America’s Productive Fathers: Capitalists Or Crony Capitalists?

In a new article, “Reconsidering Gabriel Kolko: A Half-Century Perspective ,” Robert Bradley, Jr. and Roger Donway explain why libertarians should not embrace the views of historian Gabriel Kolko.

In 1963, Gabriel Kolko revolutionized the then-prevalent understanding of American business history with his book The Triumph of Conservatism. In it, he disputed the Progressive historians’ narrative of the Gilded Age and the Progressive Era, specifically, their assertions that the economic legislation passed between 1887 (the Interstate Commerce Act) and 1914 (the Federal Trade Commission and Clayton Antitrust Acts) had been enacted to restrain the power of the large new corporations, which seemed impervious to competition. Kolko argued instead that the legislation had actually been passed at the behest of the large new corporations, in order to protect them from a gale of competition that they could not otherwise withstand. Such legislation would now be termed “crony capitalism,” but Kolko, borrowing a term from Max Weber, called it “political capitalism.”

Kolko’s interpretation was eagerly embraced by many libertarians, following Murray Rothbard’s endorsement of it in 1965. Kolko, Rothbard said, had pulled down the two pillars of Progressivist history: that big business was the friend of free enterprise and that the Gilded Age was an era of laissez-faire capitalism. These, of course, had been the chief contentions of the New Deal apologists, who had put forward the homeopathic thesis that FDR’s liberalism “saved capitalism from itself” by curbing its power and thus staving off a violent socialist revolution. As libertarians saw it, Kolko had shown that all of liberalism’s economic legislation had been utterly unnecessary—even from a Progressive point of view. Had government merely stayed out of the way, economic competition by itself would have curbed the power of the great corporations, just as capitalist theory argues.

Last spring, I and Rob Bradley (founder and chairman of the Institute for Energy Research) published an article in Independent Review examining the strength of Kolko’s evidence. In accordance with IR’s six-month embargo, this article (“ Reconsidering Gabriel Kolko: A Half-Century Perspective ”) has just come on-line. In the article, Bradley and I conclude that Kolko’s evidence for political capitalism, when critically examined, is extremely weak. We also aver that libertarians who have adopted Kolko’s thesis as their response to the “Robber Baron” theory of business history do not understand what he is offering as an alternative.

Kolko’s evidence for his thesis is underwhelming indeed.

As our test case, Bradley and I chose Kolko’s allegation that the leading railroad men supported the creation of the Interstate Commerce Commission. We had three reasons for this choice. First, the railroads were the greatest industry of the Gilded Age and the one against which the fiercest complaints were lodged. Muckrakers may have focused on Standard Oil as the symbol of evil, but from the ordinary man’s viewpoint Rockefeller was lowering the price of kerosene. It was the railroads that gave rise to the protests of the Populist movement and thus seemed to confirm the Progressive historians’ belief that the ICC was meant to curb the railroads’ power. Secondly, we took the railroads as our test case, because this was the subject on which Kolko offered the most evidence. When we examined The Triumph of Conservatism (ambitiously subtitled A Reinterpretation of American History, 1900–1916) we found that Kolko had, perhaps necessarily, painted his picture of the economy with broad strokes. But the railroads had been the subject of Kolko’s Harvard dissertation (done, ironically, under the quintessential Progressive historian, Arthur Schlesinger Jr.) and in 1965 he had turned the thesis into an entire book, Railroads and Regulation.  This gave Bradley and me a sufficiently large body of alleged evidence to examine. Lastly, Bradley and I chose to examine the creation of the ICC because it was the first regulatory agency. Therefore, the situation of the businessmen discussing it was not complicated by vested interests, created by past regulation, which might excuse their advocacy of new regulations.

The conclusion we came to is that Kolko’s evidence for his thesis is underwhelming indeed. His principal error is to take all laments about competitors as veiled renunciations of capitalism. That is like taking Red Sox fans’ laments about the Yankees to represent a hatred of baseball. Fighting competitors is what businessmen do and complaining about competitors comes naturally to them. But such complaints do not mean that the complainers would like to secure a legal ban on their fellow businessmen.

Kolko’s second greatest error was to ignore what the historian of regulation Thomas McCraw called “the gun behind the door.” In the 1880s, railroad men were facing a variety of proposals for some sort of regulatory commission, and several of those proposed commissions were much more intrusive than the proposal that gave rise to the Interstate Commerce Commission. We can wish that businessmen faced with such situations always said: “Well, I’d rather you didn’t violate my rights at all, but between the two violations facing me I prefer that one.” But people do not speak that way when confronted by “Your money or your life.” And when one examines the remarks of these railroad men in their original context, one can often see that they are saying only they would prefer one sort of commission over another, not that they positively desire regulation.

How, then, are we to judge the great industrialists of the late-nineteenth and early-twentieth centuries? Were they free-enterprisers or not? I believe that some were very much in favor of free markets as an economic regime, and some were less so—and they behaved accordingly. But we must keep in mind that none of them were philosophers. They were producers, and magnificent producers at that. We should not expect businessmen to do more than reflect the tenor of their times. It is the job of the intelligentsia to ensure that the dominant ideas of an era are wholesome.