Big Business and the Rise of American Statism: A Revisionist History
Part One
PREFACE
This essay constitutes a part of what has been called "revisionist history." Revisionist history is a general concept subsuming a great many historical "schools" or integrated conceptions of man's past. At the time when any set of events occurs, in any historical context, there is almost always a specific set of interpretations of events which spreads throughout a given culture, to the relative exclusion of others. Those schools of historiography which are responsible for refuting the popular misconceptions, for revising the interpretation of events which was widely accepted, in accordance with new evidence, are called revisionists in nature. "Revisionist history," then, is a set of doctrines which are only loosely connected, being a reinterpretation of some aspect of history according to the demands of either (a) new factual evidence, which was not available or suppressed when the conventional interpretations were being promulgated, or (b) new theories.
I want to indicate briefly in this Preface the nature of history, the nature of historical method, and the relationships between history and ideology and history and ethics. I will also briefly indicate my motives for writing this work, my considerations as far as evidence goes, the nature of my source materials, and a few possible motivations for writing such a work which do not apply to my case. This is especially important because I do not want the nature of this work to be misunderstood. Therefore, it is my obligation to be explicit about my ends and means.
What is history? In short, it is a selective interpretation or recreation of the events of the past, according to a historian's premises regarding what is important and his judgments concerning the nature of causality in human action. All historians must make judgments concerning what is important and unimportant in reporting the events of the past, else history would be impossible—it would consist of a random record of chance events all regarded as being on the same level, so that the recording of how some bachelor in Manhattan washed his clothes would be on the same level as the events of America's revolutionary war. These judgments concerning what is important are to the realm of ideology what "metaphysical value-judgments" are to the realm of a man's "sense of life" (see Ayn Rand's THE ROMANTIC MANIFESTO on the nature of metaphysical value-judgments). In history and ideology, as in an individual's psychology, these judgments can either be made explicitly or implicitly, with full knowledge of what one considers important and why or without such awareness. The same goes for the selectivity of the specific aspects of the past which one chooses to recreate and the specific facts which one chooses to use as representative of that period. Selection, after all presupposes a means, method, or principle of selection—which may also be implicit or explicit. And the same goes for the historian's view of the nature of causality in human action; it can also be implicit or explicit. All of these important aspects of the art of writing history interact in very complex ways, which I do not have the space to indicate here (but shall in a future essay on the philosophy of history), but the important thing is that a historian is necessarily either aware of these things or he is not. If he is not, then the result is that he is driven by feelings, smuggled-in premises, hidden presuppositions—and faith. If he is not, then the result is a bad historian. Charles A. Beard was more self-conscious about the problems of historical method than most—but he still wrote at the apex of his career, an essay entitled "Written History as an Act of Faith." Of philosophical bankruptcy are bad historians born—as are professionals in so many other fields.
Having indicated at least some of the factors which constitute historical inquiry, let me touch upon the nature of historical method. A popular philosophical doctrine holds that the methodology of history is entirely different from the methodology of other sciences. But this is due to the effects of such things as the analytic-synthetic distinction. Fundamentally, the methodology of all sciences is the same. The fundamental method of all sciences consists simply of logic or, to break it up into its components of form and content, reason and objective evidence. The nature of the objective evidence varies from field to field and this accounts for the apparent differences of method on a fundamental level. By "reason" here I mean simply the faculty of integrated awareness which is responsible for all of man's knowledge above the perceptual level; by "objective evidence" I mean reality as presented to the intellect—"objective" meaning determined by the nature of entities existing in reality and "evidence" meaning that context or "segment" of reality which a consciousness has become aware of.
