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Wednesday, September 05, 2007

Revisiting economic history

In moving beyond the economics and history typically taught in school, I've come to realize how badly we've been propagandized. There is a lot of misleading nonsense they is accepted because we don't know any better.

Capitalism and the Historians provides to first set of examples:

Everyone knows that what everyone knows is usually wrong. Here's one example: everyone knows that unfettered capitalism is evil.

This book describes how this originally got started. F. A. Hayek and other writers knowledgeable of the period explain how the lies told about capitalism in England and America in the 1800's made capitalism sound like the villain it never was. Instead, capitalism was actually a good member of the village - a good villain - one that provided better jobs and food to poor folk that otherwise would have died, as many did in fact die of starvation before capitalism showed up. ... These were respected historians, but ones who had a socialist axe to grind, and who hoped, not without justification, that the majority of folks reading their fictional drivel wouldn't bother to check out the facts of the matter. This book checks out the facts of the matter and sets the facts straight for those who would prefer living in a rational society in freedom rather than living in an irrational one in indentured servitude to coercive bureaucrats.

In these essays concerning the treatment of capitalism by historians, the authors of these papers analyze the history of the 19th Century in England and America to uncover some salient facts:

  • When wages went down, it was during a period of deflation - more people were working and their money could buy more sustenance than before.
  • Ramshackled, jury-built housing was built by homeless individuals, not the factories. Factories built decent, sturdy houses for their workers.
  • The standard of living of families dropped when state laws prohibited children from working in the factories. They went from many wage earners to one.
  • More deformed children worked in factories than on the farms because the work was lighter and out of the weather. [Note: deformities were due mainly to swaddling and other types of bandaging of infants that prevented them from learning smooth normal operation of their limbs and storing such learning as automatic doyles before their memory transition age of five years old. See Doyletics: Click Here]
  • Windowless housing units were due to the state tax on windows, causing many apartment buildings to actually board up such windows as were already present.
  • A large Irish immigration overloaded towns with workers eager to "work for pennies" to replace the children recently outlawed from the factories. [Note: obviously there were no minimum wages back then.]

One suspects that these capitalist-slamming historians were not writing about objective facts, but were merely re-hashing the interpretations of the biased social commentators of the time. These historians merely wrote what gentlemen of London society were saying at the time, "that the people, from starvation, oppression, and over-work, had almost lost the form of humanity." A gentleman made this remark to a Mrs. Cooke Taylor who had just returned from actually inspecting the conditions in Lancashire that the gentleman had referred to. She asked where he had seen such misery, and he replied that he had never seen it, but had been told that it existed. Mrs. Cooke Taylor's personal comments about the conditions in Lancashire were:

[page 21] "Now that I have seen the factory people at their work, in their cottages and in their schools, I am totally at a loss to account for the outcry that has been made against them. They are better clothed, better fed, and better conducted than many other classes of working people."

L. M. Hacker, writing an essay about America, points out that Josephson's The Robber Barons was based on "anecdotes, half-true tales, and uncritically handled court records". On such a tenuous basis the following three attitudes became part of "what everyone knows". It doesn't take much imagination to see that these attitudes are projections onto capitalism of the state's own coercive folly, which continues to the present day, up until now.

[page 80](1) that great fortunes in America were built up by fraud;

(2) that the country's natural resources were looted in the process; and

(3) that the social consequences of private ownership and wealth were unhappy - in creating classes, in subordinating agriculture, in building slums, etc.

Bertrand de Jouvenel makes the point that coercion has the opposite of the intended effect when applied to unwanted human behavior. When one knows the worthlessness of what they desire, their behavior tends to damp away, but when coercive laws are passed, the outlawed behavior begins to grow, as the behavior seems more desirable. The first method creates societal stability, the second, societal instability. One look at our experience with Prohibition is enough to convince anyone of the wisdom of Jouvenel's statements.

[page 95] These phenomena warn us that a result contrary to the intention may be obtained when social devices [i.e., coercion] are used to raise the moral level of human behavior. It is, moreover, well known that any attempt to change man's actions by means other than a change in his spirit is usually futile and anyhow not a moral improvement.

Jouvenel on page 100 makes a cogent point that the vast improvement of worker's conditions that is widely attributed to union pressure and "good" laws would have likely occurred anyway. He says that all the political action has "merely shaken from the tree the fruit it had borne." Unions, in other words, do not produce fruit and laws do not produce fruit, the entire tree produces fruit, from the ends of the roots to the tips of the branches, but to listen to "what everyone knows," one could be led "to the belief that fruit is produced by shaking the tree."

The closing paragraph of the book by W. H. Hutt provides an apt summary of the contents of the essays of this fine book that should be on every capitalist and freedom-lover's bookshelf:

[page 183 to 184] The two main conclusions suggested by this discussion are, first, that there has been a general tendency to exaggerate the "evils" which characterized the factory system before the abandonment of laissez faire and, second, that factory legislation was not essential to the ultimate disappearance of those "evils." Conditions which modern standards would condemn were then common to the community as a whole, and legislation not only brought with it other disadvantages, not readily apparent in the complex changes of the time, but also served to obscure and hamper more natural and desirable remedies.

