The Myth of the Robber BaronsThere are many reasons to read the Myth of the Robber Barons by Burton Folsom.

1. It shows how the key to business success in those days was lower costs, through attention to detail, hands on management, improved technology to produce a higher quality product, accurate predictions of where the market was going, price reductions to increase markets, sound financial structure to prevent getting in over the head, swooping down to buy their competitors out during times of panic.

2. It shows that the great entrepreneurs of the late 19th century, Vanderbilt, Hill, Rockefeller, Mellon, Schwab, Scranton, made their $100 million plus fortunes, by passing on their improved efficiency to consumers thereby widening the market, and allowing better utilization of the technologies they developed.

3. It shows that economic history as it is taught is completely wrong concerning that era; especially that the myth that these legends were robber barons is completely untrue. There were Robber Barons, but because most of them developed inefficient methods because of government subsidies they eventually succumbed.  It was the partnership of government with what we would now call political rent seekers like Collins, Cunard, Harriman, Leland Stanford, Villard, that were the evil doers.

4. It provides an introduction to three of the greatest and most able businessmen who ever lived, Andrew Mellon, James Hill, and George Scranton.

6. It contains numerous hints on how to run a business successfully.

7. It makes you understand the sources of wealth and progress in our society.

8. It provides a snapshot of the interaction of business and finance and the stock market at the turn of the 20 th century.

It will be impossible to summarize all the techniques that the entrepreneurs used and how they compared to the non-innovative and fixed methods of doing business that all their competitors used. However, here are some isolated facts about cost reduction that were the cornerstone of the better efficiency these entrepreneurs were able to achieve.

Vanderbilt made his fortune in steamboating by reducing the price of passenger travel from $7 that Fulton's rival steamships were charging to $3, then to 10 cents, then free. He did the same from New York to New Haven, reducing the prices from $5 to $1. Schwab and Carnegie in 1897 installed new furnaces and reduced the price of finished steel by 34% and passed the saving on to increase markets by reducing the price of rails by 60%. Hill reduced the cost of travel from Minnesota to Washington from $50 to $10 one way. He reduced the price of transporting lumber from Washington to New York by 50%. The key to Hill's success was a lower cost structure, constantly improving technology, a better foundation than any of his competitors, and a vision to build markets by lowering prices. This enabled him to survive hard times, and buy them out during times of panic. Here are some facts about Hill's methods but they provide almost a composite of the secrets of success of the other famous and usually villified entreprenuers of that period, including Rockefeller, Carnegie, Vanderbilt, and Scranton. Hill's goal in building his railroad was to use the best possible rail, to go the shortest distance, the lowest grade, and least curvature. He then provided research and low transportation costs to his passengers so he could develop more of a consumer base for the rail traffic. He rode horseback himself to find the shortest route and found the Marias Pass in the Rockies, shortening the route to Washington by 100 miles. He purchased his coal at $2 a ton less than his competitors, and was using coal when they were using wood as fuel. Then when the depression of 1893 came, all his competitors went into bankruptcy and Hill with his lower costs was able to buy them out. He purchased "steel rails, ballasting track, transfer yards, terminal facilities, new equipment, new shops" and thus had lower fixed costs than all of his competitors . He was able to make a profit while the others that had relied on an inefficient rail system descended into bankruptcy. He then expanded his market by building steamships to take the freight from Washington and the East to sell cotton, copper,and wheat to Japan. He built the rail system in Japan, bidding 20% below any of his competitors.He developed the Washington lumber business by lowering freight rates by 50% and selling 1 million acres to Weyerhauser at $6 an acre, which turned out to be half its value. The themes and case studies in The Myth of the Robber Barons as well as all the follow up material for each of the greats available on the search engines are well worth studying because they are timeless and provide invaluable lessons for success today.

Mikhail Osipov adds:

It’s unfortunate that many view the world as a fixed-sum game and conflict ridden where A’s gain is B’s loss. Institutions that provide a framework for free markets and private property, allow for mutually beneficial gains via voluntary interaction, i.e., a positive-sum game. As Vic pointed out, Hill’s success was largely due to his entrepreneurial ability to constantly come up with novel ways to reduce costs which he passed on to the consumer in the form of a lower price. You can only increase revenue by lowering price if the demand for your product or service is relatively elastic, which implies that other alternatives and substitutes exist for your product or service exist. And to consider someone like Hill a monopolist or a robber baron contradicts basic economic principles.

