The Triumph of Conservatism, by Gabriel Kolko
Reviewed by Jacob
One sign of good non-fiction, I think, is that while one reads a book, one wishes more and more desperately for everyone else in the world to read it too. That’s how I often felt reading Gabriel Kolko’s The Triumph of Conservatism.
I first heard of Kolko’s book while reading David D. Friedman’s The Machinery of Freedom. Friedman mentions Kolko as a “socialist” historian who refutes the tale of the federal government protecting the public from monopolists during the early 1900s. Friedman begins his own discussion of monopoly by discussing the work of Kolko and a couple of other authors:
“One of the most effective arguments against unregulated laissez faire has been that it invariably leads to monopoly. As George Orwell put it, “The trouble with competitions is that somebody wins them.” It is thus argued that government must intervene to prevent the formation of monopolies or, once formed, to control them. This is the usual justification for antitrust laws and such regulatory agencies as the Interstate Commerce Commission and the Civil Aeronautics Board.
“The best historical refutation of this thesis is in two books by socialist historian Gabriel Kolko: The Triumph of Conservatism and Railroads and Regulation. He argues that at the end of the last century businessmen believed the future was with bigness, with conglomerates and cartels, but were wrong. The organizations they formed to control markets and reduce costs were almost invariably failures, returning lower profits than their smaller competitors, unable to fix prices, and controlling a steadily shrinking share of the market. The regulatory commissions supposedly were formed to restrain monopolistic businessmen. Actually, Kolko argues, they were formed at the request of unsuccessful monopolists to prevent the competition which had frustrated their efforts.
I think Friedman conveys Kolko’s thesis wonderfully in this excerpt, and, having finally read Kolko’s book myself, I find Kolko’s case quite convincing. Reading more recent books like Saving Capitalism by Robert Reich, I wonder at how so many political writers could have failed to absorb the lessons of Kolko’s work since its publication in 1963.
One explanation of this is that Kolko’s thesis was erroneous, and that the libertarians who cite him are mistaken in building on his work. If, upon reading the present review, readers want to contact me and introduce me to literature demonstrating as much, I welcome the possibility of being proven wrong. The evidence Kolko mounts in his favor, and the apparent obliviousness of authors like Reich to his work and the work of many similar authors, however, leads me to think that a different explanation is more probable: that Kolko was by and large correct and some authors, (like Robert Reich,) have simply not studied the period as deeply as he.
The book is full of information, and took me a long time to read and think through, but here are a few takeaways:
1) The real world is complex. Kolko makes clear that the U.S. economy at the turn of the twentieth century was neither a theoretically perfect “free market”, nor a command economy, nor a “mixed economy” managed by a government with any clear ideas of what they wanted to accomplish. History was not a morality play, it wasn’t a battle between heroic businessmen against an evil government, or one pitting a benevolent government against dangerous businessmen. Things were messy. I like Kolko’s book for conveying this.
In many ways, the federal government worked with business tycoons to help shield them from the public and from their competitors, but even painting the period as one purely of collusion between business and government at the expense of society at large would oversimplify Kolko’s account. Certainly business elites worked with government to achieve their own interests, and government often went along with their requests, but Theodore Roosevelt and some congressmen did sometimes make gestures towards stopping business leaders from crossing certain boundaries. What “boundaries” they were supposed not to cross was ill-defined, Roosevelt’s actions, and intentions, were mixed, and when government stepped in to “intervene,” their actions either had little effect or played, intentionally or not, into the hands of the financial elite. But one must acknowledge these gestures in order to point out their ineffectiveness and scarcity.
Kolko doesn’t spin history either for or against voluntaryist ethos, or libertarian economic policies. The author certainly had his own values and ideology, and these do show through, but the book doesn’t come off as propaganda. He simply puts forward a thesis and examines the evidence for and against it. It’s a book about economic history, not a manifesto or a package of policy recommendations. And I find this refreshing.
2) The federal government did little to curb the power of business owners. Theodore Roosevelt, and the federal government in general, acted without much of a compass when it came to dealing with trusts or monopolies. Roosevelt divided trusts in various industries into “good” trusts and “bad” trusts, rather arbitrarily.
Standard Oil was one of the supposed “bad” companies, and it’s true that under Roosevelt the Department of Justice filed multiple suits against the company, including the one which eventually led to their dissolution.