Ignore the real evidence, adopt a social agenda deal in half truths at best and you too can contribute to a grand cause. A good narrative is enough for the propagandist.

The Myth of the Robber Barons is another corrective work:
Many students are taught that 19th century "robber barons" exploited their customers on the way to making America an economic colossus. Dr. Folsom makes the crucial distinction between business leaders of this period-economic entrepreneurs whose efforts broke monopolies, created wealth, and helped millions out of poverty, and political entrepreneurs who sought political influence and government subsidies to build their business empires. Now in its third printing, Myth of the Robber Barons explodes the misperception that the great competitors of the 19th century made their gains unjustly, while it exposes the damage done by those who depended primarily on state favors.

Coyote Blog goes more in depth:
While it is said that "history is written by the victors", I would observe that despite the fact that socialism and communism have been given a pretty good drubbing over the last 20 years, these statists still seem to be writing history. How else to explain the fact that men who made fortunes through free, voluntary exchange of products can be called "robber barons"; while politicians who expropriate billions by force without permission from the most productive in society are called "progressive". To be sure, capitalists of the 19th century sometimes played by rules very different from ours today, but in most cases those were the rules of the day and most of what they did was entirely legal. Also to be sure, there were a number of men who were fat ticks on society, making money through fraud and manipulation rather than real wealth creation (Daniel Drew comes to mind). However, most of the great industrialists of the 19th century made money by providing customers with a better, cheaper product.
He then gives these two examples:
When Vanderbilt first entered the steamship business, most routes were given as exclusive charters to protected monopoly companies, most run by men with friends in the state government. Vanderbilt took on the constitutionality of these government enforced monopolies and, with the help of Daniel Webster, won their case in the Supreme Court. Within a decade, the horrible experiment with government monopoly charters was mostly over, much to the benefit of everyone. While private monopolies have always proved themselves to be unstable and last only as long as the company provides top value to customers, publicly enforced monopolies can survive for years, despite any amount of corruption and incompetence. Vanderbilt, by helping to kill these publicly enforced monopolies, did more than perhaps any other man in US history to help defeat entrenched monopolies, yet today most would call him a monopolist.
Vanderbilt was successful both domestically and in beating Collins who had a government subsidy in the Trans-Atlantic shipping business.

My other featured industrialist here on hug-a-robber-baron day here at Coyote Blog is John D. Rockefeller. At one point of time, Rockefeller controlled 90% of the refining capacity in the country via his Standard Oil trust. He was and is often excoriated for his accumulation of wealth and market share in the oil business, but critics are hard-pressed to point to specifics of where his consumers were hurt. Here are the facts, via Reason

Standard Oil began in 1870, when kerosene cost 30 cents a gallon. By 1897, Rockefeller's scientists and managers had driven the price to under 6 cents per gallon, and many of his less-efficient competitors were out of business--including companies whose inferior grades of kerosene were prone to explosion and whose dangerous wares had depressed the demand for the product. Standard Oil did the same for petroleum: In a single decade, from 1880 to 1890, Rockefeller's consolidations helped drive petroleum prices down 61 percent while increasing output 393 percent.

By the way, Greenpeace should have a picture of John D. Rockefeller on the wall of every office. Rockefeller, by driving down the cost of Kerosene as an illuminant, did more than any other person in the history to save the whales. By making Kerosene cheap, people were willing to give up whale oil, dealing a mortal blow to the whaling industry (perhaps just in time for the Sperm Whale).

So Rockefeller grew because he had the lowest cost position in the industry, and was able to offer the lowest prices, and the country was hurt, how? Sure, he drove competitors out of business at times through harsh tactics, but most of these folks were big boys who knew the rules and engaged in most of the same practices. In fact, Rockefeller seldom ran competitors entirely out of business but rather put pressured on them until they sold out, usually on very fair terms.

As Burt Folsom himself puts it:

Only when Rockefeller sold cheap kerosene to tens of millions of Americans did he become the nation's first billionaire. "We must ever remember," Rockefeller told his partner, "we are refining oil for the poor man and he must have it cheap and good." Ironically, the price of Rockefeller's kerosene dropped to eight cents a gallon in 1885 from 26 cents in 1870 -- all the while he was viciously pilloried as a monopolist by the press, Congress and his competitors.

He elaborates earlier in the same piece:

In the world of wealth, the big news this summer is that Carlos Slim, 67, of Mexico may have surpassed Bill Gates as the world's richest person. Inevitably, writers compare Mr. Slim, who built his wealth on a telecommunications monopoly, to America's so-called "robber barons" -- including men such as John D. Rockefeller, James J. Hill and Henry Ford.

This is bad history. America's most famous rugged entrepreneurs, especially men such as Rockefeller and Ford, the wealthiest men of their eras, reached mass markets by producing quality products -- kerosene and cars -- at low prices. More recently, Sam Walton did the same thing in retailing. Mr. Slim, by contrast, is better characterized as a "political entrepreneur," who relied more on manipulating Mexico's bureaucracy than on satisfying consumers in a competitive arena.

