Ebookwormy1's Reviews > The Myth of the Robber Barons: A New Look at the Rise of Big Business in America

The Myth of the Robber Barons by Burton W. Folsom Jr.
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"Those who tried to succeed... primarily through federal aid, pools, vote buying, or stock speculation we will classify as *political entrepreneurs.* Those who tried to succeed... primarily by creating and marketing a superior product at a low cost we will classify as *market entrepreneurs.* No entrepreneur fits perfectly into one category or the other, but most fall generally into one category of the other. The political entrepreneurs often fit the classic Robber Baron mold; they stifled productivity (through monopolies and pools), corrupted business and politics, and dulled America's competitive edge. Market entrepreneurs, by contrast, often made decisive and unpredictable contributions to American economic development." (pg 2)

I first encountered the myth of the robber barons in my children's history material, which came to mind when I read a review of this title (link below). I was irritated by the coverage of Gilded Age entrepreneurs as greedy oppressors who engaged in philanthropy only to assuage their guilty souls. This Marxian perspective on the nineteenth century was abundantly promoted and abundantly wrong. After learning what this title was about, I knew I wanted to read it - and soon. The work of Mr. Folsom did not disappoint.

I could summarize the accomplishments of Vanderbilt, Hill, the Scranton family, Scwab, Rockefeller and Mellon in breaking up monopolies, improving processes and getting goods to consumers at the lowest price, but it would be better for you to read these prescient accounts for yourself. I appreciated that Folsom does not idolize these subjects. They were all tremendously successful as market entrepreneurs, but that doesn’t mean they were perfect, moral or indemnified from life’s struggles. While Folsom sticks to the main topic of their wealth generation and spending, he does touch on errors of judgement, missteps in business, and the challenges of individual personalities (such as Mellon’s shyness) and situations (like Rockefeller’s isolation). Folsom also faithfully accounts how Schwab lost all his wealth and position in society because his personal life was undisciplined.

The canvas upon which these entrepreneurs painted is an extensive panoramic of the industrial age. Folsom covers steamship transportation, transcontinental railroads, iron manufacture, steel industry, oil industry, and federal economic policy. The rise of so many men from obscurity to extraordinary success is inspiring. Why is upward mobility from the lower classes seemingly so difficult today in comparison?

A welcome, though unexpected, analysis came in the chapter on the Scranton family and the building of their city in a neglected region of Pennsylvania. Folsom uses the rather limited population to analyze generational wealth growth (by all parties including Scranton family members, immigrants to the community, investors, etc) and transfer of wealth by Scranton families to future generations. His findings were intriguing.

“By 1920, the sons of Scranton’s 1880 leaders had ample opportunity to succeed their fathers as the pacesetters of Scranton’s business world. Yet they did not. Few went hungry, but most could not come close to matching their father’s achievements… In short, the fathers and sons provide a stunning contrast.” Pg. 57

In fact, his conclusion is essentially that the rich families became poorer in the sons generation as “…the role of parents, lack of business talent, the quest for leisure and problems of family continuity in general all seem to have combined to fragment the Scranton economic elite of 1880.” (pg 60). And yet, this happened even as poor immigrants and businessmen who saw potential in Scranton mined riches, the standard of living rose, and jobs were plentiful – all building upon the foundation laid by the fathers! Folsom concludes,

“And so the cycle goes – which means that if Scranton is typical, then two seemingly contradictory generalizations about the rise of big business are both true. First, a small constantly changing group of entrepreneurs consistently held a large share of the nation’s wealth. Second, the poor didn’t get poorer, and the rich didn’t get richer.” Pg. 60

Another particularly impactful topic was the philanthropy of John D. Rockefeller. I have read about Standard Oil on many occasions, but Folsom takes the additional step of examining how Rockefeller’s business principles impacted his giving.

“Some historians haven’t liked the way Rockefeller made his money, but few have quibbled with the way he spent it. Before he died, he had given away about $550,000,000, more than any other American before him had ever possessed. It wasn’t so much the amount that he gave as it was the amazing results that his giving produced.” Pg. 97

Rockefeller funded schools and churches across the country (it should be noted that he supported white and black institutions). He gave to evangelists and missionaries, and invested in scientists who found cures for yellow fever, meningitis and hookworm. He gave millions to higher education. Essentially, his giving covered people and communities around the world.

