John Jenkins'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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it was amazing
bookshelves: history, politics-economics

There is a perception that most of the industrialists who developed new ways of solving business problems between 1820 and 1930, enriching themselves in the process, were greedy, unethical and harmful to their customers. This perception is strongly repudiated by Burton Folsom in The Myth of the Robber Barons as he demonstrates how college textbooks and other media have irresponsibly perpetuated erroneous versions of economic history.

Dr. Folsom carefully distinguishes between political entrepreneurs, such as Robert Fulton (steamboats) and market entrepreneurs, such as Cornelius Vanderbilt (steamboats and railroads). The political entrepreneurs relied on government subsidies and other preferential treatment to develop new industries in ways that legislators thought would be beneficial, but these political entrepreneurs operated inefficiently and provided inferior quality of service at higher prices than the market entrepreneurs.

All the market entrepreneurs in the book are good examples of achieving business success through motivating employees to perform at high levels and providing customers with excellent value. And while most of them donated a lot of money to worthy charities, many of them had imperfect personal lives. Two who seem to have been excellent role models in all facets of their lives are John D. Rockefeller and Andrew Carnegie.

I cannot determine why Dr. Folsom chooses to use Charles Schwab instead of Carnegie as the primary market entrepreneur example in the steel industry. Both men seem to epitomize the book’s theme, but there is little information about Carnegie other than that he was a mentor for Schwab who liked the way Schwab took over the business at Carnegie Steel, but not the way Schwab conducted his personal life.

The John D. Rockefeller chapter contains an amazing paradox. “He put God first, his family second, and career third. This is the puzzle: how could someone put his career third and wind up with $900 million, which made him the wealthiest man in American history?” As Dr. Folsom elaborates, maybe the solution to the puzzle can be found in Malachi 3:10. And maybe this is a lesson for all of us Christians who choose not to tithe because we think resources are limited.

Rockefeller had to overcome many obstacles in order to achieve his goal of being the biggest and best refiner in the world. One of the obstacles was competition with Russian refiners, who had many natural advantages, including proximity to European and Asian markets. Another obstacle was unenlightened U.S. government policies. Rockefeller found it efficient to set up separate Standard Oil corporations in many different states directed in trust by the same board of directors. In 1911, the Supreme Court forced it to break up into separate state companies with separate boards of directors. As Dr. Folsom points out, it was hard to determine how this was a violation of the “restraint of trade” clause in the Sherman Act because of the amount of international competition from the Russians and domestic competition from Gulf Oil and others.
Andrew Mellon has been vilified for being a somewhat different type of “robber baron.” His reputation derives from his service as Secretary of State, where he implemented policies to benefit all taxpayers, but particularly those at the lower end of the income spectrum. Mr. Folsom documents that the intent and the results of the dedicated efforts of President Coolidge and Secretary Mellon were for lower income earners to receive the largest benefits proportionally. Also, even though tax rates decreased, tax revenues increased.

The author also strongly hints at another fairytale - the Myth of Benevolent Elected Officials who protect the Public from Greedy Monopolistic Entrepreneurs. Completely dispelling this myth is somewhat outside the scope of this work, but there are at least two examples of unenlightened legislation that had unfortunate unintended consequences.
1. The Sherman Anti-Trust Act of 1890 was intended to outlaw combinations that restrained trade but had the effect of punishing businesses that achieved economies of scale through consolidation that were passed along to customers in the form of lower rates and better service. This resulted in the dissolution of James J. Hill’s Northern Securities and John D. Rockefeller’s Standard Oil.
2. The Hepburn Act of 1906 that made it illegal for railroads to charge different rates to different customers had several negative consequences. One was requiring rates to be published 30 days in advance and made it impossible to change rates to keep up with changing market conditions. Secondly, James J. Hill of the Great Northern Railroad was prevented from extending special rates to Asian importers of cotton and wheat to introduce them to American exporters.

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Reading Progress

December 12, 2018 – Started Reading
December 12, 2018 – Shelved
January 16, 2019 – Finished Reading
January 22, 2019 – Shelved as: history
January 22, 2019 – Shelved as: politics-economics

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