HIS CH 6-3 BUSINESS EMERGES

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Multiple Choice
Identify the choice that best completes the statement or answers the question.

BIG BUSINESS EMERGES

Andrew Carnegie was one of the first industrial moguls to make his own fortune.
His rise from rags to riches, along with his passion for giving his fortune away to charities
and other noble causes, made him a model of the American success story.

Carnegie's Innovations

Carnegie was so inspired by his first investment experience that he continued buying stock in new companies and inventing new business practices. By 1865, he had earned so much money in dividends that he was able to leave his job at the Pennsylvania Railroad. He entered the steel business in 1873, shortly after touring a British steel mill and witnessing the awesome spectacle of the Bessemer process in operation. By 1899, the Carnegie Steel Company manufactured more steel than all the factories in Great Britain.

From the first paragraph we can tell that Andrew Carnegie .....

a.	never had to work very hard for a living	c.	came from a middle class family
b.	was born rich	d.	was born poor

Carnegie first worked at the _____ and then entered the _____ business

a.	Pennsylvania railroad - steel business	c.	investment banking - railroad
b.	Pennsylvania railroad - investment banking	d.	U.S. Steel company - railroad

We can safely say that Andrew Carnegie was

a.	a self made man	c.	an irresponsible person
b.	dependent on the government for his success.	d.	a cautious person who did not like to take chances

MANAGEMENT TECHNIQUES

Carnegie's success was due in part to management practices that he initiated and that soon became widespread. First, he continually searched for ways to make better products more cheaply. He incorporated new techniques and machinery in his plants and hired chemists and metallurgists to improve the quality of his steel. Detailed accounting systems enabled him to track the precise cost of each process and every item. Second, he attracted talented people to his operations. He hired topnotch assistants, offered them stock in the company, and encouraged competition among them to increase production and cut costs.

BUSINESS STRATEGIES

In addition to improving his own manufacturing operation, Carnegie attempted to control the entire steel industry as much as possible. He did this mainly by a process known as vertical integration, in which he bought out all his suppliers-coal and iron mines, ore freighters, and railroad lines. Controlling the raw materials, transportation systems, and every stage of the manufacturing process gave him total power over the quality and cost of his product.

Carnegie also attempted to buy out competing steel producers in a process known as horizontal consolidation. In this process, companies producing similar products merge. Having gained control over both his suppliers and his competition, Carnegie almost monopolized the steel industry. By the time he sold his business in 1901, the Carnegie Steel Company was producing 80 percent of the nation's steel.

Carnegie’s management goal was to

a.	make cheaper products that produced more profits, regardless of the quality	c.	create a happy work force that enjoyed working in a relaxed atmosphere
b.	improve his product and produce it more cheaply	d.	spend money freely because of the income tax deductions he could get

Andrew Carnegie’s management techniques were

a.	cautious	c.	cruel
b.	innovative	d.	relaxed

The process that Carnegie used to control the entire steel industry is known as

a.	creative book keeping	c.	horizontal consolidation
b.	the Bessemer Process	d.	vertical integration

When one company tries to buy out all of the other companies in the same business, it is known as

a.	vertical integration	c.	token ring networking
b.	horizontal consolidation	d.	trust busting

There is really no proof that Andrew Carnegie was a successful businessman. His legend may well be a myth. This statement is ...

a.	true	c.	there is no way to tell
b.	false

Social Darwinism and Business

Carnegie explained his extraordinary success by pointing to his hard work, shrewd investments, and innovative business practices. Late-19th-century social philosophers, on the other hand, thought that Carnegie's achievement could be explained by a new theory-Social Darwinism.

PRINCIPLES OF SOCIAL DARWINISM

The philosophy of Social Darwinism grew out of the English biologist Charles Darwin's theory of biological evolution, which appeared in the Origin of Species in 1859. Darwin had observed not only that individuals of a particular species differ but also that some individuals flourish and pass their traits along to the next generation, while others do not. He explained this as a process of natural selection, which he claimed weeded out weaker individuals and enabled the strongest to survive.