“His guide for giving was a variation of the Biblical principle –“If any will not work, neither should he eat.” Those schools, cities, or scientists who weren’t anxious to produce or improve didn’t get Rockefeller money. Those who did and showed results got more. As in the parable of the talents, to him who has, more (responsibility and trust) shall be given by the Rockefeller Foundation.” Pg 99

For prospective on how innovations of the Business Barons improved the standard of living for all, see Boudreaux, Are you Richer than John D. Rockefeller?
https://fee.org/articles/you-are-rich...

Finally, Folsom closes with a masterful biography of Andrew Mellon. I understood Mellon’s business and perspective better after reading this chapter. Was it because I was building on the foundation of Shlaes The Forgotten Man or because Folsom was far more concise? I tend to think the advantage lies with Folsom.

“The key to the success of these industries, and dozens of other Mellon enterprises, was capital – high-risk, venture capital. Somebody had to have the nerve, the money and the vision to back risky ideas that had potential. Mellon had done this so ably that by 1920 he was worth close to a one billion dollars, which ranked him with John D. Rockefeller and Henry Ford as one of the three wealthiest men in America.” Pg 105

Mellon’s application of free market economic principles for his own benefit were extraordinarily successful, but his great innovation was applying these principles to government in service to his country. His ideas may sound common to us today, but they were revolutionary in his time. Additionally, they were successful, as after taxes were reduced, the economy generated wealth and government receipts increased.

“It seems difficult for some to understand,” [Mellon] wrote, “that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower rates.” Pg. 103

Mellon’s plan of reducing taxes upon the high and low income brackets, reducing federal estate taxes, and *especially* increasing efficiency in government are like fresh water in today’s desert of Big Government, which is infective, unaffordable, and running deficits to a magnitude that would shock both Mellon and his contemporary critics.

Folsom has done a service to those who still hold to the American founding principles of free market economy and limited government. The only disappointment I had was the desire for Folsom to continue his analytics further into the twentieth century, particularly with the development of electricity as a utility. This lead me to his 2008 work New Deal or Raw Deal?

I highly recommend this title for students of all ages, particularly those interested in the entrepreneurial engine that raised the standard of living for everyday Americans and brought the world to America for international leadership. Those interested in economic policy that fosters such an innovative culture in business would also do well to study Folsom’s analysis. I can only hope that it is not too late for Americans young and old to rediscover the principles upon which our contemporary life was built. If we are able to recapture that powerful culture, it will be partly because Mr. Folsom and others retained the candle of healthy practices by previous generations. This title is a valuable contribution to the debate.

“Studying the triumph of American industry, for example, is important because it is the story of how the United States became the world’s leading economic power. The years when the happened, from 1865 to the early 1900s, saw the U.S. encourage entrepreneurs indirectly by limiting government. Slavery was abolished and so was the income tax. Federal spending was slashed and federal budgets had surpluses every year in the late 1800s. In other world, the federal government created more freedom and a stable marketplace in which entrepreneurs could operate.” Pg 121

The review that added this book to my to-reads...
https://fee.org/articles/how-the-myth...

Modern Times (Story of the World #4), Bauer, 2005
https://www.goodreads.com/review/show...

The Forgotten Man: A New History of the Great Depression, Shlaes, 2007
https://www.goodreads.com/review/show...

For more by Folsom, I would like to read…
New Deal or Raw Deal?, Folsom, 2008
https://www.goodreads.com/review/show...



Additional Quotes I found insightful….