It’s not clear that the actions taken by the federal government against Standard Oil actually benefited society at large, however. In 1907, one judge fined the company $29 million for accepting rebates from railroad companies in violation of the Elkins Anti-Rebating Act, but the decision was appealed and eventually overturned. In 1911, (during William Howard Taft’s administration,) the Supreme Court ruled that Standard Oil would have to be dissolved into multiple companies. But the same people who had owned stock in Standard Oil became the owners of the companies into which Standard Oil was broken up, and the combined stock value of these companies actual increased relative to what it had been before the company was dissolved. The stockholders, including John D. Rockefeller, became more wealthy, not less, with the dissolution of the company.
Further, the new companies were not placed in an especially competitive position with one another. Rather than one company, Standard Oil, doing business around the globe, a collection of new companies now did business in various regions, but the federal government didn’t set the new businesses up to compete within regions, but rather to control different regions.
Some authors, (such as Robert Reich in Saving Capitalism,) argue that the federal government should combat monopolies because those who obtain monopoly power will gain enough wealth to take control of the reigns of government. If this is the point of trust-busting, it seems the dissolution of Standard Oil was a failure, given that the wealth of the company’s shareholders ended up increasing. Perhaps their wealth would have increased even more without the breakup, but this possibility seems like a weak rationale for the government’s actions, certainly a weaker one than authors like Reich want to provide.
Perhaps the more obvious goal of combating monopoly would be to keep companies like Standard Oil from charging exorbitant prices or producing low-quality goods. On this, I actually wish Kolko provided more data. Specifically, in the case of Standard Oil, I’d like to know the year by year prices of the different products the company sold, along with their profit margins. Plus similar data for their competitors. Kolko does mention that “[c]rude and refined oil prices for consumers declined during the period Standard exercised greatest control of the industry, 1875-1895, and rose thereafter along with prices for most consumer goods.” (pages 39-40) He goes on to discuss how Standard Oil began loosing market share to their competitors after they began raising their prices, but before the company was dissolved, providing good evidence that Standard lost their position as the most major player in their industry as a result, at least initially, more of “market forces” than “government intervention.” But he doesn’t mention what effects, if any, the dissolution in 1911 had on prices or on the quality of goods.
Of course, many other factors would have played into the prices and profit margins of the different companies, for example the declining use of kerosene for lighting due to the arrival of electric lightbulbs and the new use of gasoline for automobiles. I’m not sure if it would be possible to control for these other factors in order to determine the effect of the Supreme Court decision. But, while it’s a small criticism, (and Kolko certainly provides a lot of data throughout his book,) I do still wish Kolko provided more information.
Even so, I think Kolko calls into question what the government actually accomplished in taking Standard Oil to trial. The dissolution of the company may have produced enough sound and fury to give people the impression of government combating big business on behalf of the public, but in terms of actual benefiting society at large, it’s hard to say their actions had any strong effect.
I discuss the Standard Oil example at length because I think it’s perhaps the best example of the federal government acting contrary to the wishes of business tycoons. This was about as far as the government went, and Kolko shows that it really wasn’t far at all. In other industries, like Steel production, the executive branch of the federal government turned a blind eye to attempts by business leaders to collude and control prices. As Kolko describes, (pages 35 – 36,)
“On November 21, 1907, forty-nine steel industry leaders met at the Waldorf-Astoria in New York to participate in the first of what were soon dubbed the “Gary Dinners.” Gary not only invited the steel men, however; he also notified the steel trade journals, the Department of Justice, the Department of Commerce, and the newspapers. Gary was anxious to avoid the impression that he was creating illegal price-fixing agreements or that there was anything secretive in his actions. At the meeting he stressed the need for industry cooperation and all the executives present attacked the demoralization of prices that had resulted from invasions of each other’s markets. In the hope of attaining price stability, the group agreed not to reduce prices without mutual consultation, and a committee of five, including Gary, was elected to give advice and conciliate differences. Gary insisted that the meeting was not an effort to fix prices but was instead an effort to maintain them by “gentlemen’s agreements.”
“In late January, 1908, a larger number of steel executives, representing over 90 per cent of the industry, met again at the Waldorf. According to Gary “every manufacturer present gave the opinion that no necessity or reason exists for the reduction of prices at the present time…” This viewpoint was based not on a formal agreement, but on a consensus. The industry wanted competition, but not “bitter warfare.” Gary, at the same time, took steps to prevent government prosecution of his voluntary agreements. He wrote Attorney General Charles Bonaparte in February, 1908, that the understanding had been made at the initiative of large steel customers with expensive inventories who wanted the steel industry to maintain prices. Still insisting no formal agreements had been made, Gary wrote that “We are perfectly satisfied to limit the amount of our business to our proportion of capacity and to do everything possible we can to promote the interests of our competitors; and by frequent meetings and the interchange of opinions we have thus far been able to accomplish this result without making any agreements of any kind.” The meetings continued.
