I got the following in an email:
The really interesting stuff starts at the 5th paragraph.
The Myth of the Robber Barons
by Dan Bosserman
My young friend Peter Light recommended this book by Burton W. Folsom, Jr., that seems to be particularly relevant to current economic conditions.
In the wake of massive failures in world-wide businesses and their purported bailouts by an apparently benevolent government, it seems useful to take what the subtitle of this book calls “a new look at the rise of big business in America.”
The excuse most often cited for taxpayers’ mortgaging their future “unto the fourth generation” is that companies like AIG, Chrysler, GM, JP Morgan Chase, and Citigroup are “too big to be allowed to fail.” Never mind that for decades anti-corporationists have argued that they were “too big to be allowed to exist.”
Presumably, if they were allowed to fail, the economy would be irreparably damaged, massive unemployment would result, and we would all live in fear that our entire way of life might collapse. Government intervention and regulation, along with authoritative, enlightened management, is touted as the way out of the wilderness.
“After all,” goes the argument, “this is just another example of industrial and financial robber barons having their way with an innocent and unsuspecting public, making life unbearable for the common man, just like the robber barons of the 19th century.”
Oh for the good old days, before all those evil big businessmen started making everything cost so much! Fact check: Whereas it took 18 man-hours to turn a pound of cotton into cloth in the 1760s, it took only 90 minutes to do the same a century later. A person therefore needed to work a twelfth as long to clothe himself.
Most of the great industrial robber barons got rich by making things cheaper. Andrew Carnegie cut the price of a steel rail by 75% in 30 years between 1870 and 1900; John D Rockefeller slashed the price of oil by 80% over the same period. Henry Ford’s first Model T sold for $825. Four years later he had cut the price to $575.
If you sat and read the East County Gazette by the light of an 18-watt compact-fluorescent light bulb and you read by that light for an hour, you’d consume 18 watt-hours of electricity. If you’re on the average wage and pay the average rate for your electricity, that hour of light will have cost you about a quarter of a second of labor—a little more if you include the cost of the bulb.
According to economist William Nordhaus, to get the same amount of light with a conventional filament lamp in 1950 and the then average wage, you’d have needed to work for eight seconds. Using a kerosene lamp in the 1880s, you’d have needed to work for 15 minutes; a tallow candle in the 1800s, more than six hours.
From a quarter of a day to a quarter of a second is an 86,400-fold improvement. That’s how much better off you are than your ancestor two centuries ago—in lighting, at least. So how did the “robber barons,” who in many cases made our lives easier and cheaper, get such a bad rap?
Well, to begin with, they got rich—and that’s just not considered to be fair, unless you’re a rock star or a sports hero. The very first industrialist referred to as a “robber baron” (by the N.Y. Times, of course, in 1858) was Cornelius “Commodore” Vanderbilt. And what heinous crimes got him accused of “overly predatory tactics”? He dared to offer faster, safer, cheaper steamboat travel across the Atlantic than his government-subsidized competitors. As Harper’s Weekly observed in 1859, “the results in every case of the establishment of opposition lines by Vanderbilt has been the permanent reduction of fares. Wherever he ‘laid on’ an opposition line, the fares were instantly reduced, and however the contest terminated, whether he bought out his opponents, as he often did, or they bought him out, the fares were never again raised to the old standard.”
The other most often cited “robber baron” is John D. Rockefeller, who was and is often excoriated for his accumulation of wealth and market share in the oil business, but critics are hard-pressed to point to specifics of where his consumers were hurt.
Standard Oil began in 1870, when kerosene cost 30 cents a gallon. By 1897, Rockefeller’s scientists and managers had driven the price to under six cents per gallon, and many of his less-efficient competitors were out of business—including companies whose inferior grades of kerosene were prone to explosion and whose dangerous wares had depressed the demand for the product. Standard Oil did the same for petroleum: In a single decade, from 1880 to 1890, Rockefeller’s consolidations helped drive petroleum prices down 61 percent while increasing output 393 percent.
By the way, Greenpeace should have a picture of John D. Rockefeller on the wall of every office. Rockefeller, by driving down the cost of kerosene as a lighting fuel, did more than any other person in history to save the whales. Making kerosene cheap dealt a mortal blow to the whaling industry (perhaps just in time for the sperm whale).
To be sure, there are plenty of instances of industrialists and financiers who have cheated, lied, and stolen (Bernie Madoff springs instantly to mind), but in The Myth of the Robber Barons, Folsom draws a vivid distinction between political entrepreneurs (who try to succeed primarily through federal aid, pools, vote buying, or stock speculation) and marketentrepreneurs(who make the attempt by creating and marketing a superior product at a low cost and by service to the consumer.)
And here lies a cause for optimism in the midst of this recession. Even though jobs are being lost, houses repossessed and firms bankrupted, the underlying deflation caused by innovation is still going on—indeed, on the web, it’s accelerating. All over the internet, people are dreaming up ways of making things available to you more cheaply, more conveniently, more copiously and more quickly.
That is what will cause prosperity to return one day, not cash-for-clunkers programs, incentive programs, or Wall Street bailout programs. |
