Download Lecture 1: The Rise of Big Business in the Gilded Age

Lecture1:TheRiseofBig
BusinessintheGildedAge
Famousphotograph
takenbyA.J.Russell,the
photographerofthe
UnionPacificRailroad,
commemoraBngthe
“LastSpike”ofMay10,
1869,inPromontory
Summit,Utah.Chinese,
Irish,andMormon
laborerswerecrucialto
thejoiningoftheUnion
andCentralPacificlines
thatcompletedthe
transconBnentalrailroad.
Somecharacteris8csoftheGildedAge
•  Conflictbetweencapital(owners)andlabor
(workers)inwhichcapitalwinsmostofthetime
•  Newbusinessmodelstodealwithincreased
volumesoftradeandexpandingpopulations
v  Ex:Trusts,combinations,andholdingcompanies
v  Companiesaremorecomplex,hierarchical,andrun
likebureaucracieswithsalariedmiddlemanagers
•  Fiercecompetitionandmoredemandforces
businessestocutcostsandusetechnology
•  USbecomingworld’sleadingindustrialpower
AntebellumEra
GildedAge
TypicalFirm
Partnerships,familybusinesses
Largercorporation,trusts,
holdingcompanies
Corps.were
Artificialcreationsofthestate
thatserveapublicfunction
Privateentitiesthatoftenhave
therightsofpersons
Corp.Charter
Limited–20-30years;need
specialcharterfromstateleg.
Perpetual;therearegeneral
incorporationlaws
Unlimited
Limited–shareholdersnot
responsibleforalldebts
Liabilities
Customers
Morepersonal–soldtofamilies, Moreimpersonal–sellingto
friends,afewothers
distantcustomers
Shareholders
Connectedwithmanagement
(they’reoftenthesamepeople)
Separatedfrommanagement
Linkedtoproduction
Linkedtoconsumption
Freedom
Women
Separatespheres–stayinhome Workinofficesasclerks,
(middle-classideal)
cashiers,accountants,typists
Thisisageneralmodelofoveralltrendsthatmightmasksomecomplexities
WhyBigBusinessatthis8me?
—  Significantsupportfromthefederalandstate
governments(seenextslide)
v  DuringCivilWar,southernDemsarenotinCongress
v  RepublicanPartyconnectedwithBigBusiness
Ø 
OftencontrolsCongressandthepresidency
—  CheapLabor–Immigrants,women,children
—  AccesstoNaturalResources–oil,coal,iron
—  NewTechnology–e.g.Edison,Bell
—  OverseasInvestment–esp.fromGreatBritain
v  Criticaltogrowthofrailroads
HowGovernmentshapedtheeconomy
—  NationalBankingAct–standardizedthebankingsystem
—  Lucrativewarcontractsgiventonorthernrailroads,
financiers,andmanufacturersforsupplyingunionarmy
—  PacificRailroadAct–federalandstatesubsidiestorailroads
v  Saleofpubliclandsatlowratestotherailroadcompanies
Ø 
131millionacres–largerthanthestateofCalifornia(seemap)
v  GovtpaidinterestonstocksandbondsthatfundedRxR
—  Saleofpubliclandsalsohelpedfundcolleges(MorrillLand
GrantAct)andfundedwaterinfrastructureprojects
—  MorrillTariff–protectedindustry
—  Eminentdomainlaw>railroadspenalizedlessfordamages
—  UseofarmytoremoveNativeAmericansfromtheWest
Mapoffederallandsgrantedtotherailroads
Whatwerethebenefitsofrailroads?
—  Increasedpropertyvalues
—  Moreaccesstoconsumergoods
—  Investinginrailroadcompaniesoftenreturnedprofits
—  Nowthereareshipmentsduringwinterandnighttime
—  Asignificantstimulustotherestoftheeconomy
v  Especiallythecoalandsteelindustry
v  Buildingrailroadscontributestofurtherdevelopment
—  Amoreunifiednation
v  Urbanandruralareasmoreconnected
v  Accesstocasheconomy(betterthanbarterorgold)
—  Faster,moreconvenient,andconsistentshipping
Travel8mesbeforetheRxR
HowlongdoesittaketogofromNewYorktoChicago?
Nowaddtherailroad
Nowaddabe#errailroad
Ittakesabout2-3daystotraversetheen8recountrybyrail
Buttherewerealsodrawbacks
—  Immensepower,widespreadcorruption,and
tremendousconcentrationsofwealth!
—  Railroadcompaniestookgreatrisksthatimperiled
theeconomy,helpedcausePanicsof1873and1893
v  Railroadcompanieswerenotfinancialsuccesses–
manywentbankruptordidn’tfinish
v  Despitethis,theywerebailedoutbythetaxpayer
—  AccelerateddevelopmentoftheWest
v  Thiscamewithenvironmentalcostsandthe
displacementofNativeAmericans
—  Thiswasaneraofviolentlaborstrikes,mass
unemployment,andmillionsofdisaffectedworkers
Railroadsasthe
first“BigBusiness”
v  Theyamassedalevelof
wealthandpowerthatthe
FoundingFatherscould
nothavepredicted
v  Corporatelobbying
Right:Poli8calCartoon,“Jus8ceinthe
Web,”depictsrailroadmagnateJay
Gouldasaspider
PuckMagazine,July1885
SupremeCourtJusBceStephenJ.Field
–theinventorof“corporate
personhood”–wasfriendswithCollis
P.HunBngtonandothertycoons
NewYorkTimes,July15,2007 ShouldwecallthemRobber
Areweinanew“GildedAge”? BaronsorTitansofIndustry?
Evidenceforthe“NewGildedAge”
—  HighpayforCEOs–the“robberbarons”oftoday
v  30to1(1970s)versus300to1(today)
v  APstudyfoundthattypicalCEOmade$9.6m.in2011
—  Monopoly–mergers,acquisitions,andconsolidation
v  Cablecompanies,banksthatare“toobigtofail”
v  Doesn’tthiscontradictfreedomofchoice?
v  Monopolytendstobebadfortheconsumer
—  Wealthandincomeinequality
v  Iseducationstillaroutetoastablecareer?
v  Socialadvancementisnowmoredifficult
v  Seestatisticsonnextslide
Increasinginequalityisa
worldwidephenomenon
Theworldtodayissignificantlymoreunequalthanthatofyourparents