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Robert L. Bradley Jr.Roger Donway

Gabriel Kolko's "Political Capitalism": Bad Theory, Bad History

Robert L. Bradley Jr.*, Roger Donway*

 
When noted revisionist historian Gabriel Kolko died last year, leftist scholars published numerous eulogies of him. No surprise: Kolko had been a socialist. More surprising, it might seem, were the tributes from free-market commentators.1 Yet Kolko had been the object of libertarian encomia for nearly 50 years. It all began when Murray Rothbard heralded Kolko for proving that America's great industrialists had been crony capitalists; that Progressive politicians had been capitalist puppets; and that free markets, had they prevailed in nineteenth-century America, would have made anti-monopoly regulations unnecessary.2

From a half-century perspective, however, Rothbard's unadulterated praise appears mistaken, even greatly so.3

Unquestionably, Kolko did valuable work in disproving the old stereotypes of Gilded Age businessmen as uncompromising pro-capitalists and Progressive reformers as do-gooders. He showed that industrialists had not been as laissez-faire or reformers as high-minded as Progressivism alleged. But these genuine contributions are vitiated by Kolko's Marxist misinterpretations of nineteenth-century America and by his distortions of historical evidence.

Mistaken Theory

1. Kolko misunderstood the theory and practice of competition. Progressives had portrayed Gilded Age capitalists as Social Darwinists practicing tooth-and-nail competition to achieve "the survival of the fittest." Kolko easily showed that those capitalists often eschewed competition: "Although there was a formal commitment to varieties of laissez-faire economic theory in most of the academic world, big businessmen developed their own functional doctrine very much opposed to competition as either a desirable mechanism or as a goal."4

What Kolko did not understand is that laissez-faire entails only the political right to compete. It implies neither that competition (firm-against-firm rivalry) is the preferred strategy of businessmen nor that bankrupting rivals is their preferred goal. Collaboration and market-sharing, acquisition and merger, even monopoly—as long as the latter is voluntary—are worthy elements of the free-market process.

2. Kolko also misconstrued the role that free-market theory plays in politics. If capitalists had believed in free-market capitalism, he implied, they would have espoused it uncompromisingly. But they did not. He wrote: "The House Committee on Commerce hearings of 1882 revealed disagreements among railroad men on particulars, but few indicated their opposition to legislation on any terms."5 For Kolko, this proved that railroad men did not believe in free markets.

Had Kolko looked at the beliefs of nineteenth century free-market advocates, he would have found that they were highly empirical and realistic. For example, William Graham Sumner's belief in laissez-faire was perhaps the purest in America. Yet Sumner wrote: "When we go over to statecraft, we go over to art—to the domain not of truth but of expediency, not of scientific laws but of maxims.... Laissez-faire comes in as a general warning, not as an absolute injunction."6

Kolko's either/or assumption kept him from distinguishing between proposals that differed greatly in the degree of freedom they offered to businessmen. For example, when Kolko discussed businessmen's acceptance of proposals for a "commission" to oversee the railroads, he trivialized the differences between a "sunshine" commission, which merely exposed complaints as a newspaper might, and a Wisconsin-style commission, which had the power to set rates.

3. Kolko also did not grasp that, to businessmen, uniformity and clarity of regulation might be more important than the degree of regulation. Thus, after railroads became continental, their owners sought consistent national regulation at the price of greater regulation. Likewise, after the Sherman Antitrust Act created a legal standard that was hopelessly vague, businessmen petitioned Congress for clarifying legislation simply because they sought intelligibility.

On May 15, 1911, the U.S. Supreme Court handed down two adverse but incoherent antitrust rulings: Standard Oil and American Tobacco. According to Robert Bork: "[Chief Justice] White gave us no general guide to what behavior was abnormal other than, perhaps, the suggestion that it involved an intent 'to drive others from the field and to exclude them from their right to trade.'... Whenever a competitor competes he intends to take business away from rivals, which involves excluding them."7 No wonder, then, that just eighteen days after those decisions, Judge Elbert H. Gary, chairman of U.S. Steel (which had already been subjected to six years of antitrust investigation and which would be targeted by the trust-busters four months later), spoke with exasperation to a House investigation of his company: "I would be glad if we knew exactly where we stand, if we could be freed from danger, trouble, and criticism by the public, and if we had some place where we could go, to a responsible government authority, and say to them, 'Here are our facts and figures, here is our property, here our costs of production; now you tell us what we have the right to do and what prices we have the right to charge.'"8

