Condensed Version of The Politically Incorrect Guide to American History by Thomas E. Woods, Jr. Regnery Publishing, Inc. 270 p.
Compiled and Edited by
Dr. Jimmy T. (Gunny) LaBaume
Chapter 8: How Big Business Made Americans Better Off
History books vilify businessmen for the way they exploit workers, take advantage of the public, and wield so much power. On the other hand, they paint government officials as benevolent, self-sacrificing crusaders for justice. Every student believes this, and it is hard to blame them for it is what they have been taught, day after day, for years. It matters not how many times it is repeated and how many sensible people fall for it, this little morality play is totally unrelated to reality.
However, we must be careful not to romanticize businessmen because; numerous times businesses have entered into cozy relationships with government to take advantage of the public. But this only proves the point that businesses can “exploit” only with government help—i.e. subsidies, restrictions on rivals, etc. There is a clear distinction between ”market entrepreneurs” (who become wealthy because they improve the standard of living by supplying inexpensive goods) and “political entrepreneurs” (who attain their fortunes through various grants of government privilege.
How government promoted waste and corruption in railroad construction
The transcontinental railroads were built with two forms of government aid, loans and land grants. The railroads sold the land to settlers and, in the process, created a market for their services.
Passage of the Pacific Railway Act of 1862 meant that the Union Pacific (going west) and the Central Pacific (going east) would eventually link. The government subsidies under this act perverted the railroads’ incentives. For example, the companies received land and loans in proportion to miles of track laid. Thus, the incentive was to lay track rapidly with less concern for quality. Furthermore, since circuitous routes meant more track laid, they were often selected instead of following the shortest possible route. Also, since loans were higher for more mountainous terrain, the incentive was to lay track over less suitable land. Finally, as the two tracks approached each other, the two lines actually built parallel tracks. In short, government grants encouraged shoddy workmanship.
Did anyone prosper without government freebies?
The myth that railroads could never have been built without government largesse is just that—a myth, and two glaring examples prove it:
First, the entire English system was built with private funds.
The second is James J. Hill’s Great Northern. When most of the transcontinentals went bankrupt, Hill reduced his rates and turned a sizable profit. The railroad was a tremendous success until it ran into the stupidity of the Hepburn Act of 1906 (which regulated rates and gave teeth to the Interstate Commerce Commission).
How “fairness” crippled American farmers
The Hepburn Act required the railroads to charge the same rates to all shippers but there was at least one problem with this. To open Chinese and Japanese markets, Hill had given discounts for freight meant for export. But, according to the Act, he had to offer these discounts to all shippers or not offer them at all. Since it was not economically possible to offer discounts to everyone, he was forced to stop them altogether. As a result, exports were substantially reduced and American agricultural sales to Asia were sharply curtailed.
The myth of “predatory pricing”
This is the idea that big business can eliminate competition by offering goods at exceptionally low prices and then reap monopoly gains by raising their prices once the competition is gone.
The main problem with this model is that it is impossible to find an actual example. There are examples of large stores offering low prices, but the enormous profits when they raise prices later is the stuff myths are made of.
This myth has existed since the Sherman Antitrust Act of 1890. But the problem is that the industries most frequently accused of being “monopolies” were not acting like the standard definition. By this definition, monopolies restrict output and raise prices. But these industries were doing neither.
John D. Rockefeller’s Standard Oil is accused of predatory pricing. But Rockefeller acquired his properties through mergers and acquisitions that were voluntarily on the part of his competitors. Furthermore, Standard Oil typically employed the managers and owners of the firms they acquired and even made them shareholders. ”Victimized ex-rivals” make poor employees.
In fact, some people made excellent livings establishing refineries and selling them to Standard Oil—i.e. they asked to be acquired because they knew that Rockefeller’s costs were lower than theirs. Rockefeller wasn’t selling below his cost. He was selling below most competitors’ costs.
In the final analysis, Standard Oil provided huge benefits to the mass of consumers. Kerosene was a much better and less expensive illuminant than the whale oil previously used. The question was whether it could be found in quantities large enough to be marketable. Rockefeller answered that question.
