In this article I plan to look at the right wing libertarian attempt to revise the historical record pertaining to the so called “robber barons” from the late 19th century and early 20th century.  In particular, I will use chapter 7 of Thomas J. DiLorenzo’s How Capitalism Saved America as the springboard for my discussion because this is the sort of literature that I used to read back in my anarcho-capitalist days. Then I want to discuss the probably reason–the most likely “why”–right wing libertarians want to change our perspective of the robber barons from the so called evil “political entrepreneurs” to the righteous “market entrepreneurs.” Briefly, my view is that this is all about creating a bizarre category of “non-monopoly monopoly,” i.e., a special category of businesses that look like monopolies, act like monopolies, smell like monopolies, but aren’t really monopolies after all. Or to be more blunt, this is a way of creating a justification for massive concentration of capital. I will then conclude my article by going through some of the evidence that I have found that makes me doubt the legitimacy of the putative market entrepreneurs held up by Thomas J DiLorenzo. Since I am still investigating this topic, I must emphasis that I am not trying to draw any definitive conclusions at this point. All I am trying to do is to bring to light some reasons to suggest that this hypothesis of “good” market entrepreneurs versus “bad” political entrepreneurs is probably false and probably needs to be rejected as an erroneous distinction. In other words, I want to suggest some possible angles of attack that could possibly be used to refute this attempt to make the robber barons look like the “good guys” of history.

Part 1: The “Good” Robber Barons Have Been Unjustly Traduced!

Thomas J DiLorenzo’s book, How Capitalism Saved America, contains a rather interesting chapter, chapter 7, called The Truth About the “Robber Barons.” DiLorenzo’s chapter attempts to defend the capitalists from the scurrilous claims of “most” historians:

To most historians writing on this period, these entrepreneurs committed thinly veiled acts of larceny to enrich themselves at the expense of their customers. (110)

DiLorenzo tells us that these historians are “confused about the role of capitalism in the American economy” (110). Why are all these historians confused? Will the esteemed economist please enlighten us. Thankfully, he does! The historians have committed a heinous sin, because they have failed

to make an important distinction–the distinction between what might be called a market entrepreneur and a political entrepreneur. (110-111)

DiLorenzo then defines his terms. Notice how all of this pivots around one and only one major distinction: the government. Basically the story is really simple. The good guys are the market entrepreneurs because they become rich without government assistance, while the bad guys are the political entrepreneurs because they become rich with government assistance. Let me just cite DiLorenzo’s definitions so nobody can think I am making this distinction up.

A pure market entrepreneur, or capitalist, succeeds financially by selling a newer, better, or less expensive product on the free market without any government subsidies, direct or indirect.

 

By contrast, a political entrepreneur succeeds primarily by influencing government to subsidize his business or industry, or to enact legislation or regulation that harms his competitors. (111)

The rest of the chapter is basically DiLorenzo’s attempt to show how the market entrepreneur route to wealth accumulation is awesome, while the political entrepreneur route to fame and fortune sucks. He spends most of his time on two robber barons whose reputations have been besmirched by historians who have failed to make his political versus market entrepreneur distinction. If only historians would make this vital distinction then the record would be set straight. This is precisely what DiLorenzo tells us is the case:

the lesson here is that most historians are hopelessly confused about the rise of capitalism in America. They usually fail to adequately appreciate the entrepreneurial genius of men like James J. Hill, John D. Rockefeller, and Cornelius Vanderbilt, and more often than not they lump these men (and other market entrepreneurs) in with genuine “robber barons” or political entrepreneurs. (132)

In other words, the sin of “most’ historians is to falsely lump the market entrepreneurs in with the flagitious political entrepreneurs. If we make this distinction we can separate the good capitalists from the evil Robber Barons. That seems to be the basic story here. And DiLorenzo makes sure that we “get” his thesis by saying it over and over again. For example, on page 112 we read that

the resentment that this naturally generated among the public was unfairly directed at other entrepreneurs who succeeded in the railroad industry without political interference that tilted the playing field in their direction.  Thanks to historians who fail to (or refuse to) make this crucial distinction, many Americans have an inaccurate view of American capitalism. (112)

And again on page 120 we read the same basic thesis. Notice the absolutist language that DiLorenzo uses. He doesn’t say “maybe” or “strongly suggests” or anything like that. Oh no! He makes it very clear that we are dealing with genuine market entrepreneurs here. There is just no room for doubt, according to DiLorenzo’s pronouncements:

