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The Robber Barons and the Morality of Markets Joel C Knoll

Red Herrings and Simplifications One of the favorite techniques of propagandists and ideologues (of every stripe) is called "the red herring". This refers to an informal logical fallacy, which basically involves deliberately creating a distraction from the real issue at hand. Typically, it is of crucial importance to the ideologue that the status quo be left unexamined. To ensure this as best she can, whenever anyone brings up the status quo for examination, the ideologue can produce her red herring, thus drawing attention away from her beloved status quo. In economics, opportunities to use the red herring abound. The reason for this is that an economy is a bafflingly complex and systemic phenomenon. First, an economy involves vast numbers of quantities - constants, variables, coefficients - each in some relationship to every other. The number of quantities already vast, the number of relationships among these quantities is exponentially greater. Second, much of what happens in an economy is not quantifiable at all. Faced with such a complex (even chaotic) phenomenon, it is very easy to a) resort to simplifications and b) to justify resorting to these simplifications as necessary for progress. Furthermore, given that such simplifications are not often simple (even if they are simple relative to the reality which they purport to model) but require long hours and hard work, it is often very difficult to explicitly label these simplifications as such, to qualify them and to state outright their (inevitably serious) limitations as accurate representatives of the real world. Such qualifications would evidently detract from the prestige of such models.

The appropriateness of such simplifications and their consequences for theory and policy must be evaluated case by case. This little article is about one such simplification, which I shall argue is inappropriate in important respects and whose consequences are ultimately undesirable. Specifically, this simplification has been used as a red herring, i.e., to distract the general public from pressing problems by implicitly identifying them with less pressing problems. The Robber Barons The issue I have in mind is that of the "Robber Barons". This is a group of renowned American industrialists, who thrived in the last half of the 19th century into the early 20th century. Their illustrious membership includes John D Rockefeller, James J Hill, Jay Gould, JP Morgan, and Andrew Carnegie. These men spearheaded operations that amassed enormous wealth and political muscle, such as the Standard Oil Company, Carnegie Steel, and JP MorganChase. Just as power cannot concentrate in the hands of one or a few individuals without public unrest and outcry, extraordinary wealth can hardly be expected to accumulate in the hands of a few without widespread suspicion. There seems to be an intuition, or an assumption, that a person can honestly earn only so much money; accumulation beyond this unspecified threshold must have involved fraud or malpractice of some kind. The so-called Robber Barons have never been free of such sideways glances and outright indictments. Their very moniker, bestowed when some of them were still alive,

indicates the attitude of much of the public throughout American history: these men were little better than feudal lords, amassing wealth not by morally unimpeachable methods such as cost-cutting and taking advantage of scale but by less sanitary methods, such as taking bribes, buying favorable legislation, and steamrolling competition on their way to uncontrollable monopoly positions. From the beginning, alongside this dim view of the Robber Barons has existed a countervailing perspective, in which these men have been misnamed and misrepresented. They were not glorified pirates but archetypal entrepreneurs; not sleazy (and skilled) manipulators but decent, hardworking men, models of the thrift, ingenuity, persistence, and dedication that characterizes those who succeed in the conservative's idyllic free-market vision. Furthermore, far from powerful villains, these men were philanthropists in every sense of the word: not only did they give directly to historically influential charities (Carnegie's libraries and Rockefeller's Foundation, for example), but they also lifted the proverbial tide that lifts all boats by making such goods as fuel, rail travel, and steel cheaply and widely available. The fact that such tide-lifting was merely incidental to these mens' purpose of enriching themselves only testifies to the miraculous wealth-fermenting nature of uninhibited self-interest and unhindered markets. The point I want to make about this controversy over what sort of people the Robber Barons were and whether they amassed their wealth by fair means or foul, is very simple: These questions are irrelevant to the problem of the morality of markets. Though these questions are of extreme interest and relevance to historians and to students of entrepreneurship, they are not only not germane to the

discussion of the morality of markets as such but they also detract from the quality of that particular conversation. In other words, the question of the quality of the individual lives and achievements of the Robber Barons is a crude simplification and a red herring. The Fallacy of Composition Some of those who have historically objected to the Robber Barons' conduct have done so purely as an exercise in character assassination. Understandably, others have risen to the challenge of clearing their names. Often, however, the goal of those who examine and exposit the lives and conduct of these men has been to use this history as a platform from which to generalize about the purported virtues or vices of markets. This is the ultimate importance of titanic figures such as Rockefeller, Morgan, and Carnegie: in the public mind, they are capitalism and enterprise personified and writ large. Therefore, if some vice or virtue can be found in them, as individuals, then it is assumed that the same vice or virtue must inhere in the free market enterprise system which they have come to symbolize. Like Jesus of Nazareth, Siddhartha Gautama, and Hitler, the Robber Barons have come to represent not so much particular historical realities as general philosophical ones. However, there is a serious fallacy in generalizing from the particular lives of the Robber Barons to the economy as a whole. Specifically, the move from a statement such as "The Robber Barons conducted themselves in accordance with classical market competition and created enormous wealth thereby" to a conclusion such as "Classical market competition is desirable over all other options" is

