17A041 A Must-Read Rothbard Book by Jim Davies, 11/21/2017   


Murray Rothbard wrote almost all of The Progressive Era (TPE) during the 1970s, but never finished and published it as one volume; recently Patrick Newman has collected other articles he wrote on the same theme and put together an harmonious whole and the book is available on Amazon here. At $3.95 for the Kindle version it's the bargain of the year. I've read so far only the first few chapters and it's amazing.

I've long been aware, as probably have most readers, that monopolies can not long survive without government support - usually in the form of regulations that prevent or burden smaller competitors who would otherwise challenge the dominant firm. But until reading this book I had no idea how very eagerly big companies begged for such government intervention, or on what particular grounds. Rothbard finds that most of it took place in what's called (in a classic inversion of language) the "Progressive" era, namely about 1880 through 1920.

That doesn't mean that prior to 1880 all businesses distrusted and distanced themselves from the State; far from it, as Thomas DiLorenzo has well shown in such works as The Real Lincoln; much earlier in the 19th Century there was a drumbeat of demands for government (ie, taxpayer) money to fund what were then called "improvements", ie infrastructure. Railroad firms, especially, wanted subsidies as well as free land on which to build their routes; and especially after the great increase in Federal power following the War to Prevent Secession, they got it. In TPE, Rothbard neither denies nor covers that; he just picks up the story from 1880 and shows how much worse it became. In his words,

...the essence of Progressivism was that certain elements of big business, having sought monopoly through cartels and mergers on the free market without success, turned to government— federal, state, and local— to achieve that monopoly through government-sponsored and enforced cartelization.

Railroads formed the largest industrial sector at the time, and I was amazed to read how they fell over each other to beg help from the Feds. Prior to that, I'd been surprised to see how intense was the rivalry; I'd thought that, like roads, there could not be many ways to ship goods and passengers from A to B. Not at all; competition was fierce and the alternative routes, many. I was surprised too to learn that most of their revenue came not from passenger traffic but from freight; and so that freight prices were the key to success or failure.

Again and again, in true Adam Smith style, rival railroad heads met to agree schedules of prices that they would maintain, so as to shore up profits for all. These minimum prices, solemnly agreed by the cartel, were then promptly but quietly violated, by such means as "rebates" for favored, large customers. So the agreement broke down, and they met again to patch it up, and the cycle repeated. Rothbard, again:

That is one inexorable way in which a cartel will break up: from internal pressure, pressures arising from the firms within the cartel. But there is another, equally formidable, source of insurmountable pressure to crack the cartel: external pressure, from outside the cartel.

That second way came to me as news; and it is that during such time as a cartel did keep up prices as agreed, the artificially high level signalled to new firms, not yet in the cartel or even in existence, that an unusual profit opportunity exists - so they entered the market. That meant that the available business had to be shared with the newcomer, hence that the cartel members lost volume, and hence profits, and hence some succumbed to the ever-present temptation to cheat on the deal.

In summary, voluntary agreements to inflate prices simply did not work. And that's why they all ran to Uncle, begging him to write a law to fix a schedule of minimum prices, and to punish any firm found to have charged less. Right: government became the author of artificially high prices, and the enemy of smaller firms offering greater efficiency. It favored the few (who were generous, then as now, with favors to the lawmakers) at the expense of the many, whom it supposedly existed to serve. So much for the theory of democracy. So much for "Progress".

The cartel agreements were called "Trusts", presumably because members had to trust one another to honor the agreements - a triumph of hope over experience. By Century's end, says Rothbard, "trusts came to a sudden halt simply because they turned out badly." So much for the myth (taught, is it not, in government schools?) that a series of government "Anti-Trust Acts" did the job. On the contrary, those acts did not break up the cartels. They shored them up; one thing a free market cannot do. The wickedly misleading choice of title compares with the name "Patriot Act" picked a century later.

Was this era "progressive" in any way? - no. It was a throwback to the medieval guild system, by which minimum prices of essential goods were fixed by law, to the greater comfort of the merchant class, and to the utterly discredited objective theory of value espoused by Karl Marx. And it gave an ominous foretaste of the setting of minimum prices for labor, which has created the absurd current situation in which a vast range of products must be shipped from around the world because American labor is way too expensive.

The failure of the cartel agreements was noted well in 1901 by the National Biscuit Company, whose Annual Report Rothbard quotes at length. NBC realized the futility of trying to "control competition" - by fighting it in price wars or by buying it - and resolved instead "that within the Company itself we must look for success. We turned our attention and bent our energies to improving the internal management of our business." That is how business is supposed to work, and will always work in the zero government society; for there will be no enforcer to rent.

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