Category: Books

Boston Brahmins Invested in Western Industrialization

(p. A13) One of history’s ironies is that, even though New England birthed the abolition movement, many of Boston’s most prominent families offered less than total support for freeing the slaves. Their prosperity required a steady supply of cotton to feed New England’s growing textile industry. Even after slavery ended in 1865, wealthy Bostonians were reluctant to abandon their traditional business. Henry Lee Higginson, 30 years old and freshly discharged from the Union Army, bought with his partners a 5,000-acre plantation in Georgia with the goal of turning a profit by growing cotton. But the 60 former slaves living on the plantation thought the wages and terms offered to be grossly inadequate; the land they had worked in chains for generations, they believed, should belong to them. The enterprise soon collapsed.

As similar episodes played out across the South, Boston’s business elites looked for new places to invest their money. “They began to reenvision American capitalist development, not in modifying and salvaging the arrangements of earlier decades but in a far more ambitious program of continental industrialization,” Noam Maggor writes in “Brahmin Capitalism.” “They retreated from cotton and moved into a host of groundbreaking ventures in the Great American West—mining, stockyards, and railroads.”

. . .

Especially representative of the Bostonians’ transformative influence was Higginson’s next enterprise. Far removed from Georgian cotton, his interests landed on a copper mine in northern Michigan’s remote Keweenaw Peninsula. Copper had been discovered there 20 years earlier, but extraction had been small-scale and labor intensive; the high cost per unit meant that mining was profitable only for veins that contained at least 40% copper. In a short time, high-yield mines in the area began to show signs of depletion. But with Higginson’s capital—alongside investments from other Brahmins—large-scale copper extraction could take place as a continuous operation, making mining profitable on belts that contained only 2%-4% copper. In this way, Higginson’s Eastern capital transformed Western mining and launched a career that would make him one of Boston’s leading financiers.

For the full review, see:

John Steele Gordon. “BOOKSHELF; Enterprising Bostonians; Contrary to stereotype, the Brahmins of New England crisscrossed the continent and took bold risks in search of higher yields.” The Wall Street Journal (Monday, June 26, 2017): A13.

(Note: ellipsis added.)

(Note: the online version of the review has the date June 25, 2017, and has the same title as the print version.)

The book under review is:

Maggor, Noam. Brahmin Capitalism: Frontiers of Wealth and Populism in America’s First Gilded Age. Cambridge, MA: Harvard University Press, 2017.

Stalin’s “Despotism in Mass Bloodshed”

(p. A13) In the aftermath of Lenin’s death in January 1924, Joseph Stalin—already secretary-general of the Communist Party—emerged as the outright leader of the Soviet Union. “Right through 1927,” Stephen Kotkin notes, Stalin “had not appeared to be a sociopath in the eyes of those who worked most closely with him.” But by 1929-30, he “was exhibiting an intense dark side.” Mr. Kotkin’s “Stalin: Waiting for Hitler, 1929-1941,” the second volume of a planned three-volume biography, tracks the Soviet leader’s transformation during these crucial years. “Impatient with dictatorship,” Mr. Kotkin says, Stalin set out to forge “a despotism in mass bloodshed.”

The three central episodes of Mr. Kotkin’s narrative, all from the 1930s, are indeed violent and catastrophic, if in different ways: the forced collectivization of Soviet agriculture; the atrocities of the Great Terror, when Stalin “arrested and murdered immense numbers of loyal people”; and the rise of Adolf Hitler, the man who would become Stalin’s ally and then, as Mr. Kotkin puts it, his “principal nemesis.” In each case, as Mr. Kotkin shows, Stalin’s personal character—a combination of ruthlessness and paranoia—played a key role in the unfolding of events.

For the full review, see:

Joshua Rubenstein. “BOOKSHELF; The Turn to Tyranny; We may never know what degree of personal obsession, political calculation and ideological zeal drove Stalin to kill and persecute so many.” The Wall Street Journal (Wednesday, Nov. 1, 2017): A13.

(Note: the online version of the review has the date Oct. 31, 2017, and has the same title “BOOKSHELF; Review: The Turn to Tyranny; We may never know what degree of personal obsession, political calculation and ideological zeal drove Stalin to kill and persecute so many.”)

The book under review is:

Kotkin, Stephen. Stalin: Volume 2: Waiting for Hitler, 1929-1941. New York: Penguin Press, 2017.

75% “of All Wealth Is Created Anew in Each Generation”

(p. A17) Despite the liberal background of the author, however, “A Century of Wealth in America” offers comfort and support to those who favor less wealth taxation. A core element of Mr. Piketty’s indictment of contemporary wealth inequality was his claim that inheritance is the major source of wealth; he estimated that, given the slower economic growth that most economists anticipate in the future, inherited wealth would soon constitute 90% of wealth in economies such as that of the United States. But Mr. Wolff finds that, for modern America, wealth inheritance explains a much more modest share of private wealth: In 1989-2013, it was 23% on average. In other words, more than three-quarters of all wealth is created anew in each generation in the U.S. . . .

