By Stephen L. Hall
There was a purpose to my last post which got lost in time as my thoughts began to ramble into the circumstances around the topic rather than focus on the topic itself. I suppose that is a good thing as the stage must be set for the discussion I really wanted to have.
Leftists talk about the industrial age or Victorian age as a time of the “Robber Barons”. The appellation of “robber baron” was applied to not merely industrialists but to the titans of industry who appeared to not only succeed but to completely dominate their industries yielding the power of monopolies to amass great fortunes the likes of which had never been seen before in the history of the world.
It was presumed that the only way a person could attain such wealth was underhanded and dishonestly. That was actually partly true, and partly false. There were a lot of underhanded tactics, bullying, sabotaging, kick-backs, and dirty tricks which went on between these companies as a means of getting the upper hand on their competitors.
Liberals used such practices as a criticism of “capitalism”, but such things were not capitalism, it was corruption. Such practices were not universal, and do not account for the majority of the wealth created. Many people will thus proclaim that such practices were scarce or merely propaganda.
The truth is always a combination, and not as one sided as people want to pretend. Such dirty tricks are as often played by those who would claim to be the victim as those who are blamed as the perpetrators. Business is no different.
What built the huge industrial monopolies of the “robber baron” age was not the various dirty tricks, but one dirty trick in particular. Monopolies cannot be sustained for any length of time without governmental interference in the markets. The monopolies of the “robber barons” was built on an abuse and misuse of a legal principle still controversial to this day.
Eminent domain is the principle that private property can be taken by the government for a public use; and our Constitution further limits such taking requiring that government to compensate the owner of that property fair value therefor. It is the abuse of eminent domain which laid the foundation for the rise of the “robber barons” years later.
In an effort to efficiently and effectively develop the nation industrially, the courts in America bought into the notion that it was in the public interest to have private companies build railroads. The railroad companies convinced the politicians that it would be cost prohibitive if the railroad had to buy up the land in a free capitalist market because the individual property owners would exploit their position to unjustly demand outrageous sums for their property.
The idea being that if a railroad was being built, speculators would buy up the land in their path and demand so much for the land that the railroad would go broke if they tried to build that direction.
Or even an individual with a crucial piece of property could bring the railroad company to its knees by refusing to sell. Or a landowner would refuse to sell land running through the middle of his property dividing his land. Of course, the land abutting a railroad was so valuable that the railroads pushed Congress to grant them through eminent domain not merely the land for the railroad when they were building through the west, but land for ten miles on both sides of the track.
To save these poor abused industrialists from the exploitation of those nefarious farmer, the governments allowed the railroads to claim the land along their intended route by the forces sale of eminent domain. But contrary to the principle of eminent domain, that land was bought not by the government for public use, but by a company for their exclusive, private use.
The government thus gave these private companies exclusive use and ownership of certain roads through much of this country, merely on the basis that those roads were a new technology being built upon iron rails over wooden supports employing specialized artificially powered machines for locomotion.
Railroads were magically treated differently than other types of roads, being built with private funds and given exclusive monopolistic authority over those roads acquired at the end of a publicly sanctioned taking by the government.
It was this exclusive monopoly of transportation which was leveraged into other monopolies. Oil was discovered in Pennsylvania. Making a deal with Cornelius Vanderbilt, one John D. Rockefeller promised that he would fill Vanderbilt’s boxcars with barrels of oil, if Rockefeller received preferential prices, and kickbacks from any oil transported by Rockefeller’s competitors.
Other “baronies” were later established along the same lines based on similar back-room deals of preferential treatment, often with the railroad owners even getting shares in the preferred companies. They would use the profits from these exclusive deals to buy out their competitors, or drive them out of business by lowering their prices to the point that they could not operate profitably.
It was not the competitiveness, however cutthroat, which created the monopolies, but rather the exclusivity, or bottleneck, of the transportation created by the government. Even today, Warren Buffett opposes the building of an oil pipeline which would compete with his railroad. You may have heard of the protests to bolster and maintain his monopoly.
I bring attention to this 19th century abuse of the doctrine of eminent domain, because the solution is terribly simple to fix.
The property, having been taken by eminent domain, must be for a public purpose, therefore the solution is to force it to be for a public purpose, despite the history otherwise. The Constitution provides for a concept of the government encouraging useful ideas and development through a uniquely American institution called the Patent Office.
Imagine, if you will, that the lands taken for roads under eminent domain were granted to the exclusive use of the builders of those roads for the normal length of a patent, seventeen years, then upon the expiration of said patent the land would revert back to public property. At the expiration of the patent, the roads would naturally be turned over to the department of highways to maintain and oversee the traffic thereon.
Effectively, at that point, any person or company could buy a train and use the public railroads. Imagine the potential affordable traffic where private trains ran both directions on parallel tracks. Rail is the most efficient and cost effective way to transport large quantities of heavy goods.
Trucking emerged largely only after the railroads refused to build specialized cars for the automotive industry because the auto manufacturers were having to repaint all of their cars because they would get bumped around in the box cars the railroad monopolies insisted on using. The interstate highway system became the competition for the private railroads, only then did the monopolies start to lose their power.
The same monopoly power could be said to be the core of the FCC in their licensing of airwaves in creating a media oligopoly, because the airwaves were deemed to be public property. It is the failure of our legal system to properly deal with the emergence of new technologies which can lead to disastrous long term economic results.
Fortunately, the market system is powerful enough to correct these results if our laws are built upon the proper capitalist foundations. To keep that, which ought to be public, public rather than private; and that private, which ought to be private, is the essence of a properly functioning economic and legal society.
I often talk so much about things which ought to be private over which the government has taken control that I thought I’d spend a little time this day talking about one of the things which ought to be public which the government foolishly made private.
