Reigning politicians were also blackguards, and audacious ones. A “surprising number” of America’s economic movers and shakers hailed from New England. Entrenched Republicans became wholly committed to Henry Clay’s dream of State-assisted industrialization and “paternalism as understood by speculators and subsidy-hunters” (Parrington). Government as fairy godmother could not, however, subsidize everyone: “Governmental gifts go to the largest investments”—a survival of the wiliest under laissez-faire slogans. Here were the men called “Robber Barons” by their critics.

Between 1900 and the 1940s historian Charles A. Beard and popular writers like Matthew Josephson, Gustavus Myers, and John T. Flynn followed this interpretive line. But historical fashions change. World War II taught Americans the virtues of bigness in government and business. The waning Old Right forgot the two-front war against big government and big business once waged by Senator William Borah (R, Id.). The emerging Cold War involved projects sustainable only by large organizations. Beard died in 1948, having sinned by disputing FDR’s foreign policy, and his historical views suffered by association with “isolationism.”

By the 1950s only a few leftover populists like Senator Estes Kefauver of Tennessee kept up Borah’s old fight. Historians Ralph and Muriel Hidy, Hal Bridges, and many others found much to praise in late-nineteenth-century big business. Bridges’s essay “The Robber Baron Concept in American History” (1958) lauded Gilded Age industrialists as constructive wealth creators. In “The Robber Baron Concept and Its Revisionists” (1965), New Left historian Alan Solganick tried to reignite debate, suggesting that Gilded Age capitalists put short-run profit ahead of potential technical advances. In recent history textbooks “Gilded Age” appears but without “Robber Barons.”

Taking up where business-oriented elements of the Old Right left off, classical liberals generally see the Gilded Age and alleged Robber Barons as historically vindicated. Fear that concessions to Gilded Age critics will immediately justify big government as social savior seems to require excuses for past economic malefactors. Still, classical liberals Arthur A. Ekirch, Jr., George Roche III, Wilhelm Röpke, Albert Jay Nock, former Freeman editor Frank Chodorov, and Felix Morley did not wholly reject the Populist-Progressive indictment.

Ironbound Folly

The key growth sector from the mid-nineteenth century on was railroads, no stranger to government subsidies. These proved very profitable for promoters and land speculators. But if railroads revolutionized commercial traffic, creating bigger markets and therefore larger-scale enterprises, by 1880 they looked like massive overinvestments with shaky foundations. America had a transportation system so far ahead of natural migration that railroads had to scare up their own settlers. New lines built solely to block competitors aggravated the overextension. Accidents affecting workers and passengers alike were numerous. The recurring cycle of bankruptcy, reorganization, debt reduction, and renewed promotion with watered stock leads historian Ray Ginger (The Age of Excess) to wonder whether, overall, the average return on railway investment was actually negative.

Railroads’ power to set rates arbitrarily became a major public issue. Senator Thomas Benton of Missouri had argued in the 1850s that if given federal subsidies, railroads must serve as public highways leased to private operating companies and open to all on an equal basis. This was not quite what the public got, but the highway metaphor did return during the great railroad strike of mid-1894 to explain how President Cleveland could send federal troops into Illinois over the governor’s protests.

As noted in my “Civil War and the American Political Economy” (Freeman, April 2011), subsidized railroads pioneered large-scale private bureaucracy under the corporate form and their example promoted the form. All this encouraged further concentration of capital, as had the war itself.

Business Practices and Ethics

Bigger markets and larger enterprises rested on various advantages, almost always political in nature, such as large grants of land (including mineral rights), perpetual franchises and rights of way, control of raw materials, transportation subsidies (railroad and highway construction), superior access to transportation, differential shipping rates, control over distribution, public franchises, charters, licenses, tariffs, direct government subsidies and loans, patents, copyrights, privileged banking, and sundry direct or hidden grants of monopoly, including virtual (regulatory) cartels.

All these levers abounded in the Gilded Age—typically for the right price. Tramway entrepreneur Charles Tyson Yerkes’s open buying of franchises from Chicago aldermen finally provoked support for so-called municipal “socialism.” In addition businessmen engaged in patent wars and constant litigation to harass competitors.

Tariffs drained money from the countryside into industrialists’ coffers. The Tennessee Coal, Iron and Railroad Company, headed by U.S. Rep. Thomas C. Platt (R, NY), managed to benefit from both tariffs and convict labor. Generally, the defeated South succumbed to northern capital: to Hamilton Disston, who bought nearly half of Florida; J. P. Morgan, who reorganized the southern railroad system; and sundry timber companies. Sharecropping (black and white), the crop-lien system, and “reckless destruction” of forests by timber companies typified the new southern economy (Ginger).

Even before 1861, Thomas C. Cochran and William Miller (The Age of Enterprise) write, “New York, New England, and Pennsylvania had gathered up the funds of the nation, had developed financial techniques to manipulate them, and mastered the arts of credit expansion.” After 1865 bankers—much preferring gold to whatever they had previously lent—lobbied for imposed deflation through retirement of Greenbacks. Large federal tariff revenues (about a third of the possible money supply) sat idle in the Treasury contributing to deflation. Money for new enterprises had to come from established financial gatekeepers, who did well through legally-sanctioned fractional-reserve magic and other devices.

Overproduction, Cartels, De-Skilling

The economies of scale made possible by transportation subsidies forced companies to invest more in fixed (physical) capital while trying to keep variable costs (including labor) low. As Andrew Carnegie noted, industrialists had to keep their machinery “running full.” But doing so produced goods unsellable (profitably) at home. U.S. Commissioner of Labor Carroll D. White declared overproduction “a permanent feature of the economy.” Such statements abounded, and farmers’ groups likewise took up the cry. This led from the 1880s forward to much discussion of “over-saving” and “over-production.” Two interim solutions suggested themselves: cartels to restrict production and the reorganization of work itself. Early attempts at cartelization failed for lack of direct State support, and corporations turned to the second plan. If craft skills could be (in effect) built into new machinery, unskilled labor could replace skilled workers at lower costs. This “de-skilling” would reduce workers’ bargaining power, increasing managerial control, and shift a higher proportion of income from added value to the corporation. A third option, overseas economic empire with foreign markets for “surplus” products, was discussed but was as yet premature.

Flynn and the “Brigand Theory of Progress”

Assessing this period in Men of Wealth (1941), John T. Flynn showed a keen grasp both of basic facts and fundamental issues. At bottom he agreed with ex-New Dealer Willis J. Ballinger (By Vote of the People) that America’s financial masters had “systematically misoperated” the economy for almost a century. Flynn could not accept “the brigand theory of progress,” which excused the hurried methods of nineteenth-century capitalists on grounds of their services to long-run productivity. Many were simply “rascals . . . driven by a consuming passion for getting other people’s money.” Commodore Vanderbilt pioneered methods “of inflating the capitalization of railroads, utilities, and corporate enterprises of all sorts.” Vanderbilt, Gould, Fisk, Drew, and others perfected “the mechanisms of exploitation of properties through stock manipulations” with “vast gains that did not come out of the property at all.”

Flynn found fascinating the synergy between bank “money actually created in the act of lending it” (his italics), watered stock, limited liability, holding companies, and new companies launched entirely to provide quick profits to promoters. Government-tainted finance capitalism had begun in Lowell and Boston by 1837, but J. P. Morgan had perfected its destructive capacities by controlling both banks and corporations issuing securities. This long train of abuses related directly to the corporate form: “the mightiest weapon of all.” (As Thurman Arnold [The Folklore of Capitalism] wrote in 1937, “[C]apital came to mean the ability to control bank credits, which had no particular relation to productive property.”)

Flynn saw Rockefeller as fairly honest and innocent of stock manipulation, but on the downside, a forerunner of corporatism and, in this way, of the coming American New Deal fascism. (Corporatism, formal or informal, would not be realized until many decades later.)

Flynn is onto something: the centrality to the Gilded Age of stock gambling and fictitious capital, a circumstance that might well undercut Ludwig von Mises’s claim (reported by Rothbard) that a stock market is a sure sign of a free market. One begins to suspect that stock markets along with powerful government-aided banks and corporations are instead the surest sign of rigged markets. In Flynn’s account, few famous nineteenth-century capitalists come out unscathed; instead, they emerge as money-chasing rascals working just this side of the law—a small feat, given their ability to move the law around as needed, whether through bribery or the partisan, pro-commercial efforts of the average judicial mind, state and federal.

The Rule of Law

Pro-commercial jurisprudence thrived in the industrializing states, while a uniform national commercial code to foster industry and “progress” was normally a special project of the federal (and ideologically federalist) judiciary. Once the Great Barbecue vested sufficient interests (Nock’s “primal distribution” of productive resources), the interests naturally proclaimed a free market, which the judges contrived to define in their favor. Federal courts duly told states that powers they had granted to corporations were now federal rights under the contract clause, forevermore beyond recall. Broadly speaking, the law was malleable, activist, and pro-commercial. Law professors William J. Quirk and R. Randall Bridwell (Abandoned: The Betrayal of the American Middle Class Since World War Two) find the federal judiciary “‘conservative’ of the prerogatives of business and capital, but . . . not ‘conservative’ of the institutional arrangements established by the U.S. Constitution. . . .”

As seen by historian Frank Tariello (The Reconstruction of American Political Ideology), American classical liberalism was (after 1865) an increasingly flabby ideology. Faced with intellectual—and mass—revulsion against the society under construction, liberals joined business in defending existing arrangements, pointing irrelevantly at dangerous foreign communists. Gilded Age liberal reformers, above mere politics, hoped to combine “laissez faire” with efficient new bureaucracies and restrictions on “unreliable” voting blocs.