And on top of that, usually the free market, not government intervention, gets the blame. Thus, all of the railroad men of the late nineteenth century have gone down in history as “robber barons,” although this designation definitely does not apply to James J. Hill. It does apply to his subsidized competitors, who deserve all the condemnation that history has provided them. (Also deserving of condemnation are the politicians who subsidized them, enabling their monopoly and corruption. (120-121, bold emphasis mine)

Moreover, DiLorenzo paints the market entrepreneurs as the victims of not only government interference such as anti-trust laws, but also the victims of indolent cry-baby less competitive rivals. If only the competitors worked harder, then they too would be successful. But they didn’t, so they deserve to go out of business:

This is a common, ordinary business practice–offering volume discounts to one’s largest customers in order to keep them–but Rockefeller’s less efficient competitors complained bitterly. Nothing was stopping them from cutting their costs and prices and winning similar railroad rebates other than their own inabilities or laziness, but they apparently decided that it was easier to complain about Rockefeller’s “unfair advantage” instead. (125)

I think that captures the essence of DiLorenzo’s argument. We need to distinguish between the “good” market entrepreneurs who got their wealth legitimately through genuine “clean” capitalism and the cry baby “bad” political entrepreneurs who are lazy, indolent, and run to their mommy aka the government or the political process in order to wipe away the tears produced by their inability to compete with the good market entrepreneurs.

I will ignore the fact that DiLorenzo’s definition of capitalism as “genuine market entrepreneur” is not how socialists use the term. My suspicion is that a socialism would say, “so what”? You concentrated capital using the “correct” market entrepreneur means instead of using the “incorrect” political entrepreneur means. But how does that change the relationship between labor and capital? How does this make the situation any different from the point of labor? In both cases, the laboring classes still have to sell their labor, since they do not have access to capital or land. I suspect that a socialist would reject DiLorenzo’s entire approach as just one big exercise in cherry picking of history. Now DiLorenzo can comb through the historical record and every time he sees an entrepreneur getting rich without the assistance of government he can say, “see, a good capitalist,” but every time he finds someone getting some assistance from the government he can say, “not a capitalist” but rather a “neomercantilist” (111). In other words, we can never find a “bad capitalist” in history because by definition capitalists are only the good guys. That does come across as a bit self-serving, I would hazard to guess.

Nevertheless, for argument sake, I will try my best to play along with DiLorenzo’s definitions, and see what I can find, and what conclusions I can draw.

Part 2: Why Do they Do it? Or, the non-monopoly monopoly!

I think that the reason why DiLorenzo and the Austrian school historians such as Murray N Rothbard attempt to reinterpret economic history this way is because they are trying to claim that the “evil” monopoly problem is not caused by free market capitalism, but rather, monopoly is simply a problem of the State. If we can eliminate the State, then we can eliminate the “political” entrepreneurs. Then, all we will be left with are “market entrepreneurs.” Since these “market entrepreneurs” get their wealth through the putatively “just means” of voluntary exchange, then the concentrations of wealth into the hands of a few market entrepreneurs is totally legitimate. Massive income inequalities are not one-hundred percent legitimate because they were arrived at through the “proper” and “just” market entrepreneurial means. The logical corollary of this is that any attempt at income redistribution must be wrong, because the super rich got their wealth legitimately. To take their wealth and redistribute it to the poor would be an unforgivable act of aggression by the poor against the rich. In other words, the poor, the labor unions, etc., will all be violators of the “non-aggression principle” if they dare to question legitimacy of the accumulated wealth of the market entrepreneurs by suggesting anything that might be construed as “aggression,” such as food stamps for the poor, or unemployment insurance for unemployed workers and so on.

In other words, this sounds like a justification for income inequality and serves to legitimize the concentration of property into relatively few hands.

All of this reminds me of the blogger, Lord Keynes, and his article entitled Rothbard on Monopoly Price on the Unhampered Market. In this article, Lord Keynes summarizes everything I have said so far this way:

Rothbard rejects the definition of monopoly as the control of the supply of a commodity, and thinks that there is no distinction between competitive and monopoly prices on a completely free market.

 

On pp. 662ff. of Man, Economy, and State, Rothbard engages in a tortuous and utterly unconvincing attempt to deny any difference between a small producer in a competitive market and a larger corporation with a large share of production. Rothbard’s eventual definition of monopoly only as a right of exclusive production granted by the state to some entity is a piece of legerdemain that allows him to argue that “monopoly can never arise on a free market” (Rothbard 2009: 670).

