the “Gospel of Wealth,” that it was the responsibility of the rich to help bring up the lower classes. • Many of the Trust Titans donated much of their fortunes to philanthropy, particularly to education and the fine arts.
Horatio Alger • Wrote books which detailed the American Dream—a young boy who works his way up from poverty to be a success and rich. • Andrew Carnegie was a real life example. • Many people believed in Alger’s ideal, although few actually were able to do so.
Attempts at Regulation • Eventually the Trusts go too far, the Railroads take too much advantage of the public. • Groups like the Grange (a farmer’s coop and political association) get states to pass laws to regulate railroads within their states. • Problem: Who can regulate interstate commerce? • Only the Federal government.
Interstate Commerce Commission • Passed in 1887. • Intended to regulate railroads to prevent discrimination against small shippers, end the freewheeling nature of the railroads, and ensure fair business practices. • Had little teeth to it, was ineffective for much of the early years of the commission.
Sherman Anti-Trust Act • Passed in 1890. • Was intended to prevent monopolies, trusts, and combinations which controlled whole industries. • Like the ICC, the Anti-Trust Act had little teeth and was ineffective until the early 1900s.
Is Regulation Legal? These Supreme Court Cases addressed the legality of state and federal regulation. • Munn V. Illinois (1877) • Wabash V. Illinois (1886) • US V. E.C. Knight (1894) • Northern Securities Co. V US (1904) • Swift V. United States (1904)