The Rise of Big Business
History 1053
What is Big Business? throughout almost 22 million businesses throughout
america, 500 of the top corporations have the most power, and we continue to grant them the most
power.
• ■New corporate form emerges after 1870
• advantage of limited liability: when investors are not at full risk when they invest into a corporation
make it more attractive for people to invest making the corporation expand.
• ■Size & scale-
• Power to manipulate marketsAdam smith-
smith-Scottish economist and author “the wealth of
nations” in 1776 he did not invent capitalism, or even define it, but he criticized other
economies and explained how capitalism should work.
• Supply and Demand is a key idea of Smith: We will have an equilibrium when we have the right
number of producers producing the the exact amount of products, and sell them for the right price.
• Invisible hand of the free market- determines what product is produced, and how much they would sell for.
• 1876- The creation of new entities that have the power to manipulate the market.
• The free market was believed to be the natural law of economies.
• By 1876 the economy was dominated by giant corporations that employed thousands, and earned millions in
profits. the corporations could alter the laws of supply and demand.
• collude- corporations getting together and fixing prices to make sure even an over supply would not cause their
profit to drop and to prevent price wars.
• corporations manipulated man through advertising.
• By 1876, Smith’s views did not apply to the corporations.
• Chandler calls this the “corporate hand” to business market.
• ■Distinctive characteristics
• Criteria for a big Business:
• ■High investment in plant & equipment
• a big business has invested a lot of money into the tools necessary to produce their product. (the
buildings, the equipment etc.) this is a huge investment. These are high fixed costs. These are
expenses you have to pay whether you are making a profit or not.
• Not all businesses could do this making them a minute business.
• ■Operates on national scale
• a small business, and medium businesses, operate on a local or regional scale.
• a big business has such a national scale, since they invested so much into the tools, they need to seek
customers from the widest scale to compensate for their fixed costs, and even profit.
• ■Bureaucratic management structure
• bureaucr
bureaucracy
acy is more of a way of organizing responsibility in this situation. It defines authority and
responsibility. It divides responsibility between departments, and there are numerous departments. It is
formalized by the company manual (the handbook)
• Rules are governed and are listed for how every situation is to be handled
• ■Ownership separated from management
• one of the several characters that truly distinguish a business.
• People who own the business, are not necessarily the ones who manage and work the business.
• Can you buy stock in that business? If yes, then ownership is separated from management.
, • Corporations need capital so it can expand its consumer, so they give out shares. This spreads the risk for a
corporation to fail to all its share holders.
• We invest to get a share of a profit.
• If you can buy stock in the company, and you work for the company, ownership is still separated from
management.
• ■First in RRs, then in manufacturing
• We see this emerge first in the railroads then manurfacturing.
• Railroads are our first big business. this was the first business to raise large amounts of capitol and
operate on a national scale.
• First to divide responsibility, and ownership.
• this is a result of industrialization
• we see this model emerge to govt, agriculture, and by the middle of the 20th century, will spread to almost every
aspect.
• Rise of big business is the most important thing to happen in history since nothing was the same after the
businesses rose.
Why did Big Business form?
• ■By 1870 many constraints solved
• by 1870 we are started to feel the successes of the early part of the industrial revolution.
• new sources of energy, better communication, and new technology!
• problems being solved created some unforeseen consequences.
• ■Success created new problems
• 1837-1871 we had had consistent economic growth, until the depression of 1873, “The long Recession”
• When the economy collapsed, people come to the realization things are no longer the same.
• This occurred in every industry, in every business known, it was happening everywhete.
• This was due to too much supply not enough demand, and prices were very low, and still not enough consumption
despite lowest prices yet.
• When supply and demand meet, the line should equal out and stabilize, but in reality, the only thing that can
happen is consumers keep making more while dropping prices, but to compensate for the money they make more
which is an endless cycle of regressing.
• ■Too much competition, overproduction
• Too much competition = over production = price wars
1. ■Consequence: falling prices & profits
• The only way to stay in business was to steal the opposing business customers, by lowering your prices which
result to falling profits.
• This was “CUT THROAT” competition
• business men took their business personally so they would retaliate against each other by trying to drive the other
out of business, so you lower your prices, but you lower your profits
• ■Deflationary trend
• prices are falling across the board
• prices in EVERYTHING are falling.
• whats wrong with that? consumers love it, but producers can't afford to stay in business if their prices
are too low.
• falling prices and falling profits also lead to falling wages if the price of everything is falling.
• ■Need new solutions
• producers cannot afford to cut back production, and they cant keep dropping their prices.
• this is somewhat darwinian.