Even more surprising, inherited wealth is much more important in the lives of those who have relatively little wealth than it is in the lives of the super rich. For the top 1% of wealth holders from 1989 to 2013, inherited wealth accounted for only 17% of their assets. (The 1%, in this analysis, is an overwhelmingly self-made group.) By contrast, for those with assets of just $25,000-$50,000, inherited wealth accounted for 52% of their worth.

As a bizarre consequence of this pattern, African-Americans, who have low levels of net worth on average, are the social group for which inherited wealth represents the largest share of their net worth. Another odd implication is that inheritances tend to make overall wealth-holding more equal. Were inherited wealth to be completely abolished, the wealth of the poor would decline more than that of the rich. Inherited wealth is the great equalizer. Who knew?

. . .

. . . , Mr. Wolff calculates that the rich are not systematically generating higher returns on their assets than more modest wealth holders. The top 1% had a real return on net worth of around 3% over the 30 years from 1983 to 2013—the same return as the average wealth holder.

For the full review, see:

Gregory Clark. “BOOKSHELF; How the Richest Got That Way; In the U.S. more than three-quarters of all wealth is created anew in each generation, and the ‘1%’ is an overwhelmingly self-made group.” The Wall Street Journal (Tuesday, December 12, 2017): A17.

(Note: ellipses added.)

(Note: the online version of the review has the date Dec. 11, 2017, and has the title “BOOKSHELF; Review: How the Richest Got That Way; In the U.S. more than three-quarters of all wealth is created anew in each generation, and the ‘1%’ is an overwhelmingly self-made group.”)

The book under review is:

Wolff, Edward N. A Century of Wealth in America. Cambridge, MA: Belknap Press, 2017.

YouTube Clip on “Brunelleschi and Ghiberti’s Rivalry” Excerpted from EconTalk Podcast

A brief YouTube clip on “Brunelleschi and Ghiberti’s Rivalry,” excerpted from the EconTalk podcast on Openness to Creative Destruction. The host and interviewer was Russ Roberts of Stanford University’s Hoover Institution. If you click above, the podcast should play right within my blog.

“Outsiders” YouTube Excerpt from EconTalk Podcast on Openness to Creative Destruction

A brief YouTube clip on “Outsiders,” excerpted from the EconTalk podcast on Openness to Creative Destruction. The host and interviewer was Russ Roberts of Stanford University’s Hoover Institution. If you click above, the podcast should play right within my blog.

Spectrum Property Rights Allowed Wireless to Flourish

(p. A15) Economic activity is increasingly conducted wirelessly, under a regulatory regime developed nearly a century ago—one that favors well-heeled incumbents and does little to encourage efficient use of the spectrum. The difficulty that new entrants face in securing spectrum, along with a system that locks in existing technology, chills investment in next-generation infrastructure.

Given the exciting promise of today’s technology, how did we end up hamstrung by such a backward regulatory regime?

. . .

Mr. Hazlett cites as an example the 1930s-era drama surrounding FM radio. From the start, FM had much better sound fidelity than AM—and so threatened existing AM networks operated by NBC, CBS and AT&T’s wired long-distance telephone network. These companies used the Federal Communications Commission to hamper the development of FM and succeeded in having it moved to a different band after World War II. This rendered all existing FM equipment—purchased by consumers at no small expense—useless and limited stations’ transmission power such that their audiences became too small to sustain a competitive business. So distressing was the episode that the father of FM radio, Edwin Howard Armstrong, ended his own life in 1954. The sad saga was merely an early example of the FCC exhibiting the “capture theory” of regulation, according to which regulators and legislators enact rules nominally in the public interest but in fact designed to enrich specific interest groups.

. . .

Mr. Hazlett devotes a substantial portion of his book to arguments for reforms, the most promising of which rest on the Nobel Prize-winning work of British economist Ronald Coase. Coase showed that, absent transaction costs, well-defined assets will wind up in the hands of the entities that value them most. By assigning property rights to frequencies—thereby turning them into assets and enabling the pricing mechanism—immense value can be created from the more efficient employment of bandwidth. For years, the concept of treating bandwidth like property and distributing it through competitive auctions seemed like a pipe dream. In the 1970s, two FCC commissioners said that the odds that this approach would be adopted “were equal to ‘those on the Easter Bunny in the Preakness.’ ” Well, the Easter Bunny won, and in 1994 the FCC started auctioning wireless licenses.

. . .

. . . for consumers and the public, “The Political Spectrum” is a good reminder of how far we have come. Today few economists question the benefits of well-defined rights, flexible use and auctions. That we are debating how to implement these ideas, rather than whether to do so, is reason for cautious optimism about our wireless future.

For the full review, see:

Gregory L. Rosston. “BOOKSHELF; Unlocking the Airwaves; In regulating radio, the FCC enacted rules nominally in the public interest, but which actually enriched specific interest groups.” The Wall Street Journal (Monday, July 17, 2017): A15.

(Note: ellipses added.)

(Note: the online version of the review has the date July 16, 2017, and has the same title as the print version.)

The book under review is:

Hazlett, Thomas W. The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone. New Haven, CT: Yale University Press, 2017.