Sunday, July 31, 2016

The Seen and the Unseen by Frederic Bastiat


The Seen and the Unseen by Frederic Bastiat

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[His contributions to the economics literature have been sufficient for him to earn a place in Mark Blaug’s Great Economists before Keynes. Robert Heilbroner devotes a major portion of a chapter to Bastiat in his classic book The Worldly Philosophers, first published in 1953 and used in economics classrooms ever since. Rothbard devotes nine pages to Bastiat in volume two of his history of economic thought15 and credits Bastiat with refuting the Keynesian multiplier theory nearly 100 years before it was advanced by Keynes. Skousen spends seven pages discussing Bastiat in his history of economic thought. Schumpeter referred to him as a “brilliant economic journalist.” Haney devotes chapter 15 of his History of Economic Thought to Bastiat.
A number of authors have applied Bastiat’s theories and approaches to modern economic problems. Henry Hazlitt, an American economic journalist, used Bastiat’s approach to examine a number of economic theories and policies in his classic Economics in One Lesson. Dean Russell, an economist, also applied Bastiat’s theories and approaches to a wide range of economic issues. ~ECONOMIC PROTECTIONISM AND THE PHILOSOPHY OF FRÉDÉRIC BASTIAT by Robert W. McGee]

Frederic Bastiat: Have you ever had occasion to witness the fury of the honest burgess, Jacques Bonhomme, when his scapegrace son has broken a pane of glass? If you have, you cannot fail to have observed that all the bystanders, were there thirty of them, lay their heads together to offer the unfortunate proprietor this never-failing consolation, that there is good in every misfortune, and that such accidents give a fillip to trade. Everybody must live. If no windows were broken, what would become of the glaziers? Now, this formula of condolence contains a theory which it is proper to lay hold of in this very simple case, because it is exactly the same theory which unfortunately governs the greater part of our economic institutions.

Assuming that it becomes necessary to expend six francs in repairing the damage, if you mean to say that the accident brings in six francs to the glazier, and to that extent encourages his trade, I grant it fairly and frankly, and admit that you reason justly.

The glazier arrives, does his work, pockets the money, rubs his hands, and blesses the scapegrace son. That is what we see.

But, if by way of deduction, you come to conclude, as is too often done, that it is a good thing to break windows—that it makes money circulate—and that encouragement to trade in general is the result, I am obliged to cry, Halt! Your theory stops at what you see, and takes no account of what we don't see.

We don't see that since our burgess has been obliged to spend his six francs on one thing, he can no longer spend them on another.

We don't see that if he had not this pane to replace, he would have replaced, for example, his shoes, which are down, at the heels; or have placed a new book on his shelf. In short, he would have employed his six francs in a way in which he cannot now employ them. Let us see. then, how the account stands with trade in general. The pane being broken, the glazier's trade is benefited to the extent of six francs. That is what we see.

If the pane had not been broken, the shoemaker's or some other trade would have been encouraged to the same extent of six francs. This is what we don't see. And if we take into account what we don't see, which is a negative fact, as well as what we do see, which is a positive fact, we shall discover that trade in general, or the aggregate of national industry, has no interest, one way or another, whether windows are broken or not.

Let us see again how the account stands with Jacques Bonhomme. On the last hypothesis, that of the pane being broken, he spends six francs, and gets neither more nor less than he had before, namely, the use of a pane of glass. On the other hypothesis, namely, that the accident had not happened, he would have expended six francs on shoes, and would have had the enjoyment both of the shoes and the pane of glass.

Now, as the good burgess, Jacques Bonhomme, constitutes a fraction of society at large, we are forced to conclude that society, taken in the aggregate, and after all accounts of labor and enjoyment have been squared, has lost the value of the pane of glass which has been broken.

Saturday, July 30, 2016

Why I Am Not a Conservative by F.A. Hayek

Why I Am Not a Conservative

Why I Am Not a Conservative
An excerpt from The Constitution of Liberty (Chicago: The University of Chicago Press, 1960) by F. A. Hayek
Contents: 1. 2. 3. 4. Notes
"At all times sincere friends of freedom have been rare, and its triumphs have been due to minorities, that have prevailed by associating themselves with auxiliaries whose objects often differed from their own; and this association, which is always dangerous, has sometimes been disastrous, by giving to opponents just grounds of opposition." - Lord Acton

1.

At a time when most movements that are thought to be progressive advocate further encroachments on individual liberty,[1] those who cherish freedom are likely to expend their energies in opposition. In this they find themselves much of the time on the same side as those who habitually resist change. In matters of current politics today they generally have little choice but to support the conservative parties. But, though the position I have tried to define is also often described as "conservative," it is very different from that to which this name has been traditionally attached. There is danger in the confused condition which brings the defenders of liberty and the true conservatives together in common opposition to developments which threaten their ideals equally. It is therefore important to distinguish clearly the position taken here from that which has long been known - perhaps more appropriately - as conservatism.
Conservatism proper is a legitimate, probably necessary, and certainly widespread attitude of opposition to drastic change. It has, since the French Revolution, for a century and a half played an important role in European politics. Until the rise of socialism its opposite was liberalism. There is nothing corresponding to this conflict in the history of the United States, because what in Europe was called "liberalism" was here the common tradition on which the American polity had been built: thus the defender of the American tradition was a liberal in the European sense.[2] This already existing confusion was made worse by the recent attempt to transplant to America the European type of conservatism, which, being alien to the American tradition, has acquired a somewhat odd character. And some time before this, American radicals and socialists began calling themselves "liberals." I will nevertheless continue for the moment to describe as liberal the position which I hold and which I believe differs as much from true conservatism as from socialism. Let me say at once, however, that I do so with increasing misgivings, and I shall later have to consider what would be the appropriate name for the party of liberty. The reason for this is not only that the term "liberal" in the United States is the cause of constant misunderstandings today, but also that in Europe the predominant type of rationalistic liberalism has long been one of the pacemakers of socialism. 
Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving. It may succeed by its resistance to current tendencies in slowing down undesirable developments, but, since it does not indicate another direction, it cannot prevent their continuance. It has, for this reason, invariably been the fate of conservatism to be dragged along a path not of its own choosing. The tug of war between conservatives and progressives can only affect the speed, not the direction, of contemporary developments. But, though there is a need for a "brake on the vehicle of progress,"[3] I personally cannot be content with simply helping to apply the brake. What the liberal must ask, first of all, is not how fast or how far we should move, but where we should move. In fact, he differs much more from the collectivist radical of today than does the conservative. While the last generally holds merely a mild and moderate version of the prejudices of his time, the liberal today must more positively oppose some of the basic conceptions which most conservatives share with the socialists.

2.

The picture generally given of the relative position of the three parties does more to obscure than to elucidate their true relations. They are usually represented as different positions on a line, with the socialists on the left, the conservatives on the right, and the liberals somewhere in the middle. Nothing could be more misleading. If we want a diagram, it would be more appropriate to arrange them in a triangle with the conservatives occupying one corner, with the socialists pulling toward the second and the liberals toward the third. But, as the socialists have for a long time been able to pull harder, the conservatives have tended to follow the socialist rather than the liberal direction and have adopted at appropriate intervals of time those ideas made respectable by radical propaganda. It has been regularly the conservatives who have compromised with socialism and stolen its thunder. Advocates of the Middle Way[4] with no goal of their own, conservatives have been guided by the belief that the truth must lie somewhere between the extremes - with the result that they have shifted their position every time a more extreme movement appeared on either wing.
The position which can be rightly described as conservative at any time depends, therefore, on the direction of existing tendencies. Since the development during the last decades has been generally in a socialist direction, it may seem that both conservatives and liberals have been mainly intent on retarding that movement. But the main point about liberalism is that it wants to go elsewhere, not to stand still. Though today the contrary impression may sometimes be caused by the fact that there was a time when liberalism was more widely accepted and some of its objectives closer to being achieved, it has never been a backward-looking doctrine. There has never been a time when liberal ideals were fully realized and when liberalism did not look forward to further improvement of institutions. Liberalism is not averse to evolution and change; and where spontaneous change has been smothered by government control, it wants a great deal of change of policy. So far as much of current governmental action is concerned, there is in the present world very little reason for the liberal to wish to preserve things as they are. It would seem to the liberal, indeed, that what is most urgently needed in most parts of the world is a thorough sweeping away of the obstacles to free growth.
This difference between liberalism and conservatism must not be obscured by the fact that in the United States it is still possible to defend individual liberty by defending long-established institutions. To the liberal they are valuable not mainly because they are long established or because they are American but because they correspond to the ideals which he cherishes.

3.

