1. A good article to think about.

    “Those who cannot remember the past are condemned to repeat it”

    – George Santayana –

  2. Having grown up in Johnstown, I have some family stories about South Fork Hunting and Fishing Club and the disaster. My great-grandparents farmed the hills north of the South Fork dam. The story goes that grandpa John witnessed the breaching/breaking of the dam and was so disturbed by the sight that he never spoke again. And then there’s my great aunt’s crock full of pennies that washed down river, still to be found. The site of the former dam is now a national historic site and worth the visit if you’re passing through.

    The real tragedy of these men was not that they had captured unheard of wealth without paying their employees, or that they created monopolies (the cost of their products consistently got cheaper over time, even after they had the overwhelming majority of the their markets), but that they helped create the modern “progressive” forms of government we have today. They all eventually felt that their wealth was attributed to the idea that they were superior beings -Darwin’s publications being taken out of context to support their views. Eventually the public was led to believe monopolies were somehow unable to be broken by competition (even as the Mellon family was building up Golf oil), so the only defense was to elect intelligent politicians who would create a heavy-handed bureaucracy to keep everything fair.

    1. @Eric_G

      Please forgive me if I strenuously disagree with your interpretation of “the real tragedy.” Perhaps your farming family did not pay the price of overwork and underpay in the factories the titans ran, but several members of mine did.

      The products only became cheaper when needed to prevent competitors. Price wars remain a standard tactic of large, entrenched suppliers that want to keep innovative competitors at bay.

      Where is the Mellon Family’s Gulf Oil now? I think it’s been more than 30 years since that company was swallowed by one of the descendants of Standard Oil. The brand and signs may still be visible, but the company ceased independent operations about the same time as Steve Jobs introduced the Mac.

      1. Oh boy…

        One of my other great grandfathers worked for Cambria Iron, which later became part of Bethlehem Steel, where my father was employed for 40 years. Cambria Iron never had the labor unrest of Carnegie Steel, mostly because they paid better. In fact, Bethlehem Steel employees didn’t even unionize until the 1940s (of course there was a lot of organization activity that was suppressed too). I’m sure it wasn’t all wine and roses, but remember that many of the men who worked in steel mills were escaping famine and much worse, and there were still people lined up waiting to take your job if it became available. Back then on payday you wore your Sunday suit to pick up your paycheck because you knew what the alternative was.

        As for monopolistic practices, I can only offer this essay by Tom Woods:

        1. “Mainstream economics identifies monopolists by their behavior: they earn premium profits by restricting output and raising prices.”

          I’d counter a monopolist is actually identified by its business case: ensure profitability by way of being the only game in town. That seems tautological but it has one important consequence: monopolies perpetuate themselves by stiffing disruptive innovation.

          Now, of course big companies invest in innovation, however those are almost always geared towards incremental improvements to their core business infrastructure. Anything “disruptive” – i.e. that obviated any relevant amount of current equipment, personnel etc – would be either blocked or sabotaged by internal politics, as the bosses responsible for said kit and bods would fight to keep their departments relevant. The only time big business takes the “new generation” head on is when they’re trying to co-opt it and arrest its development, which they often manage to do, if only for a while.

          To use the example of the IT market (to which I am more familiar) Microsoft knew the Internet would become the “next computer” a good ten years before the fact, but rather than go with the flow, they started a technology & price war against Netscape, which they won – it’s hard to repeal a competitor drawing on essentially infinite resources – then sat on their hands and let Internet Explorer stagnate. It took years until Firefox and later Google Chrome managed to wrestle enough market share from it to make the transition to an “web-centric” IT world possible [1].

          Before Microsoft, IBM exerted such a tight grip on the IT market that for years DEC marketed their (much more affordable and flexible) products as “Programmable Digital Processors (PDP’s)” rather than “computers”, so as not to attract Big Blue’s undue attention [2]. The personal computer revolution happened mostly against its wishes; though the IBM PC came to become the prototype for the new platform, this was much more a result of a blundered attempt to assimilate it into its own business framework than any true compromise with innovation. Tellingly, their intended successor to MS-DOS, OS/2, was crippled at the sales level by numerous policies intended to keep it a second-citizen relative to mainframe offerings [3].

          Incumbents will take measures to make life difficult to new entrants. This is no conspiracy, it’s a fact of capitalism every IT worker is familiar with, and I don’t see how it wouldn’t be in any other industry, including energy.

