The Myth of the Robber Barons

Marxist class theory was incoherent from start to finish. For example, Marx predicted that the first proletarian revolution would take place where the proletarian class was most developed, certainly not in 1917 rural Russia. Furthermore, Marx failed to see that the proletariat would increasingly become obsolescent as unionized workers are replaced by the new entrepreneurial class of franchisors, independent contractors and consultants, scientific researchers, bureaucrats, service workers and managers who function without an underclass to exploit.

Unfortunately the pseudo-scientific trappings of Marxist class analysis led to the neglect of earlier and more valuable work on class theory by liberals such as Charles Comte, Charles Dunoyer, and Augustin Thierry. These theorists recognized that it was not just workers who created value but also anyone who participates in voluntary exchange, including the owners of capital. Absent intervention by the State there is no exploitation. But class warfare does take place when the State interferes in voluntary exchange, creating a conflict between producers, and the parasitical political classes. Or, to quote the view of the later classical liberal John Bright, class warfare is a clash between the tax-payers and “tax-eaters”.

Applying this theory to the rise of big business in America we see that there were two types of entrepreneurs, those who sought subsidies and special privileges (political entrepreneurs) and those who did not (market entrepreneurs). The latter tried to succeed by creating a superior product at a lower cost while the former stifled productivity through monopoly privilege, corrupting both business and politics in the process. Examples of market entrepreneurs include Cornelius Vanderbilt (steamships), James Hill (railroads), Charles Schwab (steel) and John D. Rockefeller (oil). Unfortunately, most historians continue to view the rise of big business in America without the benefits of classical liberal class theory. Entrepreneurs, according to these historians, were often “robber barons” who corrupted politics and made fortunes bilking the public. This has led to the view that government intervention in the economy was needed to save the public from greedy businessmen.

However Cornelius Vanderbilt made a fortune by offering superior service at lower rates while his opponents such as Edward Collins were using the state to extort subsidies and impose high rates on consumers. James Hill was the greatest railroad builder of all time and his Great Northern was the only transcontinental railroad to be built without lavish federal subsidies. At Bethlehem Steel, Charles Schwab used his talents for entrepreneurship and innovation to turn a lethargic company worth less than 9 million dollars into one of the largest enterprises in the world. The New York Times praised the company as “possibly the most efficient, profitable self-contained steel plant in the country”. Rockefeller dominated oil refining by his astonishing efficiency, even to the extent of cutting the drops of solder used to seal oil cans from 40 to 39.

It was the political entrepreneurs who were the real “robber barons”, but unfortunately they are not the ones taught to our children.

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“If we seriously study entrepreneurs, the state, and the rise of big business in the United States we will have to sacrifice the textbook morality play of “greedy businessmen” fleecing the public until at last they are stopped by the actions of the state.” Burton W. Folsom, ‘The Myth of the Robber Barons: A New Look at the Rise of Big Business in America”.