The entry below this one reminded me of this
old post featuring Brad DeLong on the Robber Barons (he wrote this in 1998, the actual
essay is much, much longer):
Robber Barons, by J. Bradford DeLong, 1998: I. Introduction
"Robber Barons": that was what U.S. political and economic commentator Matthew
Josephson (1934) called the economic princes of his own day. Today we call them
"billionaires." Our capitalist economy--any capitalist economy--throws up such
enormous concentrations of wealth: those lucky enough to be in the right place
at the right time, driven and smart enough to see particular economic
opportunities and seize them, foresighted enough to have gathered a large share
of the equity of a highly-profitable enterprise into their hands, and
well-connected enough to fend off political attempts to curb their wealth (or
well-connected enough to make political favors the foundation of their wealth).
Matthew Josephson called them "Robber Barons". He wanted readers to think
back to their European history classes, back to thugs with spears on horses who
did nothing save fight each other and loot merchant caravans that passed under
the walls of their castles. He judged that their wealth was in no sense of their
own creation, but was like a tax levied upon the productive workers and
craftsmen of the American economy. Many others agreed: President Theodore
Roosevelt--the Republican Roosevelt, president in the first decade of this
century--spoke of the "malefactors of great wealth" and embraced a public,
political role for the government in "anti-trust": controlling, curbing, and
breaking up large private concentrations of economic power.
Their defenders--many bought and paid for, a few not--painted a different
picture: the billionaires were examples of how America was a society of
untrammeled opportunity, where people could rise to great heights of wealth and
achievement on their industry and skill alone; they were public benefactors who
built up their profitable enterprises out of a sense of obligation to the
consumer; they were well-loved philanthropists; they were "industrial
Over the past century and a half the American economy has been at times
relatively open to, and at times closed to the ascension of "billionaires."
Becoming a "billionaire" has never been "easy." But it was next to impossible
before 1870, or between 1929 and 1980. And at other times--between 1870 and
1929, or since 1980--there has been something about the American economy that
opened roads to the accumulation of great wealth that were at other times
Does it matter whether an economy is open to the accumulation of
extraordinary amounts of private wealth? When the economy is more friendly to
the creation of billionaires, is economic growth faster? Or slower? And what
role does politics play? Are political forces generally hostile to great
fortunes, or are they generally in partnership? And when the political system
turns out to be corrupt--to serve as a committee for extracting wealth from the
people and putting it into the pockets of the politically well-connected
super-rich--what is to be done about it? What can be done to curb explicit and
implicit corruption without also reducing the pressure in the engine of capital
accumulation and economic growth?
These are big questions. This essay makes only a start at answering them.
an interesting note:
And this is the third thing ... about the turn of the century robber barons:
even though the base of their fortunes was the railroad industry, they were for
the most part more manipulators of finance than builders of new track. Fortune
came from the ability to acquire ownership of a profitable railroad and then to
capitalize those profits by selling securities to the public. Fortune came from
profiting from a shift--either upward or downward--in investors' perceptions of
the railroad's future profits. It was the tight integration of industry with
finance that made the turn of the twentieth century fortunes possible. ...
The jump in wealth of the founders of these lines of business was intimately
tied up with the creation of a thick, well-functioning market for industrial
securities. And that would turn out to be a source of weakness when Wall Street
came under fire during the Great Depression. ...
Progressives did not believe that the billionaires were just the helpless
puppets of market forces. In 1896 Democratic presidential candidate William
Jennings Bryan called for the end to the crucifixion of the farmer by a gold
standard working in the interests of Morgan and his fellow plutocrats. Fifteen
years later Louis Brandeis warned Morgan partner Thomas Lamont--after whom
Harvard University's main undergraduate library is named-that it was in fact in
Morgan's interest to support the Progressive reform program. If Morgan's
partners did not do so, Brandeis warned, the Progressives would recede. Their
successors on the left wing of American politics would be real anarchists and
real socialists (DeLong, 1991).
Louis Brandeis and company did not much care whether the billionaires of what
they called the "money trust" were in any sense economically efficient. In
Brandeis's mind, they're evil because their interests were large..., size alone
made a billionaire's fortune "dangerous, highly dangerous." ...
Populists from the American midwest found this set of issues a reliable one,
and their senators took turns calling for political and economic changes to
reduce the power exercised by the super-rich. ...
The political debate was resolved only by the Great Depression. The presumed
link between the stock market crash and the Depression left the securities
industry without political defenders. The old guard of Progressives won during
the 1930s what they had not been able to win in the three earlier decades.
