Industrial Entrepreneurs or Robber Barons?

This lesson focuses on a group of nineteenth century industrial entrepreneurs described in many history books as Robber Barons. It calls upon students to analyze the activities of these entrepreneurs in order to draw conclusions about the innovations and business practices for which they are known. To carry out this analysis, the students examine techniques of mass production, division of labor and vertical and horizontal integration, noting their effects on industrial output and other outcomes. They also read a case study on John D. Rockefeller and discuss the characterization of him as a Robber Baron.

This lesson focuses on a group of nineteenth century industrial entrepreneurs described in many history books as Robber Barons. It calls upon students to analyze the activities of these entrepreneurs in order to draw conclusions about the innovations and business practices for which they are known. To carry out this analysis, the students examine techniques of mass production, division of labor and vertical and horizontal integration, noting their effects on industrial output and other outcomes. They also read a case study on John D. Rockefeller and discuss the characterization of him as a Robber Baron.

The nineteenth century industrialists often described as Robber Barons include Andrew Carnegie of Carnegie Steel, John D. Rockefeller of Standard Oil, and Cornelius Vanderbilt, a railroad magnate. (The term Robber Baron was first used in a history book published by Matthew Josephson in 1934.) Accumulating great wealth through entrepreneurial activity and innovation, these men became recognized leaders in industry and business circles, known particularly for business consolidations on a large scale and for focusing sharply on innovative management practices.

Their achievements yielded benefits and costs. The benefits flowed from a new emphasis on improving efficiency in the workplace. Innovators achieved this emphasis by replacing decentralized methods of production with mass production, developing specialized production techniques and cutting production costs through vertical and horizontal integration. The costs, also flowing from an emphasis on efficiency, included certain harmful effects of monopoly practices and conditions affecting workers.

This lesson was originally published in CEE’s, Focus: Understanding Economics in U.S. History, a collection of activity-based lessons that use a mystery-solving approach to teach U.S. economic history to high school students.  Visit CEE’s Storefor more information about this publication and how to purchase it.

• Evaluate the entrepreneurial careers of prominent industrial and financial leaders in the United States late in the nineteenth century.
• Analyze business consolidation and techniques of mass production, identifying effects on costs, competition and restraints on trade.
• Analyze business consolidation and techniques of mass production.

Transparencies:

• Visual 24.1
• Visual 24.2
• Visual 24.3

Activities for each student:

