No Laissez Faire There
The Gilded Age
(This article is based on remarks delivered at the meeting of the Association of Private Enterprise Education in April.)
Friends of the free market tend to see the Gilded Age, roughly 1870-1890, as the closest thing in history to a laissez-faire economy. In some respects that is true — but it’s not saying much because the bar is low. I’d rather we didn’t mark on a curve. The period could be closest to laissez faire without being terribly close. (In important respects, including the legal status of blacks, women, and others, the period compares rather poorly with our time.)
It would be surprising if the Gilded Age had been marked by genuinely free markets for the simple reason that it followed a major war. War, Randolph Bourne wrote, is the health of the State. He meant this in a spiritual sense. In war people who were previously busy with their own individual and community lives suddenly develop a new-found awe for the State and the nation it claims to embody. State-worship doesn’t go away with the war’s end. Rather a permanent change occurs in the people’s psyche. Robert Higgs’s analysis in Crisis and Leviathan adds a material dimension to Bourne’s theme. Not only does government gain new prestige in war, it also gains new powers, not all of which are relinquished when the war ends.
Thus we would expect that the economy following the American Civil War to be profoundly shaped by the war. (See the special Civil War issue of The Freeman.) For one thing, individuals made fortunes through contracting for goods and services, and handling of government debt. Influential business figures cultivated close relationships with leading politicians and bureaucrats – if they didn’t have them already. Government needed to buy all sorts of things and to borrow money. Who was it going to call? War is lucrative even without letter-of-the-law corruption.
Hamilton-Clay Program
The administration of Abraham Lincoln finally gave America the Hamilton-Clay program: a national bank, railroad subsidies and land grants, high tariffs, excise taxes, and other interventions. It was a rent-seeker’s delight. As Richard Kaufman wrote in The War Profiteers, “The most important of the nineteenth-century American capitalists acquired their first great fortunes during the war. J.P. Morgan, Philip Armour, Clement Studebaker, John Wanamaker, Cornelius Vanderbilt, and the du Ponts had all been government contractors. Andrew Carnegie got rich speculating in bridge and rail construction while assistant to the Assistant Secretary of War in charge of military transport.”
This wouldn’t seem to present ideal conditions for the postwar emergence of a free market. Too many people had a taste of power, privilege, and fortune, not to mention the inside track with federal and state officials. They weren’t likely to volunteer to give up those benefits. The eradication of evil — chattel slavery — came with a good deal of pro-business economic intervention (corporatism). The result was the forced, conscious creation of a national economy according to a politically worked-out blueprint rather than spontaneous market evolution. (Benjamin Tucker’s identification of four State sources of monopoly — patents, tariffs, money, and land — is relevant here.)
I leave aside here what we should call the existing nonfree-market economic system. (Regarding the name capitalism, see this.)
The Gilded Age of course has been criticized by enemies of the free market — corporatism and the free market have been sloppily and even intentionally conflated — but what’s often unappreciated is that writers sympathetic to the free market have disparaged the Gilded Age as broadly illiberal and contrary to the spirit of free enterprise. Where many libertarians see laissez faire, these writers saw corruption and privilege distorting commerce. I’ll cite two examples here: Arthur A. Ekirch Jr. and George C. Roche III.
Expansion and Consolidation
Ekirch (1915-2000) was a distinguished professional historian and academic whose book The Decline of American Liberalism should be read by every lover of freedom. (Liberal for Ekirch meant free markets, decentralized power, and individual liberty.) Since I’ve written about Ekirch previously (here, here, and here), I won’t dwell on him except to note his observation that “Later, in the postwar period, it would be forgotten that many of the national problems associated with the rise of big business and monopoly had their origins in this earlier era of expansion and consolidation during the Civil War.” He quoted the 1876 liberal Democratic president candidate, Samuel Tilden, who said:
The demoralization of war — a spirit of gambling adventure, engendered by false systems of public finance; a grasping centralism, absorbing all functions from the local authorities, and assuming to control the industries of individuals by largesses to favored classes from the public treasury of moneys wrung from the body of the people by taxation — were then, as now, characteristics of the period.… The classes who desire pecuniary profit from existing governmental abuses have become numerous and powerful beyond any example in our country…. For the first time in our national history such classes have become powerful enough to aspire to be in America the ruling classes, as they have been and are in the corrupt societies of the Old World.