The nature of the objective evidence with which we deal in history is simply human testimony, direct or indirect. Since history deals with the past of human action, this means that its object (referent) is the ends which specific men have held in the past and the means they have adopted to attain these ends. Since no two human beings are specifically alike in every particular, it is impossible in the case of historical inquiry to recreate the past in the form of a laboratory experiment and observe the effects of single causal factors on human action. Thus all that one can do is collect evidence (testimony) concerning the context of various individual men, their ideas, and their actions. Using a theory of the nature of causality in human action, one then interprets or selectively reconstructs events of the past, omitting what one rationally judges to be unimportant, and offers an explanation for what one does consider to be important, in light of the evidence available. One can never know everything about any set of entities in reality. Yet it is not necessary for one's knowledge to be complete, or for one to be omniscient, in order for one's knowledge as far as it goes—to be valid. All knowledge is contextual, including historical knowledge. All that one can do is remain within the bounds of objective evidence and seek to obtain new evidence, revising one's judgments and interpretations as the evidence demands.
Having indicated in brief terms, again, the basic method of history, I turn now to its value. Many people take conclusions from history concerning conventions and traditions and use these to replace the precepts of a rational ethic as guides for action. Thus, it should be noted at the outset that to use history in any reasonable way to find rules to guide conduct presupposes a rational ethic, which one must use to differentiate "good" traditions from "bad," and in fact to supersede history altogether in projecting the possible to man. If something has happened in history, one can rationally conclude that it is possible to man; if something has not happened in history, one can not rationally conclude that it is not possible to man. History can illustrate principles but in itself cannot prove their validity or invalidity. It is important to point out the submission of history to a rational ethic in this regard. People distraught with the present often seek refuge in the past, idealizing it beyond recognition. Such actions will only lead to a life built on illusions, despair that tomorrow things will only be worse, and a general feeling of impotence and inefficacy, with the logical result that those who accept such a view will not act for a better future.
But to act to change things for the better presupposes not only that one understands a rational ethic and its principles, but that one has some idea of "where one is," historically speaking, i.e., one will have to answer the question: what is the present context of man? To answer this takes a knowledge of what ends men have sought up to now, in a broad cultural and political sense, and what means they have adopted to attain them. This will give one the full knowledge or context of where one is and how one got there. One then applies the principles of a rational philosophy to his actions; understanding his context, he acts to change things in a certain direction.
The application of the most consistent philosophy to real events requires what might be called a journalistic knowledge of the "state of the world." This differentiates ideology from philosophy. While philosophy abstracts from time, and hence from history, the fundamental truths about man and his relationship to reality, ideology is a consistent world-view. It integrates the principles discovered by a rational philosophy to the context of the world. Philosophy is concerned with the nature and validity of human knowledge, with validating and detailing the precepts of a rational ethic, and so on—with truth; ideology is concerned with applying this to any given historical context—with making truth relevant, which comes from an integrated focus on man as he is in any historical context.
The transition from philosophy to ideology is largely accomplished by history. To use an analogy, philosophy discovers a rational ethic, but every given individual must apply its precepts to his life by identifying the context of his own life, by identifying the appropriate concrete choices in his life, and applying the concepts properly, by means of logic. The "major premise" in this practical syllogism is the ethical principle itself. The "minor premise" is the concretes in anyone's life which the principles subsume. The "conclusion" is the action to be taken.
The transition from philosophy to ideology is another form of the Aristotelian "practical syllogism." The major premise is the ethical-philosophical principle. The minor premise is not the concretes of any given individual's life but a historical or existential premise which summarizes some aspect of the historical context of man in a given era. The conclusion is the ideological stance to be taken.
It is important to emphasize the overwhelming necessity of having a valid existential premise in either case. When we are concerned with an individual's psychology, evasion and the like can make the application of a rational ethic well nigh impossible. When we are concerned with ideology, that is applied philosophy and an integrated, coherent, and consistent world-view, we need valid historical-existential premises to make the ideological stance taken consistent with the philosophy which was fundamentally responsible for generating it. What will happen if the existential premise is smuggled in unexamined or brought from a context of knowledge which is too limited in scope? Simply it is that the ideological stance taken may be on the wrong side of the fence. One may end up supporting one's enemies, or at least acting, however inadvertently, to oppose, negate, and destroy one's own ends. Thus the crucial importance of learning history in order to permit oneself to make a valid transition from theory to practice, from philosophy to ideology is shown. When one is historically blind, one's philosophy floats with no anchor attaching it to reality. One is irrelevant to Earth and to men's lives.