All That’s Gilded Is Not Gold

Louis Bromfield (A Few Brass Tacks), a late arrival to the Old Right, questioned the alleged genius of America’s Gilded Age industrialists and bankers. Making a great deal of money under “fantastically favorable conditions”—adequate capital, low-cost labor, and resources seized for next to nothing—seemed no great achievement. Arthur Ekirch’s account of the Gilded Age in The Decline of American Liberalism (1955) uses Parrington’s terms, “Preemption, Exploitation, Progress,” and closely follows Parrington’s treatment. While regarding Rockefeller, McCormick, Armour, and Carnegie as genuine producers, George Roche III (The Bewildered Society), a former FEE staff member and later president of Hillsdale College, found much room for complaint in actually existing capitalism. The key was the modern corporation, originating in State power and fostering oversized bureaucracy and mass society. Citing Nock, Roche protested “the unabashed economism which dominates our age” and expressed doubt that “the enmassment of American business is an absolute prerequisite for large-scale production.”

We could just note the Robber Barons’ achievements and move on. But what if their few ideas and many practices had serious systemic consequences? Was there any way out? Progressives—waiting in the wings—believed so, but had conflicting answers. And there is another interesting story, not fully covered by easy fables told by Glenn Beck and Jonah Goldberg.

The benevolent bully had a buck-forty-nine.

The kid went to the corner candy store and bought a licorice pipe and a jawbreaker for two cents. He was giving serious consideration to the chewable wax lips when he overheard a big kid at the fountain ordering a large lemonade for a dime. He put back the lips and hustled down to the grocer’s on the next block.

“I can make better lemonade and sell it for a nickel,” the kid thought. So he bought a supply of lemons, sugar, and paper cups, then scrounged up some pitchers and a lemon squeezer from the attic and a card table and folding chair from the garage. He perched out on the corner with a cardboard sign that read, “All-American Lemonade, 5¢.” It wasn’t fancy, but the kid was in business.

Meanwhile, the benevolent bully had spent his buck-forty-nine (“borrowed” from the smaller kids) on candy, comic books, and ten-cent lemonades. He liked to give away stuff to his favorite friends. He felt popular—and important. That is, until the money ran out. Then he had to borrow more from the little kids, which was tedious work.

The kid’s All-American Lemonade was a big success, and pretty soon he had expanded his line to other premium drinks—all for a nickel. After expenses he was making three cents a serving and, at 30 cups a day, had netted more than $25 the first month.

Then the kid had a brainstorm. He noticed that, for some reason, the little kids around town never had any money. So he proposed to set them up with All-American Lemonade stands in their own neighborhoods and split the profit 50-50. Within a few weeks, the kid had eight lemonade stands at strategic locations all over town. His local managers were making a phenomenal $10-$15 a month, and the kid was getting rich (by kid standards), which allowed him to open still more stands while hiring three helpers to run his own operation and keep the other stands stocked up. He kept improving his products, and the townfolks kept buying his beverages all the more. Life was good.

The kid’s success did not go unnoticed by the benevolent bully who, filled with indignation and a keen sense of social justice, insisted that he and his buddies deserved their fair share. The argument went something like this: The kid had too much money, while other deserving souls had none. To stimulate the economy the kid’s excess earnings should be redistributed to worthy kids as entitlements to spend on wax lips and comic books.

The benevolent bully’s ideas proved popular among the kids without lemonade franchises (most of whom had forgotten that it was the bully who had impoverished them.) Pretty soon the kid was being forced to pay a heavy “stimulus tax” to grow the economy (which, naively, he thought he had already been doing.) So he quit opening new stands. At the same time, the kid’s local managers were being told that their All-American Lemonade was actually un-American, because they were making and keeping too much money. They, too, were forced to contribute to the benevolent bully’s stimulus program, with a 50 percent tax on their ill-gotten gains.

Before long, all the benevolent bully’s friends could be seen around town in wax lips. But there didn’t seem to be as many lemonade stands as before, and people were starting to complain that the drinks tasted a bit watered down. The bully took immediate action, sensing that the capitalist-corrupted kid had compromised his product to recapture lost profits. He formed a Lemonade Quality Control Board, forcing the kid to use only premium, board-approved “green” ingredients. He levied fines on the kid and turned him in to the city for operating without a license and to the Board of Health for failure to have a State-certified kitchen.

To make a profit the kid now had to raise the price of his lemonade to 10 cents a cup. People soon quit buying his beverages, and by the end of the summer All-American Lemonade was out of business. Coincidentally, the market for wax lips and comic books dropped off about the same time. The benevolent bully reminded people how bad things could have been if it weren’t for the economic stimulus. The people were grateful.

Soon the bully had launched the Lemonade Stand Recovery Program (LSRP), paid for by the taxes extracted from the kid and his former managers. He set up stands around town, run by his friends and subsidized by the LSRP until money ran out. None of the stands made a profit (their lemonade was expensive and ordinary), but at least the benevolent bully was able to temporarily stimulate the economy while running robber barons like the kid (with his five-cent lemonade) out of business.

Many years later, the kid became a successful entrepreneur and grew a company that employed ten thousand in the manufacture of consumer goods. The economic recession, brought on by government inflation spending, borrowing, and regulation, has since forced the company to lay off three-quarters of its workforce.

The benevolent bully became a U.S. senator. He is working on the problem daily, diligently deficit-spending and redistributing wealth to stimulate the economy.

Let’s pour ourselves a glass of nongovernment lemonade and learn the lessons of liberty.

The “first book” is replete with unsung heroes, such as industrialist Thomas Weston and nobleman Thomas Dale. These two Englishmen observed, diagnosed, and treated the free-rider problem that subjected the Jamestown and Plymouth Bay colonies to impoverishment, famine, and death. Their prescription was not, as today’s conventional economic wisdom would have it, enlisting the government to provide food, but rather replacing communal property rights with private property rights. Within a year, poverty was succeeded by plenty, initiating a process that would make America the wealthiest country the world had ever known.

The “second book” shows that identity theft has been a problem since long before the Internet, credit cards, and Social Security numbers. The culprit here is mercantilism and the victim capitalism. Few who have not studied the history of economic thought even know what mercantilism is, a problem that wide readership of this book would remedy. Yet this system, in which the state extracts large amounts of resources from the populace to subsidize favored corporate interests, is what most people think capitalism is. This deception has led to a double injustice: the vilification of market entrepreneurs whose wealth came from solving the problems of millions within the capitalist system and the hailing as the “saviors of capitalism” politicians who conjure up phony problems or phony solutions to real problems.

DiLorenzo sets this out clearly and provides many historical examples. For instance, he contrasts the private road systems that sprang up throughout the United States in the early 1800s with the “public improvements” subsidized by state governments that were so corrupt and inefficient that by 1860 most states had banned such boondoggles. Unfortunately, after the Civil War the newly empowered central government picked up where the states left off by subsidizing railroads. While most historians paint all railroad owners as “Robber Barons,” this book makes the crucial distinction between market entrepreneur and political entrepreneur to separate the Vanderbilts and the Hills from politically connected railroad magnates such as Jay Cooke and Thomas Durant, who were truly deserving of that ignominious title.

This book elucidates many other examples of capitalism delivering the goods while its opponents fraudulently take the credit. For one, it demonstrates how capitalism enriched the working class through that most capitalist practice, capital accumulation, while union leaders and politicians claimed their beloved income-redistribution policies had done the trick—and some trick it would have been, since you cannot redistribute what has not been produced. For another, it illustrates how capitalism, in the person of the entrepreneur John D. Rockefeller, solved the problem of providing cheap energy, enabling supply to grow and price to fall year after year. Simultaneously, nearly every measure promulgated by the government to tame the “excesses” of capitalist production of oil, including antitrust prosecutions, worked against the interests of consumers. Especially worthwhile is the discussion of the antitrust bait-and-switch scam, which promises to promote competition while actually seeking to rein in those who compete too successfully.

Finally, no discussion of how government problem-solving makes matters worse would be complete without surveying its sorry record of ameliorating the business cycle. DiLorenzo’s detailed analysis of the policies adopted from the onset of the Great Depression obliterate any justification for believing that Herbert Hoover was a practitioner of capitalism and Franklin Roosevelt was its savior.

The author writes with a clarity and passion rare for economists. How Capitalism Saved America is scholarly yet accessible. While not theoretical, it uses theory to help us understand the facts. I did note a couple of inaccuracies, however. For example, the author says a worker must generate at least as much profit as the wage he is paid, when he means revenue. He also confounds the First and Second Banks of the United States. While neither of these undermines the main themes of this powerful work, they are the kind of errors that will be pounced on by those who cannot counter his arguments on the merits.

Honest, objective historians of the so called”robber baron” era, such as Gabriel Kolko and Burton Folsom, know that the capitalist bogeyman perspective is simplistic and overwrought. Even a bad apple or two does not a rotten barrel make. But while recently reading a forgotten little gem of a book, I came to appreciate a fact that is vastly understated in the literature, even by defenders of the market: government of the day was hardly a model of virtue. The critics zero in on a few abuses to indict private enterprise in general. But if they were consistent, they’d draw up a similar, sweeping indictment of the public sector too.

The book to which I refer is Plunkitt of Tammany Hall. The first of many editions appeared in 1905 with a rather lengthy subtitle:”A Series of Very Plain Talks On Very Practical Politics, Delivered by Ex-Senator George Washington Plunkitt, The Tammany Philosopher, From His Rostrum—The New York County Court House Bootblack Stand,” dutifully recorded and compiled by William L. Riordan of the New York Evening Post.

Plunkitt’s motto, repeated several times in this slim volume, would undoubtedly be well-known to generations of American high-schoolers if a captain of industry had ever said it: “I seen my opportunities and I took ‘em!” Plunkitt was no captain of industry. Indeed, he never did much of anything in the private sector except work briefly at a butcher shop after he quit school at the age of 11. He decided as a teenager to make politics his life’s work, and he never looked back. His vehicle was Tammany Hall, a vast political machine that maintained a formidable hold on power through a patronage-fed bureaucracy in the nation’s largest city, New York. Plunkitt was a district leader within the organization, and used its considerable connections to crawl his way up the political ladder—as did thousands of others over three-quarters of a century, including Richard Croker, John Kelly, and perhaps the best-known of all the Democratic Party bigwigs of Tammany Hall, the infamous William Marcy “Boss” Tweed.