Darwin's biological theories captured the interest of economists, who used his ideas to justify the doctrine of laissez faire (a French term meaning "allow to do"). In practice, this doctrine translated into an absence of regulation in the marketplace. In his 1862 book First Principles, the British philosopher Herbert Spencer spelled out the principles of Social Darwinism-that free competition in the economy, like natural selection in the biological arena, would ensure survival of the fittest. A political science professor at Yale University, William Graham Sumner, went even further, saying that success and failure in business were actually governed by natural law and that no one-particularly the government- had the right to intervene.

Carnegie believed that his success was due to

a.	creativity and hard work	c.	His superiority
b.	luck	d.	Government support

10.

Social Darwinism was an attempt to apply the biological theories of Charles Darwin to society and the economy

a.	true	c.	there is no way to tell
b.	false

11.

The philosophy of laissez faire said that

a.	the government needed to control business to ensure success	c.	workers are lazy and needed to be controlled by business
b.	the government should leave business alone to ensure that the strongest companies would survive and benefit all society	d.	the government should help business to ensure that the strongest companies would survive and benefit all society

12.

The Declaration of Independence supports Social Darwinism and that is why we have so many poor people in America

true

false

A NEW DEFINITION OF SUCCESS

In providing support for the survival and success of the most capable, Social Darwinism naturally made sense to the 4,000 millionaires who had emerged since the Civil War. However, because the theory supported the notion of individual responsibility and blame, it also appealed to the Protestant work ethic of many Americans. Social Darwinism supported the belief that riches were simply a sign of God's favor and that the poor must be lazy or inferior people who deserved their lot in life.

Popular literature reinforced the emerging cult of the individual. Horatio Alger was one of the most successful writers of the time, and readers gobbled up his inspirational stories. His 135 novels, which sold millions of copies each, often featured an orphan or street urchin who rose to good fortune through model behavior. Though Alger's characters were often extraordinarily lucky, their virtue made them deserve their good fortune. While Alger's stories supported the work ethic, they implied that there was no shame in humble or lowly beginnings. Instead, they focused on the opportunities that awaited those who were upright, energetic, and smart, and popularized the idea of "pulling yourself up by your own bootstraps.

13.

In the late 1800’s people believed that success or failure was

a.	the social responsibility of the government	c.	a matter of personal responsibility
b.	the social responsibility of Christianity	d.	determined at birth

14.

A series of popular books in the late 1800’s with a character named, Horatio Alger, taught that people could “pull themselves up by their own bootstraps.” This phrase meant that

a.	everything you will become in life is determined at birth	c.	only the wealthy, who owned boots were likely to succeed in life
b.	one had to live in America to succeed	d.	anyone could succeed if they were willing to work

15.

The ideas in the Horatio Alger books supported the enlightenment philosophy expressed in the Declaration of Independence

a.	true	c.	the ideas are unrelated
b.	false

GROWTH AND CONSOLIDATION

Many industrialists took the approach "If you can't beat them, join them." That approach set the stage for the rise of an oligopoly-a market in which only a few sellers provided a particular product. An oligopoly was formed when businesses producing similar products joined together. This horizontal consolidation often took the form of mergers. A merger usually occurred when one corporation bought out the stock of another. A firm that managed to buy out all its competitors could achieve a monopoly, or complete control over its industry's production, quality, wages paid, and prices charged.

One way to create a monopoly was to set up a holding company, a corporation that did nothing but buy out the stock of other companies. Headed by banker J. P. Morgan, United States Steel was one of the most successful holding companies. In 1901, when it bought the largest manufacturer, Carnegie Steel, for almost $500 million, it became the world's largest business organization.

