Mark Twain named the decades after 1865 the “Gilded Age,” and Progressive historian Vernon Louis Parrington sketched them in some detail in 1927. For Parrington (Main Currents in American Thought, volume 3), the Gilded Age was a “Great Barbecue” of continuous government largesse and State-assisted capital accumulation under a very simple philosophy: “[P]reemption [of land] meant exploitation and exploitation meant progress.” Americans, Parrington wrote, equated individualism with acquisition of wealth and nothing more: “The Wall Street crowd—Daniel Drew, Commodore Vanderbilt, Jim Fisk, Jay Gould, Russell Sage—[were] blackguards for the most part, railway wreckers, cheaters and swindlers. . . .”
Reigning politicians were also blackguards, and audacious ones. A “surprising number” of America’s economic movers and shakers hailed from New England. Entrenched Republicans became wholly committed to Henry Clay’s dream of State-assisted industrialization and “paternalism as understood by speculators and subsidy-hunters” (Parrington). Government as fairy godmother could not, however, subsidize everyone: “Governmental gifts go to the largest investments”—a survival of the wiliest under laissez-faire slogans. Here were the men called “Robber Barons” by their critics.
Between 1900 and the 1940s historian Charles A. Beard and popular writers like Matthew Josephson, Gustavus Myers, and John T. Flynn followed this interpretive line. But historical fashions change. World War II taught Americans the virtues of bigness in government and business. The waning Old Right forgot the two-front war against big government and big business once waged by Senator William Borah (R, Id.). The emerging Cold War involved projects sustainable only by large organizations. Beard died in 1948, having sinned by disputing FDR’s foreign policy, and his historical views suffered by association with “isolationism.”
By the 1950s only a few leftover populists like Senator Estes Kefauver of Tennessee kept up Borah’s old fight. Historians Ralph and Muriel Hidy, Hal Bridges, and many others found much to praise in late-nineteenth-century big business. Bridges’s essay “The Robber Baron Concept in American History” (1958) lauded Gilded Age industrialists as constructive wealth creators. In “The Robber Baron Concept and Its Revisionists” (1965), New Left historian Alan Solganick tried to reignite debate, suggesting that Gilded Age capitalists put short-run profit ahead of potential technical advances. In recent history textbooks “Gilded Age” appears but without “Robber Barons.”
Taking up where business-oriented elements of the Old Right left off, classical liberals generally see the Gilded Age and alleged Robber Barons as historically vindicated. Fear that concessions to Gilded Age critics will immediately justify big government as social savior seems to require excuses for past economic malefactors. Still, classical liberals Arthur A. Ekirch, Jr., George Roche III, Wilhelm Röpke, Albert Jay Nock, former Freeman editor Frank Chodorov, and Felix Morley did not wholly reject the Populist-Progressive indictment.
The key growth sector from the mid-nineteenth century on was railroads, no stranger to government subsidies. These proved very profitable for promoters and land speculators. But if railroads revolutionized commercial traffic, creating bigger markets and therefore larger-scale enterprises, by 1880 they looked like massive overinvestments with shaky foundations. America had a transportation system so far ahead of natural migration that railroads had to scare up their own settlers. New lines built solely to block competitors aggravated the overextension. Accidents affecting workers and passengers alike were numerous. The recurring cycle of bankruptcy, reorganization, debt reduction, and renewed promotion with watered stock leads historian Ray Ginger (The Age of Excess) to wonder whether, overall, the average return on railway investment was actually negative.
Railroads’ power to set rates arbitrarily became a major public issue. Senator Thomas Benton of Missouri had argued in the 1850s that if given federal subsidies, railroads must serve as public highways leased to private operating companies and open to all on an equal basis. This was not quite what the public got, but the highway metaphor did return during the great railroad strike of mid-1894 to explain how President Cleveland could send federal troops into Illinois over the governor’s protests.
