Robber Baron Myth

Now, I fully understand that I wasn't the first to have this insight, but surely I was the first to blog about it, no?  Ok, maybe not, but still, I blogged about it a long time ago.

Perpetuating the "robber baron myth" has always been quite lucrative, but it is indeed that, a myth. The linguistic formulation of "robber baron" is so laughably inaccurate as to be Orwellian. Classic "robber barons" like Carnegie and Rockefeller were, of course, the opposite of barons, they were both born and raised in obvious poverty, and they did not rob anything, but created something from almost nothing. Both Carneige and Rockefeller gained enormous wealth by creating large industries that didn't exist prior.

David Henderson is out with an essay that illuminates just how off-base the myth is. Only those who actually study the particulars of these gilded age titans, as I am wont to do from time to time, understand how badly the myth gets it wrong.

One of the most prevalent myths about economic freedom is that it inevitably leads to monopolies. Ask people why they believe that, and the odds are high that they will point to the "trusts" of the late 19th century that gained large market shares in their particular industries. These trusts are Exhibit A for most people who hold this view. Ask them for specific names of the villains who ran these trusts, and they are likely to point to such people as Cornelius Vanderbilt and John D. Rockefeller. They even have a label for Vanderbilt, Rockefeller, and others: robber barons.

Consider the case of Cornelius ("Commodore") Vanderbilt. Even the excellent recent book Why Nations Fail, by MIT economics professor Daron Acemoglu and Harvard political scientist and economist James A. Robinson, gets the Vanderbilt story wrong. And not just wrong, but spectacularly wrong. They claim that Vanderbilt was "one of the most notorious" robber barons who "aimed at consolidating monopolies and preventing any potential competitor from entering the market or doing business on an equal footing."
In fact, it was Vanderbilt's competitor, Aaron Ogden, who persuaded the New York state legislature to grant Ogden a legally enforced monopoly on ferry travel between New Jersey and New York. And Vanderbilt was one of the main people who challenged that monopoly. At the tender age of 23, Vanderbilt had become the business manager for a ferry entrepreneur named Thomas Gibbons. Gibbons' goal was to compete with Aaron Ogden by charging low fares. In doing so, they were purposely breaking the law—and helping their passengers save money. In the case Gibbons v. Ogden, the U.S. Supreme Court ruled that, indeed, the New York state government could not legally grant a monopoly on interstate commerce.1 In short, Cornelius Vanderbilt was not a monopoly maker in this case, but a monopoly breaker.

And, of course, Vanderbilt was as poor as dirt as a youth.  He busted his ass hauling people and cargoes around NY harbor years before he bum-rushed the elite and corrupt economic arrangements, where the big money was, of the day.  Personally, I recommend this book.