If anything of the day deserved to be labeled a Frankenstein monster, it was Tammany— frightening in its reach and corrupt to the core. It was a patronage juggernaut, at one time filling 12,000 municipal positions with its hand-picked, often incompetent, but always politically correct loyalists. It milked the taxpayers like cows, took care of its own, and turned out the votes of its followers, living and dead, on election day. For decades, it thwarted reform efforts by buying the reformers. It did more than just rig the system; it was the system.

Plunkitt himself became a millionaire at the game, and was proud of it. When he delivered his series of talks recorded by Riordan, he crowed about how he made his money through “honest graft”—by which he meant being in the right place at the right time with the right inside information. Knowing, for example, that the city planned to announce a site for a new park, Plunkitt would buy up the land in the area. Then he would later sell it to the city at inflated prices. Or he would bid on city property and arrange to get it at dirt-cheap prices because he’d offer jobs or money to the other bidders to drop out. Outright stealing from the city treasury, which Plunkitt regarded as “dishonest graft,” wasn’t necessary because political pull could earn you all the cash you could imagine.

Politics doesn’t require a person to be book-smart, well-spoken, or even possess good business sense, according to Plunkitt. It just requires that you know how to pick and reward your friends. Here’s his advice for getting started in the trade: Get a followin’, if it’s only one man, and then go to the district leader and say:”I want to join the organization. I’ve got one man who’ll follow me through thick and thin.” The leader won’t laugh at your one-man followin’. He’ll shake your hand warmly, offer to propose you for membership in his club, take you down to the corner for a drink and ask you to call again. But go to him and say: “I took first prize at college in Aristotle; I can recite all Shakespeare forwards and backwards; there ain’t nothin’ in science that ain’t as familiar to me as blockades on the elevated roads and I’m the real thing in the way of silver-tongued orators.” What will he answer? He’ll probably say: “I guess you are not to be blamed for your misfortunes, but we have no use for you here.”

Padding the city payroll with your friends? Tammany made an art form of it. When civil-service reform later cut into the number of jobs the Democratic machine could fill, Plunkitt decried the result with a straight face: “Just think! Fifty-five Republicans and mugwumps holdin’ $3,000 and $4,000 and $5,000 jobs in the tax department when 1,555 good Tammany men are ready and willin’ to take their places! It’s an outrage!” To Plunkitt, taking from some and giving to others was a key ingredient in the recipe for re-election. He saw nothing at all wrong with it, morally or otherwise. Using the political machine to bestow benefits and buy votes came quite naturally to him. “It’s philanthropy, but it’s politics too—mighty good politics,” he said. Referring to the assistance he passed out to victims of a fire in the city, he declared, “Who can tell how many votes one of these fires bring me? The poor are the most grateful people in the world, and, let me tell you, they have more friends in their neighborhoods than the rich have in theirs.” Plunkitt and his associates had quite a nice little welfare state going—the usual kind, in which the politicians get well and everybody else pays the fare.

Tammany Hall was not the only big-city political machine in the country in those days, but it was undoubtedly the biggest. It bilked citizens of millions of dollars and used its political power to secure its place and put everybody else in theirs. Strange, isn’t it?, that in almost all the literature critical of this era of American life, the sachems of Tammany Hall are never listed among the so-called “robber barons” of the day.

A competing tale, popular among many libertarians and some left-radicals, presents the rise of big business as leading directly to satanic endeavors. This version maintains that the big businessmen, however virtuous they might have been at the outset, ran into trouble because of rampant competition among the emergent big firms. To suppress this irksome, profit-sapping market phenomenon, they used their wealth diabolically to influence or bribe lawmakers to create government programs, regulatory agencies, and so forth that, in effect, allowed them to wield the government’s coercive power in the service of propping up their cartels, suppressing competition, and maintaining excessive profits. The classic exposition of this interpretation is Gabriel Kolko’s The Triumph of Conservatism (1963).

Unfortunately, although these morality tales contains grains, or even big chunks, of truth, each leaves out a great deal of important, relevant evidence. In short, reality was much messier than either interpretation suggests. It is difficult to read deeply researched books such as Robert H. Wiebe’s Businessmen and Reform (1962), Morton Keller’s Affairs of State (1977), and Martin J. Sklar’s The Corporate Reconstruction of American Capitalism, 1890–1916 (1988) and cling to any simple interpretation of the relationship between the rise of big business and the growth of government.

Part of the difficulty arises from the vastness and complexity of the U.S. economy. A multitude of organized interest groups emerged to lobby the various levels of government. Although the federal government became increasingly weighty in the overall mix of interventions, the states and the large cities continued to play important roles–for example, such outright socialism as appeared in the United States arose primarily at the municipal level, especially for so-called public utilities, such as electricity and gas production, and local mass transit, such as streetcar service.

No serious scholar denies that businessmen played important parts in creating the interventionist state. “But who,” Wiebe asks, “are the businessmen? Sometimes they appear to be a handful of particularly successful and powerful men [Murray Rothbard emphasized especially the kingpins in the "Morgan ambit"]. At other times the community presumably includes everyone from the chairman of U.S. Steel to the corner grocer, without information on how, if at all, their thoughts and actions differ.” Wiebe is more impressed by the businessmen’s differences and rivalries than by their agreements. For example, the big New York bankers, notwithstanding their obvious clout, often had to contend with dissident bankers in major financial centers such as Chicago, Boston, Philadelphia, St. Louis, and San Francisco, who did not relish being overshadowed by the Wall Street titans–which is one reason (among several) why the Federal Reserve Act of 1913 created not a single central bank but twelve regional banks.

Wiebe concludes: “Among those prominent in the movements for a regulated economy were businessmen and farmers after greater profits, politicians in need of an issue, journalists in search of a story, a new class of economic and administrative specialists looking for ways to utilize their knowledge, and clergymen hoping to re-establish morality in industrial America.”

In substantial part, what made the big business (“trust”) question so politically salient in the late nineteenth and early twentieth centuries was not so much the increasing size of the leading firms as it was the emergence of a national (that is, interstate) market fostered by the development of new technologies of transportation and communication, especially the railroads (themselves described as “the first big business”) and the telegraph. When the scope of business had been local or at least predominantly intrastate for nearly all firms, government action in relation to business took place primarily on the local or state scene. As the national market came to characterize more and more businesses activities, established business-government relations became unstable and began to break down.

The giant corporations, which in many cases had become large in order to exploit new technologies and organizational structures that offered economies of scale and scope, entered increasingly into competition with the multitude of smaller firms serving previously fragmented local or regional markets. Firms threatened by the big interstate sellers sought protection by appealing to their local and state governments. For this reason, among others, local and state intrusions into market relations grew markedly in the late nineteenth century. The potential and actual mobility of firms, however, helped to contain these interventions, because companies pressed too hard simply left the jurisdiction.

At the same time, the big firms’ owners, harassed by dozens of state governments and their rapacious politicos, began to see the wisdom of federal regulation. Perhaps, they reasoned, they might stand a better chance of escaping from meddlesome, costly, and fluctuating state and local regulations if instead they dealt with a single, national, regulatory body. Such an agency might also be used to keep the big firms’ own interstate competition in check, thereby maintaining their returns.

As both small and big businessmen organized and pressed for favorable government interventions, other groups increasingly entered the fray, defensively if not offensively: Farm, labor, professional, and academic associations formed and sought expanded government measures. The nineteenth century’s dominant ideology, a distinctly American version of laissez faire, seemed increasingly unable to restrain this grasping for economic advantage via enlarged government power.

Because ideology and political movements develop reciprocally, the pervasive reactions to the rise of big business around the turn of the twentieth century gave rise not simply to a proliferation of newly organized interest groups seeking government protection of threatened positions; it also prompted intellectuals, both independents and “hired guns,” to develop new rationales for more active government. Thus Progressivism as ideology developed concurrently with Progressivism as politico-economic practice, each aspect reflecting the changing socioeconomic opportunities and hazards created by the rise of big business and its repercussions throughout the economy.

This proposal was not really all that shocking: Such a program would have been consistent enough with the advertised purpose of certain phases of American land policy from 1776 on. American governments handed out land (however acquired) for over a century to veterans, settlers, land speculators, railroads, timber corporations, mining companies, and other parties. (I’ll give you three guesses which groups made out the best). Governments did so as a source of revenue, for geostrategic reasons, to win favor with voters, or to reward a small class of typically American operators who flat-out deserved to be rich.

In a new, revolutionary, and republican society, there was of course much talk about widespread property as the bulwark of republican freedom. But the talk was so general that Federalists and Republicans could share it, while leaving themselves plenty of room in which to create a small class of owners of a disproportionate amount of the public domain. Overall—from the founding land speculators down to 1893, when the frontier allegedly ran out—American land policy resembled in both theory and practice the kind of “privatization” we see under mercantilist Republican administrations. One landmark in the process was Johnson and Graham’s Lessee v. William M’Intosh (1823). Here, Chief Justice John Marshall undertook to write a long essay on the received theory of how property previously stolen by European kings or their agents is best conveyed. As was his wont, Marshall proved entirely too much, in as clear a case of Albert Jay Nock’s “copper riveting” of narrowly focused property rights as we could want. (See my “Albert Jay Nock and Alternative History,” The Freeman, November 2008.)

Southern agrarian Andrew Lytle noted that from the settler’s point of view the whole frontier process represented an attempt to get away from would-be aristocrats and other aspiring land monopolists. Consistent republican ideologists like Thomas Skidmore and George H. Evans agitated from the 1820s into the 1840s in favor of giving homesteaders first claim on the territories. Generally speaking, other claimants prevailed, while the politics of slavery and antislavery further complicated the matter. In the bigger picture, the Homestead Act of 1862 was the exception rather than the rule, as Paul W. Gates showed in a noteworthy 1936 paper (“The Homestead Law in an Incongruous Land System,” American Historical Review).

I cannot discuss here what an ideal policy based on “mixing one’s labor” with resources might have looked like. Suffice it to say that sales of thousands and tens of thousands of acres to individuals, land companies, and corporations were not especially consistent with any genuine republican ideal. The disappearance of most of the best land in California into the hands of a half-dozen individuals in a few decades comes to mind. But large-scale buyers had mixed their money with federal land officers, and that no doubt counts for something.