This essay, now, after all this groundwork, might be said to be an exercise in revising a particular historical premise in American history, which has led many people to misinterpret events, to misjudge a set of people in American history, and to be ignorant of a major causal factor, in this case, the growth of American statism. I have stated one particular set of historical-existential premises rather bluntly in this paper; others are implied. My purpose is to encourage a number of people, especially Objectivists, to reconsider their means of understanding history. (I say "especially Objectivists, because I think that Objectivism is fundamentally valid, despite my often-stated objections to its political philosophy. But I think that it has been misapplied by many people in interpreting current events, by means of historical "innocence." One set of premises in particular is important in this regard, concerning the role of major industrialists in American history and the role of what might loosely be called "big business" in general in the growth of American statism.)
One final philosophical note before I sketch some of my considerations in writing this essay. I have mentioned some of the issues in the philosophy of history, such as the nature of history and the nature of historical methodology. I should mention my own positions on a few of these issues. I am a metaphysical and methodological individualist. This means that I believe that the universe consists of a number of distinct entities, which are related to each other by both real and mental relations—mental relations having an objective foundation in fact. In history, this means that I am a methodological individualist, holding that history is a record of individual actions, individual ends, and the means individuals use to seek these ends. History is a record of past human action; and all human action, like thought, is individual in nature. Since people share ends and ideas about means, they can work together.
They can also be classified by criteria derived from that fact. This is what I have done in grouping sets of individuals, i.e., this is the objective foundation of my classifications. I do not make the mistake of materialist conceptions of history: I do not maintain that men are guided by their economic "interests" regardless of their ideas. The trick that Marx pulled in his conception of history was disregard for the fact that men have to be aware of something before they can act to attain it in any meaningful sense. Men act according to their ideas. Interests apart from consciousness have no relevance to any interpretation of history whatever. But this means that I hold that men have certain ends in mind when they act and that men choose both those ends and the means they will try to use in attaining them. My historical judgments, therefore, are of the form (implicitly): B held end Y and adopted means X to attain it. Furthermore, I hold that the ultimate stopping point of historical inquiry is the fact of man's free will. Historians can validly speculate on some of the considerations which led a given man to adopt a certain end but ultimately must stop with the fact that he did. His adoption was determined by his context and his thinking or evasion of thinking about that and other issues. This is the dead end in the quest of the historian for truth. Free will is a causal primary, a "first cause" in consciousness.
It is of crucial importance in writing history to understand this methodological individualism to understand that history is not about floating abstractions but about men. They are the entities who hold certain ideas and whose ideas guide their actions. This leads me to disagree with Marx but also with Ayn Rand. In her essay "The Roots of War," Miss Rand, who is a genuinely brilliant philosopher, seems to take the opposite side of the slogan of the Marxist-Leninists that "capitalism needs war." They claim that it does and that socialism does not. Ayn Rand claims that statism needs war and capitalism does not. I reject the slogan entirely. An economic system is not an entity, holds no ideas, takes no actions, in short, is not the metaphysical kind of entity which can have needs. If a man needs something and does not know it, he will not act to attain it. If he does not need something but thinks that he does, he will act to attain it. The same is true for a set of individual people and their values, which is all that an economic or political system is. What a man is not aware of he cannot aim for as an end. Wars like any other situation, are the results of human choices, values, and ends—of human actions. If industrialists in a predominately free country think that war and conquest are necessary for their continued prosperity, then the odds are that they will act in a manner that supports war and conquest. History is hardly a record of the actions of men whose ideas were all true. Thus I would not argue in this essay that capitalism needed government controls or anything else of that form. I argue only that major industrialists in American history held certain ideas and ends and adopted certain means to attain them. These ends were often illicit; the means often included support of (government) controls and regulations. I am aware that they could not have used these means without the state. My purpose is not to absolve the state, but it is to show who attempted to influence the actions of those in the government—toward what end, why, and with what intensity of effort.