Ford, Walton and Mr. Gates also had to sell widely to masses of Americans at competitive rates before they rose to the top. Putting a car in every garage, not just the garages of the rich, was Ford's working motto. In serving the most customers, he reaped the largest reward. So did Bill Gates with computers. When America did deviate from free markets -- for example, by granting government subsidies to the Union Pacific and Central Pacific Railroads -- the economy suffered instabilities. But it recovered from the experience and learned a lesson. James J. Hill built the Great Northern Railroad with no federal subsidy -- and outperformed all other transcontinentals.

Many of the great fortunes were made by serving the great masses of the common man with better goods and services at more affordable prices. That's my idea of social justice!

A more accurate history, step by step.


This is audio of Professor Folsom or a briefer version audio

Update: via Dissecting Leftism

Victorian capitalism unfairly maligned

The plight of child labourers in Victorian Britain is not usually considered to have been a happy one. Writers such as Charles Dickens painted a grim picture of the hardships suffered by young people in the mills, factories and workhouses of the Industrial Revolution. But an official report into the treatment of working children in the 1840s, made available online yesterday for the first time, suggests the situation was not so bad after all.

The frank accounts emerged in interviews with dozens of youngsters conducted for the Children's Employment Commission. The commission was set up by Lord Ashley in 1840 to support his campaign for reducing the working hours of women and children.

Surprisingly, a number of the children interviewed did not complain about their lot -- even though they were questioned away from their workplace and the scrutinising eyes of their employers.

Sub-commissioner Frederick Roper noted in his 1841 investigation of pre-independence Dublin's pin-making establishments: "Notwithstanding their evident poverty ... there is in their countenances an appearance of good health and much cheerfulness."

A report on workers at a factory in Belfast found a 14-year-old boy who earned four shillings a week "would rather be doing something better ... but does not dislike his current employment". The report concluded: "I find all in this factory able to read, and nearly all to write. They are orderly, appear to be well-behaved, and to be very contented."



Bret said...

Very interesting. That's the first time I've ever seen or heard anyone praise Rockefeller. I'll have to look into that a bit more.

I liked this line: "She asked where he had seen such misery, and he replied that he had never seen it, but had been told that it existed."

It seems that americans currently think their own prospects reasonably good but everybody else's not so good.

Another favorite: "...publicly enforced monopolies can survive for years, despite any amount of corruption and incompetence."

Sounds like the school system to me.

erp said...

Sounds like the Soviet Union too.

Harry Eagar said...

Bret, read Allan Nevins' life of Rockefeller.

So far from being a grasping robber baron, he was more than tithing to charity (he was a Baptist) when he was a young clerk making less than $700 a year.

But his business morality, as we would evaluate it, was pretty low.

The mills were dark and satanic enough for most people. Chaining 12-year-olds to looms was real enough.

What people don't get is that the rural proletariat migrated to the mills because the mills were better.

On the other hand, next time you are in Manhattan, I cannot urge you too strongly to visit the Lower East Side Tenement Museum. Then get back to me about the beauties of capitalism.

Howard said...

On the other hand, next time you are in Manhattan, I cannot urge you too strongly to visit the Lower East Side Tenement Museum. Then get back to me about the beauties of capitalism.

Yes, before the imposition of evil capitalism, poor people lived in luxury high-rises and sat around eating bon bons all day.

Isn't it funny how places with economic freedom, a modest degree of security and the rule of law seem to thrive quite nicely while alternative arrangements seem to fail.

I guess it is a sin to actually deliver incremental improvement when utopians can envision perfection instantly!

erp said...

We're back to the argument about holding those who came before us to the same standards we use today.

Howard is "right on" about the kind of life people were leading in the past and what we see as horrible, was less horrible than any of the other alternatives available to them.

What makes capitalism so great is that we changed things, outlawed sweat shops and child labor and set up free clinics and schools and much of it was financed by the "robber" barons. Other countries "enjoying" the non-capitalist life style are still mired in that self same abject poverty and hopelessness we put behind us a hundred years ago.

No museum is required to document this. One merely need look around the globe and note the misery of the people living south of our border and in much Africa and Asia.

Harry Eagar said...

Hmmm. I look south of the border and see plenty of capitalism.

Not plenty of capitalists, but plenty of capitalism.

Carlos Slim seems to be doing OK south of the border.

Susan's Husband said...

You can't be serious. Carlos Slim is a monopolist, a government parasite, not a capitalist. He made his fortune by using the power of the government to avoid competition, not by offering a better product.

erp said...

What SH said.

Howard said...

Not only is Carlos Slim as described by susan's husband(see Burt Folsom link), but Mexico is extremely statist. You won't find many free market entrepreneurs in such an environment. It is also what political science professor Bruce Weingast calls a limited access order: which creates rents—rights to particular activities such as trade are given out to different groups, which creates monopolies, as opposed to an open access order like the U.S. for instance.

Harry Eagar said...

A different kind of capitalism but still capitalism.

But not socialism, is it?

Susan's Husband said...

Like a company controlled union is just another type of union but still a union?

Actually, I would call it Socialism, the view that industry should be managed by the state. Fascism might be a more accurate description economically, though — putatively private ownership by cronies of the ruling class.