Excerpt from Let's Do What Works and Call it Capitalism
Chapter 3. A Brief History of the Development of American Capitalism
Part B. The Second Industrial Revolution, The Gilded Age, Laissez-Faire Capitalism & Social Darwinism
“I do not believe that the power and duty of the General Government ought to be extended to the relief of individual suffering which is in no manner properly related to the public service or benefit. The lesson should constantly be enforced that though the people support the government. Government should not support the people.”
- President Grover Cleveland, 1893[1]
“There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it.”
- William Jennings Bryan, “Cross of Gold” speech at the 1896 Democratic National Convention in Chicago
For much of the first half of the 19th Century, securing the nation, and opening the frontiers to settlement, trade and commerce, were the major goals of the national government. There was a continuing debate over the "internal improvements" issue. Those who advocated states' rights, mostly the Southerners, were opposed to such activities, and for the most part, they were successful. And, as a result, few roads or railroads were built in the South, and partially a result of that, there were very few factories anywhere south of Baltimore.
Governments repeatedly provided property and funds to private enterprise, often as the result of extensive bribery of elected officials, especially at the state and local level. Perhaps some of the support for states' rights then – as well as today – stemmed from the fact that it was somewhat easier to bribe city councils and state legislatures than it was to bribe Congress, although that certainly happened.
Private business interests, seeing the potential of the revenue from the transport of goods on the Erie Canal thereafter sought to build and own their own canals, and then, more importantly, the railroads. They obtained grants of land from states, and from the federal government, usually at little or no cost, and often they even received government financing, without having to give up any ownership. Some state investments required a sharing of profits, but seldom was any money ever returned by the railroads to the state governments. Through most of the 19th Century bribery of state legislatures was so commonplace, and so open, that it was virtually impossible to get any bill approved in many state legislatures without bribes. In an 1868 battle over control of the Erie Railroad, Cornelius Vanderbilt and Jay Gould competed with one another over who could offer the highest bribes to members of the New York legislature. Gould went to Albany with $500,000 in cash in a sachel.[2]
A revolution in American industrial history began in the 1850s with the railroads and the telegraph companies leading the way as the first modern corporations. Industrial expansion accelerated during and after the Civil War. During the Civil War the Union Congress, influenced by considerable bribery, approved bond issues and land grants to finance the construction of the transcontinental railroad by the Central Pacific and Union Pacific railroads. The railroad, completed in 1869, connected California with the Midwest, and made protected, all-weather coast-to-coast rail travel and transport economically feasible.
This was a classic case of state capitalism, maybe even crony capitalism, because a number of politically influential wealthy individuals benefited greatly from the government's largesse.[3] The government took no ownership interest in the railroads, but issued bonds for the railroads to sell to finance the construction. The railroads also were given enormous grants of land along the right-of-way that they were able to develop, or sell.[4] The railroads remained privately owned and entitled to the profits of their operations.
The railroads became the vehicles of massive expansion of the American economy in the late 19th and early 20th Centuries, and the creation of some major enduring family fortunes. Those fortunes were made at the expense of the lives of thousands of their employees who were killed because owners failed to invest in safety equipment, or proper maintenance.
In the 50 years following the Civil War the United States became the world's foremost industrial power. Railroads, oil, electricity, the telegraph and telephone, steel, copper, coal, meatpacking, farm equipment, giant corporate trusts, “robber barons,” and millions of immigrants transformed the nation. The period from the Civil War to World War I is the most economically dynamic in American history as one major invention after another transformed industry and daily life.