With this in mind, let me state more explicitly my ends, means, and considerations. My purpose is to revise a certain historical outlook. My purpose is not to smash anyone's heroes. I am aware of the psychological tendency which often means pulling down any and all heroes for the sake of pulling them down and reducing them to the same level as "everyone else." This is not my intention, nor is it my intention to raise heroes above "everyone else." I think that the projection of heroes might best be left to novelists like Ayn Rand, leaving the historian out of the picture altogether. Too often a historian tries to "find" a hero from the past and ends up selecting only those facts which will project him heroically. This, in the case of history, is dangerous evasion in many cases. Letting the facts fit the purpose of the writer is fine in fiction but disastrous in realms of fact It spells the death of objectivity.
The fact, therefore, that this essay may serve to "debunk" a view which holds that such people as Andrew Carnegie and J.P. Morgan were pure and unadulterated heroes to be emulated, is regrettable, but it is an inevitable byproduct of seeking the reality of history in this case. I merely want to point out that I am not of that school of thought which holds irreverence and idol-smashing to be an end in itself. I profoundly disagree with the symbolism of that sense of life, with what it represents. But sometimes idol-smashing is necessary. One must hold that reality exists independently of consciousness. A is A, and Carnegie's political beliefs were what they were I am merely identifying them.
Secondly, let me admit at the outset that my presentation of the period is incomplete. All historical accounts necessarily are. I have chosen to focus on one particular aspect of the men in question, their political beliefs and actions, to determine the extent to which they initiated the measures which haunt us today in the form of anti-trust laws and other regulations. I do not condemn or indict an abstract class, such as "big businessmen," but only a large portion of the members of that class (by class I mean any group of individual entities, including people, which possess a common attribute). I do not have as my purpose the presentation of Carnegie's industrial genius, or lack of it, or anything similar. I have as my purpose the demonstration that many industrialists are not in any sense of the word "innocent victims" of statism. In the long run, a few may have been victims, but they were not innocent.
Thirdly, I wish to state that I regard this essay merely as a beginning of a much larger study and reinterpretation of American history, and world history, which needs to be made by conscientious Objectivists and libertarians concerned with applying their principles to this Earth. There are many implications of this essay which I have not spelled out as far as revisionist history goes. If this line of inquiry is pursued with a great deal of vigor, I submit that a lot of existential premises and hence ideological stances will have to be changed by Objectivists and libertarians.
Fourthly, on the question of sources, it will be noted that a large part of my source material is derived from writers commonly identified with the political "left," especially the "new left." What are the justifications for this? There are several. Practically all historians writing today are leftists, so if one goes to almost secondary source, one will be obtaining information from leftists. Those few who are not leftists are usually right wing neo-mercantilists, like Louis Hacker, who share the identical flaw with the leftists: they are statists. Also, most of my quotations are from speeches and the like of major industrialists which are quoted in my sources. I consider it "safe" to excerpt these, especially since I have checked out several and found them accurate. And, as any libertarian who has ever talked with new leftists knows, members of the new left are notoriously concrete-bound. This is disastrous in philosophy, usually leading to existentialism or positivism, but in history it is often quite a benefit. For many new left historians are so concrete-bound that their devotion to detail in history is excruciating—one might say trivial. But it cannot be denied by anyone who has examined the facts that the new left has produced a number of remarkable historical scholars in specific areas. Their interpretations are botched because of their erroneous theories. It is a policy on the part of many new left historians not to trust secondary sources. This is obviously self-defeating, for the moment they write their works, they become secondary sources. But this policy has led to many interesting and valuable consequences. One is the fact that these historians are not only painstakingly devoted to detail, they resort to primary works almost exclusively in their studies. This allows one to eliminate guesswork to verify something they say: one simply goes to the source mentioned in the footnote, often an obscure set of memoirs, a speech by an industrialist in a once-popular magazine, or whatever. It should be stated that I do not accept the particular interpretations which the leftists offer for the facts they present. This is because I have different theories, such as my agreement with most of the economics of Von Mises and Rothbard, while many leftists are Marxists.
I think that with this much said, I have laid the groundwork for the substance of the essay. Some might find the groundwork more interesting than the essay. So much the better. I have endeavored here to justify my view of history, its relationship to philosophy, and my views of historical method and verification. In an age when practically no one takes such pains, even with such brevity as I have done, I thought it best to be explicit about my premises. Perhaps I may start a trend.