Before I consider the main points on which the liberal attitude is sharply opposed to the conservative one, I ought to stress that there is much that the liberal might with advantage have learned from the work of some conservative thinkers. To their loving and reverential study of the value of grown institutions we owe (at least outside the field of economics) some profound insights which are real contributions to our understanding of a free society. However reactionary in politics such figures as Coleridge, Bonald, De Maistre, Justus Möser, or Donoso Cortès may have been, they did show an understanding of the meaning of spontaneously grown institutions such as language, law, morals, and conventions that anticipated modern scientific approaches and from which the liberals might have profited. But the admiration of the conservatives for free growth generally applies only to the past. They typically lack the courage to welcome the same undesigned change from which new tools of human endeavors will emerge. 
This brings me to the first point on which the conservative and the liberal dispositions differ radically. As has often been acknowledged by conservative writers, one of the fundamental traits of the conservative attitude is a fear of change, a timid distrust of the new as such,[5] while the liberal position is based on courage and confidence, on a preparedness to let change run its course even if we cannot predict where it will lead. There would not be much to object to if the conservatives merely disliked too rapid change in institutions and public policy; here the case for caution and slow process is indeed strong. But the conservatives are inclined to use the powers of government to prevent change or to limit its rate to whatever appeals to the more timid mind. In looking forward, they lack the faith in the spontaneous forces of adjustment which makes the liberal accept changes without apprehension, even though he does not know how the necessary adaptations will be brought about. It is, indeed, part of the liberal attitude to assume that, especially in the economic field, the self-regulating forces of the market will somehow bring about the required adjustments to new conditions, although no one can foretell how they will do this in a particular instance. There is perhaps no single factor contributing so much to people's frequent reluctance to let the market work as their inability to conceive how some necessary balance, between demand and supply, between exports and imports, or the like, will be brought about without deliberate control. The conservative feels safe and content only if he is assured that some higher wisdom watches and supervises change, only if he knows that some authority is charged with keeping the change "orderly."
This fear of trusting uncontrolled social forces is closely related to two other characteristics of conservatism: its fondness for authority and its lack of understanding of economic forces. Since it distrusts both abstract theories and general principles,[6] it neither understands those spontaneous forces on which a policy of freedom relies nor possesses a basis for formulating principles of policy. Order appears to the conservative as the result of the continuous attention of authority, which, for this purpose, must be allowed to do what is required by the particular circumstances and not be tied to rigid rule. A commitment to principles presupposes an understanding of the general forces by which the efforts of society are co-ordinated, but it is such a theory of society and especially of the economic mechanism that conservatism conspicuously lacks. So unproductive has conservatism been in producing a general conception of how a social order is maintained that its modern votaries, in trying to construct a theoretical foundation, invariably find themselves appealing almost exclusively to authors who regarded themselves as liberal. Macaulay, Tocqueville, Lord Acton, and Lecky certainly considered themselves liberals, and with justice; and even Edmund Burke remained an Old Whig to the end and would have shuddered at the thought of being regarded as a Tory.
Let me return, however, to the main point, which is the characteristic complacency of the conservative toward the action of established authority and his prime concern that this authority be not weakened rather than that its power be kept within bounds. This is difficult to reconcile with the preservation of liberty. In general, it can probably be said that the conservative does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes. He believes that if government is in the hands of decent men, it ought not to be too much restricted by rigid rules. Since he is essentially opportunist and lacks principles, his main hope must be that the wise and the good will rule - not merely by example, as we all must wish, but by authority given to them and enforced by them.[7] Like the socialist, he is less concerned with the problem of how the powers of government should be limited than with that of who wields them; and, like the socialist, he regards himself as entitled to force the value he holds on other people. 
When I say that the conservative lacks principles, I do not mean to suggest that he lacks moral conviction. The typical conservative is indeed usually a man of very strong moral convictions. What I mean is that he has no political principles which enable him to work with people whose moral values differ from his own for a political order in which both can obey their convictions. It is the recognition of such principles that permits the coexistence of different sets of values that makes it possible to build a peaceful society with a minimum of force. The acceptance of such principles means that we agree to tolerate much that we dislike. There are many values of the conservative which appeal to me more than those of the socialists; yet for a liberal the importance he personally attaches to specific goals is no sufficient justification for forcing others to serve them. I have little doubt that some of my conservative friends will be shocked by what they will regard as "concessions" to modern views that I have made in Part III of this book. But, though I may dislike some of the measures concerned as much as they do and might vote against them, I know of no general principles to which I could appeal to persuade those of a different view that those measures are not permissible in the general kind of society which we both desire. To live and work successfully with others requires more than faithfulness to one's concrete aims. It requires an intellectual commitment to a type of order in which, even on issues which to one are fundamental, others are allowed to pursue different ends.
It is for this reason that to the liberal neither moral nor religious ideals are proper objects of coercion, while both conservatives and socialists recognize no such limits. I sometimes feel that the most conspicuous attribute of liberalism that distinguishes it as much from conservatism as from socialism is the view that moral beliefs concerning matters of conduct which do not directly interfere with the protected sphere of other persons do not justify coercion. This may also explain why it seems to be so much easier for the repentant socialist to find a new spiritual home in the conservative fold than in the liberal. 
In the last resort, the conservative position rests on the belief that in any society there are recognizably superior persons whose inherited standards and values and position ought to be protected and who should have a greater influence on public affairs than others. The liberal, of course, does not deny that there are some superior people - he is not an egalitarian - bet he denies that anyone has authority to decide who these superior people are. While the conservative inclines to defend a particular established hierarchy and wishes authority to protect the status of those whom he values, the liberal feels that no respect for established values can justify the resort to privilege or monopoly or any other coercive power of the state in order to shelter such people against the forces of economic change. Though he is fully aware of the important role that cultural and intellectual elites have played in the evolution of civilization, he also believes that these elites have to prove themselves by their capacity to maintain their position under the same rules that apply to all others.
Closely connected with this is the usual attitude of the conservative to democracy. I have made it clear earlier that I do not regard majority rule as an end but merely as a means, or perhaps even as the least evil of those forms of government from which we have to choose. But I believe that the conservatives deceive themselves when they blame the evils of our time on democracy. The chief evil is unlimited government, and nobody is qualified to wield unlimited power.[8] The powers which modern democracy possesses would be even more intolerable in the hands of some small elite.
Admittedly, it was only when power came into the hands of the majority that further limitations of the power of government was thought unnecessary. In this sense democracy and unlimited government are connected. But it is not democracy but unlimited government that is objectionable, and I do not see why the people should not learn to limit the scope of majority rule as well as that of any other form of government. At any rate, the advantages of democracy as a method of peaceful change and of political education seem to be so great compared with those of any other system that I can have no sympathy with the anti-democratic strain of conservatism. It is not who governs but what government is entitled to do that seems to me the essential problem.
That the conservative opposition to too much government control is not a matter of principle but is concerned with the particular aims of government is clearly shown in the economic sphere. Conservatives usually oppose collectivist and directivist measures in the industrial field, and here the liberals will often find allies in them. But at the same time conservatives are usually protectionists and have frequently supported socialist measures in agriculture. Indeed, though the restrictions which exist today in industry and commerce are mainly the result of socialist views, the equally important restrictions in agriculture were usually introduced by conservatives at an even earlier date. And in their efforts to discredit free enterprise many conservative leaders have vied with the socialists.[9]

4.