          [1] http://www.stuff.tv/features/highs-and-mostly-lows-internet-explorer
          [2] http://www.theregister.co.uk/2011/02/08/dec_founder_olsen_dead/
          [3] http://www.theregister.co.uk/2012/11/26/os2_final_fail/

          1. Of course the incumbents fight new tech. Happens all the time, and their biggest advantage is the fact that they are established and fully capitalized. But, as you point out, it also becomes their biggest weakness. The inability to embrace change is often the downfall of the mighty. Zenith and RCA made more tube televisions than anyone. When Sony and Panasonic/National started exporting transistorized TVs with printed circuit boards, Zenith’s reaction was to advertise their “hand soldered” chassis as a superior way to build a TV, ignoring the dramatically lower costs of building with circuit boards. Granted, circuit boards had a high failure rate when compared to point to point wiring, but because they were so cheap to produce it was trivial to swap them out. Eventually, engineers figured out how to lay out boards to improve reliability, and thanks to printed circuit boards the IC could be easily used, ushering in our modern world.

            Meanwhile RCA and Zenith ended up playing catch-up and never quite got it right. Your example in the PC industry of DEC and IBM shows a similar decline and fall. About the only examples of survivors I can think of are AT&T and General Electric, and neither are the bastions of innovation they claim to be, but somehow they survive. Although to be fair, AT&T is more like Polaroid, in that someone is using their name, but it’s hardly the Ma Bell of our youth.

            1. @Eric_G

              About the only examples of survivors I can think of are AT&T and General Electric, and neither are the bastions of innovation they claim to be, but somehow they survive. Although to be fair, AT&T is more like Polaroid, in that someone is using their name, but it’s hardly the Ma Bell of our youth.

              You forget Standard Oil, British Petroleum, Aramco, Gazprom and Royal Dutch Shell

              Not actually monopolies, but oligopolies is not a bad description. They each have a pretty lengthy history of survival in various forms.

          2. However the fact monopolies are eventually taken over by new entrants doesn’t make up for the time lost overcoming them. When Microsoft introduced Windows 95 it effectively crippled the 3rd-party Windows software market by withdrawing development tools long enough for their own offerings (especially MS Office) to dominate. It took a good ten years and the arrival of the web and mobile platforms for the market to fully recover.

            So besides the human cost of poor working conditions, monopolies often also inflict a cost in opportunity, as they delay the adoption of new technologies. These costs often don’t translate into retail price, but they are there nevertheless.

        2. @Rod
          Might want to look a Wikipedia “Carnegie libraries.” You will note that moist of the early libraries he built were around his Steel-mills and in the cities surrounding them. Until about 10-15 years ago neither of the two richest Americans had given much of anything to charity, and much of that was sort of self-serving.

          You keep picking on Oil, Coal, Gas, etc. Why are they also helping the Global Warming SCAM. Listen to the latest comments by the UNFCCC Chief: – The United Nation’s top climate change official Christiana Figueres announced this week that the group is actively working to “intentionally transform” the world’s economic development model, a task she called the “most difficult” one the group has ever undertaken.

          “This is probably the most difficult task we have ever given ourselves, which is to intentionally transform the economic development model, for the first time in human history,”

          Or, is the UN agenda acceptable as it is “For the Greater Good?”

          As Patrick Moore, co-founder of Greenpeace wrote: – “The collapse of World Communism and the fall of the Berlin Wall led to the environmental movement being hijacked by the political and social activists who learned to use green language to cloak agendas that had more to do with anticapitalism and antiglobalization than with science or ecology.”

          1. @Rich

            You keep picking on Oil, Coal, Gas, etc.

            I do not pick on oil, coal or gas. I have been depending on those products for my entire life and enjoy the freedom and power they provide.

            There are many examples of me picking on the people who abuse their control over access to those resources and operate companies that strive to maximize their own profits no matter who they hurt in the process, even if it means assisting people who would deny mankind access to even better sources of energy.

            Admittedly, I have published many articles and comments that have not clearly expressed my priorities in terms of energy fuels. My first priority is providing abundant, reliable, affordable energy to as many people as possible. I want people to stop going to war over access to hydrocarbon fuels. I also want to gradually reduce the vast economic disparities caused by excessive dependence on oil. I’m not a guy who thinks we all should be equal, but there is something grotesque about a system that allows someone to be a multi-billionaire at birth because his grandfather managed to assert military control over a swath of desert.

            Very close to that is doing it in such a way as to minimize the overall environmental impact by “doing more with less.” That often means using the most energy dense, pure fuels available. It also means doing the processing before the fuel is burned and waste is released to the environment.

            Here is a link to one of my more recent pieces that attempts to explain why my priorities can result in me favoring coal, oil or gas instead of wind or solar.


        3. @Eric_G, I share your view completely, and I have to thank you for sharing with all of us a very good article by the excellent Tom Woods, a libertarian economist with free market views, and very much anti-monopolist views, views that I share very much too.

          I am now in my mid-40s, and grew up in Milan, Italy, very close to the area where big steel factories were, and most of my schoolmates were very respectable children of workers of all kind.

          Most of them were rooting for the Communist Party, as during the 80s it was customary that the entrepreneur at the helm of the large company was a dictator and an exploiter of other human beings, and this was the same attitude that I would find in schools.