The purpose of this essay is to criticize a certain view of history, one which has been dead for a long time as far as factual support is concerned but, for some reason or another, has never been buried. Unlike myths in other areas, those in history have a tendency to go on forever, to be passed on from generation to generation without serious questioning of their validity. Traditional views on American history are filled with such seemingly axiomatic fables which, perhaps not by accident, tend to reinforce whatever status quo of affairs happens to be the case.
Nearly everyone agrees on the putative facts of American history; disagreements arise only over evaluations. Thus to the modern liberal, once upon a time there was a nasty individualistic social system in the United States. This individualism, left unchecked, led inevitably to the "strong" using the forces of a free market to smash and subdue the "weak," building gigantic, monopolistic industrial enterprises which dominated and controlled the life of the nation. Then one day as this centralization proceeded apace, the "public" awoke to its impending subjugation at the hands of these businessmen, who were gathering up wealth and power with both hands through the smashing of competitors by cutthroat competition and the like. The public was stirred by the injustice of it and demanded reform, whereupon altruistic and far-seeing politicians moved quickly to smash the monopolists with the anti-trust laws and through regulation of the economy on behalf of the long-suffering "little man," who was thereby saved from certain doom. Thus did the American Government squash the greedy monopolists and restore competition which was perishing in the unregulated, laissez-faire, free-market economy. Thus did the American state save freedom and capitalism.
To the conservative, the facts are correct, but the interpretation is backwards. Once upon a time, holds the conservative,* there was indeed a golden age of individualism, when the economy was almost completely free of government controls. Far from being evil, such a society was near-utopian. But the government interfered and threw things out of kilter. The consequence was that the public began to clamor for regulation in order to rectify certain injustices caused by the government's initial intervention, and the anti-trust laws and government regulation of the economy were the result. Far from being monopolistic monsters, though, the big businessmen who were supposedly smashed by the state were heroic individuals; they made a group that has been called "America's persecuted minority."1 "Businessmen were the victims…" states Ayn Rand.2 The victims of whom? Of power-lusting liberal-progressives who used big businessmen as scapegoats and sacrificial animals on the altar of the "public good."
Thus do the liberals and conservatives do battle with each other. The liberal maintains that the trend was toward centralization at the turn of the century, with the big business monsters gobbling up competitors left and right. They had to be smashed and were, for the public good, by those enlightened politicians of the progressive era. "Nay!" cries the conservative. Those businessmen made their fortunes by free trade in a free market, with the rare exceptions of those like the California 'big Four' who used the state for their gain. They deserve not condemnation but praise for the rational, heroic innovators and individualists that they were, and anyone who says otherwise is little better than a hooligan. These honest and productive big businessmen were made sacrificial animals by those progressives who were and remain a part of the mystic-altruist-collectivist axis.11 The conservative does not question that the trend was toward centralization. Quite the contrary, he defends it. Alan Greenspan has written that "Trusts came into existence because they were the most efficient units in those industries which, being relatively new, were too small to support more than one large company."3
The question, then, is not, "Who led the fight for regulation?" but rather, "Were they right or wrong in doing so?" Neither side bothers to question the assertion that the alleged trend toward centralization was the result of the forces of the free market. Neither side wonders who really led the fight for controls. The liberals supposedly have on their side mounds of material digging into the seamy private lives of big businessmen and point to the existence of so-called "unscrupulous" competitive practices, like rebates and price wars. But the conservatives have a trump card: they understand the economics of the free market, while the liberals do not. Yet the conservatives fail to search the evidence carefully enough. They often fail to explain "difficult" cases which liberals toss at them. However, both will agree that something has happened, or even "gone wrong" although they differ on why, to bring us to this point in history. How can we come to a "correct" understanding?
