Rise of Big Business in America During the Gilded Age

Summary

This video lesson explores the rise of big business during the Gilded Age in American history, focusing on the second industrial revolution. It explains how corporations like Standard Oil used stock sales to raise capital, leading to economies of scale that lowered production costs and allowed for market dominance. The lesson also covers vertical and horizontal integration, monopolies, and trusts, illustrating how these strategies enabled businesses to control entire industries and influence government, as depicted in political cartoons of the era.

Takeaways

• 🏭 The Gilded Age saw the rise of big business during America's second industrial revolution, with corporations becoming the dominant form of business.
• 📈 Corporations raised capital by selling stock to the public, allowing them to grow and invest in their businesses, leading to economies of scale.
• 💹 Economies of scale meant that as corporations grew, their manufacturing costs decreased, allowing them to produce more goods at a lower cost.
• 🔄 Standard Oil exemplified how corporations could use their size and resources to drive out competition through horizontal integration.
• 🛠️ Vertical integration, as practiced by Andrew Carnegie in the steel industry, involved owning all necessary resources for production, further reducing costs and increasing efficiency.
• 💼 Monopolies emerged when one business controlled the majority of an industry, leading to unchecked power and potential for price manipulation.
• 📉 Monopolies could lead to a lack of innovation due to the absence of competition, which is crucial for businesses to remain fresh and competitive.
• 🤝 Trusts were formed as a way for businesses to collude, fix prices, and eliminate competition, further centralizing power and wealth.
• 🏛️ Monopolies and trusts were criticized for their influence over the government, as depicted in political cartoons showing their control over legislative bodies.
• 🔍 The rise of big business and monopolies during the Gilded Age set the stage for future discussions on corporate power, regulation, and the need for anti-trust laws.

Q & A

What was the dominant form of business that emerged during America's second industrial revolution?

Corporations emerged as the dominant form of business during America's second industrial revolution.

How did corporations raise capital during the Gilded Age?

Corporations raised capital by selling stock to the public, which allowed individuals to become stockholders and part owners of the company.

What is the relationship between selling stock and a corporation's ability to invest in its business?

By selling stock, corporations could raise money that they would then invest back into their business to purchase materials, hire employees, and increase production capabilities.

What is an economy of scale and how does it benefit corporations?

An economy of scale refers to the decrease in manufacturing costs as production increases. Corporations can invest in new technology and machinery, which increases their production capabilities, decreases production costs, and allows them to sell goods at lower prices.

How did Standard Oil use economies of scale to its advantage?

Standard Oil used economies of scale by investing in more oil drills and derricks, which allowed it to produce oil more cheaply and sell it at a lower price than its competitors.

What is horizontal integration and how did it help Standard Oil eliminate competition?

Horizontal integration is when a company expands within the marketplace by putting competition out of business. Standard Oil used this strategy by lowering the price of oil temporarily to force competitors out of business, then raising the price again after acquiring their resources.

What is vertical integration and how did Andrew Carnegie use it in the steel industry?

Vertical integration is when a company owns all the materials needed for its production process. Andrew Carnegie used vertical integration by purchasing coal mines, iron fields, and lime quarries to control the means of steel production and reduce costs.

How did the formation of trusts contribute to the rise of big business during the Gilded Age?

Trusts allowed a group of businesses to be run together by a board of trustees with the goal of eliminating competition and controlling the marketplace. This led to the fixing of prices and the squashing of competition.

What is a holding company and how did it contribute to the dominance of corporations like Standard Oil?

A holding company is a business that holds or owns stock in other companies without producing anything itself. It allowed corporations like Standard Oil to run multiple businesses together as one large enterprise, dominating the market and eliminating competition.

Why were monopolies a concern during the Gilded Age?

Monopolies were a concern because they allowed one business to control the majority of an industry, which could lead to drastic price increases, a lack of innovation, and unfair business practices.

How did political cartoons of the time depict the influence of monopolies on the government?

Political cartoons depicted monopolies, such as Standard Oil, as octopuses with tentacles wrapped around government institutions, indicating their financial influence and control over the government.

Outlines

00:00

🏭 The Rise of Big Business in the Gilded Age

This paragraph discusses the emergence of corporations as the dominant form of business during America's second industrial revolution, known as the Gilded Age. It explains how corporations, such as Standard Oil, used the sale of stock to raise capital, which was then reinvested to grow the business, leading to economies of scale that reduced manufacturing costs. The concept of horizontal integration, where companies like Standard Oil drove out competition by lowering prices, is highlighted. Additionally, the paragraph introduces vertical integration, exemplified by Andrew Carnegie's control over the means of steel production, which further reduced costs and increased market dominance.