In other words, if we were to abolish the state, then the “political” entrepreneur problem could never exist, since there would be no state for the “political” entrepreneur to turn to for salvation from the market competition of the market entrepreneurs. And so what we will end up with are gigantic concentrated pools of capital that look like monopolies because they are so huge but aren’t really monopolies after all because they got their concentrated wealth through non-governmental means, hence they will be what I like to call “non-monopoly monopolies!”

Part 3: Some Preliminary Evidence to Make Us Doubt the Good Robber Barons

So what can we do, then, to critique this approach to economic history that tries to salvage the reputation of some of these robber barons from putatively unfair attacks leveled against them by “most” historians.

Well, my guess is that one approach is to demonstrate that these terms “political” entrepreneur and “market” entrepreneur are meaningless distinctions when it comes to trying to explain actual economic history. Debates trying to employ these terms will just degrade into a fight over how to classify historical characters. My suspicion is that the verdict will always come back as “inconclusive,” i.e., historical characters will display a bit of both, and so this good/bad distinction is of little use in explaining what is actually going on. At best, I think DiLorenzo’s argument boils down to a claim that some people in history were more “political” than others in the process of wealth acquisition, and since characters such as James J Hill or John D Rockefeller were supposedly “less political” or “more market” oriented in their process of wealth acquisition, then these individuals come closer to the preconceived ideal type that DiLorenzo and Rothbard are trying to demonstrate the existence of. They seem to be jumping to the conclusion that “closer” to the ideal type can be used to “illustrate” the ideal type in action. This might explain why DiLorenzo uses such strong language, such confident language, about how “this designation,” of robber baron “definitely does not apply to James J. Hill” (120). There is no room left for doubt when one uses words like “definitely.” My suspicion is that he is jumping from a “closer” approximation to an ideal type to the “actual” ideal type.

This “ideal type” issue seems to be an important consideration to make when attempting to understand what is going on when right wing libertarians attempt to do history. Maybe it is the key to understanding what they are doing when they revise history. I will now quote at length (with bold emphasis being mine) from Tony Endres’s An Austrian Perspective on the History of Economic Thought (Review Article) found in the History of Economics Review. The point is that Rothbard and company search diligently through history in order to find precursors of modern day Austrian economics when these precursors are not really there after all:

in the second volume on classical economics Rothbard continues as before; he searches for approximations to his mandatory themes, and as before he must dig deep to bring to the fore many ‘minor’ theorists. Adam Smith’s “errors and wilful neglect of his own forbears” (II, 3) did not mislead Jean Baptiste Say. While he was a populariser of Smith,Say becomes, in Rothbard’s hands, a “praxeologist” (12, 42) who exposed “the fallacies of the mathematical method in economics” (17) and who expressed “laissez-faire and libertarian” views (40). Compared with his study of Smith’s contribution, Rothbard writes with an easy limpidity on Say. Like many of his heroes in the history of economics, Rothbard expresses disappointment that Say slips on some crucial points. For instance, “Say proceeds to fall prey to [the]…Galbraithian trap by attacking luxury and ostentation, and by maintaining that ‘real wants’ are more important to the community than ‘artificial wants'” (21). Now this is a very un-Austrian attitude for J. B. Say! As Skinner (1969: 10) maintained, and as this reviewer is bound to repeat, this (Rothbard’s) method of writing the history of economics produces a mythology: to paraphrase Skinner, if J. B. Say meant to articulate everything that is constitutive of Austrian doctrine (with which he is being credited by Rothbard)why is it that he is so signally failed to do so on some fundamental points (such as consumer sovereignty)? As Skinner argues “the only plausible answer is of course fatal to the claim itself; that the author [J. B. Say in this case] did not (or even could not) have meant after all to enunciate such a doctrine.”(154, bold emphasis mine)

I suspect that this approach to criticism of historical research methods could be applied to our current discussion of how right wing libertarians are trying to find “good” market entrepreneurs among the robber barons. The approach to criticism is then as follows:

  1. Identify the “mandatory themes” or “pure ideal forms”
  2. Find the hero of economic history
  3. We fault our hero for coming up short on the “mandatory” theme from step 1 above
  4. We claim that our hero did not or could not have meant to be an example of the “mandatory theme”

Step 1 is to “identify the ‘mandatory theme.'” I tried to do so all along in this article by noting how dogmatic DiLorenzo is when saying that people such as James J Hill are “definitely” not robber barons. In other words, these people are “definitely” not political entrepreneurs. Consequently, these people are “definitely” market entrepreneurs.