Kolko thoroughly misinterpreted Gary's words, saying that he sought federal price controls to obviate "the existing price anarchy in steel."9 In fact, as Gary made clear, although U.S. Steel could not set prices in the market, it had achieved "a very great result in securing reasonable stability."10 What Gary wanted to avoid was not price "anarchy" but endless and incomprehensible trust-busting aimed at dominant firms. Congressman Martin Littleton (D-NY) suggested: "the Sherman antitrust law recently interpreted.... practically orders a continuance of the old warfare of competition."11 And Gary replied: "I am afraid it does.... We do not want to be dealing in uncertainty, groping around in darkness, not knowing what we have the right to do."12

4. As a Marxist, Kolko believed that a political-economic elite controlled the Gilded Age. "There was a basic consensus among political and business leaders as to what was the public good," he wrote, "and no one had to be cajoled in a sinister manner."13 This view precluded Kolko from recognizing what regulatory historian Thomas McCraw called "the gun behind the door."14 Kolko could not credit the fact that businessmen's proposals to Congress were often concessionary because they feared the coercive power of politicians and were trying to appease them in hopes of winning a lesser degree of regulation.

For example, Charles Francis Adams Jr., president of the Union Pacific Railroad, began his 1885 testimony before a U.S. Senate Committee by staunchly recommending a sunshine commission for railroads, such as he had headed in Massachusetts. Given that everyone saw a need to respond to the growing public complaints against the railroads, the question was one of theoretical approach: rules and maybe even rates set down by commissions? laws enforced by the courts? In the view of Adams, "The true theory of legislative dealing with this question" was an approach close to laissez-faire, which would allow a commission, but one with only investigative powers. He went on to explain that "all the [Massachusetts] commissioners could do was to examine, report, and recommend, thus having recourse to public opinion."15 When senators made it clear that so powerless a commission was out of the question, Adams tried to save what he could by agreeing to some minor regulations (for example, a ban on free passes), but he concluded by recommending to the senators an "easy does it" commission with inchoate powers. "By building slowly, and as your lights grow, you will get along a great deal more rapidly than by trying to build the whole thing at once."16

Adams had described such a fallback position—knowledgeable experts learning and tinkering—a year earlier in his correspondence with Congressman John D. Long (R-MA). Kolko quoted that letter from Adams to Long: "If you only get an efficient Board of Commissioners, they could work out of it whatever was necessary." Yet, on that basis, Kolko called Adams a "cynic," implying that—even before the ICC existed—Adams had worked out the theory of regulatory capture and its uses for crony capitalism. Kolko ignored both the strong recommendation for a pure "sunshine commission," with which Adams began his testimony, and the significance of his earlier explanation to Long that acceptance of a somewhat more powerful commission could head off "a demand for extreme legislation."17

5. Lastly, Kolko did not comprehend the nature of a mixed economy. In 1973, Kolko wrote: "I have no common area of sympathy with the quaint irrelevancy called 'free market' economics. There has never been such a system in historical reality."18 This puzzled libertarians, for they too acknowledge that no economy has ever been laissez-faire. But how did that make free-market economics irrelevant? Surely, free-market ideas could be partially embodied in an economy.

Not for Kolko. In a mixed economy, he thought, the contours of private property and free exchange were never impure embodiments of free-market ideas but always pure embodiments of the interests of the propertied class. As he said: "The question is not the state's role in the economy but rather on whose behalf it will act, and even on the relatively infrequent occasions when it stays out of the economy, some interests gain thereby."19 Thus, the only significant principle in a mixed economy is, to paraphrase Lenin, "Who wins? Who loses?" and the only significant mechanisms for determining that are political.20

But Kolko did not merely misinterpret political-economic theory because of his philosophical outlook. He also twisted facts.

Distorted Evidence

1. One of Kolko's minor sins as an historian was to quote secondary sources when primary sources were less supportive. This might not be worth mentioning, except that it affects one of Kolko's most oft-repeated assertions about the origins of railroad regulation.

For Kolko, those elements of the ruling class that were both the largest and the most concerned with an issue won the conflicts between capitalists. Consequently, after gesturing toward theories that attributed railroad regulation to Grangers, New York merchants, or independent oil producers, Kolko wrote: "The only fruitful approach to the problem that has not yet been seriously explored is the role of the railroads." 21

Yet we know that the drive for federal railroad regulation began in 1876, when independent oil producers persuaded a Pennsylvania congressman to introduce a bill banning rebates and rate discrimination. Kolko's explanation? "The bill... was apparently written by the attorney for the Philadelphia and Reading Railroad."22 His evidence for the railroad's involvement is a passage in Gerald Nash's "Origins of the Interstate Commerce Act of 1887."23 But why cite a secondary source? Perhaps because Nash's primary source was an anonymous newspaper column, published four years after the 1876 bill in Chicago, not Pennsylvania, and rife with factual inaccuracies.