Meanwhile, the judiciary—state and federal—busily remodeled the common law and shifted the burdens of industrialization onto third parties, extensively modifying the older law of nuisance. Harry Scheiber finds that “law was often, if not to say usually, mobilized to provide effective subsidies and immunities to heavily-capitalized special interests [under] either ‘instrumentalist’ or ‘formalist’ doctrine.” Even existing doctrines of “public rights” and eminent domain came to serve business interests. Finally, federal judges’ discovery in the 1880s of corporate “personhood” in the Fourteenth Amendment perfected the Federalist Party’s original mercantilist program. All these changes importantly influenced just who would benefit from the American State-system of land tenure (to use Nock’s phrase) and its attendant modes of preemption and exploitation.

Land and Independence

Many writers have seen a special relationship between landownership and personal independence. And here we hit on what is perhaps the truest insight of republican theory—one taken up by many classical liberals. Briefly, this holds that a broad “middle class” of property owners is essential to the maintenance of free societies. The point is as old as Aristotle. On the negative side, in decrying the social effects of England’s fabled land monopoly, radical liberals like Percy Bysshe Shelley, Thomas Paine, Thomas Hodgskin, and John Bright implicitly affirmed the republican axiom.

A typical nineteenth-century American “self-help” book aimed at young men did not say, “Get a job working for wages within an increasingly intricate division of labor so as to enjoy a greater variety of consumer goods.” Instead, it said, “Get yourself a competency”—a vision fraught with republican implications suitably modernized. Working for wages, if one did it at all, was a temporary stage—to be endured while learning a skill or trade and abandoned later in favor of real or potential independence. This independence, derided in our time as “illusory,” left one free (within limits) not just from state interference but also from nineteenth-century employers. And if independence is illusory in our time, it is at least partly because the political activities of well-connected elites long since removed the preconditions of independence deliberately and systematically.

One key (but not the only one) to this much-sought-after independence was access to land, a theme taken up by Catholic writers Hilaire Belloc and G. K. Chesterton in early twentieth-century England. Sociologist Robert Nisbet commented that never, after reading Belloc, did he “imagine that there could be genuine individual liberty apart from individual ownership of property.” In any case, as historian Christopher Lasch put it, “Americans took it as axiomatic that freedom had to rest on the broad distribution of property ownership.” Perhaps Americans were wrong to believe such a thing. But let us examine the matter a bit more.

This American axiom receives support from those political economists who believed that the land/labor ratio importantly determines social structure. Edward Gibbon Wakefield somewhat gave the game away in the 1830s by opposing easy access to land in Australia, lest potential wage-earners try for self-sufficiency before spending “enough” years working for others. Marx chided Wakefield for letting this “bourgeois secret” out and was in turn chided by Franz Oppenheimer, Achille Loria, and Nock for not learning the right lesson from Wakefield’s recommendations on rigging the market.

H. J. Nieboer argued (1900) that where resources are “open,” few will work for big enterprises, and the latter will (if they can) institute some form of slavery. Evsey Domar writes (1970) that one never finds “free land, free peasants, and non-working owners” together. Why? Because where political leverage allows, aspiring lords and (literal) rent-seekers will eliminate the free land, the free peasants, or both.

Colonial Policies

With this theorem in view, let us survey some colonial evidence. Enterprisers in colonies have always wanted regular supplies of cheap labor for their projects. Although there is no evidence in favor of a “right” to such a thing, these prospective employers were never discouraged. Aided by colonial administrators with the same assumptions, they gradually overcame native economic independence. Land was the key, and neither the colonizers nor the natives doubted it. No matter how hard natives worked on their holdings, colonialists decried their “idleness”—and their uncivilized failure to work for wages.

We may therefore give the overworked English Enclosures time off (for now) and look at some other cases. Consider the Japanese colonial administrator in Okinawa who complained in 1899 that the typical Okinawan held land and therefore had low expenses and few wants. For these reasons, the native saw “no need to undertake any other business, nor to save money.” Since native lands were held informally, they could not be capitalized. Such people and properties did little for the great cause of development and, shortly, the Japanese government (!) denounced Okinawans’ customary arrangements as “feudal” and set out to modernize the island. American occupation later perfected this anti-agrarian revolution. Doubtless, however, much “employment” was created in the post-World War II Okinawan service economy dominated by the U.S. military.

Turning to English colonies in the Caribbean and Africa, we find comparable phenomena. England abolished slavery in the colonies in the 1830s. (Never mind that, as historian Eric Foner comments, “Through a regressive tax system, the British working classes paid the bill for abolition.”) By this time, English policymakers had embraced Adam Smith’s view that positive incentives motivated labor better than fear of starvation or draconian punishments did. But an ocean made all the difference, Foner observes, and new peasantries made up of former slaves were “seen in London, as in the Caribbean, as a threat not simply to the economic well-being of the islands, but to civilization itself.” John Stuart Mill’s famous defense of peasant proprietors “did not extend to the blacks of the Caribbean; their desire to escape plantation labor and acquire land was perceived as incorrigible idleness.”

And so Britain’s former slave colonies put vagrancy and other laws to work and crafted taxes aimed at restricting “the freedmen’s access to land.” As Foner puts it, “Taxation has always been the state’s weapon of last resort in the effort to promote market relations within peasant societies”—that is, to force people into markets in which they were not eager to participate. In Kenya the problem was one of “dispossessing a peasantry with a preexisting stake in the soil,” but colonial legislation proved up to the task. Foner concludes that in “the Caribbean and southern and eastern Africa . . . the free market [was] conspicuous by its absence”—its workings restricted “as far as possible” in the interest of the well-off and powerful.

Historian Colin Bundy has studied the economic rise and political-economic fall of a class of independent African farmers in the Eastern Cape Colony and other parts of South Africa. Various Cape Location Acts (1869, 1876, and 1884) sought to lessen “the numbers of ‘idle squatters’ (i.e., rent-paying tenants economically active on their own behalf) on white-owned lands.” Such peasant farming “conferred . . . a degree of economic ‘independence’: an ability to withhold, if he so preferred, his labour from white landowners or other employers.” Further: “Both the farmer and the mine-owner perceived . . . the need to apply extra-economic pressures . . . to break down the peasant’s ‘independence,’ increase his wants, and to induce him to part more abundantly with his labour, but at no increased price.” In their view, “Africans had no right to continue as self-sufficient and independent farmers if this conflicted with white interests.”

Bundy observes that “Social engineering on this scale took time and effort, but the incentives were powerful.” By way of a “one man one lot” rule under the Glenn Grey Act of 1894, legislators sought to keep African farming within “certain acceptable bounds.” (Here, finally, was a use for John Locke’s famous “proviso” about leaving enough resources for others!) Evictions increased after the Anglo-Boer War (1899-1903). Rents rose (Enclosure defenders, take note), and former tenants stayed on as laborers. Tax pressure on African farmers increased. This “employers’ offensive” from 1890 to 1913 ended successfully in the South African Natives Land Act of 1913, which effectively outlawed the practices under which a particular African peasantry had shown much success.

One supposes, in standard libertarian fashion, that agricultural employment increased thereafter along with land values. But that was the whole point: to proletarianize independent peasants by leaving them no option but to work for wages for Boers and Brits on farms, in mines, and elsewhere. Whether more “employment” was good in itself seems unclear. We can, at least, impute the outcome back to specific political intentions and levers. So much for the colonies, then—and all this without even mentioning the two greatest monuments to England’s defense of free markets: Ireland and India.

Telescopic Land Reform

Colonial bureaucrats and employers saw a definite connection between small-scale landownership and independence, and resolved to cut that independence short. By now we begin to see that “the subsidy of history”—to use Kevin Carson’s useful term—has been very large indeed. A number of libertarians have understood the problem at hand in pretty much these terms. They have tended, however, to dwell on instances far away from our own shores, writing about land reform in Latin America, South Africa, Asia, and other places. In the mid-1970s Murray Rothbard, Roy Childs, and others addressed the matter.

Rothbard wrote that “free-market economists . . . go to Asia and Latin America and urge the people to adopt the free market and private property rights” while ignoring “the suppression of the genuine private property of the peasants by the exactions of quasi-feudal landlords. . . .” In this vacuum, only the local communists appeared to support “the peasants’ struggle for their property. . . .” And so libertarians “allowed themselves to become supporters of feudal landlords and land monopolists in the name of ‘private property.’”

Decades earlier, that very conservative German liberal economist Wilhelm Röpke wrote that German history would have gone better had Prussia undergone “a radical agrarian reform breaking up the great estates and putting peasant farms in their place.” He adds: “Influential Social Democratic leaders opposed the transformation of the great estates in Prussia into peasant holdings . . . as a ‘retrograde step.’” Röpke called for freeing Germany from “agrarian and industrial feudalism” and the ills “of proletarization, of concentration and overorganization, of the agglomeration of industrial power and the destruction of the individuality of labor. . . .” In his view, the typical proletarianized worker or clerk wanted “a small house of his own with a garden and a goat shed, an undisturbed family life without training courses, mass meetings, processions, and political flag days; dignity and pleasure in his work, an independent if modest existence. . . .”

Why Go Abroad?

For Enclosure-like pressures on small-holders closer to home, we need look no farther than states like Kentucky, where courts vigorously enforced the full feudal rigor of the “broad form deed,” thereby ensuring the strip mining of many a mountaineer out of productive existence down to the early 1990s. With the system so long stacked in favor of big landholders and bankers, well subsidized by history, one begins to understand the popularity of those New Deal programs that promoted individual home ownership.

Economist Michael Perelman has confirmed a direct relationship between rural labor without independent means of support and the applied politics of English classical economists. The latter preached a great gospel of “work,” mainly for others, who ought to be doing this work. Except for a narrow class of Dissenting Protestant factory owners, those most vigorously espousing this gospel were not themselves noted for doing a lot of work. Together, however, owners and economists said in effect, “Work for us, join the armed forces, or emigrate, ye doughty Angles, Saxons, Jutes, and Scots.” And emigrate they did, leaving us with an American folk wisdom in which old times in England, Scotland, and Ireland were not that great. (This folk memory may have at least as much heuristic value as latter-day econometric claims that everyone became better off in the new division of labor.)