Just a bit more from Ekirch:
Beginning with the economic legislation of the war years, the Republican party gave the business interests of the North the protection and encouragement they desired….
Instead of the limited state desired by Jeffersonian believers in an agrarian society, the post-Civil War era was characterized by the passage of a stream of tariffs, taxes, and subsidies unprecedented in their volume and scope….
Also vital to big business was patent law, with its provisions granting exclusive rights to an inventor for seventeen years; this enabled companies to buy up and hoard patents, using such control to maintain a monopoly.
Roche (1935-2006), who once worked at FEE, was the president of Hillsdale College for many years and the author of works that include Frederic Bastiat: A Man Alone. In 1974 he published The Bewildered Society, which contains a scathing portrayal of the Gilded Age. Here are a few choice quotations:
The businessmen of the nineteenth century are to be blamed for courting government to gain special privilege…. The late nineteenth century was an era conspicuously dominated by the assumption that government could be used to achieve various special interest projects, whether it was building a railroad or the development of an “infant industry.”…
Corruption soon followed the new American acceptance of highly centralized political power as a problem-solving device. The process quite clearly began with the American Civil War…. It is true that a time of tremendous building did occur in industry, communication, and transportation across our American continent following the Civil War. But it is also true that the era brought with it the spoilsmen in politics and the exploiters in economic life who were quite willing to work hand in glove in taking the American people for a ride. Boss Tweed and Jim Fisk [pictured here] were all too symbolic of their era….
Never before in American life had the temptation for corruption been so great. Following the Civil War, politicians found themselves dealing in land grants, tariffs, mail contracts, subsidies, mining claims, pensions. The power of taxation gave them power to protect or de[s]troy individual businesses….
The corporation is now and has always been derived entirely from power granted by the state, power directly dependent upon continued enforcement of laws providing it with its special privileges and immunity….
The interpretation of American history which views the latest nineteenth-century businessman as a free enterpriser, while describing government activity as an attempt to restrain laissez-faire, is simply not borne out by the facts.
You get the idea. Similar views were expressed six decades earlier by laissez-faire advocate William Graham Sumner.
It would behoove libertarians not to view this period of corporatist privilege with nostalgia – doing so undermines the free-market cause. This doesn’t mean that government-business control over economic activity was total. There were spaces for genuine competitive market activity and entrepreneurship, which is why the period saw dramatic economic growth and rising living standards. It’s also why big business helped usher in the Progressive-era regulatory “reforms.” But that’s a topic for another day.
Pingback by No Laissez Faire There | Van Winkle Cares on 6 May 2011:
[...] Richman has interesting thoughts on the non-existence of laissez faire capitalism. This entry was posted in Resources by [...]
Comment by Gary Alder on 6 May 2011:
Very well articulated!
I like to say that freedom is practiced in the economic realm and that intervention by government is always followed by a loss of freedom. My research has proven to me that the theory of freedom (which is totally dependent upon free exchange of value in the economic realm) has not intersected with the practice which tends to mercantilism, socialism, and corporatism. I long for the day that freedom will be practiced in this “land of the free”.
Comment by Chris Bieber on 6 May 2011:
Thank you FEE and Mr. Richman.
the Orwellian cooption and redefinition of words is unfortunately well displayed in “conservative” and free market defences of the fin de siecle and the gay 90′s….
Almost as sad is the continuing and ongoing defense of the “Reagan Revolution” with the free market rhetoric-quite good in fact and delivery-not matching the reality and actions of the Administration. Its slavish, almost cultish defenders dont look at the actions and results of the actions but dwell on the words.
Global interventionism, cheap money, not abolishing any of the socialist alphabet monstrocities, and the clever and amazing Doublethink of supporting Strong America and Strong Defense while printing more fiat dollars and subsidizing the MilIndComplex with said paper. The cheering on of the charade and the Pavlovian defense of it today was and is staggeringly sad.