History 1053
What is Big Business? throughout almost 22 million businesses throughout
america, 500 of the top corporations have the most power, and we continue to grant them the most
power.
• ■New corporate form emerges after 1870
• advantage of limited liability: when investors are not at full risk when they invest into a corporation
make it more attractive for people to invest making the corporation expand.
• ■Size & scale-
• Power to manipulate marketsAdam smith-
smith-Scottish economist and author “the wealth of
nations” in 1776 he did not invent capitalism, or even define it, but he criticized other
economies and explained how capitalism should work.
• Supply and Demand is a key idea of Smith: We will have an equilibrium when we have the right
number of producers producing the the exact amount of products, and sell them for the right price.
• Invisible hand of the free market- determines what product is produced, and how much they would sell for.
• 1876- The creation of new entities that have the power to manipulate the market.
• The free market was believed to be the natural law of economies.
• By 1876 the economy was dominated by giant corporations that employed thousands, and earned millions in
profits. the corporations could alter the laws of supply and demand.
• collude- corporations getting together and fixing prices to make sure even an over supply would not cause their
profit to drop and to prevent price wars.
• corporations manipulated man through advertising.
• By 1876, Smith’s views did not apply to the corporations.
• Chandler calls this the “corporate hand” to business market.
• ■Distinctive characteristics
• Criteria for a big Business:
• ■High investment in plant & equipment
• a big business has invested a lot of money into the tools necessary to produce their product. (the
buildings, the equipment etc.) this is a huge investment. These are high fixed costs. These are
expenses you have to pay whether you are making a profit or not.
• Not all businesses could do this making them a minute business.
• ■Operates on national scale
• a small business, and medium businesses, operate on a local or regional scale.
• a big business has such a national scale, since they invested so much into the tools, they need to seek
customers from the widest scale to compensate for their fixed costs, and even profit.
• ■Bureaucratic management structure
• bureaucr
bureaucracy
acy is more of a way of organizing responsibility in this situation. It defines authority and
responsibility. It divides responsibility between departments, and there are numerous departments. It is
formalized by the company manual (the handbook)
• Rules are governed and are listed for how every situation is to be handled
• ■Ownership separated from management
• one of the several characters that truly distinguish a business.
• People who own the business, are not necessarily the ones who manage and work the business.
• Can you buy stock in that business? If yes, then ownership is separated from management.
, • Corporations need capital so it can expand its consumer, so they give out shares. This spreads the risk for a
corporation to fail to all its share holders.
• We invest to get a share of a profit.
• If you can buy stock in the company, and you work for the company, ownership is still separated from
management.
• ■First in RRs, then in manufacturing
• We see this emerge first in the railroads then manurfacturing.
• Railroads are our first big business. this was the first business to raise large amounts of capitol and
operate on a national scale.
• First to divide responsibility, and ownership.
• this is a result of industrialization
• we see this model emerge to govt, agriculture, and by the middle of the 20th century, will spread to almost every
aspect.
• Rise of big business is the most important thing to happen in history since nothing was the same after the
businesses rose.
Why did Big Business form?
• ■By 1870 many constraints solved
• by 1870 we are started to feel the successes of the early part of the industrial revolution.
• new sources of energy, better communication, and new technology!
• problems being solved created some unforeseen consequences.
• ■Success created new problems
• 1837-1871 we had had consistent economic growth, until the depression of 1873, “The long Recession”
• When the economy collapsed, people come to the realization things are no longer the same.
• This occurred in every industry, in every business known, it was happening everywhete.
• This was due to too much supply not enough demand, and prices were very low, and still not enough consumption
despite lowest prices yet.
• When supply and demand meet, the line should equal out and stabilize, but in reality, the only thing that can
happen is consumers keep making more while dropping prices, but to compensate for the money they make more
which is an endless cycle of regressing.
• ■Too much competition, overproduction
• Too much competition = over production = price wars
1. ■Consequence: falling prices & profits
• The only way to stay in business was to steal the opposing business customers, by lowering your prices which
result to falling profits.
• This was “CUT THROAT” competition
• business men took their business personally so they would retaliate against each other by trying to drive the other
out of business, so you lower your prices, but you lower your profits
• ■Deflationary trend
• prices are falling across the board
• prices in EVERYTHING are falling.
• whats wrong with that? consumers love it, but producers can't afford to stay in business if their prices
are too low.
• falling prices and falling profits also lead to falling wages if the price of everything is falling.
• ■Need new solutions
• producers cannot afford to cut back production, and they cant keep dropping their prices.
• this is somewhat darwinian.