Ironically, it was Republican president Herbert Hoover who triggered the
process. Hoover thought that Wall Street speculators were prolonging the
Depression and refusing to take steps to restore prosperity. He threatened
investigations to persuade New York financiers to turn the corner around which
he was sure prosperity waited. Thus, as Franklin D. Roosevelt put it, "the money
changers were cast down from their high place in the temple of our
civilization." The Depression's financial market reforms act broke the links
between board membership, investment banking, and commercial banking-based
management of asset portfolios that had marked American finance before 1930.
Investment bankers could no longer be commercial bankers. Depositors' money
could not be directly used to support the prices of newly-issued securities.
Directorates could not be interlocked: that bankers could not be on the boards
of directors of firms that were their clients.
D. The Drying-Up of the Flow of Billionaires
Whatever else Depression-era financial reforms did (and there are those who
think it crippled the ability of Wall Street to channel finance to new
corporations) and whatever else the New Deal did (and it did a lot to bring
social democracy to the United States and to level the income distribution), one
important--and intended--consequence was that thereafter it was next to
impossible to become a billionaire.
Not that it was ever easy to become a billionaire, mind you, but the channels
through which lucky, skilled, dedicated, and ruthless entrepreneurs had ascended
were largely closed off. ...
The hostility of Roosevelt's New Deal to massive private concentrations
of economic power was effective: the flow of new billionaires dried up, as the
links between finance and industry that they had used to climb to the heights of
fortune were cut.
This is the important question:
Did the hostility of America's political and economic environment to
billionaires between 1930 and 1980 harm the American economy? Did it slow the
rate of economic growth by discouraging entrepreneurship? As an
economist--someone who believes that there are always tradeoffs--I would think
"yes." I would think that there must have been a price paid by the closing off
of the channels of financing for entrepreneurship through which E.H. Harriman,
James J. Hill, George F. Baker, Louis Swift, George Eastman, and others had made
But if so, there are no signs of it in aggregate growth data. ...
V. Tentative Conclusions
So what can Americans expect from their current crop of billionaires? Or
rather what can they expect from the processes that have allowed their creation?
They should be extremely dubious about billionaires' social utility. Their
relative absence from the 1930s to the 1970s did not seem to harm economic
growth in the United States. Their predecessors' claim to much of their wealth
is, to see the least, dubious. And their large-scale presence was associated
with the serious corruption of American politics.
Perhaps those who are going to be industrial statesmen have as reasonable a
chance of truly being industrial statesmen in an environment hostile to
billionaires, as in an environment friendly to their creation: at that level of
operations, after all, money is just how people keep the score in their
competitions against nature and against each other. ...
On the other hand, their personal consumption is only an infinitesimal
proportion of their total wealth. Much less of Andrew Carnegie's fortune from
his steel mills went to his own personal consumption than has gone to his
attempts to promote international peace, or to build libraries to increase
The child who in mid-nineteenth century Scotland painfully learned to read
from the handful of books he had access to in his family's two-room cottage as
they fell closer and closer to the edge of starvation--that child is visible in
the Carnegie libraries that still stand in several hundred cities and towns in
the United States, and is visible around us now. ...
So if there is a lesson, it is roughly as follows: Politics can put curbs on
the accumulation of extraordinary amounts of wealth. And there is a very strong
sense in which an unequal society is an ugly society. I like the distribution of
wealth in the United States as it stood in 1975 much more than I like the
relative contribution of wealth today. But would breaking up Microsoft five
years ago have increased the pace of technological development in software?
Probably not. And diminishing subsidies for railroad construction would not have
given the United States a nation-spanning railroad network more quickly.
So there are still a lot of questions and few answers. At what level does
corruption become intolerable and undermine the legitimacy of democracy? How
large are the entrepreneurial benefits from the finance-industrial development
nexus through which the truly astonishing fortunes are developed? To what extent
are the Jay Goulds and Leland Stanfords embarrassing but tolerable side-effects
of successful and broad economic development?
I know what the issues are. But I do not yet--not even for the late
nineteenth- and early twentieth-century United States--feel like I have even a
firm belief on what the answers will turn out to be.
He's a bit reluctant to take a strong position against the robber barons, they are, perhaps, "tolerable side-effects
of successful and broad economic development." I see more costs and fewer benefits than Brad, so I wouldn't give as much ground here as he does. But this was written before the Great Recession, and I'd be curious to hear if his view of "the entrepreneurial benefits from the finance-industrial development," and the necessity of tolerating these "side-effects" has changed in light of recent events.