I am an avid reader of Daily Speculations, an admirer of Vic and Laurel's work, and a PhD student in Economics at George Mason University. Just a few days ago I was reading up on rent seeking and one analogy came up that I think may have something to offer in terms of an insight into how markets behave. The analogy has to do with the competition among Bull Moose during a mating season. After my midterms I will complete this piece and would like to submit it to you.

Robert McAdams writes:

Thanks for the heads-up on this book. When one looks at the wealthiest people in history, they have one thing in common: volume. If you can convince more and more individuals to engage in voluntary exchange with you, your wealth explodes. Toyota has made far more money than Lamborghini. Further, one of my definitions of profit is: “profit is what happens when you save someone else time or money." Vic's quotes from the book back that up. I support free markets and oppose those that try to use political maneuvers to erect barriers and prevent competition.



 It's about having meat on the table for dinner.

I grew up on five deer a year, two antelope, and an occasional elk. As soon as the kids left home, Dad stopped hunting for the most part. Our family, like so many in Montana, depended on game to live. We did not go to exotic places, drove as few miles as possible to hunt, and made every bullet count, just as our neighbors did.

Assuredly some hunt for the bang of it all, but I think they are fewer in number.

Robert McAdams adds:

Every fall while growing up in Michigan I witnessed the mass exodus of auto workers from the big cities to the Upper Peninsula to deer hunt. These people made plenty of money to eat and usually came back with nothing. There is just something basic about getting out in the wild!

East Sider advises:

Always check that it's a real deer -


Harare (dpa) - With meat now in desperately short supply in Zimbabwe, a
group of men from the eastern city of Mutare is urging residents to try
eating dogs, a local newspaper reported Friday. In a case that has
shocked city residents, four men barbecued and ate a dog they had
stolen, the Manica Post reported. On being quizzed, the men first
claimed they were barbecuing a buck. But when a member of the family
that had lost its dog looked carefully at the meal, he was not
convinced. Bits of fur still on the meat matched those of the missing
canine, the newspaper said. 



Over the holiday my family and I played a board game we've played many times before named Balderdash. The game is pretty straightforward. A dealer pulls a card containing several categories … a name, a date, an acronym etc. The entries are almost entirely unknown to the players. The goal then of each player is to make up a trivia fact that is believable to the other players. These fake facts are added to the real one and read by the dealer to the table. Points are awarded for picking the truthful fact, as well as getting other players to pick the one you conjured. The dealer scores by convincing the other players not to pick the correct one. This got me to thinking about the markets, life and bluffing specifically. When prices change, people wonder why. The truth is always that the supply/demand relationship has changed, but there are many people willing to fill in the "answers". What are the motives of those supplying the answer. In the game, one of the strategies employed is to pick the answer that you made up in an attempt to convince other players to do so. Do market participants ever do this? Generally, the more believable the fact you make up, the better. But sometimes, a preposterous answer works wonders. People simply can't believe its made up. When several answers have equal believability, the ludicrous answer stands out. The players almost talk themselves into believing it. Do we ever talk ourselves into things we know are bold faced false? When I was the dealer I always read the true answer somewhere near the middle. I know that in any list, the first and last thing a person hears sticks in their mind. Is the first explanation given for a market move the one that will be believed going forward, even when a better truthful answer comes along? I would like to hear more about bluffing from your readers.

Sam Humbert adds:

Santa brought us a game called Blokus last year, and, as mentioned by Tom Ryan, kids are eerily capable at it. Like Checkers and 9-Ball and (circa 1982) Space Invaders, it has a beautiful simplicity that hides much depth. Also, Blokus can easily be 'handicapped' by a simple rule such as 'adults must play their pieces from smallest to largest' (i.e., starting with the 1-square piece). I like to play the kids even-steven, subject to a some such simple constraints or rules-changes, but I find that not all games lend themselves to this. (Though many do: e.g. at Go Fish, I play level with the kids if I enforce on myself 'wait one full turn before asking for a card I just picked up!') Another great game to play with kids is Mille Bornes, though it seems not to be as widely circulated nowadays. They do make a new version, but I bought a 1970s set for a few dollars on eBay. It is self-handicapping because the kids gleefully gang up on Dad, taking delight in fixing my wagon again and again… until they get close to 1,000 miles and need to turn their attention to each other.


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