And so we return to Henry George’s problem: How did Americans manage as a society to seize so much land, incur whatever moral guilt goes with the seizures, and then not bloody have any of it? The chief mechanism was precisely the political means to wealth that Oppenheimer and Nock analyzed. The reason Brisco County Jr.’s “Robber Barons” struck the right note is that there were such individuals. California was a laboratory case, as George well knew, of the successful primitive accumulation of land by a microscopically small class of state-made men. As with ontogeny and phylogeny, Western accumulation recapitulated Eastern accumulation. From such causes arose the famous “end” of the frontier circa 1893. But open land did not so much disappear naturally as succumb to preemption. And then, with perfect timing, the conservation movement put enormous quantities of land beyond the reach of actual settlers.

As for those Americans who currently own property, they typically own it after 20 or more years of bank payments. Is land so genuinely scarce that a bank must always be in the middle? This remains our central question. Certainly, nineteenth-century allocations played a lasting role, and later political interventions added to concentrated property ownership.

And what of the promotion of “easy” home ownership in recent years? It is a product of 1) the widespread delusion, in the wake of Lyndon Johnson’s and Richard Nixon’s inflationary financing of the Vietnam War, that real estate constitutes the ultimate inflation hedge, and 2) the specific dynamics of the expansionist fractional-reserve banking under new rules (“deregulation”) increasing moral hazards for bankers.

There is also the unhappy fact of property taxes—our chief surviving feudal due. Fail to pay those, and the state enrolls a new owner on your former property. This reduces somewhat the fact of private property in land.

Independence, Republicanism, and Liberty

Some classical liberals and libertarians downgrade personal independence. Better to participate in the going order and enjoy a wider array of comforts, they say. But socialists and corporate liberals can play the same game—and have for over a century. It seems to me that those libertarians who join in this refrain rather willfully misconstrue a very simple point: They hail the joys of the division of labor, the higher degree of civilization (that is, more stuff) to be gained from dependence, interdependence, and sundry trickles of income and utility down and up. But already in 1936, Southern agrarian John Crowe Ransom noticed a flaw in this reasoning, writing, “[I]ncome is not enough, and the distribution of income is not enough. If those blessings sufficed, we might as well come to collectivism at once; for that is probably the quickest way to get them.” If greater choice among consumer goods makes up for lost independence, then the case for socialism (or X) would be clinched, provided socialism (or X) could deliver the economic goods (where “X” stands for any political ideology offering us the same stuff/independence tradeoff.)

I doubt we are necessarily “better off” merely because of employment. We need to know more, including why particular sets of choices exist in the first place. Back in the ’60s, Selective Service used to “channel” us into the “right” occupations by threatening to draft us. Given the parameters, our choices were “free.” If it’s that easy, then we are always free, no matter the historical and institutional constraints. Similarly, “To Hell or Connaught” was a choice, and never mind that Oliver Cromwell and his army arbitrarily created this particular prisoner’s dilemma. But perhaps I have leapt from choices among goods to choices between ways of life. Why? Let us look into this.

What if proletarianization is not the ideal form of human life? What if a complex division of labor is merely useful or convenient, but not a moral imperative? What if most of us are hirelings, well paid or otherwise, and then we learn what that status amounts to? The post-Marxist socialist André Gorz writes, “Capitalism owes its political stability to the fact that, in return for the dispossession and growing constraints experienced at work, individuals enjoy the possibility of building an apparently growing sphere of individual autonomy outside of work.” Our interest here is the “autonomy” mentioned, which sounds like a near cousin of “independence.” The sentiment seems sound enough, and the partial convergence of Röpke and Gorz is eye-opening.

Now in the view of Quentin Skinner (a modern republican theorist of note), unfreedom arises both from direct, forcible coercion and from institutional arrangements that make people dependent, since the latter always contain the possibility (realized or not) of arbitrary interference and coercion. Such discussions usually center on the form of state. Utilitarian liberals like Henry Sidgwick did not care about forms. If the Sublime Porte, Tsar, or King of England leaves us substantially alone, we are “free,” and that is that. In Skinner’s view, if those worthies can on their own motion change their policy of leaving us alone, we are not free, no matter what they are doing right now. Freedom requires that we not be menaced by latent unknown powers.

Freedom in this sense is liberty—a shared civic or public good. Like many real public goods it is not provided by the state, indeed the state may be its chief enemy. Law and settled custom may provide this public good, and consumer goods—the people’s pottage—do not compensate for abandoning such an order, where it exists. Today, people often work long hours to buy some independence. In another time, they began with some independence, and then chose how hard to work. Now we see, perhaps, the difference between choices among economic goods and past choices between systems structuring our choices.

Widespread landownership long supported a kind of liberal-republican independence. Perhaps we should reexamine the nexus and ask ourselves how, in Donald Davidson’s words, we “let the freehold pass,” and whether that was really for the best.

But this is nothing new. From 1920 to 2004 the price of mailing a first-class letter grew at more than twice the rate of inflation. Inflation during this period, as measured by the consumer price index, was a mere 844 percent, while the price of a postage stamp increased 1,750 percent.

In each decade since the 1920s, with the exception of the 1940s, postal-rate increases outpaced inflation. In the 1920s, when the price of a postage stamp remained unchanged, prices deflated by 16.5 percent. In the 1930s, which again saw price deflation–this time by 16.2 percent–the price of a first-class stamp increased by 50 percent. Only in the 1940s, when the price of stamps remained unchanged and inflation was at 72.1 percent, did the postal increase not exceed inflation. But this of course was after the 50 percent hike in the previous decade.

In the 1950s inflation was 22.8 percent, while the price of a postage stamp jumped 33.3 percent. In the 1960s inflation was 31.1 percent and the price of a stamp increased 50 percent. In the 1970s, with inflation at a whopping 112.4 percent, the postal service would not be outdone: the price rose 150 percent. Inflation was reeled in during the 1980s, ending the decade at only 58.6 percent. The postal service’s response was a 66.7 percent increase in the price of a stamp. In the 1990s inflation was 31.8 percent, and the first-class postal hike was 32 percent.

Now we have the postal service asking for yet another 5.4 percent.

The postal service is seeking this latest increase to make up for lost business that has accompanied its rate hikes in recent years. Between 1998 and 2003 the price of mailing a first-class letter jumped 15.6 percent, well ahead of the 12.9 percent rate of inflation. Also during that time, the number of first-class, single-piece letters people entrusted to the postal service dropped from 54.3 billion to 46.6 billion–a decrease of 14.2 percent (www.usps.com/financials/rpw/welcome.htm).

The postal service’s loss of business should come as little surprise. The law of demand tells us that, all else equal, as prices increase, quantity demanded decreases. Thus producers must lower their prices to increase sales and achieve market equilibrium–the point at which the quantities supplied and demanded are equal. At least that is what happens in a free market.

A business that tries to raise revenue simply by raising prices soon learns its lesson, since  consumers will take their business to competitors or switch to alternative products. In a free  market a producer who refuses to accept this basic economic law is soon out of business.

But USPS bureaucrats believe they are exempt from the law of demand, just as they are exempt from competition in the delivery of first-class mail. They are indeed partially shielded from the law of demand, because government restricts the more cost-effective alternatives that would arise in an unfettered market. If the private sector had been allowed to compete in the delivery of first-class mail, the USPS losses of the past few years would have been even greater.

However, the postal service is not completely exempt from the law of demand. As the USPS has raised prices, the private sector has responded with several alternatives to first-class mail, including fax, e-mail, and electronic bill-paying.

About 65 million consumers in the United States have turned away from first-class mail in favor of paying at least some of their bills online (www.postinsight.pb.com/files/Levy_Cork.pdf). But as is often the case, the government monopoly remains a huge hurdle for those in the nation’s lower-income brackets. While those who can afford fax machines, computers, and the Internet can escape, at least somewhat, the inefficiency of the postal monopoly, the poor remain trapped in this system of government incompetence and have little choice but to pay the higher prices commanded by postal planners. Since the late 1800s, government has increasingly intervened in the economy in the name of antitrust. The ostensible justification for antitrust legislation is that monopolies may, among other things, increase their prices in the absence of competition and alternative products, leaving consumers powerless in inelastic markets. There is, however, a dearth of evidence of such occurrences in the free market.

In the case against Microsoft–a favorite target of government antitrust crusaders in recent years–Judge Thomas Penfield Jackson noted: “Microsoft enjoys so much power in the market . . . that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market. Moreover, it could do so for a significant period of time without losing an unacceptable amount of business to competitors.”

When this decision was written, the price of Windows 98 was $169, compared to Windows 95, which a year earlier sold for $185. (See Stan J. Liebowitz, “A Defective Product: Consumer Groups’ Study of Microsoft in Need of Recall,” Competitive Enterprise Institute, February 9, 1999, www.cei.org/gencon/004%2C01559.cfm.) Thus the effect of Microsoft’s private-sector “monopoly” was a price decrease of 8.6 percent in a single year for a vastly improved product. Likewise, Carnegie and Rockefeller, the so-called “robber barons” of the 1880s, with their “monopolies” of steel and oil that ushered in the era of antitrust laws, brought consumers lower prices that dropped steadily as their market shares increased. (See Benjamin Powers and Adam Summers,“Antitrust Is Anti-Consumer,” Economic Education Bulletin, July 2002, http://home.san.rr.com/adamsummers/Antitrust.pdf.)

Government Monopolies Are Different

Why then do government officials insist they must protect consumers from successful businesses that persuade people to buy their products? Perhaps it is because of their own experience with the postal monopoly. The government’s monopoly, when it fails to provide its services efficiently, simply raises its prices to compensate–just as it is seeking to do now. But what government officials do not seem to realize is that so-called monopolies in the private sector cannot operate in the same manner as government monopolies. In the free market, when a single seller raises its prices, it creates an incentive for increased competition.

