trusts and corporations

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  • Growth of trusts and corporations
    • Industrial consolidation
      • First was a pool, informal agreement between firms to limit output or divide markets. Not legally binding, disappeared by 1880's
      • 1882, standard oil first trust. Agreement whereby stockholders in diff comps deposit shares with trustees, then exercise unified control over nominally independent firms. Basically abandoned by 1890's because of attacks in state courts.
      • Then the holding company. Buying up stock till majority share-holder so then can control their operations
    • e.g. Rockerfeller
      • If rival firms teamed up against him, would set up pool agreement among several other companies to establish production quotas and fix prices.
        • He implemented horizontal integration, undercut other businesses till forced to sell to him. In 1872, Standard Oil purchased 22 out of its 26 main competitors, 85% oil refining world controlled by Standard Oil.
          • BUT lacked legal status, economy instability as more competition, better to have one controlling all
      • in 1882, various companies combined into the first trust, which would control some 90% of the nation's refineries and pipelines.
        • legal device, to implement Rockefeller and associates persuaded stockholders of forty companies to exchange stock for trust certificates.
          • so could exercise control over nominally independent firms
            • monopoly market structure, only one firm involved in market, sets price as no comp. Stability.
          • Rockefeller integrated petroleum industry vertical and horizontally.
      • Sherman Anti- Trust Act of 1890, gov disliked near-total monopoly. Standard Oil's legal team quickly converted into holding company, function like trust, outside legal definition.
        • by 1899, standard oil 41 oil companies share holder.
    • robber barrons.
      • Carnegie: iron + steel
        • vital: machinery, tools, trains, bridges, railroad tracks.
        • Steel output increased to 11 million tons, more Brit Deu combined
        • secured control over all needed sources of supply.
        • made $40 million in 1900.
        • 1901, comp merged others form US Steel Corporations, controlled 60% USA steel production.
      • JP Morgan- investment banking
        • Co-founder NY banking-house Drexel, reorg 1895 as JP Morgan and Co.
        • bought shares, made management better, sold profit.
    • curbing the trusts
      • 1880, 27 states and territories passed laws prohibiting trusts and other forms of combination.
        • but, not effective, trusts transfer headquarters to trust-supporting states (New Jersey)
      • Rep and Dem 1888 election, know federal action. Hence Sherman 1890.
        • United States v E.C.Knight co

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