Specifically, the article by the Chicago Daily Tribune's anonymous Washington correspondent mentioned the supposed drafting of the 1876 bill by a P&R attorney only in order to explain why it was "not strange" that the House Commerce Committee testimony given in January 1880 by "Mr. Gowan, representative of the Philadelphia & Reading Railroad" advocated "the general principles of the Reagan bill" on railroad regulation.24 But Gowen (not Gowan) was president of the Philadelphia & Reading, not just a "representative," and according to the Philadelphia Inquirer's story of the same day: "Mr. Gowen, of the Reading Railroad, followed [Charles Francis Adams], and gave the bill one of the severest poundings it has yet had." The Associated Press story from that day said: "Mr. Gowen doubted the power of Congress, under the Constitution, to interfere with the management of railways."25 Pounding a bill is not exactly an endorsement.

2. A more serious flaw in Kolko's scholarship is his presentation of quotations completely out of context. One such quotation—perhaps the one most repeated by Kolko's fans—concerns the steel industry. Kolko set up the quotation from Andrew Carnegie as follows:

So far as the price competition plaguing the steel industry was concerned, however, "it always comes back to me that Government control, and that alone, will properly solve the problem."26

Carnegie appears to support Kolko's thesis that leaders of the early twentieth-century steel industry preferred government regulation to market-driven competition. Unnoted is the fact that Carnegie had sold his company to J.P. Morgan eight years earlier, but no matter. This is what Carnegie actually wrote:

It is not alone in steel that there is to-day [sic] a practical monopoly: tobacco, thread, sugar, oil, even if there be different manufacturers in all of these, have that 'sort of an understanding' which creates monopoly.... A monopoly could not be permitted to make its own price.... Some remedy must be found; I have thought over the subject and considered substitutes, but without success: it always comes back to me that government control, and that alone, will properly solve the problem. There is nothing alarming in this; capital is perfectly safe in the gas company, although it is under court control. So will all capital be, although under Government control.27

In short, Carnegie's statement has nothing to do with "the price competition plaguing the steel industry." Quite the reverse. It expresses Carnegie's belief that monopolies or pools dominating steel and other industries might have the power to set monopoly prices. His solution was one that many were urging for so-called natural monopolies (such as the gas company): empowering "expert" government commissions to oversee prices. Whether such commissions are wise or unwise is not the point here. The point, rather, is that Carnegie was advocating government regulation to restrain monopoly, not to restrain competition.

3. Kolko even doctored quotations to change their meaning. Consider this opening to his four-paragraph quotation from railroad man Albert Fink, which suggests that Fink favored immediate legislative interference in his industry.

In early 1882, during House hearings on the Reagan Bill, Fink, while claiming he would prefer an investigative committee of Congress first, made specific suggestions to the Committee on Congress: "The first step... should be to legalize the management of the railroad property under this [pool] plan."28

Fink ran the railroads' voluntary pooling arrangements, under which the lines agreed to divide business according to historical percentages and then modify those percentages according to changes achieved by "fair competition."29 Fink believed fervently that such pooling could address all public complaints against the railroads, and he hoped that Congress would someday make pool contracts enforceable in the courts (as they were not under common law).

Enforcement of pooling contracts was compatible with free markets, despite Kolko's belief to the contrary. But that is not what Fink was saying in Kolko's quotation, although Kolko made the quotation sound that way. Fink was saying that if all voluntary efforts to end the complaints against the railroads failed, and if it became necessary for the government to act, then government ought to act in assistance of the railroads' voluntary efforts to address popular complaints. And if government did, at that point, act to assist the railroads' voluntary efforts, then "[t]he first step to that end should be to legalize the management of the railroad property under this [pool] plan."30 (Emphasis added.) By means of an ellipsis, Kolko transformed the entire significance of four key paragraphs of quotation. He turned Fink's speculation about the "first step" in a pro-free market process that might, hypothetically, take place on some future day into an urgent plea for an immediate "first step" by Congress.

4. Kolko's habit of changing the meaning of quotations forced him to avoid quoting material that contradicted his deceptive citations. In the case just cited, Kolko distorted Fink's remark to mean that Congress should immediately legalize pooling contracts; Kolko, therefore, had to avoid quoting what Fink said on the next page of his testimony: "It is much better for government not to interfere at the present stage, and perhaps not at any time."31

Conclusion

Murray Rothbard's estimate of Kolko's business-government historiography was too hasty, perhaps because its anti-Big Business conclusions were simple and congenial for a libertarian worldview. Subsequent classical-liberal praise of Gabriel Kolko as "a socialist but nonetheless an historian with a respect for facts"32 is also unjustified. All historians need to be extremely wary of quoting Kolko.