Government monopolies, on the other hand, play by different rules. The postal service can raise the price of first-class postage because the government has outlawed competition. For a business in the free market to achieve and maintain a large market share, it must offer consumers the best possible product at the lowest possible price. Unfortunately, this is not so for the U.S. Postal Service, as its monopoly pricing over the past hundred years has shown.

Reviewed by John Hood

Television can be not only entertaining but educational, as long as you are not seeking great depth or elaborate argumentation. That means that it’s possible to adapt excellent writing for television but not the reverse. In Money & Power: The History of Business, author Howard Means has adapted a CNBC documentary into a book that provides little of value to one seeking a serious treatment of business history. The breezily written book manages to be insubstantial and infuriating at the same time.

Means attempts to tell the history of business through a series of essays on famous individuals or episodes. The choice of subjects is predictable; the Medicis, the tulip bubble, J.P. Morgan, John D. Rockefeller, and so on. Unfortunately, so is the sorry economic analysis. Means indulges in the usual demonization of entrepreneurial effort, characterizing innovation as “cutthroat competition” and employing loaded terms like “robber baron” with little regard for fine distinctions or economic rationality. It’s the kind of book that has been misleading Americans about the role and nature of business for generations.

The essay on Rockefeller is particularly galling. Means indulges in various tirades about Rockefeller’s “ruthlessness and unsentimentality” (meaning his relentless efforts to reduce the price of oil, that scalawag!) and his corrupt “buying” of the politicians of the day. These were the same politicians who had erected the trade restrictions that Rockefeller’s trusts and other innovations were meant to evade. Paying intrusive or tyrannical politicians to leave him alone probably seemed to Rockefeller to be a perfectly reasonable expenditure of his and his shareholders’ money. Means can only see corruption, missing entirely the fact that the evasion of anticompetitive regulations was economically beneficial.

If Means had really wanted to tell the story of the history of business, he might have explained Rockefeller’s dilemma in greater detail. Before inventing the modern trust, he had already amassed a considerable fortune by refining and marketing oil more efficiently than anyone else. One secret to his success was a waste-not strategy that sought to use every by-product of the refining process. His chemists came up with 300 different uses for a barrel of oil. Rockefeller also pioneered vertical integration. His partnership with Henry Flagler and Samuel Andrews not only refined oil but also harvested and dried timber, transported it to factories, and then produced the barrels necessary to haul the oil.

Five years after the founding of their refining plant in 1865, the price of kerosene had dropped by 50 percent. Rockefeller’s ceaseless pursuit of lower prices drove other refiners out of business, many of which he then acquired. By 1880, his company controlled 80 percent of the kerosene business. Contrary to the predictions of those with a simplistic view of markets, such as Means, Rockefeller could not then rest on his laurels and run a high-priced monopoly. Kerosene itself had competitors, including whale oil and electricity. Furthermore, there was always the possibility of new entrants to the kerosene market. So Rockefeller pushed on. By the time the company reached 90 percent of market share five years later, it had driven prices down another 69 percent, to 8 cents a gallon.

Although hardly helpful to Rockefeller’s competitors, his business acumen was immensely beneficial to industry as a whole and to the American (and world) consumer. But does Means undermine his attack by mentioning the fact that Standard Oil made life much better for the consumer? Of course not.

On the other hand, Means seems to vindicate him only by reporting what, to Means at least, was a puzzling contradiction: Rockefeller’s philanthropy. The implicit message is that making lots of money is bad, but at least it can then be given away.

Means does the same for Henry Ford, whom he badly maligns, by explaining that the Ford Foundation’s “general support for a variety of liberal and social-welfare programs (causes Ford himself might well have loathed) would help buff the image of the automaker.”

Are we to understand that an entrepreneur who created his great fortune by serving humanity well, through innovation and hard work, needed his image improved by having his fortune squandered by others, against his expressed wishes, on left-wing projects of dubious merit?

Anyone who would suggest such a thing lacks the insight necessary to explain the history of business. Others have performed the task far better, including Gerald Gunderson’s excellent The Wealth Creators and Larry Schweikart’s The Entrepreneurial Adventure: A History of Business in the United States.

Read those books and skip the disinformative Wealth and Power.

John Hood is president of the John Locke Foundation, a public-policy think tank in North Carolina. His books include The Heroic Enterprise: Business and the Common Good (The Free Press, 1996) and Investor Politics (Templeton Foundation Press, 2001).

An issue of American Heritage (November 1999), a magazine devoted to analyzing important cultural issues in U.S. history, contains an article that provides ample clues to the true nature of late nineteenth-century America. The piece, “People of Progress,” features the greatest innovators of the twentieth century, and takes as its point of departure Christian Schussele’s famed 1862 painting, “Men of Progress,” a depiction of 19 great American inventors and creative thinkers of the first half of the nineteenth century.

Schussele’s painting portrays such men as Cyrus McCormick (1809-1884), the inventor and manufacturer of the reaping machine and other agricultural equipment; Charles Goodyear (1800-1860), who created the vulcanization process that made rubber useful; Samuel Colt (1814-1862), the gun inventor and manufacturer; Peter Cooper (1791-1883), the builder of the first American steam locomotive; Samuel Morse (1791-1872), the innovative thinker responsible for both the electric telegraph and the Morse Code; William Morton (1819-1868), the dentist who co-discovered ether’s use as an anesthetic; and Elias Howe (1819-1867), inventor of the sewing machine. These, as well as 12 other equally accomplished thinkers and inventors, form the subject of Schussele’s masterpiece.

The administrators of the Cooper Union for the Advancement of Science and Art (founded by industrialist and inventor Peter Cooper in 1859¹) recently commissioned one of its leading graduates, the artist Edward Sorel, to paint a sequel to Schussele’s work—a portrait of 20 innovative Americans who changed the world in the twentieth century. Sorel, with assistance from the editors of American Heritage and American Heritage of Invention & Technology, chose the subjects. Not surprisingly, some of the geniuses depicted started their brilliant careers in the second half of the nineteenth century.

Anti-capitalist historians regularly refer to this era as “the Gilded Age” and deride its great industrialists as “Robber Barons.” They claim that its extensive industrial development was achieved by means essentially tawdry and unprincipled. They are profoundly mistaken and have failed to identify the essence of the era. It must be known as the Inventive Period.

In Schussele’s painting, Benjamin Franklin looks down on those assembled as both inspiration and presiding genius. Sorel grants this honor to Thomas Edison. Edison (1847-1931) is the exemplar of his age. He is widely known as the inventor of the electrical lighting system, the phonograph, the electric generator, and the motion-picture projector. He also later coordinated movies with phonographic sound to create the world’s first multi-media presentation. But Edison is by no means alone in exemplifying the scientific/technological genius of the period. Sorel’s portrait projects numerous other great minds.

Among them are George Washington Carver (1864-1943), the brilliant black American botanist and agronomist, who developed a new type of cotton, Carver’s Hybrid. Born a slave, he is most famous for developing sweet potatoes and peanuts as leading crops, but he also invented hundreds of plant-based products, taught methods of soil improvement and, by means of his discoveries, induced southern farmers to grow crops other than cotton. Also included is Charles Steinmetz (1865-1923), the German immigrant who went to work for General Electric as its first director of research and development and in the 1890s pioneered the understanding of electrical transmission.

Neglected Geniuses

Since Schussele’s portrait concentrates on the early nineteenth century and Sorel’s on the twentieth, there are many great late-nineteenth-century thinkers who are included in neither painting. Here we can cite merely a few. One is George Eastman (1854-1932), who in 1884 patented the first film in roll form to prove practical. In 1888 he revolutionized photography by perfecting his Kodak camera, and in 1892 established the Eastman-Kodak Company, one of the first to mass-produce standardized photographic equipment. Another is Cyrus W. Field (1819-1892), an entrepreneur whose interest in transoceanic telegraphy led to the completion in 1866 of the transatlantic cable. Field later was instrumental in laying the cable that linked the United States to Australia and Asia by way of Hawaii.

The advances in architecture wrought by William Le Baron Jenney (1832-1907) and Louis Sullivan (1856-1924) must not be overlooked. Jenney, an engineer in the Union Army during the Civil War, settled in Chicago and opened an architectural office. He pioneered the use of metal-frame construction for large buildings, which he first employed in the Home Insurance Company Building in 1885. His revolutionary method of curtain-wall construction is still used today and earned him the title of “father of the skyscraper.” Sullivan apprenticed with Jenney early in his career. Later, it was his designs for steel-frame buildings that resulted in the establishment of the skyscraper as a distinctively American type of building.

George Westinghouse (1846-1914) introduced numerous inventions in various fields, but concentrated on the railroad industry. Before the age of 20, he created the “railroad frog,” an invention that permitted trains to switch tracks. His most famous advance was the air brake, invented around 1866, which became a standard feature on all trains. Westinghouse developed hundreds of innovations, acquired more than 400 patents and, together with the Croatian immigrant Nikola Tesla (1856-1943), pioneered the use of alternating current (AC) power in the United States. Tesla invented the AC induction generator in the 1880s, the first practical motor powered by alternating current. He sold the patent to Westinghouse, who put it to commercial use in the Niagara Falls power project. Westinghouse and Tesla demonstrated that alternating current was able to generate electrical power over great distances more economically than the direct current favored by Edison.

John Roebling (1806-1869), a German immigrant, pioneered the construction of suspension bridges in the United States in the second half of the nineteenth century. He demonstrated the practicality of using steel cables in bridge construction—and today, early in the 21st century, several of his bridges still stand, including the famed Brooklyn Bridge in New York, constructed in the 1870s. Another great creator, largely forgotten today, is the U.S. Army surgeon and bacteriologist Walter Reed (1851-1902). In the 1890s, Reed’s investigations contributed greatly to the understanding of typhoid fever, leading to the control and prevention of epidemics of the disease. In 1900 Reed demonstrated that the yellow-fever virus was transmitted by the bite of the mosquito Aedes aegypti. By exterminating the mosquitoes, the disease was virtually wiped out.