In 1870, Britain was the world's leading manufacturer, with 32% of the world's industrial production. The United States accounted for 23% and Germany was third, at 13%. In a period of rapid expansion everywhere in the industrial world, the United States expanded faster than any other country, passing Britain in the 1880s. By 1910 the U.S. accounted for 35% of the world's industrial production, while Britain had fallen to 15%, in third place, behind Germany's 16%.[5]
While a middle class was emerging, the rich were getting most of the benefits of the industrial growth, becoming richer faster than ever before. Never before had businesses existed that could generate such enormous streams of income, and in the years before the Income Tax was approved by Constitutional Amendment, the individuals who owned these companies became fantastically rich, many creating legendary family fortunes. The Vanderbilt Biltmore Estate in North Carolina employed more employees in 1900 than did the entire U.S. Department of Agriculture.[6]
Many of the conflicts generated by industrial capitalism never have been fully resolved. They include the conflicts between management and labor, the issues related to enormous disparities of wealth, and the role of government in the economy. The enormous expansion of industry brought savage exploitation of workers that led to unions, reform and government regulation. Financial panics that caused depressions led to the first attempts to regulate banking since Jackson killed the Bank of the United States.
The land grants that Congress carved out of the West encouraged and accelerated settlement. Tens of thousands of Americans from the east, as well as tens of thousands of immigrants, rode covered wagons and passenger trains west. Soldiers pacified the Indians who objected to their lands being occupied by settlers, often in violation of treaties.
Not long after the Indians were pushed off the plains and onto reservations, American industrial interests spread across the continent. Mines were dug for gold, silver, coal, copper, iron and lead. Towns and cities rose along the rivers and railroads, with giant ranches established nearby. Livestock grown on those ranches went by railroad to Chicago's stockyards, where, in the 1880s, huge processing plants began packing meat for the nation.
By the start of the 20th Century, American industry was dominated by mining, meatpacking, textiles, lumber, steel, oil, railroads, and heavy equipment manufacturing. The auto industry was just starting. The airplane was about to be invented. It was a time of rapid technological change, driven by electricity, which enabled large-scale business operations and manufacturing, as well as communications that linked distant operations and subsidiaries. All this provided employment for hundreds of thousands of new immigrants who poured into the country. More immigrants entered the U.S. in the first decade of the 20th Century than any other decade until the 1990s.[7]
But it was not the workers, immigrants from Europe, who benefited so much from the economic explosion as it was the company owners who grew fabulously wealthy while paying starvation wages. These “robber barons” were intent on maintaining their positions of great power and wealth. In the 1880s, the competitors in most industries formed “trusts” to control prices and maintain profitability, with the Wall Street banks, led by J.P. Morgan, providing the financing, and coordination. Following the adoption of the Sherman Anti-Trust Act in 1890, which outlawed the trusts, New Jersey enacted a “holding company” statute that permitted the trusts to reorganize themselves into holding companies, and continue their market controls and price-fixing. So little changed that these oligopoly entities continued to be referred to as trusts.
Governments were virtual agents of business interests, and at a time when there were no regulation of campaign contributions, the industrialists and mine owners spent money freely to insure the election of supportive politicians Except for a weak Interstate Commerce Commission, and the Sherman Anti-Trust Act, which was limited by Supreme Court decisions, there was no federal government regulation of industry in the 19th Century. The federal government had a very small budget, and no desire, or authority, to intervene in business affairs. Efforts at regulation at the state level usually were stymied by bribery, or other means, or simply ignored. When arguments are made today that regulation should be left to the states, it is useful to consider the situation in the country when that, in fact, was the practice.
The political situation in the United States in the last quarter of the 19th Century was a gridlock, very much as it has been recently. Even though Republicans won three of the five Presidential elections between 1876 and 1896 they did not win a majority of the popular vote in any of them. There were only four years when Republicans controlled both the White House and both houses of Congress. There were only two years when Democrats controlled Congress and the White House. Government simply was not a factor in the economy during this time.
