David R. Henderson  

The Robber Barons: Neither Robbers Nor Barons

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But a careful reading of the economic research on the "robber barons" leads to a diametrically opposite conclusion: the so-called robber barons were neither robbers nor barons. They didn't rob. Instead, they got their money the old-fashioned way: they earned it. Nor were they barons. The word "baron" is a title of nobility, one typically granted by a king or established by force. But Vanderbilt, Rockefeller, and many of the others referred to as robber barons started their businesses from scratch and were granted no special privileges. Moreover, not only did they earn their money and not only were they not granted privileges, but they also helped consumers and, in one famous case, destroyed a monopoly.
This is an excerpt from the Econlib Feature Article for March. This one was written by me. In the piece, I go through the evidence, focusing particularly on two of the people who are often thought of as being among the most notorious robber barons: Cornelius Vanderbilt and John D. Rockefeller.

I wrote this piece because I was looking around for a single article that makes all the empirical historical points I make in the piece and also ties it into why private, non-government-supported monopolies tend to be short-lived. I couldn't find such a piece. When I make these points in class, I draw on 3 or 4 articles. So I wrote this one myself. In the economics course I teach in the fall, this article will be on the syllabus.


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CATEGORIES: Economic History



COMMENTS (11 to date)
Tom E. Snyder writes:

May I use this in my class this week? We cover Monopoly on Thursday.

Bedarz Iliaci writes:

But they were certainly as ruthless as any baron in pursuing wealth and power. Read Gore Vidal's masterpiece 1873 for social comments on Vanderbilt.

One thing I do not understand while libertarians say that socialism is wealth-envy, they fail to realize that libertarianism is power-envy.

In reality, men have or earn power over other men.
They earn it because of their talent and because other men are dull, slothful and deficient.
So why should powerful men be criticized from enjoying power over other men?

Mr. Econotarian writes:

Gore Vidal's book is "1876" an it is considered historical fiction, not reality.

Daublin writes:

Bedarz: most libertarians I encounter say the opposite. That capitalism channels people's quest for improvement toward increasing wealth by making mutually beneficial trades. Statist governments channel that into amassing power directly.

Put another way, most every penny that Vanderbilt and Rockefeller earn was voluntarily parted with by someone else. Every million that these two gents amassed, was at least a million in value that other people in society amassed.

David R. Henderson writes:

@Tom E. Snyder,
Absolutely!

Rockefeller (and his partner Henry Flagler) were ruthless in pursuing efficiencies that had the effect of drastically lowering the price of kerosene--by something like 80%.

Vanderbilt, similarly, lowered the cost of travel and shipping for his customers. In our own day Bill Gates radically changed computer use by simplifying and cutting costs.

So, they got rich. And, their customers were also enriched.

Sunil writes:

Same subject available on Youtube by Burt Folsom for people lazy to read - http://www.youtube.com/watch?v=4Vw6uF2LdZw&feature=youtu.be

[improperly coded html fixed and url changed to full url--Econlib Ed.]

Aaron Zierman writes:

Excellent article. This made me think of one thing that I must add: "The Holy Roman Empire was neither holy, nor Roman, nor an empire."

[Quote by Voltaire. Quotation marks added.--Econlib Ed.]

Joe Cushing writes:

I think in their day, the old fashioned way to get wealth was to be royal and take it by force. They were the some of the first to get super wealthy by making it. That is unless there were generations of super wealthy capitalists before them that I don't know about.

Jeb Bleckley writes:

I am sure you know this, but I find it edifying to compare the industrial Robber Barons to the original robber barons to whom they were analogized.

http://en.wikipedia.org/wiki/Robber_baron

While the original Robber Barons were authorized and given coercive power by a mighty king, the American Robber Barons were in later years fought by "trust-busting" bureaucrats intent on breaking them up.

The German Robber Barons became rich by restricting access to a valuable resource, the Rhine, often going so far as to lay chains across the river. The American Robber Barons became rich by extracting wealth from the ground or through novel inventions and then spreading those newly available resources across an entire continent.

The American Robber Barons improved the lives of the poor and middle classes by offering new sorts of capital and consumption at reasonable prices. The German Robber barons improved their own lives by levying exorbitant tolls on a largely non-rival, unimproved resource to the sever detriment of middle class merchants and the peasantry they served.

The American Robber Barons fostered and funded innovations in science and industry both to begin their careers and to stave off competition. The German Robber Barons existed in a state of comparatively extreme technological stagnation and stimulated innovation only among Rhine Valley smugglers.

In this way we can see that the equivalence is so comically false that it in fact illustrates rather convincingly the merits of a market over those of a monarchy.

Patrick Molloy writes:

An interesting article:

Did J. P. Morgan's Men Add Value? An Economist's Perspective on Financial Capitalism by J. Bradford DeLong

http://www.nber.org/chapters/c7182.pdf

DeLong's Answer: Positives outweighed negatives.

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