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Source link: http://archive.mises.org/5665/the-truth-about-the-robber-barons/

The Truth About the “Robber Barons”

September 22, 2006 by

Most who use the term “robber barons,” writes Tom DiLorenzo, are confused about the role of capitalism in the American economy and fail to make an important distinction — the distinction between what might be called a market entrepreneur and a political entrepreneur. Thanks to historians who fail to (or refuse to) make this crucial distinction, many Americans have an inaccurate view of American capitalism. FULL ARTICLE

{ 9 comments }

Jacob Steelman September 22, 2006 at 5:59 pm

This is a great article. It is good to be reminded of the real heroes in society – those market entrepreneurs who have helped to make life better for all of us by providing the goods and services we demand. While we are almost always told that regulations (and the government) are for the protection of the consumer, the truth is altogether different. Regulations are for the benefit and protection of the cartel and the political entrepreneurs and are at the expense and to the detriment of the consumer (all of us) and the market entrepreneur who is providing goods and services demanded by the consumer. The effect is to drive up the cost/risk of the market entrepreneur and increase the price to the consumer. In many countries this is understood. The market entrepreneur is forced into the informal economy (black market,underground economy)to provide the goods and services required. These are usually low capital intensive businesses. While the political entrepreneur operates in the formal highly capitalized economy – utilities, real estate development, construction, resource development, etc. See the book entitled The Other Path. Since there is little chance the market entrepreneur will ever be able to disrupt the cartel the market entrepreneur is generally left alone.

Nick Bradley September 22, 2006 at 6:36 pm

This was an excellent article Professor DiLorenzo.

Few too people understand the difference between poltical entrepeneurs and market entrepeneurs.

I am curious to know what effect the deflationary monetary policy of the time had on industry. Lew Rockwell wrote the other day that deflation encourages efficiencies. I found this fascinating quote in wikipedia:

“The Great Sag of 1873-96 could be near the top of the list [of deflationary periods]. Its scope was global. It featured cost-cutting and productivity-enhancing technologies. It flummoxed the experts with its persistence, and it resisted attempts by politicians to understand it, let alone reverse it. It delivered a generation’s worth of rising bond prices, as well as the usual losses to unwary creditors via defaults and early calls. Between 1875 and 1896, according to Milton Friedman, prices fell in the United States by 1.7% a year, and in Britain by 0.8% a year. Commodity prices fell at a steeper rate, perhaps by as much as 3% a year.”

It seems like a deflationary monetary policy had quite an effect on the rapid increases in productivity at the time. The same could be said of the pseudo global deflationary period of the late 1990s up to 9/11.

Another thought crossed my mind while reading this fantastic article. The argument for government regulation and fiat currency began with Western farmers and complaints, correct? If so, then we can trace back the catalyst for the welfare state back to the subsidization of railroads after the Civil War.

Eric September 22, 2006 at 7:09 pm

This chapter is a good summary of the book by Folsom. And putting it on line I can now direct my friends to the most important of the Baron myths. But I was hoping for a more modern list of Robber Barons, and so I think it would benefit by moving the discussion on Microsoft and Bill Gates (since he had been compared to Rockefeller) to this chapter since most Americans know of that case. He could then show how times haven’t changed much and it might lend more strength to the older cases where people don’t have any first hand knowledge and have to “believe” the author got the facts right – since even the author only got his information by reading other historians. While somewhat older, the IBM case might have also fit in here well.

Looking at how Sun began as a true entrepreneur and later became a political entrepreneur might have been quite interesting. I remember how Sun began to take business from Digital Equipment Corp. because DEC refused to accept that its customers, at that time, wanted UNIX and especially large screens. But later, Sun began to lose market share to Microsoft and Apple since people began to want a simpler system than UNIX. Lots of terminal windows does not make a good GUI.

In addition, when reading that section on Gates, I was left hanging on just exactly what the final outcome of the Microsoft case was, since once Judge Jackson had been dumped, there was not much more said about the case.

Jacob Steelman September 22, 2006 at 7:42 pm

Nick you should read Triumph of Conservatism by Gabriel Kolko. This book was written a number of years ago. It explores the changes that occurred in the USA in the late 1890′s and the motivation for such changes – as in the case of Hill it was the political entrepreneurs eager to regulate their competitors. The book The Creature from Jekyll Island has an excellent discussion about the creation of the Federal Reserve.

