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Friday, May 6, 2011

No Laissez Faire There

The Gilded Age

(This article is based on remarks delivered at the meeting of the Association of Private Enterprise Education in April.)

Friends of the free market tend to see the Gilded Age, roughly 1870-1890, as the closest thing in history to a laissez-faire economy. In some respects that is true — but it’s not saying much because the bar is low. I’d rather we didn’t mark on a curve. The period could be closest to laissez faire without being terribly close.  (In important respects, including the legal status of blacks, women, and others, the period compares rather poorly with our time.)

It would be surprising if the Gilded Age had been marked by genuinely free markets for the simple reason that it followed a major war. War, Randolph Bourne wrote, is the health of the State. He meant this in a spiritual sense. In war people who were previously busy with their own individual and community lives suddenly develop a new-found awe for the State and the nation it claims to embody. State-worship doesn’t go away with the war’s end. Rather a permanent change occurs in the people’s psyche. Robert Higgs’s analysis in Crisis and Leviathan adds a material dimension to Bourne’s theme. Not only does government gain new prestige in war, it also gains new powers, not all of which are relinquished when the war ends.

Thus we would expect that the economy following the American Civil War to be profoundly shaped by the war. (See the special Civil War issue of The Freeman.) For one thing, individuals made fortunes through contracting for goods and services, and handling of government debt. Influential business figures cultivated close relationships with leading politicians and bureaucrats – if they didn’t have them already. Government needed to buy all sorts of things and to borrow money. Who was it going to call? War is lucrative even without letter-of-the-law corruption.

Hamilton-Clay Program

The administration of Abraham Lincoln finally gave America the Hamilton-Clay program: a national bank, railroad subsidies and land grants, high tariffs, excise taxes, and other interventions. It was a rent-seeker’s delight. As Richard Kaufman wrote in The War Profiteers, “The most important of the nineteenth-century American capitalists acquired their first great fortunes during the war. J.P. Morgan, Philip Armour, Clement Studebaker, John Wanamaker, Cornelius Vanderbilt, and the du Ponts had all been government contractors. Andrew Carnegie got rich speculating in bridge and rail construction while assistant to the Assistant Secretary of War in charge of military transport.”

This wouldn’t seem to present ideal conditions for the postwar emergence of a free market. Too many people had a taste of power, privilege, and fortune, not to mention the inside track with federal and state officials. They weren’t likely to volunteer to give up those benefits. The eradication of evil — chattel slavery — came with a good deal of pro-business economic intervention (corporatism). The result was the forced, conscious creation of a national economy according to a politically worked-out blueprint rather than spontaneous market evolution. (Benjamin Tucker’s identification of four State sources of monopoly — patents, tariffs, money, and land — is relevant here.)

I leave aside here what we should call the existing nonfree-market economic system. (Regarding the name capitalism, see this.)

The Gilded Age of course has been criticized by enemies of the free market — corporatism and the free market have been sloppily and even intentionally conflated — but what’s often unappreciated is that writers sympathetic to the free market have disparaged the Gilded Age as broadly illiberal and contrary to the spirit of free enterprise. Where many libertarians see laissez faire, these writers saw corruption and privilege distorting commerce. I’ll cite two examples here: Arthur A. Ekirch Jr. and George C. Roche III.

Expansion and Consolidation

Ekirch (1915-2000) was a distinguished professional historian and academic whose book The Decline of American Liberalism should be read by every lover of freedom. (Liberal for Ekirch meant free markets, decentralized power, and individual liberty.) Since I’ve written about Ekirch previously (here, here, and here), I won’t dwell on him except to note his observation that “Later, in the postwar period, it would be forgotten that many of the national problems associated with the rise of big business and monopoly had their origins in this earlier era of expansion and consolidation during the Civil War.” He quoted the 1876 liberal Democratic president candidate, Samuel Tilden, who said:

The demoralization of war — a spirit of gambling adventure, engendered by false systems of public finance; a grasping centralism, absorbing all functions from the local authorities, and assuming to control the industries of individuals by largesses to favored classes from the public treasury of moneys wrung from the body of the people by taxation — were then, as now, characteristics of the period.… The classes who desire pecuniary profit from existing governmental abuses have become numerous and powerful beyond any example in our country…. For the first time in our national history such classes have become powerful enough to aspire to be in America the ruling classes, as they have been and are in the corrupt societies of the Old World.

Just a bit more from Ekirch:

Beginning with the economic legislation of the war years, the Republican party gave the business interests of the North the protection and encouragement they desired….

Instead of the limited state desired by Jeffersonian believers in an agrarian society, the post-Civil War era was characterized by the passage of a stream of tariffs, taxes, and subsidies unprecedented in their volume and scope….

Also vital to big business was patent law, with its provisions granting exclusive rights to an inventor for seventeen years; this enabled companies to buy up and hoard patents, using such control to maintain a monopoly.

Roche (1935-2006), who once worked at FEE, was the president of Hillsdale College for many years and the author of works that include Frederic Bastiat: A Man Alone. In 1974 he published The Bewildered Society, which contains a scathing portrayal of the Gilded Age. Here are a few choice quotations:

The businessmen of the nineteenth century are to be blamed for courting government to gain special privilege…. The late nineteenth century was an era conspicuously dominated by the assumption that government could be used to achieve various special interest projects, whether it was building a railroad or the development of an “infant industry.”…

Corruption soon followed the new American acceptance of highly centralized political power as a problem-solving device. The process quite clearly began with the American Civil War…. It is true that a time of tremendous building did occur in industry, communication, and transportation across our American continent following the Civil War. But it is also true that the era brought with it the spoilsmen in politics and the exploiters in economic life who were quite willing to work hand in glove in taking the American people for a ride. Boss Tweed and Jim Fisk [pictured here] were all too symbolic of their era….

Never before in American life had the temptation for corruption been so great. Following the Civil War, politicians found themselves dealing in land grants, tariffs, mail contracts, subsidies, mining claims, pensions. The power of taxation gave them power to protect or de[s]troy individual businesses….

The corporation is now and has always been derived entirely from power granted by the state, power directly dependent upon continued enforcement of laws providing it with its special privileges and immunity….

The interpretation of American history which views the latest nineteenth-century businessman as a free enterpriser, while describing government activity as an attempt to restrain laissez-faire, is simply not borne out by the facts.

You get the idea. Similar views were expressed six decades earlier by laissez-faire advocate William Graham Sumner.

It would behoove libertarians not to view this period of corporatist privilege with nostalgia – doing so undermines the free-market cause. This doesn’t mean that government-business control over economic activity was total. There were spaces for genuine competitive market activity and entrepreneurship, which is why the period saw dramatic economic growth and rising living standards. It’s also why big business helped usher in the Progressive-era regulatory “reforms.” But that’s a topic for another day.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.