Corporations such as the Standard Oil Company, established by John D. Rockefeller, took a different approach to mergers and joined with competing companies in trust agreements. Participants in a trust turned their stock over to a group of trustees-people who ran the separate companies as one large corporation. In return, the companies received certificates that entitled them to dividends on profits earned by the trust. Trusts were not legal mergers, however. Rockefeller made the most of this legal gray area to gain total control of the oil industry in America.

16.

If one or two auto companies controlled most of the companies that produced the things needed to make a car, we would call those auto companies

a.	a dictatorship	c.	laissez faire
b.	socialist	d.	an oligopoly

17.

If one auto company bought up all of the other auto companies, it would have _____ over the auto industry

a.	marginal control	c.	true Capitalistic control
b.	a monopoly	d.	social control

18.

A company that did not produce anything but just bought up the stock of other companies was called

a.	a Western Alliance	c.	a holding company
b.	corporation	d.	a production company

19.

Companies who turned there stock over to a group of people called “trustees” who ran the separate companies as one big corporation we called

a.	anti-trust corporations	c.	competitive companies
b.	central banks	d.	trusts

20.

Who owned most of the oil companies in the late 1800’s

a.	J.P. Morgan	c.	John D Rockefeller
b.	Andrew Carnegie	d.	William Gates

21.

Who owned most of the steel industry in the late 1800’s?

a.	Edison and Westinghouse	c.	Andrew Carnegie
b.	John D Rockefeller	d.	B.T. Barnum

22.

This person was a banker, financier and head of the biggest holding company in the late 1800”s

a.	John D Rockefeller	c.	Andrew Carnegie
b.	J.P. Morgan	d.	Andrew Mellon

ROCKEFELLER AND THE ROBBER BARONS

Rockefeller's achievement was remarkable. In 1870, the Standard Oil Company of Ohio processed two or three percent of the country's crude oil. Within a decade it controlled 90 percent of the refining business. Rather than passing savings along to employees or consumers, however, Rockefeller reaped large profits. He paid his employees extremely low wages and drove his competitors out of business by selling his oil at a lower price than it cost to produce it. Then, when he had control of the market, he hiked prices far above their original level to gain back his money. Rockefeller's agents also used their clout to win rebates on railroad shipping costs and kickbacks from the higher fees railroads charged to other firms.

Alarmed at the ruthless tactics of industrialists, critics began to call them robber barons, after the feudal lords who had owned estates in Europe during the Middle Ages. Men such as Rockefeller, Morgan, and Carnegie defended their wealth by pointing to the charities they sponsored and the philanthropy in which they engaged. Indeed, they often gave away fortunes that others could only dream about. Although Rockefeller held onto most of his wealth, he still gave away over $500 million, establishing the Rockefeller Foundation, providing $80 million to found the University of Chicago, and creating a medical institute that helped stamp out yellow fever.

Andrew Carnegie actually gave away less money than Rockefeller did-a mere $325 million-but he was a fiery evangelist for his self- styled "gospel of wealth." He believed that people should be allowed to make as much money as they could but then should pass it along to worthy causes. Carnegie's donations- 90 percent of the wealth he accumulated during his lifetime- helped fund Carnegie Hall in New York City, the Carnegie Foundation, and 3,000 libraries across the nation. His fortune still supports the arts and learning today. "It will be a great mistake for the community to shoot the millionaires," he said, "for they are the bees that make the most honey, and contribute most to the hive even after they have gorged themselves full."

23.

Why did Rockerfeller sell his oil at prices lower than the other oil companies

a.	to bring down prices for the consumer	c.	to drive his competition out of business
b.	to encourage more oil production	d.	he did not sell his oil cheaper

24.

Why did people call Rockefeller, Morgan, Carnegie and other industrialists, “Robber Barons?”

a.	they were made barons by President Grant and then Grover Cleveland	c.	they used unethical business practices to get control of industry in the U.S. and make profits for themselves
b.	they stole money from the U.S. government mint in Philadelphia and Chicago.	d.	they pulled themselves up by their own boot straps

25.