As noted in my “Civil War and the American Political Economy” (Freeman, April 2011), subsidized railroads pioneered large-scale private bureaucracy under the corporate form and their example promoted the form. All this encouraged further concentration of capital, as had the war itself.
Business Practices and Ethics
Bigger markets and larger enterprises rested on various advantages, almost always political in nature, such as large grants of land (including mineral rights), perpetual franchises and rights of way, control of raw materials, transportation subsidies (railroad and highway construction), superior access to transportation, differential shipping rates, control over distribution, public franchises, charters, licenses, tariffs, direct government subsidies and loans, patents, copyrights, privileged banking, and sundry direct or hidden grants of monopoly, including virtual (regulatory) cartels.
All these levers abounded in the Gilded Age—typically for the right price. Tramway entrepreneur Charles Tyson Yerkes’s open buying of franchises from Chicago aldermen finally provoked support for so-called municipal “socialism.” In addition businessmen engaged in patent wars and constant litigation to harass competitors.
Tariffs drained money from the countryside into industrialists’ coffers. The Tennessee Coal, Iron and Railroad Company, headed by U.S. Rep. Thomas C. Platt (R, NY), managed to benefit from both tariffs and convict labor. Generally, the defeated South succumbed to northern capital: to Hamilton Disston, who bought nearly half of Florida; J. P. Morgan, who reorganized the southern railroad system; and sundry timber companies. Sharecropping (black and white), the crop-lien system, and “reckless destruction” of forests by timber companies typified the new southern economy (Ginger).
Even before 1861, Thomas C. Cochran and William Miller (The Age of Enterprise) write, “New York, New England, and Pennsylvania had gathered up the funds of the nation, had developed financial techniques to manipulate them, and mastered the arts of credit expansion.” After 1865 bankers—much preferring gold to whatever they had previously lent—lobbied for imposed deflation through retirement of Greenbacks. Large federal tariff revenues (about a third of the possible money supply) sat idle in the Treasury contributing to deflation. Money for new enterprises had to come from established financial gatekeepers, who did well through legally-sanctioned fractional-reserve magic and other devices.
Overproduction, Cartels, De-Skilling
The economies of scale made possible by transportation subsidies forced companies to invest more in fixed (physical) capital while trying to keep variable costs (including labor) low. As Andrew Carnegie noted, industrialists had to keep their machinery “running full.” But doing so produced goods unsellable (profitably) at home. U.S. Commissioner of Labor Carroll D. White declared overproduction “a permanent feature of the economy.” Such statements abounded, and farmers’ groups likewise took up the cry. This led from the 1880s forward to much discussion of “over-saving” and “over-production.” Two interim solutions suggested themselves: cartels to restrict production and the reorganization of work itself. Early attempts at cartelization failed for lack of direct State support, and corporations turned to the second plan. If craft skills could be (in effect) built into new machinery, unskilled labor could replace skilled workers at lower costs. This “de-skilling” would reduce workers’ bargaining power, increasing managerial control, and shift a higher proportion of income from added value to the corporation. A third option, overseas economic empire with foreign markets for “surplus” products, was discussed but was as yet premature.
Flynn and the “Brigand Theory of Progress”
Assessing this period in Men of Wealth (1941), John T. Flynn showed a keen grasp both of basic facts and fundamental issues. At bottom he agreed with ex-New Dealer Willis J. Ballinger (By Vote of the People) that America’s financial masters had “systematically misoperated” the economy for almost a century. Flynn could not accept “the brigand theory of progress,” which excused the hurried methods of nineteenth-century capitalists on grounds of their services to long-run productivity. Many were simply “rascals . . . driven by a consuming passion for getting other people’s money.” Commodore Vanderbilt pioneered methods “of inflating the capitalization of railroads, utilities, and corporate enterprises of all sorts.” Vanderbilt, Gould, Fisk, Drew, and others perfected “the mechanisms of exploitation of properties through stock manipulations” with “vast gains that did not come out of the property at all.”