Step 2 requires us to find the hero of economic history. DiLorenzo picked James J Hill and John D Rockefeller.

Step 3 requires that we demonstrate that our hero or heroes “come up short” on the mandatory theme of being “definite” market entrepreneurs.

I looked around in other books to see if James J Hill is a “definite” market entrepreneur or not, and, unsurprisingly, it was quite easy to find passages that make him sound more like a “political” entrepreneur than a “market” entrepreneur. For example, when I looked up James J Hill in Gabriel Kolko’s Railroads and Regulation 1877-1916, Hill’s name is found in the context of calling for more government regulation of industry.

The new agitation for railroad legislation caught many railroad men off guard. Although the Elkins Act did not solve the rebating problem entirely, it had helped end what was equivalent to perhaps a 10 per cent drain on gross railroad revenues until 1903. From 1900 to 1905, railroad income rose for the first time in many years, both in freight revenue per ton mile and revenue per ton. Dividends nearly doubled. The great incentive to railroad advocacy of federal legislation in earlier years had been declining rates and cutthroat competition. In a period of relative prosperity the railroads were less interested in legislation, even though Cassatt, James J Hill, and others were said by some Congressmen to favor stronger legislation. (117, bold emphasis mine)

And again, Gabriel Kolko mentions James J Hill in the context of further expanding railroad regulations:

Robert Mather, vice-president of the Rock Island, confessed to the National Civic Federation in October 1907 that he had once opposed rate regulation before the Senate Committee on Interstate Commerce, which had recommended legislation. “I come here to-day to admit that the action taken in pursuance of that recommendation was wise, and to advocate an enlargement of the rate-making power of the Federal commission.” The reason: since 1906 the states have been setting rates and imposing regulation “in a degree unparalleled in any previous period.”  “…the operations of our railroads should be regulated properly by wholesome and fair laws; and quite as necessary that they should not be regulated improperly,” James J. Hill concluded in the mildest verdict of all. (167-168, bold emphasis mine)

Then I found this article online that seems to contradict the claim that James J Hill “did it all himself” (i.e., he was a self-made man) and built his railroad empire in the American northwest without government assistance. I found this review by William L Lang (Portland State University) of Michael P. Malone’s James J. Hill: Empire Builder of the Northwest. In this review, Lang mentions some very revealing things. In fact, they are so important that I plan to investigate them further, and I will have to write future articles on what I will find. In other words, Lang’s comments provide future direction for my own research on this particular question in American economic history. So my position on this is that I am not completely sure how reliable my source is at the moment (since I haven’t read the original book yet); however, if this scholarly review article checks out as truthful, then it is definitely a contradiction of what DiLorenzo tells us. Let me start pulling out the important quotations from this review article:

But the equally familiar story of Hill as the only railroad tycoon who built his lines free of government aid is demolished in this revisionist treatment. Not only did Hill benefit from land grants when he began erecting his railroad network in Minnesota, but he also played the government for all the financial aid, direct and indirect, that he could glean. In Malone’s perspective account, we see him as clearly the beneficiary of government investment and action, a far cry from earlier depictions of Hill as the self-made man who built an empire with little more than his bare hands. (bold emphasis mine)

This next quotation also needs to be examined because if it can be verified as true, then DiLorenzo’s thesis of a market entrepreneur in the railroad industry during this time period (i.e., the Progressive Era) will be further undermined:

In the end, Malone presents Hill as a sometimes ruthless pragmatist who fixed his attention on what was best for his railroad, not what might be best for the commonweal–although those interests often coincided. In politics, for example, Hill “preferred the free-trade, Jeffersonian Democratic Party of the 1880s to the protectionist Republicans, but he consistently placed his political support where it would do him the most good regardless of political preference” (p. 92). And when his plans to extend the Manitoba westward through Indian lands faltered in 1887, Hill “directly solicited the president,” Grover Cleveland, applying as much pressure as he dared and successfully influencing the federal executive branch to compromise tribal control of lands in Dakota and Montana. (bold emphasis mine)

So I have to now find the underlying original book being reviewed here by William L Lang in order to go and verify that all of these quotations are valid representations of what actually happened in history. I will do that in a future article. However, the source of the review that I am quoting from seems to be legitimate:

An international consortium of scholars and teachers, H-Net creates and coordinates Internet networks with the common objective of advancing teaching and research in the arts, humanities, and social sciences. H-Net is committed to pioneering the use of new communication technology to facilitate the free exchange of academic ideas and scholarly resources. Among H-Net’s most important activities is its sponsorship of over 100 free electronic, interactive newsletters (“lists”) edited by scholars in North America, South America, Europe, Africa, and the Pacific.