• Activity 24.1
• Activity 24.2

1. Explain that the purpose of this lesson is to examine the role played by leading industrialists of the late nineteenth century, including Andrew Carnegie and John D. Rockefeller. Some historians refer to these individuals as Robber Barons. The term Robber Barons connotes a derogatory judgment, implying that the individuals in question gained their success through special privilege or unethical business practices. Others regard the same individuals as industrial entrepreneurs — people who took risks in order to produce goods and services for consumers. Which description is accurate? Were these men Robber Barons or industrial entrepreneurs focused on pleasing their customers?
2. Ask: What do you think might be some of the characteristics of an entrepreneur? (Accept a variety of answers.)
3. Display Visual 24.1. Use it to encourage discussion of the traits of the entrepreneur. Stress the strong tendency of entrepreneurs to take risks and innovate. Emphasize that entrepreneurs always envision success — and they always face the risk of failure.
4. Ask: What do you suppose is the most important incentive motivating entrepreneurs to innovate and take risks? (Accept a variety of answers.) Explain that the answer is property rights. Property rights give entrepreneurs the legal right to realize the profits and gain other rewards that result from their risky entrepreneurial ventures.
5. Display Visual 24.2. Explain how entrepreneurial activities (also referred to as Causes in the Visual) have effects on output, supply, costs and employment. Stress the point that when output increases, prices will fall (if nothing else changes). And when production increases, the demand for labor will rise, along with income and consumption.
6. Display Visual 24.3. Direct the students’ attention to S1 and D. Ask the following:
   • Why do producers increase their output when price increases?
     (The potential for profit rises as price increases. To earn a profit, producers will produce more of the items that command higher prices. This is why the supply curve is upward sloping.)
   • Why is the demand curve downward sloping?
     (As the price of a product increases, consumers purchase less of it, seeking instead to buy substitute products at lower prices.)
   • Identify the equilibrium point in the graph — the point at which every buyer finds a seller and every seller finds a buyer at one price called the equilibrium price.
     (X marks the equilibrium spot. At the equilibrium price, the quantity demanded by consumers equals quantity supplied by producers.)
7. Continue to display Visual 24.3. Ask the students to explain how mass production and new techniques to improve efficiency change the supply curve depicted in Visual 24.3.
   • More specifically: Does supply increase or decrease when efficiency improves and costs are cut through mass production?
     (Supply increases and is depicted by a rightward and downward shift in the supply curve. Cost-saving techniques increase supply. The supply curve shifts from S1 to S2.)
   • How will the shift in the supply curve change the market price and quantity?
     (Again, X marks the equilibrium spot. Price falls and quantity produced increases.)
8. Explain that John D. Rockefeller has often been described as a Robber Baron. Yet Rockefeller exhibited many of the characteristics of an entrepreneur and a competitive producer in a new market. Distribute Activity 24.1. When the students have read the Activity, ask:
   1. What innovations did Rockefeller introduce in the U.S. oil industry?
      (He introduced cost-cutting measures, especially in transportation of oil. For example, he introduced the use of the railroad tank car.)
   2. Why is Rockefeller regarded by some as a cutthroat competitor?
      (He is accused of selling below his costs, or “dumping” goods on the market in order to undercut his competitors and drive them out of the market.)
   3. Do you think the criticism is justified?
      (It is easy to understand why Rockefeller’s competitors disliked him. His costs were lower than those of his competitors. He could reduce prices below those of his competitors and still earn a profit. This put pressure on Rockefeller’s competitors to combine with him or go out of business.)
   4. Rockefeller was praised for his philanthropy. Was this his most important economic contribution?
      (Probably not. His most important economic contribution was providing lower prices to millions of consumers.)
9. Distribute Activity 24.2. Explain that during the nineteenth century, two types of business consolidation emerged. Horizontal mergers occurred when one firm consolidated with other firms producing similar products. For example: If one manufacturer of lawn mowers merged with another manufacturer of lawn mowers, that would be an instance of horizontal merger. By contrast, vertical mergers occurred when one firm consolidated with other firms producing goods or providing services along the same production chain. For example: If a manufacturer of lawn mowers merged with a manufacturer of small engines used in lawn mowers, that would be an instance of vertical merger. Ask the students to apply their under- standing of the two concepts by completing Activity 24.2. (Answers: 1A, 2B, 3B, 4A, 5B, 6A.)

In one of Shakespeare’s most famous plays, a character named Juliet poses a famous question. “What’s in a name?” she asks. “That which we call a rose by any other name would smell as sweet.” Juliet was onto something. No matter what we choose to call them, the industrial magnates of the late nineteenth century left their mark on the U.S. economy. Ask:

• What are some of the characteristics of an entrepreneur?
  (In their efforts to earn a profit, entrepreneurs are willing to take risks and organize resources in innovative ways.)
• What is a primary effect of entrepreneurial activities on supply and market price?
  (Entrepreneurial activities usually result in an increase in supply and a decrease in price.)
• How did John D. Rockefeller’s business practices benefit consumers?
  (Through innovations, such as those in transportation, Rockefeller reduced prices paid by consumers.)
• Why do you think so many competitors were willing to combine with him rather than compete against him?
  (They wanted to avoid going out of business. Rockefeller offered them an opportunity to stay in business and share in the profits he earned.)
• Why did many people accuse Rockefeller of being a cutthroat competitor?
  (Few people enjoy tough competition. Many of Rockefeller’s critics stress the difficulties his competitors faced and the dangers posed by his consolidations. Few acknowledge the benefits to consumers, evident in lower prices.)

None.

Multiple-Choice Questions

1. Fully protected rights to any rewards or profits result in which of the following:
   1. Individuals avoiding risks.
   2. Consumer rebellion.
   3. Government intervention.
   4. Innovation, invention and entrepreneurship.
2. John D. Rockefeller assumed ownership of 39 other oil companies. This is an example of
   1. Horizontal integration.
   2. Spending to buy volume.
   3. Vertical integration.
   4. Integrating sales staffs.

ESSAY QUESTIONS

1. In what way did the activities of the industrial magnates positively and negatively impact the lives of their workers?
   (Possible answer: The positive aspects include, but are not limited to, an increase in the total number of jobs, income and consumption. The negative aspects are stressful, hazardous and changing working conditions.)
2. Use economic reasoning to explain why competitors may have hated Rockefeller while consumers may have loved him.
   (Possible answer: Rockefeller, through his use of tankers and pipelines, devised ways to reduce his production costs faster than his competitors could reduced theirs. He was accused of selling oil below his costs to drive out competitors. However, the innovations he introduced reduced his costs. He was able to make a profit at lower prices than those charged by his competitors. Consumers benefited from these lower prices.)