“The share of prosperity which has fallen to my lot,” said Vanderbilt, “is the direct result of unfettered trade, and unrestrained competition. It is my wish that those who come after me shall have that same field open before them.” Pg. 7

“….we can sort out two distinct groups: political and market entrepreneurs… They are two separate groups with different attitudes toward innovation, technology, price-cutting, monopolies, and federal aid. In the steamship industry, political entrepreneurship often led to price-fixing, technological stagnation, and the bribing of competitors and politicians. The market entrepreneurs were the innovators and rate-cutters…” pg. 15

“But there is a nagging problem in this argument. While some of this rush for subsidies was still going on, James J. Hill was building a transcontinental railroad from St. Paul to Seattle with no federal aid whatsoever. Also, Hill’s road was the best built, the least corrupt, the most popular, and the only transcontinental railroad to never go bankrupt. It took longer to build than the others, but Hill used this time to get the shortest route on the best grade with the least curvature. In doing so, he attracted settlement and trade by cutting costs for passengers and freight. Could it be that, in the long run, the subsidies may have corrupted rail development and hindered economic growth?” pg. 18

“Here is the a key point: the gain in social return was only temporary, but the loss of shipping with tan inefficient railroad was permanent. The UP and NP were, as we have seen, inefficient in gradients, curvature, length, quality of construction, repair costs, and use of fuel. This meant permanently high fixed costs for all passengers and freight using the subsidized transcontinentals.” Pg. 31

“Let the good work go on. We must ever remember we are refining oil for the poor man and he must have it cheap and good.” John D. Rockefeller

“Some of the oil producers were unhappy, but American consumers were pleased that Rockefeller was selling cheap oil. Before 1870, only the rich could afford whale oil and candles. The rest had to go to bed early to save money. By the 1870s, with the drop in the price of kerosene, middle and working class people all over the nation could afford the one cent an hour that it cost to light their homes at night. Working and reading after-dark activities new to most Americans in the 1870s.” pg. 87

“A nation must believe in three things. It must believe in the past. It must believe in the future. It must, above all, believe in the capacity of its own people so to learn from the past that they can gain in judgement in creating their own future.” Franklin D. Roosevelt as quoted pg 121
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Reading Progress

September 21, 2018 – Shelved
January 12, 2019 – Started Reading
January 16, 2019 – Finished Reading

Comments Showing 1-6 of 6 (6 new)

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message 1: by Paul (new)

Paul Froehlich Some historians say we are in the second Gilded Age with a concentration of wealth in a few hands not seen for generations. It's no surprise that defenders of the status quo and growing economic inequality would revise history to discover that it was a good thing the last time it happened.


Ebookwormy1 @Paul. This is not a revisionist history, nor is it contemporary research. Note the book came out in 1991. At the time the author was a professor at Murray State University and discouraged at misrepresentations of entrepreneurship in education texts. He researched the issue and traced it back to a propaganda book (as labeled by its author) published in the 30s titled The Robber Barons that was advocating for big government broadly and communism specifically and sought to re-characterize corporations and their leaders as predatory.

As for the assertion that concentration of wealth is bad, I don't think Folsom would agree. Wealth always gets concentrated. The issue is that market entrepreneurs who take risks, create jobs, and deliver innovation to the market SHOULD be rewarded by the market with wealth - that's a far more equitable system than either redistribution or concentration of wealth in the hands of government (which has been shown again and again to be incredibly inefficient and ineffective). And its not like this is easy to do. Several individuals experienced health issues and some even early death from the stress of running these competitive businesses.

Do you prejudice the founders of Google, Apple, Facebook, Amazon or Microsoft their millions? They are the entrepreneurs of today and have changed the world for all us. Would your job be the same without their work? Would we be having this discussion without it? How many jobs have they created? How much have the raised the standard of living in the USA? How much have they contributed to technological leadership of the USA in innovation, markets, military. Opposing that kind of development will create an anemic society.

For more on the impact of American innovation on the standard of living we enjoy, see this article about how you and I live a more comfortable life than John D. Rockefeller - the richest man of the Gilded Age!
https://fee.org/articles/you-are-rich...

A powerful market is a valuable check upon government to prevent it from taking over all aspects of society. In addition, a market that's in collusion with the government is corrupt! That's what this book is articulating - the difference between entrepreneurs who served the market (lower prices, more efficient organizations, better marketing strategy/ giving the customer what they want), whom he labeled MARKET ENTREPRENEURS, and those who basically colluded with the government to give them monopolies, protections, price fixing, etc, who Folsom refers to as POLITICAL entrepreneurs. It's true, there were some Robber Barons, most whose names are now forgotten, because they were not interested in changing the world. Lumping the market guys in with them is inaccurate. Everyday working people LOVED their market entrepreneurs, they were giving them what they wanted/ needed: affordable cars, cheap gas, fast transportation, etc. Just like the large corporations have given us the innovations we want, or even, as Steve Jobs famously said, "the things we didn't even KNOW we wanted yet."