05:02

🔄 Horizontal and Vertical Integration Strategies

The second paragraph delves deeper into the strategies of horizontal and vertical integration. Horizontal integration is portrayed as a method of eliminating competition by monopolizing an industry, as seen with Standard Oil controlling 90% of America's oil by 1880. Vertical integration, on the other hand, is described as streamlining manufacturing and production processes to lower costs and dominate the market. The paragraph also touches on the negative aspects of monopolies, such as the potential for unchecked price increases and the stifling of innovation due to the lack of competition. The concept of trusts is introduced as a means for businesses to collude and control markets, with Standard Oil's trust formation in 1892 as a key example.

10:02

📉 The Impact of Monopolies and Trusts

The final paragraph summarizes the rise of big business and the formation of monopolies and trusts during the Gilded Age. It emphasizes the negative consequences of these business practices, such as the control over entire industries and the elimination of competition through unfair practices. The paragraph also discusses the public's reaction to these monopolistic practices, as depicted in political cartoons that portrayed companies like Standard Oil as octopuses with tentacles wrapped around government institutions. The summary concludes by highlighting the importance of understanding these historical events for studying American history and the role of corporations in shaping the economic landscape.

Keywords

💡Gilded Age

The Gilded Age refers to a period in American history, roughly from the 1870s to about 1900, characterized by rapid industrialization, economic growth, and the expansion of big businesses. It is marked by the rise of powerful corporations and monopolies, such as Standard Oil and Carnegie Steel, which gained significant influence over the economy and politics. In the video, the Gilded Age sets the context for understanding the rise of big business and the economic strategies employed by corporations to dominate markets.

💡Corporation

A corporation is a type of business organization that sells stock to raise capital. This structure allows businesses to grow by attracting investment from the public, who become partial owners or stockholders. In the video, corporations like Standard Oil expanded dramatically during the Gilded Age due to a laissez-faire approach to business regulations, enabling them to become powerful entities in the marketplace.

💡Stock

Stock represents ownership in a corporation and is sold to investors to raise capital. Investors who buy stock become stockholders, holding a share of the company's assets and profits. The video explains how selling stock allowed corporations like Standard Oil to raise large sums of money, which they then reinvested into their operations to gain a competitive edge over smaller companies.

💡Economies of Scale

Economies of scale refer to the cost advantages that corporations obtain due to their size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale. In the video, it is shown how Standard Oil and Carnegie Steel used economies of scale to lower production costs, making their products cheaper and driving smaller competitors out of business.

💡Horizontal Integration

Horizontal integration is a business strategy where a company acquires or merges with its competitors in the same industry to eliminate competition and increase market share. The video describes how Standard Oil used horizontal integration to dominate the oil market by putting competitors out of business and buying their resources, ultimately controlling most of the industry.

💡Vertical Integration

Vertical integration is a strategy where a company controls multiple stages of production within the same industry, from raw materials to finished goods. The video provides an example of Andrew Carnegie's steel business, which acquired coal mines, iron fields, and lime quarries to control all materials needed for steel production, reducing costs and increasing efficiency.

💡Monopoly

A monopoly occurs when a single business dominates or controls a large portion of an industry, eliminating competition. The video explains how Standard Oil, through its aggressive business practices, controlled 90% of the U.S. oil market by 1880, illustrating the dangers of monopolies, such as price manipulation and lack of innovation.

💡Trust

A trust is an arrangement where multiple businesses are managed by a single board of trustees, effectively consolidating control to limit competition and dominate a market. The video mentions how Standard Oil formed a trust in 1892, where shareholders handed over their stock to a board that controlled all businesses in the trust, fixing prices and eliminating competition.

💡Laissez-Faire

Laissez-faire is an economic philosophy advocating minimal government intervention in business affairs. The video highlights how a laissez-faire attitude during the Gilded Age allowed corporations to grow with little regulatory oversight, contributing to the rise of monopolies and the concentration of economic power in the hands of a few.

💡Holding Company

A holding company is a business that does not produce goods or services itself but owns the stock of companies that do. The video explains how holding companies, like those formed by Rockefeller, were used to consolidate control over multiple companies, streamlining operations and enhancing market dominance without directly engaging in production.