When there was a panic in the financial markets, like the one in 1893 that led to a depression for the entire second term of President Grover Cleveland, J.P. Morgan, the head of the most powerful Wall Street bank, stabilized the banking system by putting his firm's capital into the market to prevent some banks from failing. The government had no authority, means, or will, to act. Morgan also intervened in the same way in the 1907 bank panic that resulted in a protracted recession that finally prompted the first effort to regulate the banks through the creation of the Federal Reserve System. However, the structure and powers of the Federal Reserve System were designed by bankers, meeting in secret, at a Morgan estate.[8]
It was during the second half of the 19th Century that “laissez-faire” industrial capitalism became dominant and known by that term. Laissez-faire meant “leave business alone,” and business was left alone by the government until early in the 20th Century. The concept is popularly believed to have come from Adam Smith whose Wealth of Nations,[9] first published in 1776, greatly influenced economic thought in the 19th Century. He argued that business operated most effectively and efficiently when guided by what he called “the invisible hand” of market forces.[10] That concept was misinterpreted as advocating “laissez-faire,” essentially a complete absence of government regulation, or involvement in business, which Smith did not advocate. And the term “laissez-faire” never appears in his work. However, using Smith as the authority, “laissez-faire” was converted by various thinkers into a philosophical underpinning of capitalism and the free enterprise system, as if it were an essential element.
From the second half of the 19th Century to the present, advocates have argued that laissez-faire capitalism enables the most superior individuals to apply their skills and rise to the top, for the betterment of mankind. This is the origin of “trickle-down” economics. The enormous success of the wealthy capitalists, and the enduring fortunes that they built, became part of the mythology of their individual superiority, and the superiority of unfettered capitalism. “Laissez-faire” capitalism and “trickle down” economics so dominated the thinking of bankers, industrial barons and conservative politicians that it still is powerful among conservatives today, both in economics and in politics. A great deal of this mythology was advanced during the primary campaigns of Republican candidates for President in 2011 and 2012. In particular, Mitt Romney repeatedly criticized President Obama and the Democrats for regulations of business he claimed were preventing economic growth.
Aspects of Charles Darwin's theories were absorbed into a “Social Darwinist” ideology of how man competed in economic society. The Social Darwinists believed the naturally superior of the human species will rise to the top, to the benefit of the species. And those who do not are naturally inferior. Their successes were attributed to their natural superiority and hard work. The Horatio Alger novels, which glorified hard work, also were selling by the millions during this time. Social Darwinism also was used to justify the exploitation of workers by these “robber barons.” The fact that they achieved success by exploiting the labor of many others was further proof of their natural superiority.
The mythology was that the wealthy robber barons worked their way to success from humble beginnings, but aside from a few highly publicized examples like Andrew Carnegie, most did not.
"While some multimillionaires started in poverty, most did not. A study of the origins of 303 textile, railroad, and steel executives of the 1870s showed that 90 percent came from middle- or upper-class families. The Horatio Alger stories of "rags to riches" were true for a few men, but mostly a myth, and a useful myth for control."[11]
The mythology of the robber barons is thoroughly debunked, and today the disreputable origins of their great wealth have been exposed in detail, in the previously cited work by Gustav Myers, History of the Great American Fortunes, and by Josephson in The Robber Barons. But the mythology has survived all the facts that debunk it.[12]
During the 1870s and 80s, the concepts of Social Darwinism, free enterprise, and laissez-faire capitalism - the unregulated exploitation of land, natural resources, and workers - were combined by academics into a philosophy of American business that dominated thinking into the 20th Century, and today it still forms the basis of contemporary extreme conservative and Libertarian economic thought.[13] There were dissenters such as Theodore Roosevelt, who said he had problems with professors when he was a student at Harvard in the late 1870s because of their laissez-faire beliefs which he did not share.
