ROBBER BARONS AND OTHER PUBLIC SERVANTS

...We’ll stick just to the claim that the "free-market system" gave rise to "monopolies." (For our purposes we can define a "monopoly" in the colloquial sense of a single or overwhelmingly dominant supplier of a good or service, since this is clearly the sense in which people who peddle this view intend it.) This is pretty much what every child is fed in our official propaganda centers, as indeed was I all through high school. Put forth in tandem with this claim are lurid tales of the so-called robber barons, who we’re told ruthlessly exploited the public to satisfy their insatiable greed – a human inclination that never seems to afflict our selfless public servants, I might add.

To be sure, no one should try to excuse those who sought to use state power to cripple their competitors. Burt Folsom made a helpful distinction between political entrepreneurs, who got ahead using underhanded tactics like this, and market entrepreneurs, who prospered because they produced what the public demanded at prices people could afford.

Andrew Carnegie almost single-handedly managed to reduce the price of steel rails from $160 per ton in the mid-1870s to $17 per ton in the late 1890s. Given the importance of steel to a modern economy, that massive price reduction yielded greater wealth and a higher standard of living for everyone. Carnegie was so efficient, in fact, that the 4000 people who worked at his Homestead plant in Pittsburgh produced three times more steel than the 15,000 workers at Germany’s Krupps steelworks, Europe’s most modern and renowned facility.

Likewise, John D. Rockefeller was able to reduce the price of kerosene from one dollar per gallon to ten cents per gallon. People could finally afford to illuminate their homes. Rockefeller also developed 300 products out of the waste that remained after the oil was refined. Claims that Rockefeller was an "unfair" competitor (whatever that means), the usual gripe of those who cannot deliver a product at prices that sufficiently please consumers, were laid to rest half a century ago in John S. McGee’s study for the Journal of Law and Economics. (John S. McGee, "Predatory Price Cutting: The Standard Oil (N.J.) Case," Journal of Law and Economics 1 [October 1958]: 137–69.)

We might also mention James J. Hill, who grew up in poverty but whose entrepreneurial skill helped make the Great Northern Railroad, which extended from St. Paul to Seattle, a major success without any government subsidies at all. In 1893, when the government-subsidized railroads went bankrupt, Hill’s line was able both to cut rates and turn a substantial profit.

Still another of the alleged robber barons was Cornelius Vanderbilt. In 1798 the government of New York had granted Robert Livingston and Robert Fulton a monopoly on steamboat traffic for thirty years. Vanderbilt was hired to run a steamboat between New Jersey and Manhattan in defiance of that monopoly. Vanderbilt evaded capture while at the same time charging only one-quarter of the monopolists’ fare.

After Gibbons vs. Ogden (1824) overturned New York’s steamboat monopoly, the fare for a trip from New York City to Albany dropped from seven dollars to three. The trip from New York to Philadelphia, which had been three dollars, fell to one dollar. Travelers going from New Brunswick to Manhattan now paid only six cents, and ate for free. When he moved his steamboat operation to the Hudson River, Vanderbilt charged a fare of ten cents, as opposed to the previous three dollars. Later he dropped the fare entirely, running his operation on the proceeds from concessions aboard the ship.

Even when his competitors had unfair advantages, Vanderbilt came out on top. Edward Collins received a government subsidy for his steamship business to provide mail delivery across the Atlantic – to the tune of $858,000 a year by the 1850s. When Vanderbilt entered the field in 1855, he outperformed Collins in passenger travel and mail delivery with no subsidy at all. Congress did away with Collins’ subsidy in 1858, and before long he went bankrupt.

Meanwhile, Vanderbilt was also outperforming two subsidized steamship lines that brought passengers and mail to California. They charged $600 per passenger per trip. The unsubsidized Vanderbilt charged $150 per passenger, and nothing to deliver the mail.

Forgive me, but I am supposed to fear and despise these benefactors of mankind why, exactly?

Tom Woods, LewRockwell.com Read the rest...

-flynn