History – Page 32 – artdiamondblog.com

Capitalism’s Market Entrepreneurs Benefit the Common Man

“Rails to riches: An 1870 cartoon depicting James Fisk’s attempt to stop Cornelius Vanderbilt from gaining control of the Erie Railroad Company.” Source of caption and cartoon: online version of the WSJ article quoted and cited below.

I have read H.W. Brands’ Masters of Enterprise book and found that it contained some interesting anecdotes, but not very insightful interpretation. From Amity Shlaes’ useful review quoted below, I would expect the same from Brands’ most recent book.

(p. C7) Mr. Brands laments that capitalism’s triumph in the late 19th century created a disparity between the “wealthy class” and the common man that dwarfs any difference of income in our modern distribution tables. But this pitting of capitalism against democracy will not hold. When the word “class” crops up in economic discussions, watch out: it implies a perception of society held in thrall to a static economy of rigid social tiers. Capitalism might indeed preclude democracy if capitalism meant that rich people really were a permanent class, always able to keep the money they amass and collect an ever greater share. But Americans are an unruly bunch and do not stay in their classes. The lesson of the late 19th century is that genuine capitalism is a force of creative destruction, just as Joseph Schumpeter later recognized. Snapshots of rich versus poor cannot capture the more important dynamic, which occurs over time.

One capitalist idea (the railroad, say) brutally supplants another (the shipping canal). Within a few generations–and in thoroughly democratic fashion–this supplanting knocks some families out of the top tier and elevates others to it. Some poor families vault to the middle class, others drop out. If Mr. Brands were right, and the “triumph of capitalism” had deadened democracy and created a permanent overclass, Forbes’s 2010 list of billionaires would today be populated by Rockefellers, Morgans and Carnegies. The main legacy of titans, former or current, is that the innovations they support will produce social benefits, from the steel-making to the Internet.
The second failing of “Colossus” is its perpetuation of the robber-baron myth. Years ago, historian Burton Folsom noted the difference between what he labeled political entrepreneurs and market entrepreneurs. The political entrepreneur tends to compete over finite assets–or even to steal them–and therefore deserves the “robber baron” moniker. An example that Mr. Folsom provided: the ferry magnate Robert Fulton, who operated successfully on the Hudson thanks to a 30-year exclusive concession from the New York state legislature. Russia’s petrocrats nowadays enjoy similar protections. Neither Fulton nor the petrocrats qualify as true capitalists.
Market entrepreneurs, by contrast, vanquish the competition by overtaking it. On some days Cornelius Vanderbilt was a political entrepreneur–perhaps when he ruined those traitorous partners, for instance. But most days Vanderbilt typified the market entrepreneur, ruining Fulton’s monopoly in the 1820s with lower fares, the innovative and cost-saving tubular boiler and a splendid advertising logo: “New Jersey Must Be Free.” With market entrepreneurship, a third party also wins: the consumer. Market entrepreneurs are not true robbers, for their ruining serves the common good.

For the full review, see:
AMITY SHLAES. “An Age of Creative Destruction.” The Wall Street Journal (Sat., October 16, 2010): C7.
(Note: the online version of the article is dated October 29 (sic), 2010.)

The book under critical review by Shlaes:
Brands, H.W. American Colossus: The Triumph of Capitalism, 1865-1900. New York: Doubleday, 2010.

The Folsom book rightly praised in passing by Shlaes is:
Folsom, Burton W. The Myth of the Robber Barons. 4th ed: Young America’s Foundation, 2003.

History Forgets Those Who Leave Little Paper Trail

Source of book image: online version of the WSJ review quoted and cited below.

Like most of his fellow students, Barry stayed on just long enough get a grasp on the three Rs without abandoning his Catholic faith. One result of this abbreviated education was a lifelong tendency to keep all correspondence as short and simple as possible. Thus this brave, able man of action left only a minimal paper trail for future historians and biographers. John Paul Jones–an eloquent, prolific and unabashedly self-promoting letter writer–has inspired at least three major biographies in the past few years alone. It has been 72 years since the appearance of the last reliable biography of his rival, William Bell Clark’s “Gallant John Barry.”