The den of iniquity and the grave of freedom principles, DC, has not changed its stripes since the 1880′s..it has only engrained itself…and has poisoned the minds of Americans and American youth, and we are all getting to experience the result of the Doublethink, of freedom and State Nationalism being mutually INclusive…just look at the front page of the paper…or the latest National Review or Weekly Standard.
Keep up the good fight FEE and Mr. Richman.
Thanks again.
Chris Bieber
CA YAF State Director 1985-1995
Pingback by Have we ever had true capitalism? | The Locker Room on 6 May 2011:
[...] {"data_track_clickback":true};var addthis_options = "facebook,twitter,email,favorites,print,"In his TGIF column, Sheldon Richman points out that even in the late-19th century, the supposed era of rugged [...]
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[...] here’s Sheldon Richman’s contribution to our FMAC panel at APEE. (function() {var s = document.createElement('SCRIPT'), s1 = [...]
Comment by Novista on 7 May 2011:
Nicely presented, sir.
One of the ‘lessons’ I try to education progressives with is, James T. Hill and the Great Northern railroad — the only successful one and built with his and other capital. No subsidies needed.
So he was the free marketer, and the rest were just crony capitalists, not worth anyone’s admiration.
Comment by Steve on 8 May 2011:
If the free market never existed, where is the evidence that it works so well?
Comment by Sheldon Richman on 9 May 2011:
Steve, we can tell this from our knowledge of theory and historical examples where the market was allowed to work.
Comment by N. Joseph Potts on 9 May 2011:
Most of us who’ve been aware for longer than the past ten years sense an ongoing ACCRETION of statism, bureaucracy, regulation, and EROSION of freedom as this continues.
The tendency to simply extrapolate such a (perceived) trend back in time is so natural that most people would do it unless stopping themselves and making themselves think: does scientific “progress” always continue at the same rate? Even in the same (upward?) direction, at all times? No, and neither do social progress or regression.
So an unconscious assumption that “things were better back then” is what anyone would make who hasn’t directed thought, followed by some inquiry, to the matter.
This article assists both the stopping and thinking, AND the inquiry phase that should follow it.
Comment by Anonymous on 11 May 2011:
Mr Richman,
And can you give us examples of where the market was allowed to work?
Comment by Em on 11 May 2011:
Mr Richman,
Can you give us specific examples of where the market was allowed to work? (significant enough to warrant support)
Comment by James Rolph Edwards on 12 May 2011:
Mr. Richman is right to say that (1) the gilded age was not a paragon of laissez faire, and (2) the Civil War encouraged rent seeking behavior. Nevertheless, his essay contains at least one error in sentence construction, some errors of fact, and a skewed characterization of the era not unlike that given by socialist and progressive writers. In the quotation from Kaufman, the phrase “. . . the du Ponts had all be government . . .” needed obvious correction. In the same quotation, the assertion that Cornelius Vanderbilt gained his first fortune off government contracts during the Civil War is obviously incorrect. Vanderbilt was making his fortune competing against the Fulton monopoly around 1817, and was very rich long, long before the Civil War. As for rent seeking, that was arguably worse before the Civil War than after, though most of that took place at the state level, in the form of legislative monopoly grants of incorporation and subsidies for building of canals, turnpikes and railroads. Starting about 1837, however, the public responded to this corruption by amending state constitutions to forbid their legislatures from granting such subsidies, and by pressuring them to pass general incorporation acts, removing state legislation as a requirement for incorporation. This marked the transition from mercantilism to a genuine market economy, and resulted in increased, not decreasing competition (and decreasing, not increasing market concentration) for at least the remainder of the 19th century. See my “How 19th Century Americans Responded to Government Corruption” in the April 2004 Freeman, and my “Mercantilism, Corporations, and Liberty: the Fallacies of Lochnerian Antitrust” in Libertarian Papers 1, 30 (2009) ONLINE AT: Libertarianpapers.org.
Comment by Sheldon Richman on 12 May 2011:
Em, the economic theory developed by the Austrian school, beginning with Menger, is enough to warrant support for free markets. Since the theory begins with the nature of human action and extends logically from there, we can know that with the right institutions (protection of life, liberty, and property) and in the absence of government or other forceful interference, markets will work. Through such theory we can understand that where a given market operates more or less smoothly (never “perfectly”) it is because of features inherent in markets and in spite of any government impediments.