Flynn found fascinating the synergy between bank “money actually created in the act of lending it” (his italics), watered stock, limited liability, holding companies, and new companies launched entirely to provide quick profits to promoters. Government-tainted finance capitalism had begun in Lowell and Boston by 1837, but J. P. Morgan had perfected its destructive capacities by controlling both banks and corporations issuing securities. This long train of abuses related directly to the corporate form: “the mightiest weapon of all.” (As Thurman Arnold [The Folklore of Capitalism] wrote in 1937, “[C]apital came to mean the ability to control bank credits, which had no particular relation to productive property.”)
Flynn saw Rockefeller as fairly honest and innocent of stock manipulation, but on the downside, a forerunner of corporatism and, in this way, of the coming American New Deal fascism. (Corporatism, formal or informal, would not be realized until many decades later.)
Flynn is onto something: the centrality to the Gilded Age of stock gambling and fictitious capital, a circumstance that might well undercut Ludwig von Mises’s claim (reported by Rothbard) that a stock market is a sure sign of a free market. One begins to suspect that stock markets along with powerful government-aided banks and corporations are instead the surest sign of rigged markets. In Flynn’s account, few famous nineteenth-century capitalists come out unscathed; instead, they emerge as money-chasing rascals working just this side of the law—a small feat, given their ability to move the law around as needed, whether through bribery or the partisan, pro-commercial efforts of the average judicial mind, state and federal.
The Rule of Law
Pro-commercial jurisprudence thrived in the industrializing states, while a uniform national commercial code to foster industry and “progress” was normally a special project of the federal (and ideologically federalist) judiciary. Once the Great Barbecue vested sufficient interests (Nock’s “primal distribution” of productive resources), the interests naturally proclaimed a free market, which the judges contrived to define in their favor. Federal courts duly told states that powers they had granted to corporations were now federal rights under the contract clause, forevermore beyond recall. Broadly speaking, the law was malleable, activist, and pro-commercial. Law professors William J. Quirk and R. Randall Bridwell (Abandoned: The Betrayal of the American Middle Class Since World War Two) find the federal judiciary “‘conservative’ of the prerogatives of business and capital, but . . . not ‘conservative’ of the institutional arrangements established by the U.S. Constitution. . . .”
As seen by historian Frank Tariello (The Reconstruction of American Political Ideology), American classical liberalism was (after 1865) an increasingly flabby ideology. Faced with intellectual—and mass—revulsion against the society under construction, liberals joined business in defending existing arrangements, pointing irrelevantly at dangerous foreign communists. Gilded Age liberal reformers, above mere politics, hoped to combine “laissez faire” with efficient new bureaucracies and restrictions on “unreliable” voting blocs.
All That’s Gilded Is Not Gold
Louis Bromfield (A Few Brass Tacks), a late arrival to the Old Right, questioned the alleged genius of America’s Gilded Age industrialists and bankers. Making a great deal of money under “fantastically favorable conditions”—adequate capital, low-cost labor, and resources seized for next to nothing—seemed no great achievement. Arthur Ekirch’s account of the Gilded Age in The Decline of American Liberalism (1955) uses Parrington’s terms, “Preemption, Exploitation, Progress,” and closely follows Parrington’s treatment. While regarding Rockefeller, McCormick, Armour, and Carnegie as genuine producers, George Roche III (The Bewildered Society), a former FEE staff member and later president of Hillsdale College, found much room for complaint in actually existing capitalism. The key was the modern corporation, originating in State power and fostering oversized bureaucracy and mass society. Citing Nock, Roche protested “the unabashed economism which dominates our age” and expressed doubt that “the enmassment of American business is an absolute prerequisite for large-scale production.”
We could just note the Robber Barons’ achievements and move on. But what if their few ideas and many practices had serious systemic consequences? Was there any way out? Progressives—waiting in the wings—believed so, but had conflicting answers. And there is another interesting story, not fully covered by easy fables told by Glenn Beck and Jonah Goldberg.