He founded Carnegie Steel and relentlessly introduced any new process or technological innovation that would cut even minute wasteful costs in order to lower the price of his steel. With money from investments, he became an entrepreneur in iron and steel for railroad bridges and rails. For example, Andrew Carnegie, who worked in a mill as a young man, mastered telegraph technology, and then worked for the Pennsylvania railroad. Whereas reformers worried about the threat to the American free-enterprise and democratic political system, industrialists argued that they were saving the system from ruinous competition through economies of scale. Many American reformers, consumers, and businessmen feared the trusts would destroy competition in the American economy and exercise disproportionate political influence. Businesses grew in size and dominated entire industries as monopolies or oligarchies. The size of these businesses gave them an advantage over smaller competitors because they closed less efficient plants and cut costs with new technologies. This new, powerful company would be able to exercise a great deal of control over price and output decisions for the entire industry. Eventually, big business formed “trusts,” a type of business consolidation that would more formally create a single holding company for the stocks of several leading businesses in an industry. Since these agreements were voluntary, they were not legally binding and were often broken by members. As a result, they formed “pools” or “trade associations” that were informal agreements to cooperate in the fixing of prices and allocating business so that members were all profitable. Companies struggled to make profits in this fiercely competitive environment.
The late nineteenth century experienced a long-term decline of prices known as deflation. The rise of big business caused great controversy. A large bureaucracy of managers sought rational, efficient operations, while central offices analyzed operations and made strategic decisions for the firm. Therefore, ownership became increasingly divorced from management. These large companies followed the railroad model and incorporated as public companies which then sold shares of ownership as stock. Companies employed thousands of workers in factories often in urban areas. Companies could now mass produce standardized goods faster and more efficiently. They raised huge amounts of capital through the sale of stock, built new bureaucratic management to organize increasingly complex operations across wide geographical areas, and stimulated demand for other heavy industries such as coal, iron, and steel.īig business grew in the late nineteenth century when new sources of power such as the steam engine, coal, and electricity drove the machines in larger factories that organized production under one roof. In addition, railroads became the first corporations that provided a model for the rise of big business. Railroads provided faster, cheaper, and more reliable transportation. The late nineteenth century experienced rapid expansion of railroad mileage across the country, linking farmers, raw materials, factories, and consumers in a market economy. Therefore, entrepreneurs with talent, motivation, and good fortune had the freedom to innovate and opportunity to succeed. A constitutional rule of law protected private property and patents, allowed entrepreneurs to fail and start over again with bankruptcy law, and enforced contracts.
#Big business building free
While the federal government had often encouraged economic growth of the private market by providing land grants, a banking system, and various subsidies, the American economy was generally a system of free enterprise largely unfettered by government restraints and characterized by self-regulating markets. The American constitutional system greatly contributed to the growth of the post-war economy. While the rise of big business was controversial and led to increasing government regulation, the American economy grew rapidly and became the world’s largest industrial economy with widespread benefits. Largescale companies grew as the scale and scope of modern business increased dramatically.
Transportation and communication revolutions developed national markets for goods. Technological innovations made mass production in manufacturing possible. Background Essay: The Rise of Big Businessĭirections: Read the essay and answer the review questions at the end.Īfter the Civil War, the American economy was characterized by the rise of big business.
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