Highlights

Corporations became the dominant form of business during the Gilded Age.

Laissez-faire attitudes toward business allowed corporations to grow rapidly in the 1800s.

Corporations raise capital by selling stock, allowing them to invest in materials, land, employees, and more to increase profits.

Standard Oil used stock sales to raise funds and become more competitive, buying out smaller companies like Ramage Oil.

Economies of scale allowed larger corporations to reduce costs by producing goods faster and more efficiently.

Horizontal integration helped Standard Oil drive out competitors by lowering prices temporarily and purchasing other companies.

Andrew Carnegie employed vertical integration by owning the raw materials needed to make steel, which lowered costs and sped up production.

Vertical integration allowed corporations to control all aspects of production, eliminating the need to pay external suppliers.

Monopolies, like Standard Oil controlling 90% of the oil industry, eliminated competition and increased prices.

Monopolies discouraged innovation by removing competition and forcing consumers to pay higher prices.

Trusts allowed multiple companies to be managed together by a board of trustees, eliminating competition and fixing prices.

Rockefeller's Standard Oil created a trust in 1892, consolidating power and eliminating competition.

Holding companies, which don't produce anything themselves, allowed corporations to control other companies through stock ownership.

Political cartoons of the time criticized monopolies and trusts, depicting Standard Oil as an octopus controlling the U.S. government.

Monopolies and trusts controlled industries, influencing both government and society during the Gilded Age.

Transcripts

[Music]