What is necessary is to begin at the beginning. In this case, that consists of the assertion that the dominant trend at the end of the 19th century and beginning of the 20th century was toward economic centralization. Both sides in the dispute grant this, and both claim that such was indeed the result of the operations of a relatively unfettered free enterprise system. To the liberal, the giants of American industry used cutthroat competition to smash competitors and gain dominance in the economy. To the conservative the crucial factor was the efficiency and skill of the big business innovators who were able to outdo their competitors by naked competence. But if we grant for a moment the premises of these two sides, we come up with a few difficulties:
In the case of the liberal, we must ask: If the purpose of the anti-trust laws was to smash big business, then why has the American economy become much more centralized since their passage: To this the liberal will answer, with an impatient, uneasy mumble, that "somewhere" along the line something went wrong.
In the case of the conservative, with his knowledge of economics, we must ask: Just what makes you think that under complete laissez-faire there would be in fact a "trend" toward centralization, when you know that the so-called "economies" of size are not unlimited and that the means whereby such centralization was attained, such as pools, are inherently unstable and tend to fall apart in a free economy?4 This the conservative simply does not discuss. The truth of the matter, however, is that both sides are mistaken, in their assumptions, in their view of the state of the economy, in their view of who was in fact the fountainhead of the statist regulations of the economy, and in their views as to the roots of American statism as a whole. The entire historical picture as presented by them is botched from beginning to end.
As Gabriel Kolko demonstrates in his masterly THE TRIUMPH OF CONSERVATISM: A Reinterpretation of American History 1900-1916 and RAILROADS AND REGULATION 1877-1916, the dominant trend in the last three decades of the 19th century and the first two of the 20th was, despite the large number of mergers and growth in the overall size of many corporations, "toward growing competition. Competition was unacceptable to many key business and financial interests, and the merger movement was to a large extent a reflection of voluntary, unsuccessful business efforts to bring irresistible trends under control…As new competitors sprang up, and as economic power was diffused throughout an expanding nation, it became apparent to many important businessmen that only the national government could [control and stabilize] the economy…Ironically, contrary to the consensus of historians, it was not the existence of monopoly which caused the federal government to intervene in the economy, but the lack of it."5
The basic thesis of the Kolko books is that the trend was toward growing competition in the United States before the federal government intervened and that the big businessmen in various fields found themselves unable to cope with this trend by private, economic means. Facing falling profits and diffusion of economic power, these businessmen then turned to the state to regulate the economy on their behalf.
As a corollary, there was also growth of a pro-statist mentality in America at the turn of the century. Any state of affairs which lasts as long as has economic regulation must ultimately rest on some ideological base. Before the turn of the century, the predominate ideology in America was some variant of laissez-faire, with minor rationalizations being used to "patch up" the areas where it was obviously not applied. The first antitrust and regulatory laws, for example, were passed with the supposed justification of "saving competition." But during and after the so-called "progressive era," we find an ideological switch to explicit avowals of some form or another of statism. Who was behind it, and why? A major influence in this switch turns out to be big business. The work of James Weinstein, THE CORPORATE IDEAL IN THE LIBERAL STATE, 1900-1918,6 recently noted this. The main theses of this book are (1) that the ideology now dominant in the United States had been worked out for the most part by the end of the first World War, not during the New Deal, and (2) that what Weinstein calls "the ideal of a liberal corporate social order" was developed consciously and purposefully by those who then enjoyed, as now, supremacy in the United States: by "the more sophisticated leaders of America's largest corporations and financial institutions."7 In examining this, we shall predominately focus on the activities of the National Civics Federation (NCF), a group of big businessmen which was the primary ideological force behind many "reforms."
THE ROOTS OF REGULATION: THE CASE OF THE RAILROADS, 1870-19208
Since the basic patterns of regulation were established first in the case of the railroads, a glance at this industry will set the basis for an examination of the others.