A great thinker from the Inventive Period who is widely remembered is the Scottish immigrant, Alexander Graham Bell (1847-1922). In 1874, his work on the multiple telegraph gave him the idea for the telephone. Experiments with his research assistant, Thomas Watson, proved successful on March 10, 1876. Later that year, Bell demonstrated the telephone at the Centennial Exposition in Philadelphia, an event leading to the organization of the Bell Telephone Company in 1877. Bell’s other inventions include the audiometer, a device for measuring hearing acuity and, later in life, the aileron and other aeronautical advances.

Space does not permit even the mention of all the inventors, entrepreneurs, and groundbreaking industrialists who flourished during the period. The achievements of Frank Julian Sprague (1857-1934), for example, are no longer remembered. Sprague, a brilliant electrical engineer who graduated from Annapolis and worked for Edison, electrified Richmond’s trolley system in 1888. He demonstrated that electricity was cheap, and that it could be used on both surface and elevated cars. In 1890 about 15 percent of America’s urban transit mileage was electrified; by 1902, 97 percent.

On the eve of the twentieth century America’s technological advances were only beginning. On the morning of June 4, 1896, Henry Ford (1863-1947) battered down the brick wall of his rented garage with an ax and drove out his first car. Others, of course, had already built and run cars, but Ford began the Ford Motor Company in 1903 and made the automobile a commercial reality. Soon millions of Americans were driving cars. That same year, Wilbur (1867-1912) and Orville (1871-1948) Wright, two bicycle mechanics from Dayton, Ohio, who were self-educated regarding the principles of aeronautical engineering, accomplished the first controlled, powered flight of a heavier-than-air vehicle at Kitty Hawk, North Carolina. Throughout the 1890s, the Wrights had been studying aeronautics and experimenting with flying devices. Both the automotive and aviation ages dawned in early twentieth-century America as a direct outgrowth of the achievements of the late nineteenth. (Ford and the Wright brothers are included in Sorel’s painting.)

The Underlying Factor

What underlying factor was responsible for this unprecedented outpouring of innovations, inventions, advances, and new products? The answer should be obvious, but unfortunately, to many historians it is not. It was the political and economic freedom of the capitalist system that enabled these inventor-entrepreneurs to flourish.

The late nineteenth century (until the proliferation of trust-busting and government controls in the early twentieth century) was the freest period of American history. The leading economists, professors, legal theorists, and judges upheld the principles of individual rights, limited government, economic freedom, and profit-making. Economists such as Amasa Walker, Arthur Latham Perry, and Francis Bowen wrote the leading economics textbooks of the day. Their works—Science of Wealth, Elements of Political Economy, and American Political Economy, respectively—championed the ability of the free market to create wealth and upward economic mobility.² William Graham Sumner (1840-1910), the leading American social scientist of the late nineteenth century, wrote of “The Forgotten Man,” the honest laborer who supported himself by productive work. The principle of the Forgotten Man is that he needs the liberty of the American system if he is to flourish. He is the one always victimized by the socialists’ schemes to redistribute the income earned by private individuals.³

The law writers and legal philosophers of the day shared the same commitment to limited government. The most prominent, Thomas Cooley and Christopher Tiedeman, wrote their major works in the second half of the nineteenth century. The upshot of both Cooley’s A Treatise on the Constitutional Limitations Which Rest Upon the Legislative Powers of the American Union (1868) and Tiedeman’s A Treatise on the Limitations of the Police Powers of the States (1886) was the defense of property rights.⁴

In practice, most American judges of the period agreed with the individualistic principles of the country’s leading legal philosophers. After the Civil War, American courts generally presumed to be unconstitutional any laws restricting property rights and the rights of both businessmen and workers to set the terms of labor that they deemed best. As one example, the New York State Court of Appeals in 1885 struck down legislation seeking to limit the hours of industrial employment, ruling that such a law violated the rights of both worker and employer to engage in a voluntary transaction.

Additionally, the American courts of the late nineteenth century repeatedly placed severe limitations on the government’s power to tax and to subsidize business ventures. The courts generally gave strong support to the capitalist principle that productive enterprise was to be privately funded, owned, and operated. One representative ruling by a Missouri court in 1898 found against governmental paternalism, whether state or federal, and proclaimed that individuals know best how to conduct their own business and personal affairs.⁵

In this era, the U.S. Supreme Court gradually came to be the great defender of an individual’s right to property, freedom of contract, and economic liberty. For example, Stephen J. Field (brother of Cyrus Field), for many years a distinguished Justice of the high court, issued pro-freedom dissenting opinions in such famous disputes as the Slaughter-House cases (1873) and Munn v. Illinois (1877), holding that the government could prevent neither employers nor workers from entering fields of their own choosing or violate the right of individuals to the full use and disposal of their property. The majority opinion at this time was that the Fourteenth Amendment protected the rights of the recently freed slaves only and that there was nothing in it to prevent the states from interfering in business activities. But by the mid-1880s, after the San Mateo case (1882) and the Santa Clara case (1886), Justice Field prevailed. Chief Justice Morrison Remick Waite, in an oral statement, spoke for a unanimous bench in 1886, proclaiming that all the justices “understood and accepted the fact that corporations were persons within the equal protection clause of the Fourteenth Amendment.” The right of individuals to work and to use their own labor and property as they saw fit now came under the legal protection of the Supreme Court.⁶

Religion and Capitalism

Religious leaders of the period characteristically upheld the virtues of work, frugality, sobriety, and wealth earned through honest effort. The weekly religious periodical The Independent, edited for a while by the noted Congregationalist minister Henry Ward Beecher (1813-1887), defended the free market as the means by which both capitalists and workers would achieve material gain. For almost four decades Beecher preached from his influential Brooklyn pulpit the ability of hard-working individuals to rise economically in the capitalist system.⁷

The intellectual, cultural and political climate of the country upheld freedom, limited government, and property rights in this era. The economic results are not surprising. The most innovative and creative minds were free to develop new products and methods, to start their own companies, to bring their innovations to the marketplace, to convince consumers that the new products were superior to the old and, in time, to earn fortunes. There were few government bureaucrats and regulators to prohibit their activities, restrict their output, dictate working conditions, or limit their market share. “The first condition of this proliferation was that the innovations did not require the assent of governmental . . . authorities.”⁸

Most of the innovators of the Inventive Period were entrepreneurs who sought and made wealth by virtue of their creative work. Edison retired with a net worth of $12 million, an enormous sum in those days. His inventions were profit-driven. “Edison’s Menlo Park laboratory was conceived to bring scientific knowledge to bear on industrial innovation . . . . Its inventions were goals chosen with a careful eye to their marketability.”⁹

Such instances were numerous during the Inventive Period. Eastman, Westinghouse (Westinghouse Electric Company), and Ford are all examples of innovator-entrepreneurs who developed their new products into profitable business ventures. Willis Carrier (1876-1950) invented the air conditioner in 1902, held more than 80 patents by the 1940s, and founded the manufacturing firm that bears his name. (He also made Sorel’s painting.) Bell’s most famous invention led, of course, to the founding of the Bell Telephone Company. Roebling made a fortune from his wire-manufacturing company, as did McCormick from his firm’s producing the reaping machine and other farm equipment. Colt was an entrepreneur who opened his own plant, Colt Patent Arms, in 1855. He pioneered advanced manufacturing methods such as the production line and the use of interchangeable parts, making his company the largest private armory in the world. Isaac Merritt Singer (1811-1875) wanted a commercially practical sewing machine and brought together several related patents to create his immensely popular product. By 1860, he was the largest manufacturer of sewing machines in the world. A business innovator, Singer began such practices as installment buying, advertising campaigns, and service with sales.

Because of the climate of political and economic freedom during the Inventive Period, America’s entrepreneurs were able to revolutionize the fields of heavy industry on which general prosperity depended. Between 1860 and 1900, American output of bituminous coal increased by 2,260 percent, crude petroleum by 9,060 percent, steel by 10,190 percent, and other industries increased by similar amounts.¹⁰ Industrialists such as Andrew Carnegie (1835-1919) and John D. Rockefeller (1839-1937) built Carnegie Steel and Standard Oil into enormously productive concerns that flooded the country with steel and oil products. In the 1880s and 1890s, the great railroad man James J. Hill (1838-1916) constructed the Great Northern Railroad with only private funds to the immense betterment of people in the northern plains and northwest states. It goes without saying that Carnegie, Rockefeller, and Hill earned great wealth.

The lesson of the Inventive Period can be applied today. Political and economic freedom will lead to widespread innovation. This principle can already be seen in the computer industry, in which the relative absence of government regulation has enabled such innovators as Steve Jobs, Stephen Wozniak, Bill Gates, Michael Dell, and others to create an information revolution and to earn fortunes in the process.

To defend freedom against the distortions of the anti-capitalist historians it is important to reject the inaccurate and opprobrious title of “the Gilded Age” for the late nineteenth century. We must recognize and celebrate the true nature of the era.

It was the Inventive Period.

Notes

1. See www.cooper.edu/engineering/chemechem/general/cooper.html.
2. Louis M. Hacker, The World of Andrew Carnegie, 1865-1901 (New York: J.B. Lippincott, 1968), pp. 68-73.
3. Ibid., pp. 81-85.
4. Ibid., pp. 86-92.
5. Ibid., pp. 95-96.
6. Ibid., pp. 98-107.
7. Ibid., pp. 74-80.
8. Nathan Rosenberg and L.E. Birdzell, How the West Grew Rich (New York: Basic Books, 1986), p. 265.
9. Ibid., p. 250.
10. Hacker, p. xxxi

Even the Wall Street Journal has joined in this attack; reporter Alan Murray claimed in a page-one article that Gates supposedly enjoys “monopoly power” that “even John D. Rockefeller could envy.”

Microsoft’s critics are right. There are many similarities between Bill Gates’s company and the old Standard Oil organization.

Like Gates, Rockefeller was the victim of a political assault for the “sin” of rapid innovation, a vast expansion of output, and rapidly declining prices just the opposite of what the antitrust laws ostensibly police. As with Microsoft, the political attack on Standard Oil was launched by less-efficient rivals who wanted to achieve through the political process what they failed to achieve in the marketplace.