          I was never taught the hardship that an entrepreneur must go thru in his quest to make the world a better place, by creating something that did not exist before, or by improving something that was either too expensive for the general public, or existed only somewhere else on this planet.

          Well, it’s the entrepreneurs who make an economy grow, dear Rod, not the workers. Yes, the workers play a role, but they can also go work somewhere else if there are better wages or better working conditions.

          But without entrepreneurs, an economy dies really fast. And that is precisely what is happening now in Italy, the country where I used to live. Now I live in Switzerland, a country where running an enterprise and making money is not considered to be a shameful thing, like it is in a lot of countries around the world. Unfortunately.

          What we need is *less* government and *more* free market, a market without the regulators which always favour one company, usually the large one which has money to invest in oiling the gears in DC, and disadvantage the competitors.

          What the US are lacking is competition, in far too many industries. And this is true for most of the western countries. No wonder this is were there is little growth these days…

          1. @Luca

            Where did you get the impression that I have something against entrepreneurs?

            May I remind you that I have a little experience in engaging in the quest to make the world a better place by creating something that did not exist before. I am well aware of the way that established enterprises use influence with politicians and regulators to suppress disruptive competition.

            That does not excuse the kinds of monopolistic behaviors that I am criticizing in this piece. Rank has its privileges. Rank also has its responsibilities.

    2. I’d say the problem with deregulated business isn’t so much the economical costs of monopolies, but the human costs of focusing on profit to the exclusion of everything else. We have seen it happen time and again: left to its own devices, big business will always exploit their workers for all they’re worth, and then some. The question of what to do exactly may be far from settled (I recommend David Worstall [1] for a nuanced view on the matter), but clearly they must be restrained some way or another.

      [1] http://www.theregister.co.uk/Author/1692

    3. Disasters caused by private industry often pale in comparison to those produced by government control.

      Capitalist Industrialist controlled South Fork Dam failure killed ~ 2,200 people
      Socialist Government controlled Banquio Dam failure killed ~ 171,000 people

      Its easy enough to isolate comparisons about the lethality of private and public projects which vary by orders of magnitude.

      The same folks who decry capitalism induced prosperity have their own socialist imposed disasters that never see light of day in these agenda driven documentaries.

      Yeah, more government. That will fix it.

      1. @Rob Brixey

        This is not a black or white issue. I’m strongly in favor of individual and corporate private enterprise, but there is value in moral standards, peer pressure to be fair, and good government oversight.

        Rule by aristocratic, immoral, grab-all-you-can-get, selfish bastards is worse, in my opinion, than a limited, elected government.

        Despite the “great man” theory that just a few people like Rockefeller, Carnegie, Morgan and Vanderbilt “built America” the reality was that they had a enormously talented masses of people in their enterprises. They took all of the credit and most of the money associated with the efforts of hundreds of thousands of employees and partners.

  3. Regarding your next to last paragraph, rather than haunting thoughts, my brain immediately thought about all the good things that Bill Gates has been doing through his foundation……..along with his pro-nuclear activities (which are sadly seeking an outlet in China, due to our present regulatory structure in the U.S.A.).

  4. “Men Who Built America” – makes me cringe on so many levels. I suppose its kinda true as well, even if there is no standard and little expertise in the “what could have beens” to gauge their level of success or failure. They were the johnny on the spot so to speak.

    I see the point though. Lots of potential waste and human suffering in the arbitrary grasp for cash there. Very inflexible as factors and conditions change too.

    I still cant wrap my head around the current rail oil shipping thing. I know there is a story in there of how it was a specif strategy someone or some board cooked up. Im just amazed how big and influential it got.

    I know you probably know this Rod but I doubt many do – US coal imports were up substantially last year and are so far this year – not because we needed coal but because its basically cheaper to ship it in from overseas than transport it by rail to some places in the US. Thats phenomenal. And even after the spectacular oil rail accidents (one now in West Virginia).

    I think too we could see some more arguments related to this, this year in gas issues as this next storm will deliver on cold where the last one failed in some places on snow. Possibly ice as well. A very mild summer, large increases in production, and a near record warm/mild winter so far got us out of the hole from last winter, but major gas exports are being planned.

    1. @John T Tucker

      I still cant wrap my head around the current rail oil shipping thing. I know there is a story in there of how it was a specific strategy someone or some board cooked up. Im just amazed how big and influential it got.

      When new fields are developed in places where there are rails and no pipelines, tanker cars are normally the first step in transportation. Once the field’s productivity has been proven and developed enough to make it worth the effort to install pipelines, someone makes a business case, signs the necessary contracts, obtains financing and builds the pipes.

      Rail operators often resist, but the economics are hard to dispute.

      In this case, field and transportation development was proceeding as normal, but the pipes needed to cross an international border and the railroad was owned by a very large donor (Burlington Northern is a fairly recent Berkshire Hathaway purchase) to the party who is currently controlling the White House. That same donor also supports many of the groups that have chosen to make opposition to KXL a bit issue.


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