Book Review – Myth of the Robber Barons by Burton Fulsom Jr.

I recently read “Myth of the Robber Barons” by Burton Fulsom Jr.  This is the second book of his I’ve read and reviewed, with “New Deal or Raw Deal” being the first. 

Let me just start off by saying this is a very quick read.  I read it on my way to Las Vegas this spring, which was a 6-hour flight.  It’s a short book at less than 150 pages with pictures and a large, spread-out font.  In addition to being small, it’s also hard to put down once you start a chapter. 

Fulsom challenges the popular historical notion that all of the successful big business leaders of 19^th and early 20^th century America were evil, exploitive, greedy, detrimental to society, etc.  He does this by acknowledging that, yes, some of them lived up to the anti-capitalist rhetoric.  However, he also presents several examples of men who did not. 

Fulsom created a vital distinction early in the book between market and political entrepreneurs (MEs and PEs for brevity from here on).  The PEs are what we would call crony capitalists today, meaning entities who tried to succeed in the economy not through competition (innovation, cost reduction, addition/creation of value, etc.), but by connection to and/or preferential treatment from the government (bailouts, carve-outs, regulations that help the PE at the ME’s expense, government contracts, etc.).  MEs are what we would call free market capitalists today and succeed through competition rather than government favoritism.

Fulsom presents several examples and key takeaways from each, which I’ll list briefly below.

The first chapter looked at Commodore Vanderbilt and steam ships.  The key takeaway is that price cuts can benefit people.  By competing on price, Vanderbilt made steamship travel accessible to the average American in the regions where he operated. A luxury became a commodity, in essence.  This forced the competition to cut prices to stay up with him (who says deflation is always a bad thing?).  He also presents a good example of an ME versus a PE, with Vanderbilt being the ME and winning multiple times. 

Chapter 2 explores James Hill and railroads.  This chapter was a compare and contrast exercise between Hill’s railroads and the Transcontinental Railroad.  What was interesting here was the discussion of incentive structures in the context of the public and private sectors.  The Transcontinental Railroad builders were paid on a per-mile basis, so they would lay as much track as fast as possible, leading to both shoddy work (that would need to be redone) and inefficient, windy paths.  Hill focused on building the tracks right, with straight lines and low grade whenever possible.

And we move onto the Scrantons, iron rails, and cities.  Here, it’s a discussion of the iron rail industry in the area and a compare and contrast of Scranton versus Wilkes-Barre (both in Pennsylvania) back when the state wasn’t fully settled.  Scranton is presented as an example of smart urban planning and preparation for expansion.  The most interesting discussion here was about succession of wealth and how well families can maintain a wealthy status over multiple generations.  Basically, dynasties aren’t so easy to build and especially don’t survive as well as commonly believed.

Chapter 4 takes us to Charles Schwab, Andrew Carnegie, and the steel industry.  The main thing to take away from this chapter is that high pay for high performance actually works as a compensation model.  It was how Carnegie and Schwab were able to dominate the steel industry (on multiple occasions).  Their workers were properly incentivized.  Schwab also presented an example of wealth not necessarily staying once it’s been built. 

We come to John Rockefeller and the oil industry next.  By dominating the industry via competing on price, Rockefeller brought energy to the masses.  What was previously a luxury confined only to the rich (oil-based energy) became accessible to the average American.  This is another example of price cuts (aka deflation) benefitting people and a luxury becoming a commodity.  Rockefeller was not unlike Vanderbilt from before.

Chapter 6 looks at Andrew Mellow as Secretary of the Treasury and the birth supply-side economics in today’s terms.  Mellon’s policies, and the results thereof, showed that tax rates cannot be confused with tax revenues.  Fulsom presented IRS data to make his case, which is an interesting one. 

The last chapter focuses on why most historians today miss the mark on this period of American history.  Aside from the ME/PE distinction, there is the question of whether these men got rich through monopolies, as many historians argue, or whether they got rich by being the best at what they do, as Fulsom argues.  Fulsom also highlights that these men often succeeded where the government failed.  He shows samples from several prominent US history textbooks and why their accounts are both misleading and inaccurate.  This was a nice, neat way to close it up.

Here’s the bottom line.  This is a quick and worthwhile read.  It’s particularly good for those who believe these men truly were robber barons rather than successful entrepreneurs.  Obviously, there are more detailed books about each individual, but this is a solid compilation.