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[Music]
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this video lesson will take a brief and
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simple look at the rise of big
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business during the gilded age in
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american history
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so this is during america's second
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industrial revolution
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and we need to understand what's
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happening in businesses to allow them to
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become
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so powerful and so intrusive in american
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society
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so in the early 1800s corporations are
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going to emerge as the dominant
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form of business corporations have been
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around for a long time but there were
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some rules and regulations
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in place that made forming corporations
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and having them grow to the size they're
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going to a little bit more difficult
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but with more laissez-faire attitudes
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towards business corporations are going
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to grow tremendously in the 1800s
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a corporation is a business that sells
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stock in order to raise
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capital stock is actual ownership in the
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corporation and capital of course
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is money so how exactly does this work
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well it's pretty complex so very simply
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stated
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standard oil would issue stock and sell
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it and make it available to the public
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people would purchase stock in standard
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oil and actually
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become what are called stockholders that
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they would actually be
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part owners of the company a very small
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percentage depending on how much you
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purchased
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what a standard oil going to do with the
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money that they raise by selling that
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stock
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they're going to take that money and
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they're going to invest it back into
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their business they're going to purchase
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materials
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purchase lands hire employees do
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advertising whatever it is that they
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need to do
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in hopes of generating more revenue so
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that investment in
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more oil drills and oil derricks should
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result in
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greater profits which are then paid and
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shared back to the stockholders
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in the form of dividends that's a pretty
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simple look at how this all works
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but selling stock allowed corporations
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to raise massive amounts of money
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and gain a tremendous advantage in the
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marketplace
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that brings us to the economies of scale
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so as corporations grew the overall cost
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of manufacturing
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ultimately decreases when you produce
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more goods at a faster rate corporations
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were able to invest in the newest
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technology
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hire more employees build more effective
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machines
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which increase their manufacturing
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capabilities decrease their production
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and
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decrease their costs so standard oil can
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invest more money into its business
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producing more and more and more
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oil which ultimately allows it to
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produce that oil
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cheaper and sell it for 20 cents a
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gallon
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smaller companies like ramage oil
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which only produces a small amount of
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oil
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can't afford to sell it at 20 cents a
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barrel and has to sell it at 80 cents a
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barrel
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standard oil is simply bigger more
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efficient more productive
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and therefore their costs are lower
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eventually rammage oil is going to go
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out of business because they can't
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compete with standard oil
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and eventually ramaj oil is going to
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disappear and
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standard oil will simply purchase their
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resources and add them
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to their own this was very common for
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standard oil to do
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they drove out their competition because
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they were so large and so effective
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they could afford for the short term to
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lower the price of their oil to let's
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say five cents a barrel
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which would then put all of the
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competitors in that marketplace out of
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business
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and standard oil could buy them up this
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is known as horizontal integration where
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a company expands within the marketplace
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by putting competition out of business
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after standard oil takes out their
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competition they can raise their prices
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back
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up to 20 cents a gallon and now they
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have an even larger share of the
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marketplace
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another way that these corporations
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gained power and influence
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was by controlling the means of
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production
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so for example andrew carnegie made
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steel
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steel is made up of coal and lime and
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iron
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other things as well but we'll focus on
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just these three things
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carnegie was purchasing the coal and the
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lime and the iron from
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other manufacturers and other producers
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well
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why not just own them yourself and not
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have to pay anybody else
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and that's exactly what carnegie's going
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to do that's known as
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vertical integration so he's going to
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purchase and own all the materials that
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he needs to make his steel so he's going
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to purchase
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the iron fields he's going to purchase
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the line quarries he's going to purchase
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the coal mines
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and then after that initial investment
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pays off he owns
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everything so he's not sending any of
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his money
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to any outside companies or corporations
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this in the long term is going to lower
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his cost and speed up his production
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because he controls the flow of
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materials needed to produce his steel
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so the economies of scale are going to
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be huge advantages to
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corporations like standard oil and like
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carnegie steel
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the use of horizontal integration is
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going to take out competition
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while the use of vertical integration is