There is indeed a lesson to be learned from Rockefeller’s antitrust ordeal, but it is not the one Microsoft’s critics have in mind.

Rockefeller’s Economic Legacy

The firm of Rockefeller, Andrews, and Flagler was formed in 1865 and was a marvel of efficiency because of Rockefeller’s penny-pinching ways and the managerial genius of his brother William.¹ Even Rockefeller’s harshest critic, the muckraking journalist Ida Tarbell (whose brother’s firm the Pure Oil Company was driven from the market by the more efficient Standard Oil), described the company as “a marvelous example of economy.”²

The efficiencies of economies of scale and vertical integration caused the prices of refined petroleum to fall from over 30 cents a gallon in 1869 to 10 cents by 1874 and to 5.9 cents by 1897. During the same period, Rockefeller reduced his average costs from 3 cents to 0.29 cents per gallon.

The production of refined petroleum increased rapidly throughout this period of increasing dominance by Standard Oil as well, as increased competition was provided by Associated Oil and Gas, Texaco, the Gulf Company, and 147 independent refineries that had sprung into existence by 1911 the year in which the government forced the breakup of Standard Oil.

Contrary to popular mythology, Standard Oil’s market share declined from 88 percent in 1890 to 64 percent by 1911. Because of intense competition the company’s oil production as a percentage of total market supply had declined to a mere 11 percent in 1911, down from 34 percent in 1898.

Moreover, Standard Oil’s decades-long price-cutting was not “predatory pricing” the theoretical practice of pricing below average cost to drive competitors from the market and establish a monopoly. Any business person would be a fool to intentionally lose money by pricing below average cost for decades. As economist John McGee concluded in his classic analysis of the Standard Oil case, “whatever else has been said about [it], the old Standard organization was seldom criticized for making less money when it could readily have made more” through other means.³

Indeed, Standard Oil never came close to cornering the market; by the time the antitrust case against it was filed in 1906, it had hundreds of competitors. Nevertheless, Standard Oil was convicted of violating the antitrust laws in 1911 and partially dissolved, despite the fact that the courts conducted no economic analysis of its conduct and performance. That is, they completely ignored the effects the company had on prices, output, and innovation in the petroleum industry, just as Microsoft’s critics tend to ignore that there are tens of thousands of software development firms in the world and that during the period of Microsoft’s rise to dominance the cost of computing has fallen spectacularly while product quality has soared.

Standard Oil was convicted because of a general anti-business animus stoked by socialist intellectuals and journalists such as Henry Demarest Lloyd and Ida Tarbell and urged on by the company’s higher-cost and higher-priced rivals. As a result the most efficient industrial organization of the time was crippled, weakening competition and pushing prices up.

The Protectionist Roots of Antitrust

From the very beginning, the antitrust laws have been a protectionist vehicle. While in theory they guard consumers against monopoly, in reality they politically protect uncompetitive (but well-connected) businesses. In a 1985 International Review of Law and Economics article, I showed that in the ten years before the 1890 Sherman Anti-Trust Act, the industries accused of being “monopolized” by trusts were all dropping their prices faster than the general price level was falling at that time and were expanding output faster than GNP was growing some as much as ten times faster.⁴ The late-nineteenth-century trusts were the most innovative and fastest-growing industries of their time, which is why they were unfairly targeted by antitrust laws.

Indeed, Congress at the time recognized the great advantages of the trusts for consumers. Congressman William Mason stated during the U.S. House of Representatives debate over the Sherman Act that the “trusts have made products cheaper, have reduced prices; but if the price of oil, for instance, were reduced to one cent a barrel, it would not right the wrong done to the people of this country by the trusts’ which have destroyed legitimate competition and driven honest men from legitimate business enterprises.”⁵ Senator George F. Edmunds added that “Although for the time being the sugar trust has perhaps reduced the price of sugar, and the oil trust certainly has reduced the price of oil immensely, that does not alter the wrong of the principle of any trust.”⁶

Thus, members of Congress acknowledged that the trusts had caused lower prices to the great benefit of consumers, but objected that higher-priced businesses many of which were political supporters had lost market share or had been driven out of business.

The Sherman Act was a protectionist scheme in more ways than one. The real source of monopoly power in the late nineteenth century was government intervention. In October 1890, just three months after the Sherman Act was passed, Congress passed the McKinley tariff the largest tariff increase in history up to that point. The bill was sponsored by none other than Senator John Sherman himself. Sherman, as a leader of the Republican Party, had championed protectionism and high tariffs since the Civil War. In the Senate debate over his antitrust bill he attacked the trusts because they supposedly “subverted the tariff system; they undermined the policy of government to protect . . . American industries by levying duties on imported goods.”⁷ That is, the price-cutting by the trusts undermined the manufacturing cartel that was created and sustained by the Republicans’ high-tariff policies.

The Sherman Act was a political fig leaf designed to deflect attention away from the real source of monopoly power the tariff and the true price-fixing conspirators Congress and protectionist manufacturers. The New York Times saw through this charade when it editorialized on October 1, 1890, that the “so-called Anti-Trust law was passed to deceive the people and to clear the way for the enactment of this . . . law relating to the tariff. It was projected in order that the party organs might say to the opponents of tariff extortion and protected combinations, Behold! We have attacked the Trusts. The Republican Party is the enemy of all such rings.’”⁸

Economists were almost unanimously opposed to the Sherman Act because they viewed competition as Austrian school economists view it as a dynamic, rivalrous process of discovery.⁹ According to historian Sanford D. Gordon, who surveyed all professional journals in the social sciences and all books written by economists regarding the late-nineteenth-century trusts, “a big majority of the economists conceded that the combination movement was to be expected, that high fixed costs made large scale enterprises economical, that competition under these new circumstances frequently resulted in cutthroat competition, that agreements among producers was a natural consequence, and the stability of prices usually brought more benefit than harm to society. They seemed to reject the idea that competition was declining, or showed no fear of decline.”¹⁰

The Myth That Antitrust “Saved” Capitalism

A popular argument made at the time was that antitrust was necessary to stave off something even worse the more extreme forms of regulation or outright socialism. Antitrust was adopted, but Americans were subjected to the more extreme forms of regulation and socialism anyway. As Milton and Rose Friedman pointed out in Free to Choose, by the 1970s the entire Socialist Party Platform of 1920 had been adopted in the United States. Socialism, F. A. Hayek pointed out in The Road to Serfdom, no longer meant nationalization of industry and central planning, but rather the institutions of the welfare and regulatory state. Antitrust did nothing to stop the spread of socialism in America.

Quite the contrary; the adoption of antitrust helped speed up the adoption of socialism. By weakening the competitive process, it has led to slower productivity growth and diminished prosperity. Government always reacts to slower economic growth, unemployment, and economic crises by adopting even greater economic interventions. The late-nineteenth-century proponents of antitrust had it all backwards. This is why it is so disingenuous, to say the least, of contemporary proponents of antitrust, such as the Wall Street Journal’s Murray, to repeat this same discredited argument, urging Bill Gates to “place trust in trustbusters,” or else “he may eventually find the Justice Department and Congress considering more-radical remedies.”¹¹

The Real Robber Barons

John D. Rockefeller, like Bill Gates, achieved his economic success by offering the best products for the lowest prices on the free market. The real “robber barons” of the late nineteenth and the late twentieth centuries are the business people who, having failed to achieve competitive success in the marketplace turned to government and asked it to enact laws and regulations granting them special privileges and harming their competitors. A century ago, such immoral special pleaders included Leland Stanford, who became wealthy by using his political connections to obtain a government-created monopoly franchise in the California railroad industry; Thomas Durant and Grenville Dodge, who pocketed millions in government subsidies to build the Union Pacific railroad; Henry Villard, who “rushed into the wilderness to collect his [government] subsidies” to build the Northern Pacific railroad; and steel industry magnate Charles Schwab, who championed the disastrous 1930 Smoot-Hawley tariff.¹² Their modern-day counterparts would include many of Bill Gates’s competitors, such as the chief executive officers of Netscape, Sun Microsystems, Novell, and other companies that have lobbied the federal government to use the antitrust laws to diminish or destroy the competitive efficiency of their most effective rival, Microsoft.

For over 100 years antitrust regulation has allowed politicians to deceitfully pose as “populists” while stifling competition with politically motivated attacks on the most innovative and progressive companies. These attacks have been supported for over a century by socialist intellectuals and journalists who have taught many Americans to hate capitalism, to envy successful people, and to support government policies that undermine or destroy them both. Being the most successful businessman in the world, Bill Gates was an inevitable target of the anti-capitalistic crusaders. It’s time we recognized antitrust for the protectionist racket that it is and repealed the antitrust laws.

Notes

1. The following information about Standard Oil is from Dominick Armentano, Antitrust and Monopoly: Anatomy of a Policy Failure (New York: Wiley, 1982).
2. Ida Tarbell, The History of the Standard Oil Company (New York: Peter Smith, 1950), pp. 240 41.
3. John S. McGee, “Predatory Price Cutting: The Standard Oil (N.J.) Case,” Journal of Law and Economics, October 1958, p. 168.
4. Thomas J. DiLorenzo, “The Origins of Antitrust: An Interest-Group Perspective,” International Review of Law and Economics, 1985, pp. 73 90.
5. Congressional Record, 51st Congress, 1st Session, House, June 20, 1890, p. 4100.
6. Ibid., p. 2558.
7. Ibid., p. 4100.
8. New York Times, October 1, 1890, p. 2.
9. Thomas J. DiLorenzo and Jack C. High, “Antitrust and Competition, Historically Considered,” Economic Inquiry, July 1988, pp. 423 34.
10. Sanford D. Gordon, “Attitudes Toward Trusts Prior to the Sherman Act,” Southern Economic Journal, 1963, p. 158.
11. Alan Murray, “It’s Time Gates Placed Trust in Trustbusters,” Wall Street Journal, March 9, 1998, p. 1.
12. Burton W. Folsom, Jr., The Myth of the Robber Barons (Herndon, Va.: Young America’s Foundation, 1991).