The “wicked” Rockefeller
John D. Rockefeller was intrigued at the possibilities of oil and was convinced that the refinery business held enormous opportunities.
How Rockefeller did more for the average American than any big government program
Rockefeller was committed to streamlining production and eliminating waste in order to reduce the price of kerosene from a dollar per gallon to ten cents. In the process, he eventually produced 300 products out of the waste. Millions who had previously gone to bed to save money could now illuminate their homes.
Prices declined throughout Standard Oil’s dominance. Despite this service to consumers, the federal government dissolved Standard Oil. But, by the time it did, the company’s market share had already been reduced to 25% as a result of normal market competition—proving that even a Standard Oil must remain innovative and dynamic or loose market share.
Andrew Carnegie and the American standard of living
Andrew Carnegie was convinced of the great potential of the steel industry. Carnegie was an organizational genius who devised incentives to ensure his employees worked conscientiously for the good of the company. He was also a master of efficiency.
The decrease in steel prices that occurred in the last part of the 19th Century was a great benefit to ordinary Americans. Any product involving steel cost less which was passed on to consumers. This was largely due to Carnegie’s efforts.
Both Carnegie and Rockefeller criticized the accumulation of wealth for its own sake and, between them, gave away nearly a billion dollars.
Herbert Dow: Forgotten American hero
The myth of “predatory pricing” dies hard.
Herbert Dow was a chemist who developed an inexpensive way to extract bromine from brine and established Dow Chemical Company. He wanted to provide bromine to Americans as well as the European market. In response, a German cartel threatened to ruin Dow by flooding the American market with cheap chemicals. Dow ignored the threat.
Instead, he bought up large quantities of the German bromine, turned around and sold it in Europe at a price the consortium could not match, since it had to turn a profit in Europe in order to endure its losses in America. The Germans threw in the towel.
This not only lowered the price of bromine forever, it also demonstrates the futility of “predatory pricing.”
Antitrust idiocy: Should antitrust laws be repealed?
Only a small segment of the public is aware of the absurd and arbitrary nature of antitrust law.
The Federal Trade Commission’s own Lowell Mason said, “There is such a welter of laws governing interstate commerce that the government literally can find some charge to bring against any concern it chooses…”
Supreme Court Justice Robert H. Jackson said, “it is impossible for a lawyer to determine what business conduct will be pronounced lawful by the Courts…”
Former Federal Reserve chairman, Alan Greenspan, condemned antitrust legislation four decades ago. Yet the juggernaut went forward.
It destroyed Pan American World Airways. IBM was harassed for 13 years. General Motors actually made it company policy (beginning in 1937) not to gain more than 45% of the market out of fear of prosecution. This explains how and why America lost so much market share to the Germans and Japanese.
Punished for being the best: The case of ALCOA
Among the most ludicrous results of antitrust legislation is the case of United States v. Aluminum Company of America (1945). Although ALCOA was the only supplier of primary aluminum, it could not charge whatever it wished. Abnormally high profits would have attracted competitors and driven profits back down.
In a bizarre decision, Judge Learned Hand declared that ALCOA’s wickedness came from its great skill and expertise in supplying its product. In other words, antitrust legislation condemns the productive and efficient because they are productive and efficient.
It provides an instrument by which less competent firms petition the government to punish rivals they can’t out compete. The real greed is on the part of firms who want government to punish efficient firms that supply goods at affordable prices so they can charge higher prices. In sum, they want to be protected from “monopoly” by the most monopolistic institution that has ever existed—the government.
The Essence of Liberty Volume I: Liberty and History chronicles the rise and fall of the noble experiment with constitutionally limited government. It features the ideas and opinions of some of the world’s foremost contemporary constitutional scholars. This is history that you were not taught at the mandatory government propaganda camps otherwise known as “public schools.” You will gain a clear understanding of how America’s decline and decay is really nothing new and how it began almost immediately with the constitution. Available in both paperback and Kindle versions.
You might be interested in the other two volumes of this three volume set The Essence of Liberty Volume II: The Economics of Liberty and The Essence of Liberty Volume III: Liberty: A Universal Political Ethic.