Neil Rolde’s Blog: Capitalism II

by Neil Rolde


May 13th, 2012 

The last spike being driven into the Transcontinental Railroad in 1869

When we last left our hero, Capitalism, he was flexing his muscles, having laid a knockout blow on Mercantilism and turning his pugilistic attention to dominating the entire economy of the Western world and, before long, that of the rest of the planet as well. An offshoot of the power of the fast-growing nascent business class was its reach fully into the phenomenon soon to be called “Imperialism.” Undeveloped areas were conquered and their resources, on the cheap, absorbed into the Capitalist maw. “Taking up the white man’s burden” was the smarmy, advertised interpretation of this legalized thievery.

The U.S., because of its colonial past, was not originally in the same camp as Great Britain, France, Germany, Italy, Portugal, Spain, et. al. It took almost a full century before the U.S.A joined the rapacious pack, picking up a few stray dependencies like the Philippines, Hawaii, Guam, American Samoa and Puerto Rico, while keeping a wary eye and military invasion plans on most of Latin America.

A lynchpin of the growing industrialization in the U.S. was the development of railroads that began just prior to the Civil War. Much has been made of the transportation explosion that helped link our scattered settlements on the North American continent. The men who built the railroads were hailed as heroes of progress (although later some of them slipped into the less glamorous category of robber barons). But to listen to certain gurus of American free enterprise, you would think these bravos did it all on their own without any help from (gulp) our U.S. government.

I had evidence of such an attitude provided at a meeting of a group I once belonged to called the Presidents Circle of the National Academy of Sciences. Also a member was Bill Koch, one of the now notorious Koch brothers, two of whom are pouring millions into present-day political campaigns. Bill is not one of these political heavies – he seems to prefer collecting art and sailing (he won the Americas Cup for the U.S. in the past). But his ideology aligns with his brothers, the Koch boys seemingly having had dinned into them the philosophy of their father, a founder of the arch-right wing John Berch Society. In the course of a discussion at the Presidents Circle, Bill Koch made an impassioned plea for returning to “the good old days,” when free enterprise had encountered no restraints nor government assistance and he especially lauded those railroad pioneers for their initiative and daring.

However, Bill never mentioned the most salient fact about railroad building in our country – that it all depended on the immense land grants received from the Federal government in Washington, D.C. These gifts were turned into cash as collateral for bonds sold to create the capital necessary for the vast enterprises cropping up all over the country. When I reminded Bill Koch of such Federal help, without which the railroads could not have been built, he sheepishly admitted he had to agree with me and had forgotten that aspect of American Capitalism.

1850 map of the Illinois Central Railroad and New Orleans and Ohio Railroad

An illustration of the amplitude of these land donations can be observed through the microcosm of a single particular project – the creation of the Illinois Central Railroad Company. The donated lands backing up this one example alone (and hardly the biggest of them) amounted to 3,840 acres for each mile built or an aggregate of 2,572, 800 acres. The value placed on the Illinois line’s real estate in toto was more than $21,400,000

From railroads to oil to steel, the expansion of American industry in the the mid to late 19th century was extraordinary. Given birth ideologically was not only a boastful and brash Capitalist society but what came to be known as “Social Darwinianism,” the rule of Survival of the Fittest and the moral superiority of winners, no matter how reprehensible their behavior. Capitalism’s harshness in the use of its workers led to the formation of Unions and almost continual labor strife. So extreme were some of the abuses that in 1887, Congress passed the Interstate Commerce Act, “the federal governments’ first attempt to interfere with the conduct of business.” The activity of the railroads in playing favorites in rate cases was specifically cited as causing the impulse for Uncle Sam to level the playing field.

Nevertheless, the industrializing trend maintained itself and – heading into and out of World War I – seemed invincible, producing such powerful political slogans as “The business of America is business.”

The 1920’s saw the climax of prosperity, but following a pattern seen in the U.S. economy since before the Civil War was beset by yo-yo periods of recession and then recovery. The habit of speculation became rooted and the first major Depression arrived in 1929. The walls of wealth came tumbling down and, before long, one third of Americans were out of work once the economy collapsed.

We all know that Franklin Delano Roosevelt took office on a pledge to combat the Depression and its effects. He saw clearly the need for, as he put it, “a re-appraisal of values.” Stating that “a mere builder of more industrial plants, a creator of more railroad systems, an organizer of more corporations, is as likely to be a danger as a help,” FDR went on to declare that “The day of the great promoter of the financial Titan, to whom we granted anything if only he would build or develop is over.” He insisted that “equality of opportunity, as we have known it, no longer exists” and that “the task of Government in its relation to business is to assist the development of an economic declaration of rights, an economic constitutional order…”
Such rhetoric won Roosevelt the job of Chief Executive and from 1932 until his death in 1945, he labored with eventual success in forming the U.S. into the greatest and fairest economic giant in the world.

Franklin D. Roosevelt

Roosevelt’s “reform Capitalism” did save the Capitalist system and give it a new lease on life. Other countries, like Germany, Italy, Russia, Japan, reacted with totalitarian dictatorships. But the reprieve offered by the New Deal would last only a few decades until attacked by Darwinian forces working to restore a golden age of laissez-faire, which never ever really did exist or whose dependence on governmental subsidies was conveniently forgotten, the way Bill Koch had done.

To preach that Adam Smith’s invisible hand – i.e., the market – if left alone will correct every flaw defies common sense and past performance. It is a step down the road to economic hell. But people do forget, as we have seen. Raw Capitalism’s rapacious imperative that in selfishness lies salvation once more is experiencing a revival here in the second decade of the 21st century. Whether we can survive another onslaught of needless economic recklessness and its resulting financial inequality remains to be seen.

For more of Neil’s blogs click here
Neil Rolde’s Blog: Capitalism Part III
Neil Rolde’s Blog: Capitalism Part II
Neil Rolde’s Blog: Capitalism Part I