For the full review, see:
ARAM BAKSHIAN JR.. “BOOKSHELF; The Revolutionary War’s Other Naval Hero.” The New York Times (Sat., JUNE 5, 2010).

The book under review is:
McGrath, Tim. John Barry: An American Hero in the Age of Sail. Yardley, PA: Westholme Publishing, 2010.

Documenting Dangers of Growing Public Debt (and of Replacing History with Math)

“Kenneth Rogoff and Carmen Reinhart at Ms. Reinhart’s Washington home. They started their book around 2003, years before the economy began to crumble.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. 1) Like a pair of financial sleuths, Ms. Reinhart and her collaborator from Harvard, Kenneth S. Rogoff, have spent years investigating wreckage scattered across documents from nearly a millennium of economic crises and collapses. They have wandered the basements of rare-book libraries, riffled through monks’ yellowed journals and begged central banks worldwide for centuries-old debt records. And they have manually entered their findings, digit by digit, into one of the biggest spreadsheets you’ve ever seen.

Their handiwork is contained in their recent best seller, “This Time Is Different,” a quantitative reconstruction of hundreds of historical episodes in which perfectly smart people made perfectly disastrous decisions. It is a panoramic opus, both geographically and temporally, covering crises from 66 countries over the last 800 years.
The book, and Ms. Reinhart’s and Mr. Rogoff’s own professional journeys as economists, zero in on some of the broader shortcomings of their trade — thrown into harsh relief by economists’ widespread failure to anticipate or address the financial crisis that began in 2007.
“The mainstream of academic research in macroeconomics puts theoretical coherence and elegance first, and investigating the data second,” says Mr. Rogoff. For that reason, he says, much of the profession’s celebrated work “was not terribly useful in either predicting the financial crisis, or in assessing how it would it play out once it happened.”
“People almost pride themselves on not paying attention to current events,” he says.
. . .
(p. 6) Although their book is studiously nonideological, and is more focused on patterns than on policy recommendations, it has become fodder for the highly charged debate over the recent growth in government debt.
To bolster their calls for tightened government spending, budget hawks have cited the book’s warnings about the perils of escalating public and private debt. Left-leaning analysts have been quick to take issue with that argument, saying that fiscal austerity perpetuates joblessness, and have been attacking economists associated with it.
. . .
The economics profession generally began turning away from empirical work in the early 1970s. Around that time, economists fell in love with theoretical constructs, a shift that has no single explanation. Some analysts say it may reflect economists’ desire to be seen as scientists who describe and discover universal laws of nature.
“Economists have physics envy,” says Richard Sylla, a financial historian at the Stern School of Business at New York University. He argues that Paul Samuelson, the Nobel laureate whom many credit with endowing economists with a mathematical tool kit, “showed that a lot of physical theories and concepts had economic analogs.”
Since that time, he says, “economists like to think that there is some physical, stable state of the world if they get the model right.” But, he adds, “there is really no such thing as a stable state for the economy.”
Others suggest that incentives for young economists to publish in journals and gain tenure predispose them to pursue technical wizardry over deep empirical research and to choose narrow slices of topics. Historians, on the other hand, are more likely to focus on more comprehensive subjects — that is, the material for books — that reflect a deeply experienced, broadly informed sense of judgment.
“They say historians peak in their 50s, once they’ve accumulated enough knowledge and wisdom to know what to look for,” says Mr. Rogoff. “By contrast, economists seem to peak much earlier. It’s hard to find an important paper written by an economist after 40.”

For the full story, see:
CATHERINE RAMPELL. “They Did Their Homework (800 Years of It).” The New York Times, SundayBusiness Section (Sun., July 4, 2010): 1 & 6.
(Note: the online version of the article is dated July 2, 2010.)
(Note: ellipses added.)

The reference for the book is:
Reinhart, Carmen M., and Kenneth Rogoff. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press, 2009.

Source of book image: http://www.paschaldonohoe.ie/wp-content/uploads/2010/02/This-time-is-different.jpg