I have already referred to the differences between conservatism and liberalism in the purely intellectual field, but I must return to them because the characteristic conservative attitude here not only is a serious weakness of conservatism but tends to harm any cause which allies itself with it. Conservatives feel instinctively that it is new ideas more than anything else that cause change. But, from its point of view rightly, conservatism fears new ideas because it has no distinctive principles of its own to oppose them; and, by its distrust of theory and its lack of imagination concerning anything except that which experience has already proved, it deprives itself of the weapons needed in the struggle of ideas. Unlike liberalism, with its fundamental belief in the long-range power of ideas, conservatism is bound by the stock of ideas inherited at a given time. And since it does not really believe in the power of argument, its last resort is generally a claim to superior wisdom, based on some self-arrogated superior quality.
The difference shows itself most clearly in the different attitudes of the two traditions to the advance of knowledge. Though the liberal certainly does not regard all change as progress, he does regard the advance of knowledge as one of the chief aims of human effort and expects from it the gradual solution of such problems and difficulties as we can hope to solve. Without preferring the new merely because it is new, the liberal is aware that it is of the essence of human achievement that it produces something new; and he is prepared to come to terms with new knowledge, whether he likes its immediate effects or not. 
Personally, I find that the most objectionable feature of the conservative attitude is its propensity to reject well-substantiated new knowledge because it dislikes some of the consequences which seem to follow from it - or, to put it bluntly, its obscurantism. I will not deny that scientists as much as others are given to fads and fashions and that we have much reason to be cautious in accepting the conclusions that they draw from their latest theories. But the reasons for our reluctance must themselves be rational and must be kept separate from our regret that the new theories upset our cherished beliefs. I can have little patience with those who oppose, for instance, the theory of evolution or what are called "mechanistic" explanations of the phenomena of life because of certain moral consequences which at first seem to follow from these theories, and still less with those who regard it as irrelevant or impious to ask certain questions at all. By refusing to face the facts, the conservative only weakens his own position. Frequently the conclusions which rationalist presumption draws from new scientific insights do not at all follow from them. But only by actively taking part in the elaboration of the consequences of new discoveries do we learn whether or not they fit into our world picture and, if so, how. Should our moral beliefs really prove to be dependent on factual assumptions shown to be incorrect, it would hardly be moral to defend them by refusing to acknowledge facts. 
Connected with the conservative distrust of the new and the strange is its hostility to internationalism and its proneness to a strident nationalism. Here is another source of its weakness in the struggle of ideas. It cannot alter the fact that the ideas which are changing our civilization respect no boundaries. But refusal to acquaint one's self with new ideas merely deprives one of the power of effectively countering them when necessary. The growth of ideas is an international process, and only those who fully take part in the discussion will be able to exercise a significant influence. It is no real argument to say that an idea is un-American, or un-German, nor is a mistaken or vicious ideal better for having been conceived by one of our compatriots.
A great deal more might be said about the close connection between conservatism and nationalism, but I shall not dwell on this point because it might be felt that my personal position makes me unable to sympathize with any form of nationalism. I will merely add that it is this nationalistic bias which frequently provides the bridge from conservatism to collectivism: to think in terms of "our" industry or resource is only a short step awayfrom demanding that these national assets be directed in the national interest. But in this respect the Continental liberalism which derives from the French Revolution is little better than conservatism. I need hardly say that nationalism of this sort is something very different from patriotism and that an aversion to nationalism is fully compatible with a deep attachment to national traditions. But the fact that I prefer and feel reverence for some of the traditions of my society need not be the cause of hostility to what is strange and different.
Only at first foes it seem paradoxical that the anti-internationalism of conservatism is so frequently associated with imperialism. But the more a person dislikes the strange and thinks his own ways superior, the more he tends to regard it as his mission to "civilize" other[10] - not by the voluntary and unhampered intercourse which the liberal favors, but by bringing them the blessings of efficient government. It is significant that here again we frequently find the conservatives joining hands with the socialists against the liberals - not only in England, where the Webbs and their Fabians were outspoken imperialists, or in Germany, where state socialism and colonial expansionism went together and found the support of the same group of "socialists of the chair," but also in the United States, where even at the time of the first Roosevelt it could be observed: "the Jingoes and the Social Reformers have gotten together; and have formed a political party, which threatened to capture the Government and use it for their program of Caesaristic paternalism, a danger which now seems to have been averted only by the other parties having adopted their program in a somewhat milder degree and form."[11] 
5. There is one respect, however, in which there is justification for saying that the liberal occupies a position midway between the socialist and the conservative: he is as far from the crude rationalism of the socialist, who wants to reconstruct all social institutions according to a pattern prescribed by his individual reason, as from the mysticism to which the conservative so frequently has to resort. What I have described as the liberal position shares with conservatism a distrust of reason to the extent that the liberal is very much aware that we do not know all the answers and that he is not sure that the answers he has are certainly the rights ones or even that we can find all the answers. He also does not disdain to seek assistance from whatever non-rational institutions or habits have proved their worth. The liberal differs from the conservative in his willingness to face this ignorance and to admit how little we know, without claiming the authority of supernatural forces of knowledge where his reason fails him. It has to be admitted that in some respects the liberal is fundamentally a skeptic[12] - but it seems to require a certain degree of diffidence to let others seek their happiness in their own fashion and to adhere consistently to that tolerance which is an essential characteristic of liberalism.
There is no reason why this need mean an absence of religious belief on the part of the liberal. Unlike the rationalism of the French Revolution, true liberalism has no quarrel with religion, and I can only deplore the militant and essentially illiberal anti-religionism which animated so much of nineteenth-century Continental liberalism. That this is not essential to liberalism is clearly shown by its English ancestors, the Old Whigs, who, if anything, were much too closely allied with a particular religious belief. What distinguishes the liberal from the conservative here is that, however profound his own spiritual beliefs, he will never regard himself as entitled to impose them on others and that for him the spiritual and the temporal are different sphere which ought not to be confused.
6. What I have said should suffice to explain why I do not regard myself as a conservative. Many people will feel, however, that the position which emerges is hardly what they used to call "liberal." I must, therefore, now face the question of whether this name is today the appropriate name for the party of liberty. I have already indicated that, though I have all my life described myself as a liberal, I have done so recently with increasing misgivings - not only because in the United States this term constantly gives rise to misunderstandings, but also because I have become more and more aware of the great gulf that exists between my position and the rationalistic Continental liberalism or even the English liberalism of the utilitarians.
If liberalism still meant what it meant to an English historian who in 1827 could speak of the revolution of 1688 as "the triumph of those principles which in the language of the present day are denominated liberal or constitutional"[13] or if one could still, with Lord Acton, speak of Burke, Macaulay, and Gladstone as the three greatest liberals, or if one could still, with Harold Laske, regard Tocqueville and Lord Acton as "the essential liberals of the nineteenth century,"[14] I should indeed be only too proud to describe myself by that name. But, much as I am tempted to call their liberalism true liberalism, I must recognize that the majority of Continental liberals stood for ideas to which these men were strongly opposed, and that they were led more by a desire to impose upon the world a preconceived rational pattern than to provide opportunity for free growth. The same is largely true of what has called itself Liberalism in England at least since the time of Lloyd George.
It is thus necessary to recognize that what I have called "liberalism" has little to do with any political movement that goes under that name today. It is also questionable whether the historical associations which that name carries today are conducive to the success of any movement. Whether in these circumstances one ought to make an effort to rescue the term from what one feels is its misuse is a question on which opinions may well differ. I myself feel more and more that to use it without long explanations causes too much confusion and that as a label it has become more of a ballast than a source of strength. 
In the United States, where it has become almost impossible to use "liberal" in the sense in which I have used it, the term "libertarian" has been used instead. It may be the answer; but for my part I find it singularly unattractive. For my taste it carries too much the flavor of a manufactured term and of a substitute. What I should want is a word which describes the party of life, the party that favors free growth and spontaneous evolution. But I have racked my brain unsuccessfully to find a descriptive term which commends itself.
7. We should remember, however, that when the ideals which I have been trying to restate first began to spread through the Western world, the party which represented them had a generally recognized name. It was the ideals of the English Whigs that inspired what later came to be known as the liberal movement in the whole of Europe[15] and that provided the conceptions that the American colonists carried with them and which guided them in their struggle for independence and in the establishment of their constitution.[16] Indeed, until the character of this tradition was altered by the accretions due to the French Revolution, with its totalitarian democracy and socialist leanings, "Whig" was the name by which the party of liberty was generally known.
The name died in the country of its birth partly because for a time the principles for which it stood were no longer distinctive of a particular party, and partly because the men who bore the name did not remain true to those principles. The Whig parties of the nineteenth century, in both Britain and the United States, finally brought discredit to the name among the radicals. But it is still true that, since liberalism took the place of Whiggism only after the movement for liberty had absorbed the crude and militant rationalism of the French Revolution, and since our task must largely be to free that tradition from the over rationalistic, nationalistic, and socialistic influences which have intruded into it, Whiggism is historically the correct name for the ideas in which I believe. The more I learn about the evolution of ideas, the more I have become aware that I am simply an unrepentant Old Whig - with the stress on the "old."
To confess one's self as an Old Whig does not mean, of course, that one wants to go back to where we were at the end of the seventeenth century. It has been one of the purposes of this book to show that the doctrines then first stated continued to grow and develop until about seventy or eighty years ago, even though they were no longer the chief aim of a distinct party. We have since learned much that should enable us to restate them in a more satisfactory and effective form. But, though they require restatement in the light of our present knowledge, the basic principles are still those of the Old Whigs. True, the later history of the party that bore that name has made some historians doubt where there was a distinct body of Whig principles; but I can but agree with Lord Acton that, though some of "the patriarchs of the doctrine were the most infamous of men, the notion of a higher law above municipal codes, with which Whiggism began, is the supreme achievement of Englishmen and their bequest to the nation"[17] - and, we may add, to the world. It is the doctrine which is at the basis of the common tradition of the Anglo-Saxon countries. It is the doctrine from which Continental liberalism took what is valuable in it. It is the doctrine on which the American system of government is based. In its pure form it is represented in the United States, not by the radicalism of Jefferson, nor by the conservatism of Hamilton or even of John Adams, but by the ideas of James Madison, the "father of the Constitution."[18]
I do not know whether to revive that old name is practical politics. That to the mass of people, both in the Anglo-Saxon world and elsewhere, it is today probably a term without definite associations is perhaps more an advantage than a drawback. To those familiar with the history of ideas it is probably the only name that quite expresses what the tradition means. That, both for the genuine conservative and still more for the many socialists turned conservative, Whiggism is the name for their pet aversion shows a sound instinct on their part. It has been the name for the only set of ideals that has consistently opposed all arbitrary power.
8. It may well be asked whether the name really matters so much. In a country like the United States, which on the whole has free institutions and where, therefore, the defense of the existing is often a defense of freedom, it might not make so much difference if the defenders of freedom call themselves conservatives, although even here the association with the conservatives by disposition will often be embarrassing. Even when men approve of the same arrangements, it must be asked whether they approve of them because they exist or because they are desirable in themselves. The common resistance to the collectivist tide should not be allowed to obscure the fact that the belief in integral freedom is based on an essentially forward-looking attitude and not on any nostalgic longing for the past or a romantic admiration for what has been.
The need for a clear distinction is absolutely imperative, however, where, as is true in many parts of Europe, the conservatives have already accepted a large part of the collectivist creed - a creed that has governed policy for so long that many of its institutions have come to be accepted as a matter of course and have become a source of pride to "conservative" parties who created them.[19] Here the believer in freedom cannot but conflict with the conservative and take an essentially radical position, directed against popular prejudices, entrenched positions, and firmly established privileges. Follies and abuses are no better for having long been established principles of folly.
Though quieta non movere may at times be a wise maxim for the statesman it cannot satisfy the political philosopher. He may wish policy to proceed gingerly and not before public opinion is prepared to support it, but he cannot accept arrangements merely because current opinion sanctions them. In a world where the chief need is once more, as it was at the beginning of the nineteenth century, to free the process of spontaneous growth from the obstacles and encumbrances that human folly has erected, his hopes must rest on persuading and gaining the support of those who by disposition are "progressives," those who, though they may now be seeking change in the wrong direction, are at least willing to examine critically the existing and to change it wherever necessary.
I hope I have not misled the reader by occasionally speaking of "party" when I was thinking of groups of men defending a set of intellectual and moral principles. Party politics of any one country has not been the concern of this book. The question of how the principles I have tried to reconstruct by piecing together the broken fragments of a tradition can be translated into a program with mass appeal, the political philosopher must leave to "that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs."[20] The task of the political philosopher can only be to influence public opinion, not to organize people for action. He will do so effectively only if he is not concerned with what is now politically possible but consistently defends the "general principles which are always the same."[21] In this sense I doubt whether there can be such a thing as a conservative political philosophy. Conservatism may often be a useful practical maxim, but it does not give us any guiding principles which can influence long-range developments.

