American History
Robber Barons and Captains of Industry

*The laissez-faire American economy of the 1800s could allow an ambitious and hard-working man to develop his own business and truly live out one of Horatio Alger’s rags-to-riches stories.  However, because some of the men who built great businesses that way had no limits whatsoever, they were eventually able to build businesses so large and powerful that many smaller businesses were crushed or absorbed (or at least harder to start up) so that by the late 1800s it became harder for the average American to achieve the American Dream.

*One way businessmen came to dominate their market was by sharing the costs and risks by forming corporations.  These are groups of investors who all put money into the company, but cannot lose more than they invest (a small businessman whose business goes bad might lose everything he owned paying off his debts, whereas a corporation could just go bankrupt and the investors would not lose any more than they had already put into it).  On the other hand, if the company did well, the investors would share the profits.

*Forming a corporation was nearly the only way to undertake a major project such as building a railroad or opening a mine.  In turn, new inventions such as the railroad and telegraph allowed corporations to communicate and transport goods across a long distance, so that different investors did not necessarily have to live near each other or their places of business.

*Eventually some corporations grew so large that they were able to buy or destroy their competitors. They could destroy competitors by lowering prices in one area until local businesses failed because they were making their own money in many areas.  A corporation that controlled most or all of the type of business that it did was called a monopoly or a trust (because all the companies they bought up ‘entrusted’ their companies to a group of ‘trustees,’ which were all had the same people on them).

*Some companies also formed cartels, in which many companies agreed to keep their prices the same so they would not have to compete with one another.

*There were famous monopolists in the late 1800s.  John D. Rockefeller owned Standard Oil, and did so much business with railroads that he could often demand they give him special low prices or else he would take his business elsewhere.  Andrew Carnegie created a powerful steel company.  J.P. Morgan was the most powerful banker in America, but he came to invest in and control other businesses as well.

*Cornelius Vanderbilt made a fortune in transportation--steamboats and railroads.  He was the richest man in the world when he died in 1885.  He gave money to a university in Nashville, which renamed itself in his honour.  He was known as 'the Commodore.'

*George Westinghouse developed the air brake, making trains easier and safer to stop, thus letting railroads run longer trains and run them at higher speeds.  He also created one of the first and most influential electric companies in competition with Thomas Edison.

*Philip Armour founded a meat-packing company based on assembly lines.

Gustavus Swift founded a meat-packing company and developed refrigerated railroad cars.

*George Pullman developed the sleeper car so that people could sleep in beds during long trips.  He made other improvements to railroad cars as well.

*Eleuthère Irénée du Pont founded and the Du Pont family ran a major gunpowder company that later produced many other chemicals.

*Some people despised how these monopolists came to dominate industries and run competitors out of business.  They called the monopolists Robber Barons.  Others said that they actually were Captains of Industry, men who used their wealth and their organisation to improve America’s economy, because overall the economy boomed in the late 1800s.

*Read the chart on page 109 and answer the questions.

*There were two ways that trusts typically monopolised industries.  These can be seen on pages 110-111. 

*Some businesses were based on horizontal integration, in which one corporation controlled all the businesses of that type. 

*From pages 110-111 what did Standard Oil own through horizontal integration?

—John D. Rockefeller bought up almost all the oil companies in Ohio, Pennsylvania, and New York (and ran the rest out of business) to create Standard Oil.

*Andrew Carnegie preferred vertical integration, in which he owned each step in making steel:  he owned the mines that produced the coal and iron, the railroads and ships that transported it, and the factories that made it. 

*From pages 110-111 what did Standard Oil own through horizontal integration?

-John D. Rockefeller eventually did the same thing for Standard Oil, owning the wells, pipelines, tanker cars and railroads, oil refineries, and gas stations.

*One reason many people saw these businessmen as Captains of Industry was the idea of Social Darwinism.  Some people felt that just as survival of the fittest naturally led to stronger, faster, or otherwise more successful animals in the wild, it was natural for the best businesses to crowd out the others—and because it was natural, it was good, or at least there was no point in trying to stop it. 

*Social Darwinism also suggested that people who were poor, retarded, crippled, or a member of an unpopular race or ethnic group could be discriminated against because it was just natural that they had ended up weaker or inferior.

*In fact, because monopolies owned every part of their market, they often could sell things more cheaply because they could operate in bulk.  Rockefeller ended up lowering the price of oil and oil products—Kerosene went from 30 cents per gallon to 9.  Many robber barons gave money to good causes as well.  Rockefeller gave money to many charities, Carnegie did the same and he and Vanderbilt both gave money to build colleges.

*Milton Hershey developed shelf-stable chocolate that could keep a long time and be transported long distances.  He treated his workers well and left much of his fortune to a charitable trust that, among other things, takes care of the welfare of Hershey company town residents today.

*Others felt differently.  Public pressure eventually convinced Congress to create the Interstate Commerce Commission (ICC).  It could investigate railroads that crossed state lines.  It did not have the power to do much to them (partly because the railroads tended to bribe politicians), but it opened the door to later laws such as the Sherman Anti-Trust Act which outlawed some trusts (although it was not always strictly enforced).  Eventually much stronger anti-trust laws and other laws regulating business practises would be passed.




This page last updated 13 August, 2011.

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