“By May, 1908, however, breaks again began appearing in the united steel front. And Perkins complained to Morgan that U.S. Steel’s independent barons, still oriented towards industrial production rather than financial control, were among the leading trouble-makers. But rumors were circulating that price cuts were being made or were imminent, and in late May the steel men again gathered to reaffirm their loyalty to the Gary understandings. But it was of no use, and several weeks later they met again to reduce prices on a large number of major steel items to counter the secret price-cutters.
This passage from Kolko provides evidence that price-fixing through collusion tends to fail, not because of government protection of the public, but because it is in the interests of steel producers to cut the prices they charge to some of their customers, thereby breaking their agreements with their competitors to keep prices high, in order to draw those customers to them and away from their competitors.
Kolko provides similar evidence for an array of industries. Though anti-trust laws existed during this time, they often, as in this case, went unenforced. Companies attempted to gain monopoly powers through price-wars, collusion, buying up their competitors, integration along supply chains, and so forth, but overall, in the long term, these methods failed. They failed, not because the federal government took serious and far-reaching steps to stop them, which they did not, but because executives grossly overestimated the effectiveness of these voluntary means to try and establish control, and underestimated the extent to which others could successfully compete, and to which they had incentives to do so.
3) Business owners greatly influenced the federal government’s actions.
Kolko discusses in great depth the involvement of bankers in the creation of the Federal Reserve, and the involvement of various business owners in the creation of the Federal Trade Commission. But I’ll use his example of the meat-packing industry as an illustration, because it allows for a less verbose making of this particular point.
In the late 1800s, several governments in Europe banned importations of meat products from the U.S., the rationale being that the meat was too often unsafe for consumption. The major meat-packing companies in the U.S. wanted these bans to be lifted, so that they could profit from selling meat to European markets, and part of their effort to bring this about was to ask the U.S. federal government to inspect their meat-products for them. After years of such pressure, the federal government eventually obliged, slowly becoming more involved in inspecting the products of the meat-industry, though their actions were limited by the fact that they relied on the interstate commerce clause to give them the power to “regulate” the industry in this way. Kolko states, (on page 100,)
“n March, 1891, Congress passed the first major meat inspection law in American history. … The Act provided that all live animals be inspected, and covered the larger part of the animals passing through interstate trade. Every establishment in any way involved in export was compelled to have a Department of Agriculture inspector, and violations of the law could be penalized by fines of $1,000, one year in prison, or both. … The law, in brief, was a rigid one, and had the desired effect. During 1891 and 1892, prohibitions on importing American pork were removed by Germany, Denmark, France, Spain, Italy, and Austria.
All this happened years before Upton Sinclair published his writings on the unsanitary conditions in the meat-packing industry. After Sinclair, and others, wrote their exposés on the industry, another law was indeed passed in 1906 reforming goverment inspection of meat, but the major meat-packers were not strongly opposed to the legislation. On the contrary, they supported it, as they had supported the earlier laws. Strong evidence that congress, and the federal government more generally, was working more with the major meat-packers than against them is given by the further fact that the law, while being debated in congress, was changed to accommodate what objections the meat-packers did have. Kolko continues his narrative, (on page 104,)
“The measure was submitted as an amendment to the Agriculture Appropriation Bill, and the big packers indicated at once that they favored the bill save in two particulars. They wanted the government to pay for the entire cost of inspection, as in the past, and they did not want canning dates placed on meat products for fear of discouraging the sales of perfectly edible but dated products. Save for these contingencies, the Beverage Amendment received the support of the American Meat Packers’ Association and many major firms. The packers’ objections were embodied in the amendments to the Beveridge proposal made in the House by James W. Wadsworth, chairman of the Committee on Agriculture.
While President Theodore Roosevelt did object to Wadsworth’s changes to the bill, and congress debated the issue, the Act was eventually passed, and signed into law by president Roosevelt, with the changes still included.
