Fibber for the State

Recently by Thomas E. Woods, Jr.: Beware Unhampered Capitalism

Walter LaFeber is a pretty good historian of American foreign policy of the late nineteenth and early twentieth centuries. The other day I was flipping through The American Search for Opportunity, 1865-1913, the volume he contributed to The Cambridge History of American Foreign Relations. In setting the stage for explaining American foreign policy in the late nineteenth century he paints a picture of life on the domestic front. That picture turns out to be more like a cartoon. Thanks to the Internet, I can rectify this outrage immediately.

(1) LaFeber notes that between 1897 and 1904 (but really 1899 and 1902) “the greatest corporate merger movement in the nation’s history occurred.” He chooses to omit the central point that most of these mergers failed. By leaving that out, LaFeber leaves us to imagine these great behemoths growing without limit, suffocating the poor consumer until the wise hand of government brings relief.

(2) Along the same lines, LaFeber notes almost in passing that competitors sought to “cut competition by merging.” (We can leave aside the definitional question of what constitutes competition; LaFeber clearly holds the conventional view that competition is a matter of the number of firms competing with each other, when a better definition involves the state of affairs that ensues when no violent barriers are placed in the way of entrants into an industry.) Thus we are to believe that a merger is an anti-social act, or at the very least highly suspect.

But this is an arbitrary assertion. The proper size of firms in an industry cannot be determined in advance. Who is to say that the previous array of firms was not suboptimal, and the post-merger state of affairs the better one? Suppose the widget industry requires each firm to own a gigantic amount of capital equipment, and that 15 firms exist in that industry. Is it necessarily best for 15 sets of this expensive equipment, one for each firm, to be purchased and maintained? Maybe so, but only the market test of profit and loss can determine for sure whether these resources might not have been better put to another use. (In other words, if these firms make losses, those losses are the public’s verdict on the way these firms chose to employ the economy’s scarce resources.) It could well be that the state of demand for widgets is such that no one firm enjoys enough demand for its product to make its large capital investment profitable.

What if one of these firms merged with, say, two other firms, and (assuming each firm produces the same output) now can triple their production – but now need only one set of expensive capital equipment between them? Now the arrangement may well be profitable, and the allocation of resources is now superior from the point of view of consumers.

(3) Andrew Carnegie, LaFeber tells us, “later admitted that he used the 1873 to 1875 depression years to buy cheaply and save 25 percent of his costs.” Note the choice of the word “admitted,” as if buying cheaply and keeping costs low were some kind of conspiracy against the public. “Again, Carnegie exploited the economic downturn of the 1880s to expand,” LaFeber tells us further. “Exploited”! Would it have been better if Carnegie had done nothing and the goods he purchased had instead gone unsold?

(4) And this is not to mention that there was no “economic downturn of the 1880s,” a prosperous decade in which prices fell and real wages rose by 20 percent. LaFeber believes in the “twenty-five-year depression” that allegedly ensued after 1873, a view that finds little favor among economic historians today, and which Murray Rothbard – as usual – knew to be false long before conventional historians figured it out. (See the relevant section in his book The History of Money and Banking in the United States: The Colonial Period to World War II.)

(5) But it is LaFeber’s coverage of the Homestead Strike of 1892 that stands out the most. Here, in brief, is what actually happened. In 1889 workers had asked for a contract by which their pay would vary with the price of steel. As steel prices increased, so did their wages. And as steel prices fell, so did their wages – except after steel went below $25 per ton, at which point their wages would not be allowed to decline any further.

By the early 1890s, though, steel prices had fallen substantially, all the way down to $22.50 per ton. In 1892 the company offered a new contract, stipulating that the new floor below which wages would not be permitted to fall would be $22 per ton. Of the company’s workforce of 3800, only the 800 members of the Amalgamated Iron and Steel Association failed to come to an agreement with the company. The company’s further offer of a $23 floor was rejected, and the strike began.

Since nearly all 3800 workers struck even though only a minority of them had failed to reach an agreement with the company, officials at Carnegie’s Homestead plant wondered if the union had employed intimidation. This suspicion, combined with local law enforcement’s inability to protect company property during a labor dispute years earlier, prompted Homestead to have recourse to the Pinkerton Detective Agency. The Pinkertons were to protect those workers who chose to work, including replacements for strikers, and to get a sense of what really was going on.

LaFeber’s summary of all this runs as follows: “In 1892 the members demanded wages that matched their increased productivity.” Well, that isn’t quite correct. The issue in question was the price of steel that would correspond to the wage floor along the workers’ sliding scale. Steel prices were falling precipitously, so the new contract called for the floor to be lowered as well. LaFeber makes no mention of steel prices.

So then what happened? According to LaFeber, “In mid-1892 warfare erupted.” Notice the word choice. Warfare simply “erupted.” What actually happened is that the strikers surrounded Homestead to prevent nonunion workers from gaining access to the plant. When 300 Pinkerton guards approached the plant on two barges via a river that bordered the plant, strikers opened fire on them, killing one and wounding four others. Only then did the Pinkertons return fire. Then the strikers fired cannons to sink the barges, followed by the use of dynamite and an attempt to set them on fire.

Had the Pinkerton guards or representatives of the company initially fired on the workers, we can be fairly certain LaFeber would not have used the passive construction – with “warfare” simply “erupting,” without any human actor being named – he did.

Thankfully, LaFeber devotes only a small portion of his book to this kind of material. The rest is a fairly useful study.