William Graham Sumner, a disciple of British Social Darwinist Herbert Spencer (who originated the term “survival of the fittest”), immigrated to the U.S. and became a prominent professor at Yale, where he was said to have been the first to teach “sociology.” He published his highly influential What the Social Classes Owe to Each Other[14] in 1883. He argued in favor of a completely free market and was critical of efforts by unions and others to even out the effects of the industrial revolution. His concluding paragraph is remarkable for how similar it is to what Republican Presidential candidates Ron Paul, Mitt Romney and Rick Santorum said during their campaigns for the 2012 Republican Presidential nomination:
The yearning after equality is the offspring of envy and covetousness, and there is no possible plan for satisfying that yearning which can do aught else than rob A to give to B; consequently all such plans nourish some of the meanest vices of human nature, waste capital, and overthrow civilization. But if we can expand the chances we can count on a general and steady growth of civilization and advancement of society by and through its best members. In the prosecution of these chances we all owe to each other goodwill, mutual respect, and mutual guarantees of liberty and security. Beyond this nothing can be affirmed as a duty of one group to another in a free state.[15]
The underlying economic theory of the Social Darwinists was that the freedom that laissez-faire gave business and industry enabled it to maximize profits and expand the economy. It was, and still is, believed that the economic expansion would create more jobs, more”chances” for others. Whether others succeeded with the chances afforded them was simply a matter of hard work and ability.
The reality was dramatically different from the theory. Industries did grow significantly. Profits soared, creating enormous streams of capital, nearly all of which went to the owners. Workers were paid as little as possible, and in many cases, less than necessary for basic living expenses, not unlike what major companies like Walmart, Target, McDonald, and many others are paying today. The government was called in to help business beat back, sometimes quite violently, efforts of unions to organize workers. So laissez-faire only went one way. Government could help business, could protect business, could finance business, but it could not regulate it.
When left unregulated the owners had no incentive to provide safe working conditions, or any benefits to their employees. Any employee who balked at any aspect of the horrible working conditions and pitiful wages would be instantly replaced.
Andrew Carnegie's article, “The Gospel of Wealth,”[16] published in North American Review in 1889, made the complete Social Darwinist argument, adding a religious element, echoing the Puritan concept of the “Select,” conflating material success with morality.
Carnegie argued that those who succeeded did have a duty to help the less fortunate, a "nobless oblige,” which he carried out by donating all of his fortune for the creation of libraries. While the big name robber barons usually donated money to create some institution that might memorialize their name, such contributions, except in the cases of Carnegie and Johns Hopkins, usually were but a small portion of their fortunes. Cornelius Vanderbilt's contribution towards the creation of Vanderbilt University represented approximately 1 per cent of his fortune.[17]
The profits from the huge business enterprises usually went into luxurious living for the owners, mansions, servants, parties, and luxurious world travel. Some acquired huge quantities of art and antiques. To avoid taxes while he was living, Marshall Field reported the same value of his personal property each year, but when his estate was inventoried by authorities they discovered he had an unreported fortune in furniture, antiques and art inside his house.[18]
The Supreme Court repeatedly supported “laissez-faire,” with, perhaps, its most notable ruling in 1905,[19] that a law designed to protect bakers in New York from oppressive hours by restricting their working hours to no more than 60 per week was unconstitutional because it interfered with their “liberty of contract.” It also twice struck down laws governing working hours for children. It was not until the late 1930s that the Court began to reach different conclusions about governmental powers, but the current conservative majority of the Supreme Court has has reverted to positions reminiscent of those of the “robber baron” era.
Even Grover Cleveland, the only Democrat to serve as President between 1861 and 1913 – and also the only President to serve two non-consecutive terms, 1885-1889 and 1893-1897[20] - was as much of a laissez-faire conservative as any Republican. The nation suffered its worst depression up to that time during his second term, with unemployment in some areas reaching 40%, a level never reached before, or since. Cleveland did not believe the government should do anything to restore the economy, or help the people.
This was the height of the “Gilded Age,” when enormous fortunes were made and spent. It was the era of the great houses in New York and Newport, and “Society” parties legendary for their opulence. But for the mass of the population, the people who labored in the plants and factories and generated the output that created this enormous wealth, life was very tough - indeed, for many - quite horrible.