Notes


The quotation at the head of the Postscript is taken from Acton, Hist. of Freedom, p. 1.
[1] This has now been true for over a century, and as early as 1855 J. S. Mill could say (see my John Stuart Mill and Harriet Taylor [London and Chicago, 1951], p. 216) that "almost all the projects of social reformers of these days are really liberticide."
[2]  B. Crick, "The Strange Quest for an American Conservatism," Review of Politics, XVII (1955), 365, says rightly that "the normal American who calls himself 'A Conservative' is, in fact, a liberal." It would appear that the reluctance of these conservatives to call themselves by the more appropriate name dates only from its abuse during the New Deal era.
[3] The expression is that of R. G. Collingwood, The New Leviathan (Oxford: Oxford University Press, 1942), p. 209.
[4] Cf. the characteristic choice of this title for the programmatic book by the present British Prime Minister Harold Macmillan, The Middle Way (London, 1938).
[5]  Cf. Lord Hugh Cecil, Conservatism ("Home University Library" [London, 1912], p. 9: "Natural Conservatism . . . is a disposition averse from change; and it springs partly from a distrust of the unknown."
[6] Cf. the revealing self-description of a conservative in K. Feiling, Sketches in Nineteenth Century Biography (London, 1930), p. 174: "Taken in bulk, the Right have a horror of ideas, for is not the practical man, in Disraeli's words, 'one who practices the blunders of his predecessors'? For long tracts of their history they have indiscriminately resisted improvement, and in claiming to reverence their ancestors often reduce opinion to aged individual prejudice. Their position becomes safer, but more complex, when we add that this Right wing is incessantly overtaking the Left; that it lives by repeated inoculation of liberal ideas, and thus suffers from a never-perfected state of compromise."
[7] I trust I shall be forgiven for repeating here the words in which on an earlier occasion I stated an important point: "The main merit of the individualism which [Adam Smith] and his contemporaries advocated is that it is a system under which bad men can do least harm. It is a social system which does not depend for its functioning on our finding good men for running it, or on all men becoming better than they now are, but which makes use of men in all their given variety and complexity, sometimes good and sometimes bad, sometimes intelligent and more often stupid." (Individualism and Economic Order [London and Chicago, 1948], p. 11).
[8] Cf. Lord Acton in Letters of Lord Acton to Mary Gladstone, ed. H. Paul (London, 1913), p. 73: "The danger is not that a particular class is unfit to govern. Every class is unfit to govern. The law of liberty tends to abolish the reign of race over race, of faith over faith, of class over class."
[9] J. R. Hicks has rightly spoken in this connection of the "caricature drawn alike by the young Disraeli, by Marx and by Goebbels" ("The Pursuit of Economic Freedom," What We Defend, ed. E. F. Jacob [Oxford: Oxford University Press, 1942], p. 96). On the role of the conservatives in this connection see also my Introduction to Capitalism and the Historians (Chicago: University of Chicago Press, 1954), pp. 19 ff.
[10] Cf. J. S. Mill, On Liberty, ed. R. B. McCallum (Oxford, 1946), p. 83: "I am not aware that any community has a right to force another to be civilised."
[11] J. W. Burgess, The Reconciliation of Government with Liberty (New York, 1915), p. 380.
[12] Cf. Learned Hand, The Spirit of Liberty, ed. I. Dilliard (New York, 1952), p. 190: "The Spirit of liberty is the spirit which is not too sure that it is right." See also Oliver Cromwell's often quoted statement is his Letter to the Assembly of the Church of Scotland, August 3, 1650: "I beseech you, in the bowels of Christ, think it possible you may be mistaken." It is significant that this should be the probably best-remembered saying of the only "dictator" in British history!
[13] H. Hallam, Constitutional History (1827) ("Everyman" ed.), III, 90. It is often suggested that the term "liberal" derives from the early nineteenth-century Spanish party of the liberales. I am more inclined to believe that it derives from the use of that term by Adam Smith in such passages as W.o.N., II, 41: "the liberal system of free exportation and free importation" and p. 216: "allowing every man to pursue his own interest his own way, upon the liberal plan of equality, liberty, and justice."
[14] Lord Acton in Letters to Mary Gladstone, p. 44. Cf. also his judgment of Tocqueville in Lectures on the French Revolution (London, 1910), p. 357: "Tocqueville was a Liberal of the purest breed - a Liberal and nothing else, deeply suspicious of democracy and its kindred, equality, centralisation, and utilitarianism." Similarly in the Nineteenth Century, XXXIII (1892), 885. The statement by H. J. Laski occurs in "Alexis de Tocqueville and Democracy," in The Social and Political Ideas of Some Representative Thinkers of the Victorian Age, ed. F. J. C. Hearnshaw (London, 1933), p. 100, where he says that "a case of unanswerable power could, I think, be made out for the view that he [Tocqueville] and Lord Acton were the essential liberals of the nineteenth century."
[15] As early as the beginning of the eighteenth century, an English observer could remark that he "scarce ever knew a foreigner settled in England, whether of Dutch, German, French, Italian, or Turkish growth, but became a Whig in a little time after his mixing with us" (quoted by G. H. Guttridge, English Whiggism and the American Revolution [Berkeley: University of California Press, 1942], p. 3).
[16] In the United States the nineteenth-century use of the term "Whig" has unfortunately obliterated the memory of the fact that in the eighteenth it stood for the principles which guided the revolution, gained independence, and shaped the Constitution. It was in Whig societies that the young James Madison and John Adams developed their political ideals (cf. E. M. Burns, James Madison [New Brunnswick, N.J.; Rutgers University Press, 1938], p. 4); it was Whig principles which, as Jefferson tells us, guided all the lawyers who constituted such a strong majority among the signers of the Declaration of Independence and among the members of the Constitutional Convention (see Writings of Thomas Jefferson ["Memorial ed." (Washington, 1905)], XVI, 156). The profession of Whig principles was carried to such a point that even Washington's soldiers were clad in the traditional "blue and buff" colors of the Whigs, which they shared with the Foxites in the British Parliament and which was preserved down to our days on the covers of the Edinburgh Review. If a socialist generation has made Whiggism its favorite target, this is all the more reason for the opponents of socialism to vindicate its name. It is today the only name which correctly desribes the beliefs of the Gladstonian liberals, of the men of the generation of Maitland, Acton, and Bryce, and the last generation for whom liberty rather than equality or democracy was the main goal.
[17] Lord Acton, Lectures on Modern History (London, 1906), p. 218 (I have slightly rearranged Acton's clauses to reproduce briefly the sense of his statement).
[18] Cf. S. K. Padover in his Introduction to The Complete Madison (New York, 1953), p. 10: "In modern terminology, Madison would be labeled a middle-of-the-road liberal and Jefferson a radical." This is true and important, though we must remember what E. S. Corwin ("James Madison: Layman, Publicist, and Exegete," New York University Law Review, XXVII [1952], 285) has called Madison's later "surrender to the overwhelming influence of Jefferson."
[19] Cf. the British Conservative party's statement of policy, The Right Road for Britain (London, 1950), pp. 41-42, which claims, with considerable justification, that "this new conception [of the social services] was developed [by] the Coalition Government with a majority of Conservative Ministers and the full approval of the Conservative majority in the House of Commons . . . [We] set out the principle for the schemes of pensions, sickness and unemployment benefit, industrial injustices benefit and a national health scheme."
[20]  A Smith, W.o.N., I, 432.
[21] Ibid.
F. A. Hayek
F. A. Hayek
Friedrich Hayek  (1899 – 1992) was an economist and philosopher, author of seminal works that changed intellectual history, who won the Nobel Memorial Prize in Economic Sciences for his pioneering work in the theory of money and economic fluctuations and penetrating analysis of the interdependence of economic, social and institutional phenomena. He taught in Vienna, London, and Chicago.
This article was originally published on FEE.org. Read the original article.

Thursday, July 28, 2016

James J. Hill - American Industrial Hero

James J. Hill: Transforming the American Northwest

Daniel Oliver is a research associate at the Washington, D.C.-based Capital Research Center and a freelance writer.

In 1962 Ayn Rand gave a lecture titled “America’s Persecuted Minority: Big Business” in which she identified two types of businessmen.1 Burton Folsom, Jr., later called these “economic and political businessmen,” the first, self-made men who earned their wealth through hard work and free trade, and the second, men with political connections who made their fortunes through special privileges from government.

James Jerome Hill, builder of the Great Northern railroad, was the only railroad entrepreneur of the nineteenth century who received no federal subsidies to build his railroads. All other builders, such as Cornelius Vanderbilt, received aid. Perhaps more than any other American, Hill helped to transform the American northwest by opening it to widespread settlement, farming, and commercial development. In the process, he became one of the wealthiest men of the Gilded Age, amassing a fortune estimated at $63 million.2

Some critics have charged that Hill did indeed receive federal subsidies to construct the Great Northern.3 But this charge confuses federal subsidies with land grants. Unlike a taxpayer subsidy, a land grant is the ceding of unimproved government land to a private developer. Critics wrongly assume that government has the power to acquire land by non-Lockean means—that is, by simply claiming to own it without “mixing one’s labor with the land.”

Early Career

Hill was born in the small town of Rockwood in southern Ontario, on September 16, 1838. Because his father died when Hill was young, he had to temporarily forgo formal education to help with family finances. Showing academic ability, however, he received free tuition at Rockwood Academy. Hill later lost an eye to an accidental arrow shot, preventing him from pursuing the career in medicine that his parents had hoped for.