This story is only one example of the kind of evidence Kolko’s book provides. The early 1900s are sometimes painted as a period when the federal government stepped in to protect the public from harm done to them by business elites, at the request of the public that they do so. If this were, in fact, what had happened, perhaps the period could be used to make the case that government can, and at some point in the past did, serve as a counter-weight to the power of capitalists and business owners. Perhaps, if this were what had happened, then one could point to the era as a demonstration of what government should be. One could then argue for a return to this sort of government, at least in the sense of a renewed effort to limit the excesses of businessmen through well-crafted government regulations.
But the government during this time did not serve as the defender of the public, nor as their servant. The “regulation” of the meat-packing industry could be more accurately called a “subsidy,” the government “socialized” the cost of meat-inspection and of persuading the governments of Europe, as well as the public in both Europe and the U.S., that the meat produced by the major packers was safe for consumption, while letting the meat-packers “privatize” the gains in the forms of higher profits from their renewed ability to export meat to Europe. If the meat-packing industry had had to do the work themselves, hiring third parties to inspect their meat and make sure it was safe before it was sold, then they might have been able to keep their meat safe without government inspection, but it would have cut into their profits in a way that tax-payer funded inspection did not.
It may, also, have been less effective at persuading consumers to purchase meat products; consumers may have been more careful in what they bought and ate had the inspection been done by an organization not affiliated with or run by the federal government. The federal government, essentially, used the public’s trust in them to shield the meat-packers from public scrutiny. Perhaps the public’s trust in the efficacy of government inspection was misplaced, given that Upton Sinclair’s research into the meat-packing industry, and his exposé of working conditions within it, occurred at a time when government was already inspecting meat. But, misplaced or not, the public did not appear to retract their trust when reform occurred in 1906.
This is a major reason why I want to encourage you, (yes, you, dear reader,) to read Kolko’s book. Many people still treat the government as somehow a protector of the public against business elites, rather than a protector of business elites against the public. When evidence is provided that, today, the government seldom, (if ever,) plays such a role, (evidence “progressive” authors like Robert Reich acknowledge, which one can see by reading his book Saving Capitalism, in which he discusses a great deal of such evidence at length,) the so-called “Progressive era” under Theodore Roosevelt is sometimes used as evidence that government can and has served such a role in the past, and thus that we simply need to repair government, returning it to its role as our collective servant and protector, rather than abandoning the hope that it will help us in our fight against corporate power and fighting both corporations and the State as two partners in oppression.
Kolko’s book provides the historical evidence necessary to realize that government was not, during Roosevelt’s presidency, under the control of the public at large in the way “progressives” like Robert Reich imagine. Nor was it the people’s guardian angel, as so many also, apparently, believe. Corporations may have become more powerful since the start of the twentieth century, but if there was ever an era of good government acting as the people’s common servant and protector against capitalism or the rich, the early twentieth century in the U.S. was not when and where it occurred.
Gabriel Kolko’s The Triumph of Conservatism demonstrates that, through the late 1800s and early 1900s, business leaders’ efforts to gain control of their industries through voluntary means failed, not because of anti-trust legislation or government action, but because of the instability of monopolies in the market, even a market warped through intellectual property, tariffs, and subsidies in a way that one would expect to encourage monopolies to form.
Further, the federal government did not act as a servant of the general public. The influence business owners have today over government actions and policy is not new, (even though the problem may have worsened over time.) Even during the “Progressive Era,” supposedly a paradigmatic episode of “good government” acting on behalf of the people to protect them from monopolists and businessmen, the reality is that the government often acted, not only in the interests of those businessmen, but at their request, tailoring legislation, and interpreting legislation that was passed, in the ways financial elites asked them to do.
“Government regulation” does not, inherently, harm those at the top of the financial pyramid. Instead, it is often a tool they themselves ask for, and use to their own benefit, at the expense of the rest of us.
I hope that people will read this book, to inoculate them against the stories told by defenders of government “intervention” in the economy of how Theodore Roosevelt and the U.S. federal government saved the common people from the spectre of the robber barons. There was no “golden age” of pure Laissez-Faire, where a perfect free market made the world a better place before government destroyed it, but neither was there an age of government rushing in on white horses in shining armor to smite the dragon of unregulated capitalism. I want people to read up on the history for themselves, so that they need not be taken in by either “simple-telling,” but rather can gain an actual understanding of the history of the era, decide what course they want to try to take in their own political activism based on their knowledge of what took place, and debate the best path forward having come to a shared understanding of the facts, rather than tossing stones from the fortresses of their respective caricatures of history.