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Robber Barons

Here is the latest EconTalk—Don Boudreaux makes the case for getting rid of antitrust laws. It seems a hard case to make but Don points to evidence that the genesis of antitrust was not consumer protection and that large enterprises often bring lower prices rather than higher ones. He has much more to say. Check it out.

Meanwhile, I’m reading parts of Capitalism, Socialism, and Democracy as I prepare to interview Thomas McCraw for next week’s podcast. He’s the author of a recent bio of Schumpeter, Prophet of Innovation. Here is Schumpeter on the claim that the monopoly power of large enterprises at the end of the 19th century must have exploited consumers:

If we list the items that enter the modern workman’s budget and from 1899 on observe the course of their prices not in terms of money but in terms of the hours of labor that will buy them, i.e., each year’s money prices divided by each year’s hourly wage rates—we cannot fail to be struck by the rate of the advance which, considering the spectacular improvement in qualities, seems to have been greater and not smaller than it ever was before…As soon as we go into details and inquire into the individual items in which progress was most conspicuous, the trail leads not to the doors of those firms  that work under conditions of comparatively free competition but precisely to the doors of the large concerns…and a shocking suspicion dawns upon us that big business may have had more to do with creating that standard of living than with keeping it down.  (Capitalism, Socialism, and Democracy, Third Edition, pp. 81-82)

Why were the Robber Barons so generous? Why did the workmen of the day have a higher and higher standard of living? One answer is that the robber baron’s feared regulation and a political backlash. Another is that they weren’t robber barons after all, they were selfless people who wanted to help others. The third answer and it is the answer of Schumpeter, (and Don Boudreaux) is that the robber barons faced competition or at least potential competition. At a point in time, they had monopoly power. But rather than exploit it and invite competition, they chose to expand their profits via lower prices rather than higher ones.