Castle in Slovenia.
Monday, January 3, 2011

Robber Barons

The robber barons were originally barons who built castles astride river routes, and demanded payment for permission to proceed further along the river. The term was popularized by Matthew Josephson who wrote a book, The Robber Barons, in which he denounced men like Vanderbilt, Rockefeller, and Mellon. Burton W. Folsom has written a book, The Myth of the Robber Baron, in which he looks at the men who were the robber barons vilified by Josephson.

He makes the distinction between political entrepreneurs and market entrepreneurs. The political entrepreneur sought profit through monopoly and government coercion. The market entrepreneur is the risk taker who competes in open markets. He gives Robert Fulton, inventor of the steamboat, as an example of the first. Fulton and his partner secured monopoly rights to river traffic in New York. As with all monopolies they strove to set prices high. Vanderbilt, on the other hand, ran the risk of legal confrontation, and undercut the monopolists. He was eventually able to offer free transportation, subsidizing his ferry from food sales.

Bill Gates, whom I dislike intensely, is, I think a political entrepreneur. His dominance and wealth come not from good products at reasonable prices but from government contracts in which Windows and the Office Suite are dominant. Steve Jobs, whom I like with as much passion as I dislike Gates, is to my mind a market entrepreneur. His products, because he has to compete against not just Windows, but also against Linux, Chrome OS, and others, and whose iPod was first, and is generally superior to other players, are on the whole better and cheaper than the competitions’ products.

Andrew Mellon is another man who is much reviled, and yet when he was Secretary of the Treasury he faced a situation of overwhelming debt and a recession/depression . The period sounds much like our present situation. Mellon came up with a tax plan that sounds like the Tea Party agenda:

  1. Cut taxes on high incomes. High rates cause money to redirected into non-productive uses. When municipal bonds are tax-free and rates are high, money will flow into munis and be spent on useless things like sports stadia. These create temporary construction but do not bring long term mass employment.
  2. Cut taxes on low incomes.
  3. Reduce the federal estate tax.
  4. Efficiency in government. When I worked for GSA we ran payroll for several government agencies. Why was it necessary, given the nature of state and federal taxes, for there to be programmers in multiple agencies creating programs to do payroll? For years the feds used paper that was 8 by 10.5 rather than 8.5 by 11. This was costly and inefficient because the larger paper was the standard everywhere else. There are whole departments and agencies, Agriculture, Education, EPA, TSA, and a host of others that could be abolished, and their absence would not be felt at all.

The book is relatively short and fairly easy to read. It’s one to give to your liberal friends who go on about the evil rich.

Next up Banquo’s Ghosts, a spy thriller by Rich Lowry and Keith Korman.