this video lesson will take a brief and

simple look at the rise of big

business during the gilded age in

american history

so this is during america's second

industrial revolution

and we need to understand what's

happening in businesses to allow them to

become

so powerful and so intrusive in american

society

so in the early 1800s corporations are

going to emerge as the dominant

form of business corporations have been

around for a long time but there were

some rules and regulations

in place that made forming corporations

and having them grow to the size they're

going to a little bit more difficult

but with more laissez-faire attitudes

towards business corporations are going

to grow tremendously in the 1800s

a corporation is a business that sells

stock in order to raise

capital stock is actual ownership in the

corporation and capital of course

is money so how exactly does this work

well it's pretty complex so very simply

stated

standard oil would issue stock and sell

it and make it available to the public

people would purchase stock in standard

oil and actually

become what are called stockholders that

they would actually be

part owners of the company a very small

percentage depending on how much you

purchased

what a standard oil going to do with the

money that they raise by selling that

stock

they're going to take that money and

they're going to invest it back into

their business they're going to purchase

materials

purchase lands hire employees do

advertising whatever it is that they

need to do

in hopes of generating more revenue so

that investment in

more oil drills and oil derricks should

result in

greater profits which are then paid and

shared back to the stockholders

in the form of dividends that's a pretty

simple look at how this all works

but selling stock allowed corporations

to raise massive amounts of money

and gain a tremendous advantage in the

marketplace

that brings us to the economies of scale

so as corporations grew the overall cost

of manufacturing

ultimately decreases when you produce

more goods at a faster rate corporations

were able to invest in the newest

technology

hire more employees build more effective

machines

which increase their manufacturing

capabilities decrease their production

and

decrease their costs so standard oil can

invest more money into its business

producing more and more and more

oil which ultimately allows it to

produce that oil

cheaper and sell it for 20 cents a

gallon

smaller companies like ramage oil

which only produces a small amount of

oil

can't afford to sell it at 20 cents a

barrel and has to sell it at 80 cents a

barrel

standard oil is simply bigger more

efficient more productive

and therefore their costs are lower

eventually rammage oil is going to go

out of business because they can't

compete with standard oil

and eventually ramaj oil is going to

disappear and

standard oil will simply purchase their

resources and add them

to their own this was very common for

standard oil to do

they drove out their competition because

they were so large and so effective

they could afford for the short term to

lower the price of their oil to let's

say five cents a barrel

which would then put all of the

competitors in that marketplace out of

business

and standard oil could buy them up this

is known as horizontal integration where

a company expands within the marketplace

by putting competition out of business

after standard oil takes out their

competition they can raise their prices

back

up to 20 cents a gallon and now they

have an even larger share of the

marketplace

another way that these corporations

gained power and influence

was by controlling the means of

production

so for example andrew carnegie made

steel

steel is made up of coal and lime and

iron

other things as well but we'll focus on

just these three things

carnegie was purchasing the coal and the

lime and the iron from

other manufacturers and other producers

well

why not just own them yourself and not

have to pay anybody else

and that's exactly what carnegie's going

to do that's known as

vertical integration so he's going to

purchase and own all the materials that

he needs to make his steel so he's going

to purchase

the iron fields he's going to purchase

the line quarries he's going to purchase

the coal mines

and then after that initial investment

pays off he owns

everything so he's not sending any of

his money

to any outside companies or corporations

this in the long term is going to lower

his cost and speed up his production

because he controls the flow of

materials needed to produce his steel

so the economies of scale are going to

be huge advantages to

corporations like standard oil and like

carnegie steel

the use of horizontal integration is

going to take out competition

while the use of vertical integration is

going to streamline your manufacturing

and production

and continue to lower your costs and

allow you to dominate the marketplace

this leads us to monopoly one of the

biggest terms from this period of time

monopoly is when one business controls

the majority of

an industry that business in this case

being standard oil

and the industry being the oil industry

so in a monopoly one business controls

the majority of the product or the

resource

in that industry and by 1880

rockefeller controlled 90 of america's

oil

so why are monopolies bad why are we

going to see

some content later on in our course

about getting rid of monopolies

well a monopoly could raise prices

drastically if you controlled all the

resources in that industry

then you're free to raise or lower the

prices however you see fit

because you have eliminated all of your

competition

without effective competition prices can

and will usually go up and there's no

incentive to innovate

competition between businesses makes

sure that each business stays fresh

that they are looking for ways to remain

innovative and competitive with

other businesses when you have a

monopoly in the marketplace

these things tend to not happen although

standard oil

was not really guilty of raising their

prices drastically

as they had to compete against an

international market

some other ways that businesses were

able to manipulate the system and gain

tremendous power were to form

trusts again we're looking at very

simple definitions and very simple

examples of these things because

this is a history class not an economics

class

but a trust is a group of businesses

that are run together by a board of

trustees whose goal basically

is to eliminate competition and to

control the marketplace

they're interested in fixing prices and

collaborating together

to squash their common competition

standard oil is going to form a trust in

1892.

basically you hand over your stock to a

board of trustees and that small board

of trustees

runs all the businesses together

rockefeller also created a holding

company this was something that was also

done by other

business leaders of the time a holding

company is a business that literally

doesn't produce anything it simply holds

or owns

stock in other companies new jersey

passed a law that said that a

corporation could own stock in another

one and that's where holding companies

came from

it's a business that just holds stock in

other companies

and again runs them together as one

large enterprise

dominating the market eliminating

competition

and putting more power and more wealth

in the hands of a few

people monopolies became targets for

political cartoons and reformers as

we're going to see

getting into the progressive era this

political cartoon

shows standard oil as a octopus a very

common symbol used to show the power

and danger of monopolies tentacles

wrapped around the u.s

capitol wrapped around the supreme court

and eyes fixed on the white house

which hasn't quite been put into the

grasp of standard oil

but you can get the implication here

from this cartoon

that standard oil is eyeing up the white

house and in this one too this is the

senate chambers in the u.s congress we

can see in the back of the chamber

standing looking over top of all the

senators are all of these

trusts including the standard oil trust

the sugar trust the coal trust the steel

beam trust

and they are literally bags of money

which would show their financial

influence over these senators

their power their wealth dominating the

government

the sign here in the top says this is a

senate of the monopolist by the

monopolist and for the monopolists

uh clearly indicating that the monopoly

has control over the senate

the people's entrance is closed and

barred

indicating that the people no longer

have a voice in this chamber of

government

and that the senate operates under the

eyes and control

of the trusts

so what are some big takeaways we need

to know moving forward in our study of

american history

during this time period well again this

is a

very basic introduction to these

concepts but we need to be aware of them

moving forward

corporations developed and grew

extremely wealthy and extremely powerful

we'll continue to look at some examples

of corporate power moving forward

how do they do this by using the

economies of scale

and vertical and horizontal integration

which allowed them to

reduce their costs to increase their

profits and to eliminate competition in

the marketplace

this gave them monopolies and trusts

which allowed them to gain control over

entire industries eliminate their

competition

while engaging in unfair business

practices

so that's a quick look at the rise of

big business during the gilded age

hopefully you got something out of this

lesson and are able to apply it to your

american history studies