At 18 Hill became interested in the Far East and decided on a career in trade. He headed west in hopes of joining a team of trappers, arriving by steamboat in St. Paul, a major fur-trading center, on July 21, 1856. However, Hill missed the last brigade of the year and had to stay in the city. Nonetheless, he grew to like St. Paul and decided to remain there.

Hill’s first job was as a forwarding agent for the Mississippi River Steamboat Company. He set freight and passenger rates and learned about steamboat operations. Unable to fight in the War Between the States because of his eye, Hill organized the First Minnesota Volunteers. He also worked as a warehouseman, pressing and selling hay for the troops’ horses. It was here that he learned how to buy and sell goods at a profit and use the least expensive method to ship goods.

After the war, Hill became an agent for the First Division of the St. Paul & Pacific Railroad. At the time the line used wood for fuel. Hill believed rightly that coal would be cheaper, so he made a contract with the company to supply it. He also formed a business with Chauncey W. Griggs, a Connecticut man in the wholesale grocery business. Together they created Hill, Griggs & Company, a fuel, freighting, merchandising, and warehouse company.

Hill later became interested in the Red River of the North that flows north to Lake Winnipeg. Since Fort Garry (now Winnipeg) was an important Hudson’s Bay Company trading post, Hill began transporting personal belongings there. Later, Hudson’s Bay employee Norman Kittson left the company to join Hill in forming the Red River Transportation Company.

In 1870 Hill traveled up the Red River to investigate a French and Indian mob that had captured Fort Garry. During that trip and others, Hill saw the rich soil of the region while observing the St. Paul & Pacific’s steady decline. He became convinced that he could make the line profitable by extending it to Fort Garry. When the panic of 1873 put the railroad under receivership, he saw his chance to buy it and other lines in crisis.

Hill and Kittson went to Donald Smith of the Hudson’s Bay Company and told him their plan. Smith offered money and approached George Stephen, president of the Bank of Montreal. Together, the four of them bought the St. Paul & Pacific for $280,000 ($3.9 million current), which Hill estimated as only 20 percent of its real value.

Hill purchased rails, rolling stock, and locomotives, and hired laborers who laid more than a mile of track a day. In 1879 the tracks were connected at St. Vincent, Minnesota, to a Canadian Pacific branch from Fort Garry. Since the Canadian Pacific’s transcontinental route was not yet completed, all traffic through Fort Garry had to use Hill’s route. He received two million acres of land through the Minnesota Land Grant for completing the rail line on time. He also renamed his railroad the St. Paul, Minneapolis, & Manitoba. His timing was perfect since the area experienced two exceptional harvests that brought extra business. In addition, a major increase of immigrants from Norway and Sweden allowed Hill to sell homesteads from the land grant for $2.50 to $5 an acre.

Expanding the Line

During his planning of the St. Paul, Minneapolis, & Manitoba, Hill was also involved in the construction of the Canadian Pacific Railway. While Donald Smith and George Stephen were leaders behind this transcontinental route, Hill gave advice about selecting routes and construction techniques. But because the Canadian Pacific would soon be in competition with his own planned transcontinental route, Hill resigned from the business and sold all his stock in 1882.

Only a year after his purchase of the St. Paul & Pacific, Hill decided to extend his railroad to the Pacific. Many thought that he could never do it. Never before had someone tried to build a railroad without government land and grants. Railroads like the Union Pacific, Central Pacific, and Northern Pacific were all given millions of acres of government land to build their transcontinental routes. People thought that even if Hill could achieve his dream, he wouldn’t be able to compete with government-funded lines. His quest came to be known as “Hill’s Folly.”

The St. Paul, Minneapolis, & Manitoba reached Minot, North Dakota, in 1886. Because the Northern Pacific had steep grades and high interest charges, and was saddled by high property taxes, the new railroad resulted in a much more profitable route.

A railroad line would obviously help the economy of any town it passed, so Hill was able to get good rights of way. However, one town, Fort Benton, Montana, rejected Hill’s request for a right of way. He decided to cut it off by building around it. Showing his attitude toward those who tried to stand in his way, Hill left Fort Benton one mile from the railroad.

After very quick construction using 8,000 men and 3,300 teams of horses, the St. Paul, Minneapolis, & Manitoba reached Great Falls in October 1887. Hill connected it there with the Montana Central Railroad, which went on to Helena, bringing lots of new business. In 1890 he consolidated his railroad into the Great Northern Railroad Company.

Hill also encouraged settlement along the lines by letting immigrants travel halfway across the country for $10. In addition, he rented cheap freight cars to entire families. These strategies, rarely used by other railroads, encouraged even more business.

In 1893, the St. Paul, Minneapolis, & Manitoba reached Puget Sound at Everett, Washington. However, during the same year, a panic put the Northern Pacific as well as the Santa Fe and Union Pacific into receivership. Hill made an agreement with businessman Edward Tuck and Bank of Montreal associate Lord Mount Stephen to buy the Northern Pacific. A stockholder objected, however, arguing the deal would violate Minnesota law, and the agreement was stopped. But Hill got around this by having his associates help buy Northern Pacific stock as individuals instead of as a company. The Northern Pacific became part of the Great Northern in 1896. The lines came to be widely known as the “Hill Lines.”

Hill realized that the only eastbound traffic for the first few years would be lumber, and this would make the line less profitable than it might be. Wishing to acquire a line to Chicago and St. Louis, where he could deliver the lumber, Hill researched the Chicago, Burlington & Quincy railroad that stretched from the Great Lakes to the Rocky Mountains. This acquisition would also give him a line that could haul cotton to St. Louis and Kansas City and connect to the smelters of Denver and the Black Hills. The trains would be kept full at all times. Working with J.P. Morgan, Hill succeeded in purchasing the Chicago, Burlington & Quincy.

Hill now began to expand his shipping empire internationally via Seattle. He supplied Japan with cotton from the south and shipped New England cotton goods to China. He also shipped northern goods such as Minnesota flour and Colorado metals to Asia.

Hill continued to expand his railroads in the early twentieth century. He bought the Spokane, Portland, & Seattle Railway and added a 165-mile line from Columbia along the Deschutes River to the town of Bend. He also purchased several electric rail lines to compete with the Southern Pacific, and an ocean terminal at the mouth of the Columbia River near Astoria. He had two large steamships that operated between the terminal and San Francisco. This proved to be good competition for the Southern Pacific.

Conservation

Hill had many other business interests, including coal and iron-ore mining, shipping on the Great Lakes, finance, and milling. A major related interest was farmland conservation. Hill was widely known in his day as a leader in this area. Unlike most environmentalists today, Hill believed that natural resources should be privately owned and locally controlled, although in some cases he believed state-level ownership was justifiable. He considered the federal government too distant to competently manage resources. Indeed, he once criticized the U.S. Forest Service, saying “the worst scandals of state land misappropriation . . . are insignificant when compared with [its] record.”4
His interest in conservation stemmed both from his concern for the nation’s food supply, a popular philanthropic cause at the time, and from business concerns. Since his railroads largely transported agricultural products, Hill paid close attention to fluctuations in the grain markets. Falling grain yields in the Great Plains would mean fewer goods to transport.

Believing that better farming methods would both increase yields and conserve soil quality, Hill used his own resources for agricultural research and the dissemination of findings to farmers. He even had his own greenhouse that served as a laboratory. He hired agronomy professor Frederick Crane to do soil analyses in Minnesota, Montana, and North and South Dakota. Farmers were paid to cultivate experimental plots on their land according to Crane’s instructions. These were a tremendous success, yielding 60 to 90 percent more than the conventional acreage of the time.

In a speech, Hill once said, “Out of the conservation movement in its practical application to our common life may come wealth greater than could be won by the overthrow of kingdoms and the annexation of provinces; national prestige and individual well-being; the gift of broader mental horizons, and best and most necessary of all, the quality of a national citizenship which has learned to rule its own spirit and to rise by the control of its desires.”5

In 1908 President Theodore Roosevelt invited Hill to a governors conference on conservation and appointed him to a lands commission. Hill was never very pleased with the position, preferring action to talking, but he did make his views known.

Hill was also a major philanthropist. He supported the Roman Catholic seminary in St. Paul and endowed the Hill Reference Library, which operates to this day.

Views on Government

Hill was a great champion of free markets. He was particularly critical of tariffs, calling them “a great enemy of conservation” and pointing out that by prohibiting imports of such products as timber from other countries, the United States was accelerating the depletion of its own. Regarding the federal government’s ability to conserve resources, he once said, “The machine is too big and too distant, its operation is slow, cumbrous and costly.”6

A 1910 speech to the National Conservation Congress in St. Paul summarizes Hill’s views on government. He remarked:
Shall we abandon everything to centralized authority, going the way of every lost and ruined government in the history of the world, or meet our personal duty by personal labor through the organs of local self-government, not yet wholly atrophied by disuse. . . ? Shall we permit the continued increase of public expenditure and public debt until capital and credit have suffered in the same conflict that overthrew prosperous and happy nations in the past, or insist upon a return to honest and practical economy?
Summing up, Hill once said, “The wealth of the country, its capital, its credit, must be saved from the predatory poor as well as the predatory rich, but above all from the predatory politician.”7

A Classic Entrepreneur

In 1907, at the age of 69, Hill turned over leadership of the Great Northern to his son, Louis W. Hill. But he remained active in running his railroads and went to his office in St. Paul every day.
In May 1916, Hill became ill with an infection that quickly spread. He went into a coma and died on May 29 at the age of 77. At 2 p.m. on May 31, the time of his funeral, every train and steamship of the Great Northern came to a stop for five minutes to honor him.