A massive change had occurred in the way many people, who weren't farmers or employed in small businesses, made their livings. They went to work for the corporations that operated the mines, railroads, and factories. Most of these facilities employed hundreds of people, and many employed thousands. There had never been anything like these facilities, and this way of working. The textile mills in New England became sweatshops. Conditions in factories were dangerous and frequently deadly. Hundreds of railroad and mining personnel were killed in accidents every year.[22]
The workers usually were immigrants, many of them unable to read, or write English, and they competed for any job that might provide enough money to feed their families. The factories, mines and railroads paid the absolute minimums they could get away with – in real terms about what our minimum wage is today - not nearly enough to provide decent livings for the workers and their families then, or now. In the 1890s the vast majority of railroad employees endangered their lives for less than $2 per day,[23] not enough to properly feed their families. Malnutrition was widespread. Starvation was not uncommon. Frequently, thousands of job seekers stood outside factories waiting for jobs to open up that barely would provide subsistence, but were better than nothing.
People worked for those subsistence wages in the factories, sweat shops and slaughter houses, sometimes as long as 18 hours a day. There were no holidays, no vacations, no sick leave, no workman’s compensation. Anyone injured on the job lost his or her job. Union agitators were fired and blacklisted, and frequently killed, either by police or private detectives, or through legally-sanctioned murder by the courts. Miners were charged for their houses and food, and when they died young and penniless, their families were evicted. The multimillionaire, Marshall Field, made a profit even from his low wage employees by providing housing, food and clothing through payroll withholding that frequently reduced take-home pay to almost nothing.[24] Laws requiring children to be in school were routinely violated so they could work in the mines, mills, stockyards and sweatshops.[25]
In the 1840s, Britain limited the hours that children could work to 6.5 per day. In 1842 Massachusetts was the first state in the U.S. to limit the hours children could work – to 10 hours per day. Other states adopted various limits, but there was very spotty enforcement, even into the 20th Century. There was no federal law regulating child labor until 1916 and that law, and a revision, were separately declared unconstitutional by the U.S. Supreme Court, decisions which were reversed by the Court in 1939.[26] National regulation of hours and wages for children did not come until the Fair Labor Standards Act of 1938.
The early labor unions focused on trying to improve wages while reducing working hours, but not much else, and they faced enormous opposition from owners, and the governments the owners controlled. The mines, railroads and factories were generating hundreds of millions of dollars in profits for the robber barons, but they fought every effort to share a larger portion of their profits to provide their workers and their families with decent livings. All of them could have built their enormous fortunes and still paid reasonable wages to their workers, something that would have dramatically improved the lives of millions, and probably even increased business profits. But it wasn't until Henry Ford in 1914 that any industrialist saw this possibility.
Wages were set on the basis of what was the lowest amount that could be paid to get people to do the jobs that needed to be done. Workers in factories were viewed as not having much value individually. Like the interchangeable parts that came into common production, workers also were interchangeable in the mass production factories, and labor-intensive mines. It was different from the trades of the past when self-employed craftsmen produced finished products, often with their own brands, or marks, that distinguished them. Now most workers just performed one task in a chain of many, and almost any able-bodied person could perform the task. The companies took advantage of the huge numbers of people desperate for jobs and kept wages to the minimum while operating filthy and dangerous plants and unsafe railroads and mines.
Because an individual's work was given little value by itself, individual workers had no negotiating power when it came to wages, or working conditions. If they didn't accept what was offered, they didn't work. Any complainer, or troublemaker, was fired, and immediately replaced. Violence, including murder, frequently was employed against union organizers and even pro-union journalists.