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going to streamline your manufacturing
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and production
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and continue to lower your costs and
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allow you to dominate the marketplace
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this leads us to monopoly one of the
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biggest terms from this period of time
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monopoly is when one business controls
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the majority of
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an industry that business in this case
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being standard oil
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and the industry being the oil industry
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so in a monopoly one business controls
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the majority of the product or the
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resource
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in that industry and by 1880
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rockefeller controlled 90 of america's
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oil
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so why are monopolies bad why are we
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going to see
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some content later on in our course
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about getting rid of monopolies
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well a monopoly could raise prices
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drastically if you controlled all the
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resources in that industry
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then you're free to raise or lower the
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prices however you see fit
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because you have eliminated all of your
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competition
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without effective competition prices can
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and will usually go up and there's no
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incentive to innovate
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competition between businesses makes
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sure that each business stays fresh
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that they are looking for ways to remain
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innovative and competitive with
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other businesses when you have a
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monopoly in the marketplace
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these things tend to not happen although
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standard oil
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was not really guilty of raising their
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prices drastically
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as they had to compete against an
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international market
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some other ways that businesses were
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able to manipulate the system and gain
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tremendous power were to form
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trusts again we're looking at very
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simple definitions and very simple
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examples of these things because
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this is a history class not an economics
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class
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but a trust is a group of businesses
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that are run together by a board of
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trustees whose goal basically
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is to eliminate competition and to
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control the marketplace
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they're interested in fixing prices and
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collaborating together
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to squash their common competition
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standard oil is going to form a trust in
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1892.
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basically you hand over your stock to a
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board of trustees and that small board
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of trustees
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runs all the businesses together
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rockefeller also created a holding
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company this was something that was also
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done by other
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business leaders of the time a holding
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company is a business that literally
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doesn't produce anything it simply holds
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or owns
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stock in other companies new jersey
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passed a law that said that a
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corporation could own stock in another
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one and that's where holding companies
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came from
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it's a business that just holds stock in
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other companies
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and again runs them together as one
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large enterprise
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dominating the market eliminating
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competition
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and putting more power and more wealth
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in the hands of a few
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people monopolies became targets for
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political cartoons and reformers as
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we're going to see
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getting into the progressive era this
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political cartoon
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shows standard oil as a octopus a very
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common symbol used to show the power
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and danger of monopolies tentacles
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wrapped around the u.s
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capitol wrapped around the supreme court
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and eyes fixed on the white house
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which hasn't quite been put into the
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grasp of standard oil
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but you can get the implication here
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from this cartoon
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that standard oil is eyeing up the white
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house and in this one too this is the
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senate chambers in the u.s congress we
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can see in the back of the chamber
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standing looking over top of all the
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senators are all of these
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trusts including the standard oil trust
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the sugar trust the coal trust the steel
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beam trust
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and they are literally bags of money
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which would show their financial
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influence over these senators
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their power their wealth dominating the
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government
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the sign here in the top says this is a
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senate of the monopolist by the
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monopolist and for the monopolists
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uh clearly indicating that the monopoly
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has control over the senate
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the people's entrance is closed and
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barred
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indicating that the people no longer
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have a voice in this chamber of
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government
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and that the senate operates under the
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eyes and control
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of the trusts
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so what are some big takeaways we need
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to know moving forward in our study of
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american history
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during this time period well again this
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is a
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very basic introduction to these
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concepts but we need to be aware of them
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moving forward
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corporations developed and grew
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extremely wealthy and extremely powerful
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we'll continue to look at some examples
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of corporate power moving forward
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how do they do this by using the
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economies of scale
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and vertical and horizontal integration
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which allowed them to
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reduce their costs to increase their
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profits and to eliminate competition in
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the marketplace
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this gave them monopolies and trusts
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which allowed them to gain control over
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entire industries eliminate their
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competition
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while engaging in unfair business
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practices
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so that's a quick look at the rise of
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big business during the gilded age
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hopefully you got something out of this
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lesson and are able to apply it to your
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american history studies
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