Finally, I want to quickly mention some of the preliminary research I have done to check DiLorenzo’s claims pertaining to the “market” entrepreneur status of John D. Rockefeller. What is very interesting here is that I am noticing some overlap with another common issue raised by right wing libertarians, namely the ubiquitous cry of “who will build the roads?” What I mean, of course, is that they will often talk about the need to privatize the roads and highways. However, my quick look at the behavior of John D Rockefeller is suggesting that land ownership can be used to deliberately deny people the right of passage over land, in order to suppress competition and to consolidate economic power (aka build a bigger Trust).

The book I checked out yesterday is called The Robber Barons, written by Matthew Josephson. The story he tells about Rockefeller is really quite interesting, especially since he is supposed to be a “market” entrepreneur, after all. The “independent” oil producers try to gang up on him by building this pipeline route in Pennsylvania. The initial response is a big no-no for a putative market entrepreneur. Rockefeller first tries to get the Legislature of Pennsylvania to shut down his competition, making him look like a “political” entrepreneur or “robber baron.” When that fails, he tries to buy up all the land in order to block his competitors from building their pipeline. So land acquisition is a tool for deliberately blocking and denying other people the free movement of their goods:

The overproduction could not be stopped. The oil men raged at the great machine which held them in bonds. Once more the independents gathered all their forces together to form a protective combination of their own. They founded the Parliament of Petroleum. They raised funds to construct an immense “free” pipe line running over the mountains to the seaboard, and ridding them at last of the railroads which hemmed them in. The new Tidewater Pipe Line would break Standard’s control over railroad rates and bring crude oil to the sea.

 

Rockefeller’s agents now lobbied in the state legislature of Pennsylvania to have the proposed pipeline banned. Failing of this his emissaries were thrown out over the state to buy up right of way in the path of the enemy’s advance. But the Tidewater’s engineers moved with equal speed and secrecy, eluded the defenses which Rockefeller threw in their way and by April 1879, completed their difficult project. (pdf 187/330, bold emphasis mine)

Step 4: Conclude that James J Hill and John D Rockefeller would probably reject being labeled “market” entrepreneurs by Thomas J DiLorenzo. Why? I think both men would be honest enough to say that they did use the government as a means to their own desired personal ends.

Part 4: A Few Concluding Remarks

The “truth” of the situation is that men like James J Hill and John D Rockefeller are probably a mixture of a whole bunch of different things, and their behavior is probably conditioned by personal growth and experience over time, by the vicissitudes of life and business, by reading books and probably a whole bunch of other things that I am not aware of. Are they “market” entrepreneurs? Are they “political” entrepreneurs? Are they more “market” entrepreneurial than the other railroad tycoons of this era? Are they more “political” entrepreneurial than the other railroad tycoons? I would guess that they are a bit of both–that they have “good” “entrepreneurial” aspects and they have “bad” “political” or “State” like aspects. I don’t think we can classify people into neat little categories like this. I guess the damage that this will do to the right wing libertarians and Austrian school historians is that it will weaken the thesis that it is possible to become a super rich railroad tycoon by only applying “market” entrepreneurial means. Obviously, there could be other railroad tycoons out there in the course of world history and maybe they did pull this off and actually do what DiLorenzo is saying market entrepreneurs can do. I am certainly not claiming to have found some sort of definitive proof that will echo throughout the ages as something nobody can ever refute. I am not so arrogant as to claim to have discovered a “law of nature” or some “a priori” truth! What I am trying to say is that if the sales campaign of right wing libertarianism and the Austrian school of economics is going to be marketed through books written by Thomas J DiLorenzo, then I would suggest a change in marketing strategy for my worthy opponents. If James J Hill and John D Rockefeller are some of the “best,” or at least “better,” examples of the idea that “market” entrepreneurship can transform Robber Barons into respectable businesspeople, then I fear that the entire concept of “market” entrepreneurship is suspect. Maybe they will need a better system of classification, but I don’t know if their entire system can survive additional nuances of classification that try to capture the impurities of real human behavior, since nuance smells too much like an implacable foe of the “absolute truth” they desire.

 

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