When unions first started to try to unite workers in the 19th Century, they had no legal standing. They faced virulent opposition from the owners, who received the support and cooperation of government authorities. Strikers often were physically attacked, shot, and sometimes killed by government agents, police, and soldiers. To break the Pullman Strike in 1894, President Cleveland used federal troops to operate the trains delivering the mail, and employed the Sherman Anti-Trust Act to have Eugene Debs' American Railway Union declared an illegal combination. Workers, and their unions, were not viewed as equals to the owners. When a bomb killed dozens of police who were attacking a union rally at Haymarket Square in Chicago, union leaders were arrested, and without any evidence that they had anything to do with the bombing, four were convicted of murder and hanged.[27]
As industries rapidly expanded in the late 19th Century, there was no labor law. Most regulation of private enterprise, and the financial system, came from the commercial legal system inherited from England, and modified to a limited extent by state laws. It regulated business transactions such as stock transactions, banking and commercial finance and trade transactions – but not the businesses themselves. It also did not regulate working conditions, sanitation, or wages. The laws that were applied at the time were those of property and contract law that came into being in a different age, and strongly favored property owners. No 19th Century American laws anticipated the situations caused by mass employment in factories and mines. As a result, workers had virtually no legal rights when on the property of their employers. Traditional property law, favoring the property owners, trumped efforts by unions and workers to equalize the playing field.
Conflicts between workers and companies arose out of these situations and presented landmark issues and questions never considered before, and to this date, never fully resolved. What is the value of an individual's work relative to the value of an enterprise? Why should virtually all of the profits go to the owners? Shouldn't workers collectively be entitled to a reasonable share of the profits of an enterprise? Why should a small number of individuals become obscenely rich while most of the people employed in the businesses generating this wealth have very little? What duties do owners have to employees, especially ones who devote most of their working lives to one employer?
Unions tried to provide the solution to the workers of the Second Industrial Revolution, but it took until the 1930s, and later, before they achieved widespread positive results. Some basic issues remain unresolved, and they are even more important today in the post-industrial world where there are no powerful unions to protect employees from exploitation.
Many today are confused about our economic system, often using the terms capitalism and free enterprise, or free markets, interchangeably, when, in fact, they are different. Free enterprise is compatible with capitalism, but capitalism often is not compatible with free enterprise. Free enterprise allows for private ownership of property and business, large and small, except for those carved out for state ownership and control. Free enterprise also allows for free competition among businesses, with the exception of government regulation necessary for protection of public welfare, such as health and safety.
There is a school of thought that argues that capitalism, in its purest forms, is an enemy of free enterprise because capitalists will attempt to stifle competition, which is fundamental to free enterprise. Indeed, if capitalism were taken to its extreme conclusion, there would be but one corporation in the world, with no competition because it would own everything. This idea certainly has plenty of supporting historical evidence, with the trusts that formed in the late 19th Century to limit competition and fix prices. Similarly, today, oligopolies of giant corporations, including many multinationals, dominate our major industries and businesses.
In summing up and analyzing the issues that dominated the Progressive Era at the beginning of the 20th Century, historian Page Smith's description of capitalism seems to apply equally well to contemporary issues:
“The problem with capitalism, I suspect, is that its champions want to claim for it some inherent moral virtue. It is a very rough kind of economic system with many pre-, post-, and noncapitalist elements woven through it. It is clearly not “free enterprise” or “free competition.” In its heyday and subsequently, it has done its level best, through trusts and various devices, legal and illegal, to suppress free competition and use the national government to advance its interests at the expense of workers and consumers – that is to say, the general public. The best thing that can be said for it is that it has worked, at least on the material level, to provide more people with more things than any other economic system. It has done this, as its critics constantly remind us, at a considerable human cost....capitalism, far from being the champion of individual liberties and the classic American freedoms – of speech, assembly, etc. - has done its best, whenever it was able, to suppress all criticism of it, and prevent all measures designed to make it more responsible to its workers, and more accountable to the public. It has done this in the name of what it claimed to be a sacred and inalienable right (which it invented) to use its property as it sees fit.”[28]
The American economic system that we call capitalism today is a hybrid of industrial and financial capitalism, free enterprise, government regulation and government expenditures that have averaged 20 to 24 per cent of GDP since the 1930s. It has evolved from the brutal industrial capitalism of the 19th Century and the unregulated financial capitalism of the early 20th Century and was saved from its excesses by government intervention and regulation in the Great Depression.