Hill exhibited the classic traits of a successful entrepreneur. He diligently studied all aspects of his businesses, such as which was best for carrying track about to be laid: caboose, handcar, horse, locomotive, or passenger coach. He did all the analyses of grades and curves himself and often argued with his engineers and track foremen, demanding changes that he felt necessary. He insisted on building strong bridges made with thick granite and using the biggest locomotives and the best quality steel.

At the end of his life a reporter asked Hill to explain the reason for his success. He replied simply that it was due to hard work. That hard work earned him the title “the Empire Builder,” and at the 1915 Panama-Pacific Exposition in San Francisco he was named Minnesota’s “greatest living citizen.”
Hill was remarkable because he developed an area that most people thought never could be developed. His railroads made Minnesota and the Dakotas major destinations for huge waves of immigrants. In fact, Hill sent employees to Europe to show slides of western farming in efforts to urge Scotsmen, Englishmen, Norwegians, and Swedes to settle in the Pacific northwest. As a result, more than six million acres of Montana were settled in two years. And because of Hill, the small town of Seattle, Washington, became a major international shipping port.

James Jerome Hill has rightly earned a place as one of the greatest entrepreneurs in American history.

Notes

  1. Ayn Rand, “America’s Persecuted Minority: Big Business,” in Capitalism: The Unknown Ideal (New York: Signet, 1967), pp. 44–62.
  2. A good source of information on Hill is Albro Martin, James J. Hill and the Opening of the Northwest (St. Paul: Minnesota Historical Society, 1991).
  3. See, for example, Michael P. Malone, Empire Builder of the Northwest, The Oklahoma Western Biographies, vol. 12 (Norman, Okla.: University of Oklahoma Press, March 1997).
  4. James J. Hill, “Railroad Magnate and Conservationist,” www.csua.net/~cda/hill.html.
  5. Ibid.
  6. Ibid.
  7. Ibid.
Daniel Oliver
Daniel Oliver is a research associate at the Washington, DC-based Capital Research Center and a freelance writer.
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Wednesday, July 27, 2016

Early Socialist Horrors by Jacob H. Rubin 1921


Early Soviet Horrors by Jacob H. Rubin 1921

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Followed by Soviet Spy.
The first day when I arrived in Moscow I had to report to the Foreign Department to get a permit of residence and they gave me a permit and they gave me three meals a day and in addition to that they furnished a spy, free of charge. Every foreigner gets a spy thrown in the bargain and they don't charge him anything for it. I knew that man was a spy—his room was right next to mine. He claimed to be an American-a certain Mr. Williams. The reason I found out he was a spy was because the first time when he talked to me he began to criticise the Soviet Government and I knew that no one in Russia would dare to do such a thing because anyone that would criticise the Soviet Government is considered to be a counter-revolutionist and the penalty for that is death, the more he criticised the Soviet Government, the more so he gave himself away and the more I praised it. Then he began to praise the United States and I criticised the United States. You see, I became a diplomat by necessity. This all reported to the Foreign Department and that helped me to a certain extent to get a permit to leave Russia in the future.

Rags and Nails in the Bread.
Now, I will tell you what kind of meals I had. I got a pound and a quarter of black bread each day that consisted of everything but flour. First I thought the bread was made of linen because I found linen rags in there. I found nails and matches —the bread was repulsive and not fit to eat and let me tell you, gentlemen, as bad as the Soviet bread was, it was still worse without it. I know what it means to be without bread because I had the experience to be three and a half days without a crumb of bread; then the Soviet bread was not bad at all. They gave me for dinner a soup. I will give you the recipe of the soup providing you promise me not to use it. The soup was made out of potato peelings and it was the most delicious soup I had in Moscow and, do you know why? Because I didn't have any other soup. On Sundays and holidays they prepare a special dish— a soup made of herring heads and I want to tell you, gentlemen, I heard the soup coming.

One day I gave a banquet and there were four of us present. I paid thirty-two thousand rubles for that banquet and according to the market or exchange now it would cost me probably two million rubles. I paid thirty-two thousand rubles for that banquet for four of us and after the banquet we were all hungry and this is what we had: Each one had a white roll, I paid five hundred rubles for each roll; a pound of honey, ten thousand rubles; a pound of sugar, ten thousand rubles; twenty-five cigarettes, one thousand rubles; a small box of matches, two hundred and fifty rubles. I counted the matches in the box for the purpose of statistics and I found it contained sixty matches of which forty-two were no good and eighteen in working order.

Freedom That Is Not Freedom.
Free trading was prohibited before and now—now, they are going back and adopting one phase of the capitalistic system. But I am telling you of my personal experience. No one had a right to buy or sell or do any trading or change money because anyone that did that was considered to be counter-revolutionist and retarding the progress of the international movement and, as one Russian told me: “We have no Czar, we have no money, we have no food, we have no business, we have no competition, we have no order—all we have is freedom,” and that isn't true, either, because tens of thousands of dealers are in jails and in prisons in Russia now for no other reason than that they were found guilty of buying and selling and are considered to be counter-revolutionists. There isn't any individual in Moscow that has something which is worth anything—the individual is absorbed in the nation. The nation owns everything for the benefit—supposed to be for the benefit of the people, but who gets the benefit? Two per cent—the Extraordinary Commission.

But this is not the reason, gentlemen, that I was disillusioned with Socialism, because I suffered, or because I was starving—that isn't the reason. The reason why I became disillusioned with Socialism was because after studying for twenty-two years the philosophy of Karl Marx from books, I learned more in the first two months in Moscow than with all my twenty-two years' studying from books.


Marx Forgot Human Element.
With due respect to that great philosopher Karl Marx, let him rest in peace, who wrote a masterpiece on political economy called “Das Kapital”, he made one little mistake and that mistake was that he forgot to take human nature into consideration—otherwise he was all right because when I was in the Russian prison in Odessa there were with me young Russians—revolutionists and fanatics—young men at the age of love-and the Russian young fellow in love with an ideal, is ready not only to give everything he has, but to give his very life for the ideal, and, what happened? The same idealists, the same fanatics, when the first opportunity presented itself to them, became opportunists, and then hypocrites, and that is the reason that in the beginning of Soviet rule in 1918 there were nine fanatics to one hypocrite; now, there are nine hypocrites to one fanatic.

Socialism Cannot Work Out
Socialism cannot work out. Karl Marx tried to work out the human mind like a piece of machinery - he thought it was a mathematical problem, but he found there was something higher - that the human mind cannot be figured out like a piece of machinery.

The only thing worth living for is incentive and the Soviet Government has destroyed incentive and killed energy.

You know Russia is a great agricultural country and before the War seventy-five per cent of the Russian people were peasants, and the peasants were divided into three classes—besides the landlords—A. B. and C. Class A was the rich, independent peasant that had more land than he could work himself; Class B was the peasant that had just enough land that he could work but not enough to make him independent from the landlord, and Class C was the landless peasant—the laborer. So, what did they do? Class A employed Class B—he gave Class B his land and they divided the proceeds, each one getting fifty per cent. Class B has employed Class C to work the land for Class A, but when the revolution broke out under the Kerensky rule they divided the land in some parts of Russia among the peasants.. What happened then? The peasant, realizing that the land belonged to him, an incentive was created—he became energetic—he worked hard and his family worked hard on the land—take, for example, the great harvest of 1918.

Soviets Nationalized Land
But when the Soviet government took possession of Russia the proletariats in the big centers  objected to dividing the land among the peasants because this is not Socialism. Socialism means that all the means of production must be concentrated in the hands of the government for the benefit of the people. By dividing the land among the peasants the government has created two classes - the peasant became and independent class and the proletariat the dependent class. The Soviet government nationalized the land and gave each peasant an allotment just like a workman—so much and no more—forty bushels of grain, forty bushels of potatoes, one horse and one cow. The peasant, realizing that that was all he can get—so much and no more—his incentive was destroyed and his energy killed. Why should he work hard and produce a hundred bushels of grain when he could get only forty bushels? Do you know why? There are twenty-five million of Russian people starving now? Why should they starve in Russia? Russia is the greatest and richest agricultural land for the purpose on the earth. Before the War it occupied one-sixth of the globe and had a population of 175 million - rich in natural resources and containing millions of acres of virgin land, never touched by the hand of men. She should produce enough to feed the world, and yet she is starving. Do you know why? Because the present system has destroyed the energy of the Russian people and they have lost heart to work.

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Tuesday, July 26, 2016

Standard Oil and Monopoly by Lawrence W. Reed

Myth: “Rockefeller’s Standard Oil Company Proved That We Needed Anti-Trust Laws to Fight Such Market Monopolies”



The Foundation for Economic Education (FEE) is proud to partner with Young America’s Foundation (YAF) to produce “Clichés of Progressivism,” a series of insightful commentaries covering topics of free enterprise, income inequality, and limited government. See the index of the published chapters here.

#41 – “Rockefeller’s Standard Oil Proved That We Needed Anti-Trust Laws”

(Editor’s Note: This article first appeared in The Freeman, the journal of the Foundation for Economic Education, FEE, in March 1980. Footnotes can be found in that version on FEE.org. The author is president of FEE and the editor of this series of “Clichés.”)

Among the great misconceptions about a free economy is the widely-held belief that “laissez faire” embodies a natural tendency toward monopoly concentration. Under unfettered capitalism, so goes the familiar refrain, large firms would systematically devour smaller ones, corner markets, and stamp out competition until every inhabitant of the land fell victim to their power. Supposedly, John D. Rockefeller’s Standard Oil Company of the late 1800s gave substance to this perspective.
Regarding Standard Oil’s chief executive, one noted historian writes, “He (Rockefeller) iron-handedly ruined competitors by cutting prices until his victim went bankrupt or sold out, whereupon higher prices would be likely to return.”