What did Carnegie and Rockefeller do with their money after they retired.

a.	put it in the bank	c.	gave it away to good causes
b.	re-invested in third world countries	d.	saved it

SHERMAN ANTITRUST ACT

The economic system that we use in the United States is called Capitalism. This philosophy is based on the idea that companies need to be free to compete with each other. Without competition there is no Capitalism.

Despite Carnegie's defense of millionaires, the government took a stand against monopolies. In 1890, concerned that expanding corporations would stifle free competition, Congress passed the Sherman Antitrust Act. The act stated that any attempt to interfere with free trade between states or internationally by forming a trust was illegal

Enforcement of the Sherman act proved to be nearly impossible, however. Because the act didn't clearly define terms such as trust, prosecuting companies was not easy. In addition, if firms such as Standard Oil felt pressure from the government, they simply dissolved their trusts and reorganized into single corporations. The Supreme Court also refused to support the act and threw out seven of the eight cases the federal government brought against trusts. Eventually, the government stopped trying to enforce the Sherman Antitrust Act, and the consolidation of businesses continued.

26.

Why did the government enact the Sherman Antitrust Act?

a.	They wanted to preserve free competition	c.	Both of these reasons
b.	They wanted to preserve the Capitalist system	d.	Neither of these reasons

27.

Why did the government have trouble enforcing the Sherman Anti Trust Act?

a.	The government did not want to enforce it	c.	It expired before the government could enforce it
b.	The Act failed to define certain terms which left it open to manipulation by the Trusts and lawsuits by lawyers	d.	The government did not have trouble enforcing it.

28.

The Supreme Court failed to support the Sherman Anti Trust Act by ruling against it and in favor of the large corporations.

true

false

Business Boom Bypasses the South

The industrialization that fueled this growth and controversy was concentrated in the North, where natural and urban resources were plentiful. The South, on the other hand, was still trying to recover from the physical devastation it had suffered in the Civil War. Its economic growth was also hindered by a lack of capital-money for investment-and by a scarcity of large cities.

ECONOMIC CAUSES

Before the Civil War, several banks served the South, providing capital for some business and educational ventures. This situation changed after the war, however, when people with capital were unwilling to invest in what they considered to be a poor risk. Northern businesses already owned 90 percent of the stock in the most profitable Southern enterprise, the railroads, thereby keeping Southerners in a stranglehold. The Southern economy remained basically agricultural, with farmers at the mercy of railroad rates. The few brave business entrepreneurs suffered not only from excessive transportation costs, but also from high tariffs on raw materials and manufactured goods that they needed to import. The post-Reconstruction South seemed to have no way to climb out of the pit of economic stagnation.

SOCIAL CAUSES

In addition to economic obstacles to industrial growth, social factors were just as powerful. Southern businesses had to compete with well-established Northern companies not only for capital and markets but also for skilled workers. One Southern businessman complained, "The shops north owe their success largely to the mechanics in their employ. . . . Down here anybody who can pull a monkey wrench and pound his machine with a hammer and cuss the builder for making such a machine is called a mechanic." Growth did take place rapidly, though, in Southern industries such as forestry and mining, and in the tobacco, furniture, and textile industries. This regional growth did change and improve the lives of millions of Americans.

Although the North preceded the South in entering the industrial age, Northern wage earners were not much better off than Southern laborers. Low pay and poor working conditions drew American workers together in a nationwide labor movement to demand their rights.

29.

The economic industrialization that the North enjoyed, did not occur in the South because ......

a.	the South lacked cities	d.	the South was mainly agricultural
b.	the South could not get loans to start businesses	e.	all of these are reasons
c.	most Southern businesses were already owned by the North

30.

Because the South was mainly agricultural, it did not have many skilled workers which were needed to make industrialization work

a.	true	c.	there is no way to tell
b.	false