Som September 22, 2006 at 10:49 pm

What a great article! It really helped me see the enormous benefits made by real market enterprenuers for all of us. While I don’t agree with everything J.D. Rockfeller did (I don’t like his “contributions” to public education), I now know for certain he was no oil politician, but a real entreprenuer. I think I’ll send this article out to all my socialist friends, maybe it will open their eyes a bit.

adi September 25, 2006 at 2:22 am

Very illuminating article!

I have noticed that our students here in Finland get very distorted picture about so called “Gilded Age” of US. In our popular history books its said that formation of monopolies and big corporate interests were halted by the decisive action of Fed Govt and its laws (Sherman Act, Clayton Act etc). Its supposed that the Govt is always on the side of common man againts big corporate interests when business men are fighting only for the profit.

Has anyone noticed book “Capitalism and Historians” by F.A Hayek where its said that historians have a bias concerning markets and always collectivism is said to be a good thing ?

John Grosspietsch September 30, 2006 at 8:09 am

I believe the deflation of the late 1880s was known as the greenback era. The value of the dollar had fallen from $20 per ounce before the Civil War to $35 per ounce, paper money and all that. The deflation was caused by Grant restoring the value of the dollar back to $20 per ounce. Daily wages and prices all had to fall, painfully, to restore the dollar price level throughout the economy.

Al Sledge April 19, 2009 at 9:47 am

I must have somehow missed this article in 2006, but the facts presented are timeless. Another modern example is the hatred of Walmart and Sam Walton himself. Many people make the same case against Walmart as their ancestors did against the true entrepreneurs of the late 1800s. The most common claim is that “Walmart’s low prices will drive out all competition, they then will raise prices as they are a monopoly!” Yet in reality Walmart is now international and yet they have continued to maintain low prices. Yes indeed they have driven competitors out of business, but each of us should be free to decide who we wish to exchange with. Walmart’s low prices has raised the standard of living for all people. Our standard of living is not how many pieces of paper we own, but rather how much stuff we can buy. At Walmart we can buy more stuff. Of course each us should realize some products are of somewhat lower quality, but we still have the choice. Walmart has in effect been banned from doing business here in the Lower Keys of Florida by political pressure, yet K-Mart has been “allowed” to conduct business in Key West and Marathon by government license. Our local politicians, as well as the national ones, have the gall to think that they are somehow better equipped to decide which business’s should be allowed to flourish and which should be punished.

Also in the computer industry that I have been associated with since the sixties is another case where the invisible foot of government has intervened, yet today is losing some of its thunder due to technology. While IBM had the largest market share through very aggressive sales staff, it attempted to stifle its competitors such as Univac (my former employer) and RCA computers via questionable legal suits in matters of patents and copyrights. Singer computer division in the 60′s had a copyright on a code segment that simply calculated the Pythagorean Theorem! The judge handling the case did not have a math background, yet dismissed the charges filed by Singer.

Microsoft is yet another company struggling for political power over their free market competitors, yet it too is having difficulty doing so. While many folks feel Microsoft is a monopoly, they are not. On a world wide basis they are losing market share due to a still somewhat free market. While I am forced to use their products at work, I use Open Office at home and my next machine will be Linux, not Windows.

Then too our public schools are at fault as children have been propagandized for several generations to believe the US government acts in their interest. I recall in the sixth grade that I questioned my teacher about the co-called Civil War and Lincoln. She told me that someday I would understand, and she was correct. It took another 20 years to understand that Honest Abe was not much different than Saddam in Iraq as both murdered large numbers of their populations because they did not share their leaders viewpoint. Saddam was indeed prosecuting a Civil War, whereas Lincoln fought against southern independence. The south was not attempting to overthrow Washington DC, but rather it desired to simply leave the union. I have done a great disservice to my children by not homeschooling.

It perhaps in not so much that our politicians sell favors, but the fact that they are in the position to do so. This is the real flaw in our Constitution and has been for at least a century. Local criminals simply follow suit sticking it to unfavored business in the name of “consumer protection”. Unless things change, consumers and tax payers will always be forced to foot the bill. One can always hope that things may change someday.

But at the present, I am happy to acquaint myself with my learned friends at the Mises Institute who may be our last hope of understanding the truth. For that I am grateful.

Zardoz July 16, 2009 at 3:42 am

This was a great article about a time in history which is completely inaccurately portrayed everywhere. It’s inspiring to read about these men and their accomplishments. If only there were more market entrepreneurs and fewer political entrepreneurs today

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