Two other historians, co-authors of a popular college text, opine that “Rockefeller was a ruthless operator who did not hesitate to crush his competitors by harsh and unfair methods.” That’s what the superficial orthodoxy holds.

In 1899, Standard refined 90 per cent of America’s oil—the peak of the company’s dominance of the refining business. Though that market share was steadily siphoned off by competitors after 1899, the company nonetheless has been branded ever since as “an industrial octopus.”

Does the story of Standard Oil really present a case against the free market? In my opinion, it most emphatically does not. Furthermore, setting the record straight on this issue must become an important weapon in every free market advocate’s intellectual arsenal.

Theoretically, there are two kinds of monopoly: coercive and efficiency. A coercive monopoly results from, in the words of Adam Smith, “a government grant of exclusive privilege.” Government, in effect, must take sides in the market in order to give birth to a coercive monopoly. It must make it difficult, costly, or impossible for anyone but the favored firm to do business.

The United States Postal Service is an example of this kind of monopoly. By law, no one can deliver first class mail except the USPS. Fines and imprisonment (coercion) await all those daring enough to compete. (Editor’s Note: In the years since this article was written, technology in the form of fax machines, overnight delivery services, the Internet and e-mail have allowed the private sector to get around the government monopoly in traditional, first-class mail delivery).

In some other cases, the government may not ban competition outright, but simply bestow privileges, immunities, or subsidies on one firm while imposing costly requirements on all others. Regardless of the method, a firm which enjoys a coercive monopoly is in a position to harm the consumer and get away with it.

An efficiency monopoly, on the other hand, earns a high share of a market because it does the best job. It receives no special favors from the law to account for its size. Others are free to compete and, if consumers so will it through their purchases, to grow as big as the “monopoly.”

An efficiency monopoly has no legal power to compel people to deal with it or to protect itself from the consequences of its unethical practices. It can only attain bigness through its excellence in satisfying customers and by the economy of its operations. An efficiency monopoly which turns its back on the very performance which produced its success would be, in effect, posting a sign, “COMPETITORS WANTED.” The market rewards excellence and exacts a toll on mediocrity. It is my contention that the historical record casts the Standard Oil Company in the role of efficiency monopoly—a firm to which consumers repeatedly awarded their votes of confidence.

The oil rush began with the discovery of oil by Colonel Edwin Drake at Titusville, Pennsylvania in 1859. Northwestern Pennsylvania soon “was overrun with businessmen, speculators, misfits, horse dealers, drillers, bankers, and just plain hell-raisers. Dirt-poor farmers leased land at fantastic prices, and rigs began blackening the landscape. Existing towns jammed full overnight with ‘strangers,’ and new towns appeared almost as quickly.”

In the midst of chaos emerged young John D. Rockefeller. An exceptionally hard-working and thrifty man, Rockefeller transformed his early interest in oil into a partnership in the refinery stage of the business in 1865.

Five years later, Rockefeller formed the Standard Oil Company with 4 per cent of the refining market. Less than thirty years later, he reached that all-time high of 90 per cent. What accounts for such stunning success?

On December 30, 1899, Rockefeller was asked that very question before a governmental investigating body called the Industrial Commission. He replied:
I ascribe the success of the Standard to its consistent policy to make the volume of its business large through the merits and cheapness of its products. It has spared no expense in finding, securing, and utilizing the best and cheapest methods of manufacture. It has sought for the best superintendents and workmen and paid the best wages. It has not hesitated to sacrifice old machinery and old plants for new and better ones. It has placed its manufactories at the points where they could supply markets at the least expense. It has not only sought markets for its principal products, but for all possible by-products, sparing no expense in introducing them to the public. It has not hesitated to invest millions of dollars in methods of cheapening the gathering and distribution of oils by pipe lines, special cars, tank steamers, and tank wagons. It has erected tank stations at every important railroad station to cheapen the storage and delivery of its products. It has spared no expense in forcing its products into the markets of the world among people civilized and uncivilized. It has had faith in American oil, and has brought together millions of money for the purpose of making it what it is, and holding its markets against the competition of Russia and all the many countries which are producers of oil and competitors against American oil.
Rockefeller was a managerial genius—a master organizer of men as well as of materials. He had a gift for bringing devoted, brilliant, and hard-working young men into his organization. Among his most outstanding associates were H. H. Rogers, John D. Archbold, Stephen V. Harkness, Samuel Andrews, and Henry M. Flagler. Together they emphasized efficient economic operation, research, and sound financial practices. The economic excellence of their performance is described by economist D. T. Armentano:
Instead of buying oil from jobbers, they made the jobbers’ profit by sending their own purchasing men into the oil region. In addition, they made their own sulfuric acid, their own barrels, their own lumber, their own wagons, and their own glue. They kept minute and accurate records of every item from rivets to barrel bungs. They built elaborate storage facilities near their refineries. Rockefeller bargained as shrewdly for crude as anyone before or since. And Sam Andrews coaxed more kerosene from a barrel of crude than could the competition. In addition, the Rockefeller firm put out the cleanest-burning kerosene, and managed to dispose of most of the residues like lubricating oil, paraffin, and vaseline at a profit.
Even muckraker Ida Tarbell, one of Standard’s critics, admired the company’s streamlined processes of production:
Not far away from the canning works, on Newton Creek, is an oil refinery. This oil runs to the canning works, and, as the new-made cans come down by a chute from the works above, where they have just been finished, they are filled, twelve at a time, with the oil made a few miles away. The filling apparatus is admirable. As the new-made cans come down the chute they are distributed, twelve in a row, along one side of a turn-table. The turn-table is revolved, and the cans come directly under twelve measures, each holding five gallons of oil—a turn of a valve, and the cans are full. The table is turned a quarter, and while twelve more cans are filled and twelve fresh ones are distributed, four men with soldering cappers put the caps on the first set. Another quarter turn, and men stand ready to take the cans from the filler and while they do this, twelve more are having caps put on, twelve are filling, and twelve are coming to their place from the chute. The cans are placed at once in wooden boxes standing ready, and, after a twenty-four-hour wait for discovering leaks, are nailed up and carted to a nearby door. This door opens on the river, and there at anchor by the side of the factory is a vessel chartered for South America or China or where not—waiting to receive the cans which a little more than twenty-four hours before were tin sheets lying on flat-boxes. It is a marvelous example of economy, not only in materials, but in time and in footsteps.
Socialist historian Gabriel Kolko, who argues in The Triumph of Conservatism that the forces of competition in the free market of the late 1800s were too potent to allow Standard to cheat the public, stresses that “Standard treated the consumer with deference. Crude and refined oil prices for consumers declined during the period Standard exercised greatest control of the industry.”
Standard’s service to the consumer in the form of lower prices is well-documented. To quote from Professor Armentano again:
Between 1870 and 1885 the price of refined kerosene dropped from 26 cents to 8 cents per gallon. In the same period, the Standard Oil Company reduced the [refining] costs per gallon from almost 3 cents in 1870 to 0.452 cents in 1885. Clearly, the firm was relatively efficient, and its efficiency was being translated to the consumer in the form of lower prices for a much improved product, and to the firm in the form of additional profits.
That story continued for the remainder of the century, with the price of kerosene to the consumer falling to 5.91 cents per gallon in 1897. Armentano concludes from the record that “at the very pinnacle of Standard’s industry ‘control,’ the costs and the prices for refined oil reached their lowest levels in the history of the petroleum industry.”

John D. Rockefeller’s success, then, was a consequence of his superior performance. He derived his impressive market share not from government favors but rather from aggressive courting of the consumer. Standard Oil is one of history’s classic efficiency monopolies.

But what about the many serious charges leveled against Standard? Predatory price cutting? Buying out competitors? Conspiracy? Railroad rebates? Charging any price it wanted? Greed? Each of these can be viewed as an assault not just on Standard Oil but on the free market in general. They can and must be answered.

Predatory price cutting is “the practice of deliberately underselling rivals in certain markets to drive them out of business, and then raising prices to exploit a market devoid of competition.”  Let’s see if it’s a charge that holds water or just one of those one-liners progressives like to toss out whether the evidence is there or not.

In fact, Professor John S. McGee, writing in the Journal of Law and Economics for October 1958, stripped this charge of any intellectual substance. Describing it as “logically deficient,” he concluded, “I can find little or no evidence to support it.”

In research for his extraordinary article, McGee scrutinized the testimony of Rockefeller’s competitors who claimed to have been victims of predatory price cutting. He found their claims to be shallow and misdirected. McGee pointed out that some of these very people later opened new refineries and successfully challenged Standard again.

