The Myth of the Robber Barons

Reviewed 5/17/2016

The Myth of the Robber BaronsRobber_Barons
by Burton W. Folsom, Jr

Many of the previous scapegoats in American society have now been moved to protected status. But one group remains for certain: The Robber Barons. Generally, students are told very little about them, other than that they developed the biggest businesses in the 1800s and did it by exploiting the workers. They were ‘Greedy’ which is now the worst epithet available.

Commodore Vanderbilt, Andrew Carnegie and John D. Rockefeller are usually named whenever Robber Barons are mentioned. Others may come and go, but these men are generally assumed to have amassed their wealth on the backs of the workers and at the expense of the consumer. Folsom talks about these, but also includes James J. Hill, The Scranton family, Charles Schwab and Andrew Mellon.

In Folsom’s classic work debunking these myths, he sets out the proposition that not only are these men (and others) not the evil that is portrayed, but they are actually the benefactors of society. In the case of these men, they expended tremendous effort and attention to their business and took the largest risks personally. And in these cases, they lowered costs of products in their industry, which lowered costs for all goods thereby connected.

In the case of Vanderbilt, he was in direct competition with Robert Fulton first, then later Edward Collins for dominance in the running of steamship lines. While Fulton had the government-imposed monopoly on steam travel on the Hudson River in the early 1800s, Vanderbilt began illegally competing with various pricing schemes. He was quickly priced well below Fulton and at one point charged nothing for the transportation, relying on the sale of concessions on his ferries to pay for the journeys.

In the 1840s, he competed with Collins for sea-transportation customers. Despite Collins’ substantial backing by the British government, Vanderbilt constructed better, safer and faster ships, allowing him to offer lower fares and quicker transportation.

Collins followed a familiar pattern outlined in the book – that of political entrepreneurship. In other words, he convinced the government to pay for a service under the pretense that the market would not provide that good. However, flush with government money, he spent lavishly and unwisely, failing to deliver the services promised. They were so far behind Vanderbilt that they eventually paid him to not compete with them, using money from the subsidy that should have made such bribery unnecessary.

Of particular interest to me was the story of James J. Hill, who built the first unsubsidized Transcontinental Railroad and developed markets all along his route. I have read several books about the building of the Transcontinental Railroad and was always astounded at the corruption of the members of Congress and the government who became involved. By contrast, Hill worked with his customers to develop markets for the products he was shipping. He also played fairly with the Indians on the route, rather than using the military to clear them out of the way, as occurred on the Government backed route.

*****

There were Market Entrepreneurs and there were Political Entrepreneurs. The Market Entrepreneurs succeeded wildly against great odds and subsidized opponents. The Political Entrepreneurs failed spectacularly, despite their government subsidies. You know the names of the Market Entrepreneurs and they are called Robber Barons, but they delivered a good product at ever-decreasing prices, thus benefitting the consumers. The Political Entrepreneurs wasted the consumers’ money which was taken in taxes to pay for their subsidies, then delivered a substandard product that the consumers did not want. Truly the only Robbers in this story are the ones tied to the Government.

This is a classic of economics, yet still highly accessible to the casual reader. I recommend it heartily to you.