American industry as a whole was intensely competitive in the period from 1875 on. Many industries had overexpanded and were facing a squeeze on profits, including the railroads. The legends of American history contain the myth that railroads faced practically no competition at all during this period, that freight rates constantly rose, pinching every last penny out of the shippers, especially the farmers, and bleeding them to death. "Contrary to the common view," historian Kolko shows, "railroad freight rates, taken as a whole, declined almost continuously over the period [from 1877 to 1916], and although consolidation of railroads proceeded apace, this phenomenon never affected the long-term decline of rates or the ultimately competitive nature of much of the industry. In their desire to establish stability and control over rates and competition, the railroads often resorted to voluntary, cooperative efforts…When these efforts failed, as they inevitably did, the railroad men turned to political solutions to [stabilize] their increasingly chaotic industry. They advocated measures designed to bring under control those railroads within their own ranks that refused to conform to voluntary compacts…from the beginning of the 20th century until at least the initiation of World War I, the railroad industry resorted primarily to political alternatives and gave up the abortive efforts to put its own house in order by relying on voluntary cooperation…Insofar as the railroad men did think about the larger theoretical implications of centralized federal regulation, they rejected…the entire notion of laissez-faire…[and] most railroad leaders increasingly relied on a Hamiltonian conception of the national government "9
The two major means used by competitors to cut into each other's markets were rate wars (price cutting) and rebates; the aim of business leaders was to stop these. Their major tool was the "pool," which never worked because no sooner was an agreement made than some company would violate some aspect of it and bring the whole structure down.10 The first serious pooling effort in the East had been tried as early as 1874 by William H. Vanderbilt of the New York Central; the pool lasted for 6 months then was dropped because of violations. In September 1876, a Southwestern Railway Association was formed by seven major companies in an attempt voluntarily to enforce a pool; it didn't work and collapsed in early 1878. It soon became obvious that pools would never work. In 1876, the first significant federal regulatory bill was introduced into the House by J.R. Hopkins of Pittsburgh. The bill was drawn up by the attorney for the Philadelphia and Reading Railroad; it died in committee.
By 1879, there was "a general unanimity among pool executives…that without governmental sanctions, the railroads would never maintain or stabilize rates."11 By 1880, the railroads were having serious problems; the main danger was identified as "cutthroat competition."
Rate wars during 1881 pushed freight rates down 50% between July and October alone; between 1882 and 1886, freight rates declined for the nation as a whole by 20%. Railroads were increasingly talking about regulation with a certain spark of interest. Chauncey Depew, attorney for the N.Y. Central, had become convinced "of [the regulatory commissions'] necessity…for the protection of both the public and the railroads"; he soon converted William H. Vanderbilt to his position.12
Agitation for regulation to ease competitive pains increased, and in 1887 the Interstate Commerce-Act was passed. According to the Railway Review, a mouthpiece for the railroads, it was only a first step. The Pennsylvania Railroad stated in its annual report that it had always "favored the enactment of a proper law, which, while guarding the interests of the public, would afford to the railroads the protection to which they are justly entitled in the conduct of their business."13 Protection from what? Competition.
The Act, however, was a flop at stopping rate wars or rebates. Early in 1889, J.P. Morgan summoned presidents of major western railroads to New York during a prolonged rate war to find ways to maintain rates and enforce the act; a "voluntary" Inter-State Commerce Railway Association (ISCRA) was formed for this purpose, but "voluntary railroad agreements were no more successful with the new law and the intervention of Morgan than before."14 The larger railroads were harmed most by competition. "Most of the smaller, minor roads… fared a good deal better in the 1890's than the giant roads, and they were more prosperous than in the 1880's. Morgan weakened rather than strengthened many of his roads…[and on them] services and safety often declined. Many of Morgan's lines overexpanded into areas where competition was already too great."15 Competition again increased. The larger roads then led the fight for increased legislation, seeking more power for the ICC.