Beyond the actual record, economic theory also argues against a winning policy of predatory price cutting in a free market for the following reasons:

  1. Price is only one aspect of competition. Firms compete in a variety of ways: service, location, packaging, marketing, even courtesy. For price alone to draw customers away from the competition, the predator would have to cut substantially—enough to outweigh all the other competitive pressures the others can throw at him. That means suffering losses on every unit sold. If the predator has a war-chest of “monopoly profits” to draw upon in such a battle, then the predatory price cutting theorist must explain how he was able to achieve such ability in the absence of this practice in the first place!
  2. The large firm stands to lose the most. By definition, the large firm is already selling the most units. As a predator, it must actually step up its production if it is to have any effect on competitors. As Professor McGee observed, “To lure customers away from somebody, he (the predator) must be prepared to serve them himself. The monopolizer thus finds himself in the position of selling more—and therefore losing more—than his competitors.”
  3. Consumers will increase their purchases at the “bargain prices.” This factor causes the predator to step up production even further. It also puts off the day when he can “cash in” on his hoped-for victory because consumers will be in a position to refrain from purchasing at higher prices, consuming their stockpiles instead.
  4. The length of the battle is always uncertain. The predator does not know how long he must suffer losses before his competitors quit. It may take weeks, months, or even years. Meanwhile, consumers are “cleaning up” at his expense.
  5. Any “beaten” firms may reopen. Competitors may scale down production or close only temporarily as they “wait out the storm.” When the predator raises prices, they enter the market again. Conceivably, a “beaten” firm might be bought up by someone for a “song,” and then, under fresh management and with relatively low capital costs, face the predator with an actual competitive cost advantage.
  6. High prices encourage newcomers. Even if the predator drives everyone else from the market, raising prices will attract competition from people heretofore not even in the industry. The higher the prices go, the more powerful that attraction.
  7. The predator would lose the favor of consumers. Predatory price cutting is simply not good public relations. Once known, it would swiftly erode the public’s faith and good will. It might even evoke consumer boycotts and a backlash of sympathy for the firm’s competitors.
In summary, let me quote Professor McGee once again:
Judging from the Record, Standard Oil did not use predatory price discrimination to drive out competing refiners, nor did its pricing practice have that effect. Whereas there may be a very few cases in which retail kerosene peddlers or dealers went out of business after or during price cutting, there is no real proof that Standard’s pricing policies were responsible. I am convinced that Standard did not systematically, if ever, use local price cutting in retailing, or anywhere else, to reduce competition. To do so would have been foolish; and, whatever else has been said about them, the old Standard organization was seldom criticized for making less money when it could readily have made more.
A second charge is that Standard bought out its competitors. The intent of this practice, the critics say, was to stifle competitors by absorbing them.

First, it must be said that Standard had no legal power to coerce a competitor into selling. For a purchase to occur, Rockefeller had to pay the market price for an oil refinery. And evidence abounds that he often hired the very people whose operations he purchased. “Victimized ex-rivals,” wrote McGee, “might be expected to make poor employees and dissident or unwilling shareholders.”
Kolko writes that “Standard attained its control of the refinery business primarily by mergers, not price wars, and most refinery owners were anxious to sell out to it. Some of these refinery owners later reopened new plants after selling to Standard.”

Buying out competitors can be a wise move if achieving economy of scale is the intent. Buying out competitors merely to eliminate them from the market can be a futile, expensive, and never-ending policy. It appears that Rockefeller’s mergers were designed with the first motive in mind.
Even so, other people found it profitable to go into the business of building refineries and selling to Standard. David P. Reighard managed to build and sell three successive refineries to Rockefeller, all on excellent terms.

A firm which adopts a policy of absorbing others solely to stifle competition embarks upon the impossible adventure of putting out the recurring and unpredictable prairie fires of competition.
A third accusation holds that Standard secured secret agreements with competitors to carve up markets and fix prices at higher-than-market levels.

I will not contend here that Rockefeller never attempted this policy. His experiment with the South Improvement Company in 1872 provides at least some evidence that he did. I do argue, however, that all such attempts were failures from the start and no harm to the consumer occurred.

Standard’s price performance, cited extensively above, supports my argument. Prices fell steadily on an improving product. Some conspiracy!

From the perspective of economic theory, collusion to raise and/or fix prices is a practice doomed to failure in a free market for these reasons:
  1. Internal pressures. Conspiring firms must resolve the dilemma of production. To exact a higher price than the market currently permits, production must be curtailed. Otherwise, in the face of a fall in demand, the firms will be stuck with a quantity of unsold goods. Who will cut their production and by how much? Will the conspirators accept an equal reduction for all when it is likely that each faces a unique constellation of cost and distribution advantages and disadvantages?
    Assuming a formula for restricting production is agreed upon, it then becomes highly profitable for any member of the cartel to quietly cheat on the agreement. By offering secret rebates or discounts or other “deals” to his competitors’ customers, any conspirator can undercut the cartel price, earn an increasing share of the market and make a lot of money. When the others get wind of this, they must quickly break the agreement or lose their market shares to the “cheater.” The very reason for the conspiracy in the first place—higher profits—proves to be its undoing!
  2. External pressures. This comes from competitors who are not parties to the secret agreement. They feel under no obligation to abide by the cartel price and actually use their somewhat lower price as a selling point to customers. The higher the cartel price, the more this external competition pays. The conspiracy must either convince all outsiders to join the cartel (making it increasingly likely that somebody will cheat) or else dissolve the cartel to meet the competition.
I would once again call the reader’s attention to Kolko’s The Triumph of Conservatism, which documents the tendency for collusive agreements to break apart, sometimes even before the ink is dry.

A fourth charge involves the matter of railroad rebates. John D. Rockefeller received substantial rebates from railroads who hauled his oil, a factor which critics claim gave him an unfair advantage over other refiners.

The fact is that most all refiners received rebates from railroads. This practice was simply evidence of stiff competition among the roads for the business of hauling refined oil products. Standard got the biggest rebates because Rockefeller was a shrewd bargainer and because he offered the railroads large volume on a regular basis.

This charge is even less credible when one considers that Rockefeller increasingly relied on his own pipelines, not railroads, to transport his oil.

Did Standard Oil have the power to charge any price it wanted? A fifth accusation says yes. According to the notion that Standard’s size gave it the power to charge any price, bigness per se immunizes the firm from competition and consumer sovereignty.

As an “efficiency monopoly,” Standard could not coercively prevent others from competing with it. And others did, so much so that the company’s share of the market declined dramatically after 1899. As the economy shifted from kerosene to electricity, from the horse to the automobile, and from oil production in the East to production in the Gulf States, Rockefeller found himself losing ground to younger, more aggressive men.

Neither did Standard have the power to compel people to buy its products. It had to rely on its own excellence to attract and keep customers.

In a truly free market, the following factors insure that no firm, regardless of size, can charge and get any price it wants:

  1. Free entry. Potential competition is encouraged by any firm’s abuse of the consumer. In describing entry into the oil business, Rockefeller once remarked that “all sorts of people . . . the butcher, the baker, and the candlestick maker began to refine oil.”
  2. Foreign competition. As long as government doesn’t hamper international trade, this is always a potent force.
  3. Competition of substitutes. People are often able to substitute a product different from yet similar to the monopolist’s.
  4. Competition of all goods for the consumer’s dollar. Every businessperson in competition with every other businessman to get consumers to spend their limited dollars on him.
  5. Elasticity of demand. At higher prices, people will simply buy less.
It makes sense to view competition in a free market not as a static phenomenon, but as a dynamic, never-ending, leap-frog process by which the leader today can be the follower tomorrow.

The sixth charge, that John D. Rockefeller was a “greedy” man, is the most meaningless of all the attacks on him but nonetheless echoes constantly in the history books.

If Rockefeller wanted to make a lot of money (and there is no doubting he did), he certainly discovered the free market solution to his problem: produce and sell something that consumers will buy and buy again. One of the great attributes of the free market is that it channels greed into constructive directions. One cannot accumulate wealth without offering something in exchange!
At this point the reader might rightly wonder about the dissolution of the Standard Oil Trust in 1911. Didn’t the Supreme Court find Standard guilty of successfully employing anti-competitive practices?
Interestingly, a careful reading of the decision reveals that no attempt was made by the Court to examine Standard’s conduct or performance. The justices did not sift through the conflicting evidence concerning any of the government’s allegations against the company. No specific finding of guilt was made with regard to those charges. Although the record clearly indicates that “prices fell, costs fell, outputs expanded, product quality improved, and hundreds of firms at one time or another produced and sold refined petroleum products in competition with Standard Oil,” the Supreme Court ruled against the company. The justices argued simply that the competition between some of the divisions of Standard Oil was less than the competition that existed between them when they were separate companies before merging with Standard.

In 1915, Charles W. Eliot, president of Harvard, observed: “The organization of the great business of taking petroleum out of the earth, piping the oil over great distances, distilling and refining it, and distributing it in tank steamers, tank wagons, and cans all over the earth, was an American invention.” Let the facts record that the great Standard Oil Company, more than any other firm, and John D. Rockefeller, more than any other man, were responsible for this amazing development.

Summary
  • If the Standard Oil Company was any kind of “monopoly,” it was not a “coercive” one because it did not derive its high (and temporary) market share from special government favors. There were lots of competitors to it, here and abroad. If it was a monopoly, then it was of the “efficiency” variety, meaning that it earned a high market share because consumers liked what it offered at attractive prices.
  • The prices of Standard products (chiefly kerosene in the company’s early history) steadily fell. The quality steadily improved. Total production grew from year to year. This is not supposed to be the behavior of an evil monopolist, who supposedly restricts output and raises prices.
  • Accusations against Standard—predatory price cutting, buying up competitors, conspiracy to restrict output and raise prices, securing railroad rebates, etc—sound plausible on the surface but fall apart upon close inspection.
  • For further information, see:
“John D. Rockefeller and the Oil Industry” by Burton Folsom: http://tinyurl.com/q9cz7p5
“How Capitalism Saved the Whales” by James S. Robbins: http://tinyurl.com/qf2ltds
“John D. Rockefeller and His Enemies” by Burton Folsom: http://tinyurl.com/q8dghca
“A Review of Chernow’s biography of Rockefeller” by D. T. Armentano: http://tinyurl.com/peqv68o
“Herbert Dow and Predatory Pricing” by Burton Folsom: http://tinyurl.com/pvh94tj
If you wish to republish this article, please write editor@fee.org.
Lawrence W. Reed
Lawrence W. Reed
Lawrence W. Reed is President of the Foundation for Economic Education and the author of the forthcoming book, Real Heroes: Inspiring True Stories of Courage, Character and Conviction. Follow on Twitter and Like on Facebook.
This article was originally published on FEE.org. Read the original article.