Also, as Folsom's market study on Scranton found:
1) There WAS wealth concentrated in 40 families of this city (which is still quite a bit larger than you would find in a totalitarian system committed to gov't redistribution. For example in North Korea or China, what percentage of families do you think control the wealth of the country?!). These were the families that started businesses and services.
2) In the following generation, the rich actually got poorer, because the sons were not as innovative or hard working as the fathers (some sons chose a life of gentlemanly leisure because they could after their father's success). The poor actually got richer. Unemployment was low. The standard of living in the entire town rose. And some immigrants (both domestic and international) made large fortunes through entrepreneurship in the sons generation. So the opportunity for advancement was there, it just wasn't taken by the inheritors.

This is not a long book, under 200 pages. It's written in the genre of narrative history, not academic tone, but very readable. It is structure as case study biographies of market entrepreneurs. Sounds like it struck a chord with you, you should read it. I think you'll be glad you did.


Ebookwormy1 Wow. that's long. Folsom does a much better job at being concise!


message 4: by Poiema (new)

Poiema Very interesting review on a subject that I am not very well informed on. Thank you for taking the time to write it.


message 5: by Paul (new)

Paul Froehlich The reaction against the Gilded Age didn't start in the 1930s. It started with the Progressive Movement that sought to break up monopolies, and to stop the tycoons from dominating government.
The fact is that wealth means power. Greater inequality means the system of self-government becomes less responsive to the average person.

We both agree that complete economic equality is a bad idea. I also think it's a bad idea if 1% owns 99% of the wealth. How about you?

In 2017, the eight wealthiest men in the world owned as much as the poorest 50%. The three richest people in the US owned as much wealth as the bottom half of the nation's population.

Is that the optimal distribution of wealth in order to incentivize innovation and investment? Economic inequality is widening. If the trend continues, the three richest will own an even bigger share in 2019. Will that be the right level? BTW, the offspring of the superrich are in no danger of becoming poor. Trust fund babies will be rich regardless of their lack of talent.

In the quarter century after WWII, economic inequality narrowed as a bigger share of profits were shared with labor than is true today. Yet the economic growth rate was strong, despite very high tax rates on the rich.
CEOs earned 60 times, not 400 times, as much as their average worker, yet US companies excelled. The middleclass was rapidly growing.

Since 1980, the share of profits going to shareholders and management has steadily increased, while labor's share has declined. The middleclass has declined accordingly.

Is widening inequality inevitable, or is it the result of public policies shaped by the wealthy? Such as lower marginal income tax rates, and less legal protection for organized labor. I think it's policy, not the invisible hand.


Ebookwormy1 I don't think Folsom (or myself) sees the wealthy owning more as a problem. Each of the wealthiest men you bring up took huge personal risks to deliver a product that people in the market voluntarily bought. Bezos didn't get rich by theft, he gave consumers what they wanted in Amazon. No one was complaining when Amazon was losing money, now everyone wants to reduce his exponential rewards. HOWEVER, I do have a huge problem with Amazon NOW that they are collecting such incredible tax breaks for setting up their HQ2 - Bezos has switched from the market innovation of an entrepeneur to the political protection of a robber baron, and that's bad for consumers, bad for taxpayers and opens the door for corrupt politicians to trade favors with powerful businessmen. That's not the role the gov't is to play, and it inhibits a free and fair market.

I agree that power needs to be diffused, that's why I don't want the government too large. Giving the gov't the power to redistribute wealth or go beyond a minimum legal regulation of markets encourages companies to seek political solutions to business problems, instead of delivering to consumers in the marketplace. That is a recipe for corruption, excessive debt and bad law.

We also have the problem of a gov't so large we can't afford it. We have huge social programs going bankrupt (social security and medicaid). The gov't hasn't managed anything better than the marketplace or philanthropy, both of which punish inefficiency. But the gov't is never punished for inefficiency.

Many of these debates, while related, go beyond Folsom's book. Again, the book is rather short, concise and well written. I recommend you read it.

For more on income inequality, see
http://www.aei.org/publication/income...


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