The role that financial capitalism - commercial and investment banking - plays in the economy has steadily grown and today it represents about 40 per cent of the entire economy. The assets of the eight largest banks total $15 trillion – equal to about 90 per cent of the GDP.[29] This is not a very good development. While industrial capitalism created horrendous working conditions and paid slave-labor wages, it never disrupted the economy the way banks have repeatedly done. Bank panics occurred with great regularity during the 19th Century, often followed by periods of recession. After the 1907 panic created a lengthy recession the Federal Reserve System was created to try to stabilize the financial system. However, not enough regulation existed to prevent the stock market bubble and crash of 1929, and the resulting Great Depression.
During the Depression new regulations separated commercial and investment banks and limited panic declines in the stock market. While there were periodic recessions, there was not a serious Wall Street crisis until 2008, nine years after those regulations separating commercial and investment banks were repealed, when the entire banking system came close to failing due to the collapse of the housing bubble, and the derivative market based on home mortgages.
Today, the major Wall Street banks are among the most powerful and profitable businesses in the world. They exercise enormous influence over the federal government, and make huge political contributions. Attempts by the Obama Administration to reimpose regulation were slowed by the lobbying of the giant financial institutions. As a result, the Dodd-Frank law that imposed new regulations on banking has yet to be fully implemented, and little is in place to prevent another crisis similar to that of 2008.
Now that we have passed out of the industrial age into a world of computers, the Internet, and non-union service industries, many of the same questions and issues are being raised again. For the past 30 years the average incomes of the middle class in America have essentially remained flat, while the very richest became far richer. Enormous disparities of income and wealth now exist that rival, and in some areas exceed, those of the Gilded Age. While safety nets exist today that did not in the Gilded Age, their existence is threatened. Millions of people face possible destitution if Republican policies are adopted. In the non-union minimum wage workplaces of Walmart, McDonald's, and others, there is little hope for achieving the American dream. Companies are succeeding in paying wages that are similar, in real terms, to the less than subsistence wages paid during the Gilded Age.
Walmart, the nation's largest corporation, with more than 1.5 million employees and revenues of nearly half a trillion dollars – nearly as much as the nation's defense budget – pays its workers an average of less than $9 per hour. That is barely more than the pay the vast majority of workers were receiving in 1890. It didn't support their families then, and does not today. However, Walmart does offer medical insurance (at a cost), decent working conditions and other benefits that were not provided in 1890.
With profits approaching $100 billion per year, if Walmart doubled its wages, so that its employees actually could support their families, it still would be one of the most profitable businesses in the world. If other similar employers also paid living wages, the effect on the nation's economy would be electric. There would be an economic boom, and everyone, including these businesses, would benefit. This will be discussed in far more detail in Part III.
It seems highly unlikely these modern “robber baron” companies will improve the lives of their employees voluntarily. Indeed, there have been several highly publicized incidents of billionaire company owners complaining about having to pay for employee health care under the Affordable Care Act, a cost they easily can afford. They should be forced to double their wages as well, either by union agreements, or government action. Their workers then will be able to afford a decent living, and they still will be billionaires.
[1] Evans. p.22.
[2] Myers, pp 407-421. In 1795 a massive land fraud was pulled off in Georgia when millions of acres of state land were sold for almost nothing to speculators who had bribed the state legislature. Angry citizens of the state threw out most of the legislature in the election the next year, and the new legislature revoked the contracts. Lengthy litigation resulted in the Supreme Court ruling that the legislature's revocation of the grants was a violation of the right of contract. Myers pp. 216-217 In 1856, virtually the entire state government of Wisconsin, including most of the legislature and the governor, were paid more than $800,000 by the LaCrosse and Milwaukee Railroad in return for a land grant of one million acres. Myers p 460
[3] The nation's greatest financial scandal to that time erupted when it was revealed that the entity formed to manage the construction, the Credit Mobilier, had defrauded the government of tens of millions of dollars by charging nearly twice as much as it cost to build the railroad. It also was accused of bribing many high ranking officials, including two men who were to become President, James A. Garfield and Rutherford B. Hayes, as well as leading members of Congress. The scandal drove the Union Pacific into bankruptcy, but it survived, eventually becoming one the nation's largest and most profitable businesses. Myers, pp. 441-444
[4] In total railroads received for free approximately 170 million acres of federal land – about the size of Texas - 35 million of which they later forfeited for not meeting the terms of the grants. Clanton, O. Gene. Kansas Populism Ideas and Men. Lawrence, KS: University Press of Kansas, 1969, p. 14.