There is a more general lesson. Careful attention must be paid to context and motivation in the world of business-government interactions. In so doing, scholars must move past stereotypes of America's nineteenth-century industrialists: Matthew Josephson's "Robber Barons," Ayn Rand's "Persecuted Minority" and Gabriel Kolko's "Political Capitalists."


Footnotes
1.

Jesse Walker, "Gabriel Kolko, RIP,"Reason, "Hit and Run" blog, May 20, 2014.

2.

Murray Rothbard, "Left and Right: The Prospects for Liberty." Reprinted in Egalitarianism as a Revolt Against Nature and Other Essays, edited by Murray Rothbard (Washington, D.C.: Libertarian Review Press, 1974, 1964), pp. 21-53.

3.

See, generally, Robert L. Bradley Jr. and Roger Donway, "Reconsidering Gabriel Kolko: A Half-Century Perspective," Independent Review, Spring 2013, pp. 561-76.

4.

Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History: 1900-1916 (New York: The Free Press, 1963), p. 13.

5.

Gabriel Kolko, Railroads and Regulation: 1877-1916 (Princeton, NJ: Princeton University Press, 1965), p. 29.

6.

William Graham Sumner, "Laissez-faire," 1886, excerpted in William Graham Sumner: An Essay of Commentary and Selections (New York: Thomas Y. Crowell, 1963), p. 31

7.

Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself (New York: Basic Books, 1978), pp. 38-39.

8.

Hearings before the Committee on Investigation of United States Steel Corporation, House of Representatives, 62nd Cong., 1st sess., Vol. 1, no. 3, p. 79.

9.

Kolko, Triumph of Conservatism, p. 174

10.

Hearings on U.S. Steel, p. 80

11.

Hearings on U.S. Steel, p. 79.

12.

Hearings on U.S. Steel, p. 79.

13.

Kolko, Triumph of Conservatism, p. 282.

14.

Thomas K. McCraw, Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James Landis, Alfred E. Kahn (Cambridge, MA: Harvard University Press, 1984), p. 35.

15.

Report of the Senate Select Committee on Interstate Commerce, 49th Cong., 1st sess. (1885), testimony of Charles Francis Adams Jr., vol. 2, p. 1202

16.

Testimony of Charles Francis Adams Jr., p. 1218.

17.

Kolko, Railroads and Regulation, p. 37.

18.

Jesse Walker, "Gabriel Kolko, RIP," Reason.com, "Hit & Run," May 20, 2014.

19.

Gabriel Kolko, After Socialism: Reconstructing Critical Social Thought (New York: Routledge, 2006), p. 94

20.

"In all politics, Lenin taught his followers, there is one central question. This he expressed in lapidary form: 'Kto kogo? — Who whom?' In Russian, no verb is needed; the first word is subject, the second object." Bertram David Wolfe, An Ideology in Power: Reflections on the Russian Revolution (New York: Stein and Day, 1969), p. 356.

21.

Kolko, Railroads and Regulation, p. 21.

22.

Kolko, Railroads and Regulation, p. 21.

23.

Gerald D. Nash, "Origins of the Interstate Commerce Act of 1887," Pennsylvania History, Vol. 24 (July 1957), p. 184.

24.

"Reagan's Bill," Chicago Daily Tribune, January 28, 1880.

25.

"Washington," The Philadelphia Inquirer, January 28, 1880.

26.

Kolko, Triumph of Conservatism, p. 173. Rothbard (1965) quoted this passage, and it was used as recently as April 2015 by conservative author Jonah Goldberg: "Andrew Carnegie, when bedeviled by competitors, called for 'government control' of the steel industry as a way to cement U.S. Steel's status—and profits." "The Abusive Businessman's Enablers," Jonah Goldberg, National Review, April 20, 2015.

27.

Andrew Carnegie, "Control of Monopolies," New York Times, February 16, 1909.

28.

Kolko, Railroads and Regulation, p. 27; brackets in the original.

29.

D. T. Gilchrist, "Albert Fink and the Pooling System," Business History Review 34, no. 1 (Spring 1960), p. 31.

30.

Albert Fink, "Argument of Mr. Albert Fink," in "Arguments and Statements before the Committee on Commerce in Relation to Certain Bills Referred to That Committee Proposing Congressional Regulation of Interstate Commerce." U.S. Congress, House of Representatives, 47th Cong. 1st sess., March 18, 1882, p. 189.

31.

Albert Fink, "Argument of Mr. Albert Fink," p. 190.

32.

Lawrence W. Reed, "Of Meat and Myth," The Freeman 44, no. 11 (November 1994), p. 601.


*Robert L. Bradley Jr. is CEO of the Institute for Energy Research (IER).
*Roger Donway is a research assistant at IER and freelance editor and writer.
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