In 1891, the president of the Minnesota and Northwestern Railroad advocated that the entire matter of setting rates and handling railroad stability be turned over to the ICC; "Let the law name the rates and let the law protect their integrity," he proclaimed. Pressure on Congress increased; in 1892, a poll taken by the ICC showed that 14 out of 15 railroads polled favored legalized pooling under Commission control. In 1894, the ICC concentrated the fire of its annual report on "the evils of unlimited power in the carriers to reduce rates."16 A.A. Walker, who had resigned his seat on the ICC to assume chairmanship of the ISCRA, said that "railroad men had had enough of competition. The phrase 'free competition' sounds well enough as a universal regulator," he said, "but it regulates by the knife."17
Another major act was passed in 1906, the Hepburn Act, and it too had railroad support; in PEARSON'S MAGAZINE, Cassatt spoke out as an ardent proponent of the act and said that he had long endorsed federal rate regulation. Even Andrew Carnegie popped up to endorse the Act. George W. Perkins, an important Morgan associate, wrote his boss that the act "is going to work out for the ultimate and great good of the railroads. There is no question but that rebating has been dealt a death blow." But such controls were not enough for some big businessmen. Thus, E.P. Ripley, president of the Sante Fe, suggested what amounted to a Federal Reserve System for the railroads, cheerfully declaring that such a system "would do away with the enormous wastes of the competitive system, and permit business to follow the line of least resistance."18
The culmination of this big-business sponsored "reform" of the economic system occurred in World War I, when railroad leaders gleefully handed over control of the roads to the government in exchange for guaranteed rate increases and guaranteed profits, something continued under the Transportation Act of 1920. The consequence of this is the situations the railroads face today.
Thus did the railroads gather together in a herd to support the Elkins Anti-Rebating Act of 1903; the fight for it was led by A.J. Cassatt, president of the Pennsylvania Railroad. When it was passed, the RAILROAD GAZETTE declared: "…all that will be asked of the commissioners by the public will be that they go ahead and catch every law-breaking rate cutter in the country." In the subsequent era of relative prosperity, the railroad pressure for legislation died down, though such men as Cassatt, James J. Hill, and a few others still favored stronger legislation.
(To be concluded in our next issue.)
* "Conservative," in this context, means all those who hold this particular view of history-including many Objectivists and libertarians.
1. Ayn Rand, CAPITALISM: THE UNKNOWN IDEAL (New York; New American Library, 1966), Chapter 3.
2. Ibid., p. 96.
3. Alan Greenspan, "Antitrust," in Rand, op. tit., p. 59.
4. For a masterly account of this and other related economic matters, see Murray N. Rothbard's synthesis of economics: MAN, ECONOMY, AND STATE: A Treatise on Economic Principles, 2 volumes (Princeton: D. Van Nostrand, 1962); especially relevant is Chapter 10, "Monopoly and Competition." See also the innovative follow-up volume to MAN, ECONOMY, AND STATE, entitled POWER AND MARKET: Government and the Economy (Menlo Park, California: Institute for Humane Studies, 1970). This is the most complete and devastating analysis of government intervention in existence. It should be noted that Rothbard's writings are the purely laissez-faire and libertarian works in existence, allowing no compromises or evasions.
5. Gabriel Kolko, THE TRIUMPH OF CONSERVATISM (Chicago: Quadrangle Books, 1967), pp. 4-5.
6. James Weinstein, THE CORPORATE IDEAL IN THE LIBERAL STATE, 1900-1918 (Boston: Beacon Press, 1968). For a superb discussion of the Weinstein book, setting it in historical and historiographical contexts, see the review by Murray N. Rothbard in RAMPARTS MAGAZINE, December 1969, pp. 38-40.
7. Ibid., p. ix. For an excellent analysis of the role of ideology in society, see Ludwig von Mises, HUMAN ACTION (Chicago: Henry Regnery and Company, 1966), pp. 177-193. On the relationship among the intellectuals in a society, economic "castes," and the state, see the pamphlet "The Anatomy of the State," by Murray N. Rothbard, available from SIL.
8. My major source for this section is Gabriel Kolko, RAILROADS AND REGULATION, 1877—1916 (Princeton: Princeton University Press, 1965).
9. Ibid., pp. 3-5.
10. See both Kolko books for factual proof of this; for a theoretical explanation, see Rothbard, MAN, ECONOMY, AND STATE, Vol. II, pp. 566-585.
11. Koklo, RAILROADS, p. 26.
12. Ibid., p. 17.
13. Ibid., p. 45.
14. Ibid., p. 62.
15. Ibid., pp. 65-66.
16. Ibid., p. 70.
17. Ibid., p. 74.
18. Ibid., pp. 215-16.