[5] Chandler, Jr., Alfred D. Scale and Scope: The Dynamics of Industrial Capitalism. Cambridge, MA: Harvard University Press, 1990. pp. 3-13.
[6] Allen, p. 30.
[7] U.S. Census data.
[8] Irwin, Neil. --- pp.
[9] Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. London: W. Strahan; and T. Cadell, 1776. The edition I am referencing is the 1952 edition published by the Encyclopedia Britannica as Vol. 39 in Great Books of the Western World.
[10] Ibid p. 194.
[11] Zinn, Howard, A People's History of the United States 1492-present, p. 235
[12] The mythology about the robber barons that developed, and is so much of our culture today, is a subject of Josephson's new Foreward to the 1962 edition of The Robber Barons:
“In the crisis years of the 1930s economic intervention by the Federal Government was employed on an unprecedented scale, not only in the interests of human welfare, but also to regulate and control the masters of capital who, by their excesses and bad leadership, had helped to bring about the debacle of 1929-1933. At that period a critical literature also arose (of which the present work may perhaps be taken as an example), providing background material to the men of the New Deal.
Of late years, however, a group of academic historians have constituted themselves what may be called a revisionist school, which reacts against the critical spirit of the 1930s. They reject the idea that our nineteenth-century barons-of-the-bags may have been inspired by the same motives animating the ancient barons-of-the-crags—who, by force of arms, instead of corporate combinations, monopolized strategic valley roads or mountain passes through which commerce flowed. To the revisionists of our history our old-time money lords “were not robber barons but architects of material progress,” and, in somewise, “saviors” of our country. They have proposed rewriting parts of America’s history so that the image of the old-school capitalists should be retouched and restored, like rare pieces of antique furniture.
This business of rewriting our history—perhaps in conformity to current fashions in intellectual reaction—has unpleasant connotations to my mind, recalling the propaganda schemes used in authoritarian societies and the “truth factories” in George Orwell’s antiutopian novel 1984.”
[13] This is ironic considering that the religious views of many in the right-wing reject Darwin's theory of evolution. For a more extensive discussion of contemporary “Social-Darwinism” see Reich, Robert. Beyond Outrage: What Has Gone Wrong with Our Economy and How to Fix It. New York: Alfred A. Knopf, 2012.
[14] Sumner, William Graham. What Social Classes Owe to Each Other. Harper & Brothers New York 1883 (available in a number of reprint editions, as well as in a PDF edition on line).
[15] Ibid.
[16]
[17] Myers, p -
[18] Myers pp 203-204
[19] Lochner v. New York. 198 U.S. 45 (1905),
[20] Cleveland won the popular vote in 1888, but lost the electoral vote. Thus he, Andrew Jackson and Franklin Roosevelt were the only Presidents to win the popular vote in more than two elections, and he was one of only four Presidential candidates to win the popular vote but lose an election, along with Jackson in 1824, Samuel Tilden in 1876 and Albert Gore in 2000.
[21] Evans. p.22.
[22] Extensive stats on mine and railroad deaths in: Aldrich, Mark. “History of Workplace Safety in the United States, 1880-1970.” http://eh.net/... Also see Myers, p 376 fn 7
[23] Myers p 376-77
[24] Ibid pp. 198-200
[25] This was the time when Mother Jones led her famous “Children's Crusade” march, consisting of many children who had suffered crippling injuries while working, from Washington, DC to the home of President Roosevelt in New York.
[26] citation
[27] Myers, pp 354-55
[28] Page Smith, pp. 1032-33.
[29] NY Times