Comment by Sheldon Richman on 12 May 2011:
Professor Edwards, thanks for pointing out that Vanderbilt did not make his first fortune through Civil War contracting. It was apparently his second or third. My article didn’t discuss pre-Civil War rent-seeking at the state level since I was concerned with the national government’s corporatist efforts to keep the free market from operating after the Civil War. I don’t see how I could have given a “skewed characterization of the era not unlike that given by socialist and progressive writers” when those writers sought to indict the unruly free market and I sought to indict the corporate state, which is hardly the same thing. This can also be said for such market critics of the Gilded Age as Benjamin Tucker and William Graham Sumner (not to mention the ones I quoted: Ekirch and Roche). I would add the late Jonathan R. T. Hughes to my list: “It is odd indeed that the period roughly dated between 1870 and 1914 should have been viewed as the triumph of American capitalism, when it marked, in fact, the political beginning of nearly ubiquitous federal control” (The Government Habit Redux).
The Progressives actually did the bidding of the big rent-seeking corporations, believing that free competition undercut scientific planning, which required the order of large centralized organizations rather than the messiness of many decentralized competitive firms.
Comment by Sheldon Richman on 13 May 2011:
“This marked the transition from mercantilism to a genuine market economy….” The move from Hamilton to Lincoln’s channeling of Henry Clay (national bank, high tariffs ["mother of trusts"], etc.) doesn’t seem like much of a transition. Could the increasing competition have been despite the best efforts of the corporatists, setting the stage for the Progressive Era “reforms”?
Comment by dennis on 13 May 2011:
If I might posit a slightly different idea about the transformation of the regulatory state at the end of the nineteenth and beginning of the twentieth centuries, I would argue that the changes were done as much for the sake of the state as the sakes of the largest companies. The state’s tendency toward absolute control (though this is often thwarted by cultural forces) demands that it seek to control economic power. It can do this through socialism (which doesn’t work) or more indirectly by concentrating the economic power in fewer hands, which are beholden to the state for favors and fearful of the state’s wrath (witness the caving in to Joe Lieberman’s threats regarding Wikileaks). Sure big industrialists benefit from regulation, but it’s not because they “own” politicians (though this can happen) or because of class affinity, it is because the state stands to benefit in a million ways from coddling businesses. The state and powerful corporations aren’t partners, the state is the farmer and the companies are well fed oxen.
Pingback by Horowitz on the Paul newsletters and the left/progressive roots of libertarianism on 3 January 2012:
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Pingback by Capitalism, Corporatism, and the Freed Market | The Freeman | Ideas On Liberty on 3 February 2012:
[...] Columbia University Professor Edmund S. Phelps, who won the 2006 Nobel Prize in economics, and his coauthor, Saifedean Ammous, assistant professor of economics at the Lebanese American University, write that the U.S. economy ceased to be a free market some time ago, yet the free market is blamed for the economic crisis. (The real question is whether the American economy was ever really free.) [...]
Pingback by Sheldon Richman | Capitalism, Corporatism, and the Freed Market | The Murph Report on 14 February 2012:
[...] Columbia University Professor Edmund S. Phelps, who won the 2006 Nobel Prize in economics, and his coauthor, Saifedean Ammous, assistant professor of economics at the Lebanese American University, write that the U.S. economy ceased to be a free market some time ago, yet the free market is blamed for the economic crisis. (The real question is whether the American economy was ever really free.) [...]
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Pingback by Forgotten Critic of Corporatism | The Freeman | Ideas On Liberty on 4 May 2012:
[...] letter to Cleveland and his role in the Pullman strike.) Later classical-liberal historians Arthur A. Ekirch Jr. and George C. Roche III shared their critique. (See also Joseph R. Stromberg’s “The Gilded Age: A Modest [...]
Pingback by Sheldon Richman | The Myth of America’s Laissez-Faire Past | The Murph Report on 6 May 2012:
[...] to Cleveland and Cleveland’s role in the Pullman strike.) Later classical-liberal historians Arthur A. Ekirch Jr. and George C. Roche III shared their critique. (See also Joseph R. Stromberg’s article “The Gilded Age: A Modest [...]