illegitimate. Similarly illegitimate would be a move from a statement such as "The Robber Barons achieved their wealth by fraud and arbitrage and beggared their neighbors" to a conclusion such as "Capitalism involves fraud and deceit" would be illegitimate. The operative fallacy here is the fallacy of composition, i.e. the treatment of a systemic reality - an economy - as sufficiently analyzable and evaluable by analysis and evaluation of particular elements within the system. One cannot isolate parts of the system, analyze them, and then apply the results of that analysis to the system as a whole. The distinctive nature of a system is that the sum total of the relations among all its parts (the system itself) differs qualitatively from each relationship or subset of relationships. For this reason, the outcome of a system cannot be accurately predicted, derived, or otherwise "read off" from any examination, however detailed, of the parts and their interrelationships in isolation. The Example of Global Warming I offer a simple illustration. Suppose a team of scientists tours the world to measure the quantity of greenhouse gases (GHGs) emitted into the atmosphere by every individual on the planet. When all the data were collected and analyzed, it would be found that no single person was sending GHGs into the atmosphere at anything approaching a dangerous rate. The scientists would then conclude that, since no particular person was doing damage to the atmosphere, then no damage was being done to the atmosphere. After all, if damage was being done to the atmosphere, it only stands to reason that we should be able to say who, exactly, is doing the damage. If

there are no "global warmers", then how can there be global warming? This, however, would be patently false, and the mistake would be clear. Certain results cannot be attributed to particular persons or groups of persons but are the outcomes of systemic processes and dynamics. If the scientists refuse to approach the problem as a systemic one, they will inevitably miss the point (to the detriment of everyone). Responsibility for the dangerous warming of the atmosphere cannot be laid on any particular person; instead, it is distributed, in very small increments, over everyone. Indeed, this is the heart of the whole problem: everyone must suffer the outcome of behavior that no one has incentive to repent of or to change. I will use this example to make one final point. If, for some reason, some party benefited from global warming, it would behoove that party (and therefore that party could be expected) to oppose the opposition to global warming and the behaviors that produce it. One means of doing this would be for that party to minimize public alarm by drawing attention away from the systemic nature of the problem and toward the fact that no particular person can rightfully be called a "global warmer". The Robber Barons as Representatives To return to the Robber Barons, the objections raised against them are not so much against their particular lives or conduct as against systemic processes in which they played prominent roles. (To the extent that these objections are against the particular lives and conduct of the Robber Barons, and to the extent that these are used

as platforms for generalizations about market enterprise, this use is fallacious.) That is, the Robber Barons were key turning points, or "moments", in systemic developments which, like global warming, are cause for alarm. Two such developments are worthy of notice here. First, there is the accumulation of massive wealth and political power in the hands of corporations, which have often used these resources to undermine democracy in favor of plutocracy. Most economists dismiss the idea that monetary wealth and political power can feed each other in a nefarious looping process (primarily by simply ignoring it). The lay person, fortunately enough, is not apt to miss this (as many people are reminded daily that power is distributed according to ability to pay). The possibility of and temptation to this dynamic are present in the system regardless of the specific conduct of men and companies such as Rockefeller and Standard Oil, Carnegie and US Steel, etc. No particular person or group of persons can be held responsible for the distinct tendency towards economic inequality exhibited by the American economic system over the years. This is a systemic development that cannot be grasped in the confines of biography. Second, there is the strong tendency of economic and professional activity and talent to concentrate increasingly in the realm of high finance. The art of accumulating vast wealth by trading, and otherwise manipulating, paper was pioneered by the Robber Barons, particularly by Morgan. The extent to which this tendency is detrimental to the economy (to welfare) as a whole is certainly debatable. The point remains, however, that this is a potentially odious development for which no single person - not even a mighty

Robber Baron - can be held responsible. It is systemic in nature. The Robber Barons Are Not the Point By now it should be clear that the point of this article is that, ultimately, the Robber Barons themselves are beside the point. An economy is an enormously complex system of interactions, adjustments, and causal relationships. Compounding this complexity is the fact that the system is constantly changing on many dimensions, e.g., social, political, geographical, and chronological. The characteristics of the system and its outcomes cannot be arrived at or judged by the characteristics and outcomes of any subset of the particular agents and interactions by which it is constituted. The controversy over the saintliness or villainy of the Robber Barons is a result of several urges that are entirely inimical to the purposes of economics as (an aspiring) science. First, there is the urge to simplify. In the face of a confounding and complicated system, it is easier to resort to cartoon and caricature than to press on with rigorous analysis. Second, there is the urge to demonize. Often, when one objects to a complex reality and/or to the theory underlying that reality, it is easy to burn its most prominent representatives in effigy. Third, there is the complement to demonization, hero-worship. Often, when one consents to a complex reality and/or to the theory underlying that reality, it is easy to build a shrine to its exemplars and fall to one's knees before it. It should be clear that neither demonization nor hagiography can substitute for actual argument grounded in systemic analysis. Moreover, it should be clear that demonization

and hero-worship do not advance the conversation but merely plant it in the quicksand of rhetoric and irrelevance.

The Robber Barons and the Morality of Markets