An Engaging Book about American Entrepreneurs
Rhodes & Easton • 1998 • 205 pages • $17.95
Continuing in the spirit of his earlier The Myth of the Robber Barons, historian Burton Folsom has written another engaging book about American entrepreneurs. Empire Builders is an excellent piece of research and writing, bringing to life a key period of American business history while dispatching socialistic misconceptions about entrepreneurs and the world of business.
Folsom, senior fellow in economic education with the Mackinac Center for Public Policy in Midland, Michigan, concentrates on the lives and contributions of Michigan entrepreneurs. He includes the men you would expect—Henry Ford, William Durant, Will Kellogg—as well as some that are relatively unknown, such as Henry Crapo, timber magnate and later governor who staunchly defended limited government. Each of the seven chapters is rich in detail and valuable lessons.
Did you know that George Washington promoted federal involvement in the fur trade? He did not believe that the fur trade could be carried on by private enterprise, and backed a plan to subsidize government “factories” that would trade goods to the Indians in exchange for furs. That put the government in competition with John Jacob Astor, who followed the dictates of the market, risked his own funds, and operated profitably. The government’s factories lost money and needed subsidies year in and year out. Through political machinations, the beneficiaries of the federal subsidies tried to eliminate free-market competitors but failed. Eventually, during Andrew Jackson’s presidency, the government’s factories were closed down and their assets sold at a big loss. A delightful story.
Shortly after Michigan’s statehood in 1837, its “boy governor,” 26-year-old Stevens T. Mason, concluded that the state needed a network of canals and railroads planned and financed by the government. The success of the Erie Canal had convinced many Americans that governmental infrastructure investments (as they’d now be called) were the fast track to prosperity. The countervailing idea that huge spending programs undertaken by officials who stood to lose nothing if they were wrong in their judgments did not raise any caution flags. Mason plunged ahead with his dreams.
The results, as Folsom recounts, were disastrous. The losses were astounding: one canal project managed to squander $350,000 in capital in exchange for revenues of $90 before being abandoned. The government’s railroads fared little better. Eventually, Mason saw the light. The state’s malinvestments were sold off, and he denounced his own folly. The lesson was not lost on the real losers, the people of the state. The 1850 Michigan Constitution included language that forbade governmental investments of these kinds. (Unfortunately, that language is no longer in the constitution. It’s time to put it back.)
Folsom includes an interesting appendix on the treatment of the canal and railroad fiascos in history textbooks. As you might expect, the books from which many students learn about Michigan’s history don’t grasp the point that the key flaw was in the very idea that politicians could do a better job of directing and optimizing investment than could private investors. Instead, the textbooks pin the blame on extraneous factors.
Another intriguing story is the one about Herbert Dow’s battle with foreign (mainly German) chemical cartels in chlorine, bromine, and dyes. Dow’s firm had “broken the rules” by selling products in the European market, which by convention was off-limits to Americans. When German industrialists told Dow to cease, he refused, triggering a price war. The Germans wanted to ruin Dow, so they began selling at a loss in the United States, while keeping prices high in “their” market.
They underestimated Dow’s ingenuity. He secretly purchased vast quantities of the cheap imports here, and shipped the goods back to Europe to be sold at a handy profit. The cartel members accused one another of cheating on their agreement to keep prices high and output low, never realizing that Dow was wrecking their plan. Finally, the Germans caved in. Predatory pricing, that old antitrust bête noir, had utterly failed to do anything except enrich some chemical users and shippers.
I hope that this nicely written and illustrated book finds a wide audience. In particular, I would like to see it get into the hands of young people, because it will teach them a lot about entrepreneurship, the characteristics needed to succeed in business, and the importance of leaving resource allocation to the free market.
