[Editor note: Political capitalism, aka crony capitalism, is a major theme at MasterResource because special government favor enables three major energies: ethanol, wind power, and on-grid solar power. Gabriel Kolko, a socialist-leaning historian, popularized the term political capitalism — and concluded, with few exceptions, that business led government, rather than government (reformers) led industry, into interventionism. Kolko overstated his case, however, as this post contends, misleading free-market proponents of Kolko and political capitalism.] “Bradley and Donway closely analyze Gabriel Kolko’s contention that nineteenth-century railroad officials sought regulation, identifying mistaken notions about private property and capitalism, as well as Kolko’s uncritical reliance on railroad statements that were coerced by the threat of legislation, weak citations, and misquotes.”

We can thank New Left historian Gabriel Kolko for the modern concept of “political capitalism” and its offspring, “regulatory capture.” Kolko’s 1963 book The Triumph of Conservatism overturned a longstanding consensus that the regulatory state was created to protect the people from monopoly.

No, Kolko contended, business sought regulation to protect itself from competition. Two years later, his Railroads and Regulation 1877-1916 used the rail industry to buttress the new paradigm of government-business relations.[1]

Railroads and Regulation was not wholly successful in explaining how the Interstate Commerce Commission came to be or why it acted as it did. After three decades of fitful and often peevish debate among historians and economists, Maury Klein concluded that “Kolko’s version of the ‘capture’ thesis has been pretty thoroughly demolished.” Yet two decades later, its core idea has entered common usage.[2]

Following Kolko’s death last spring, Robert L. Bradley, Jr. reflected on his evolving assessment of Kolko’s work. He began, on the advice of economist Murray N. Rothbard, by accepting Kolko implicitly. Bradley’s Capitalism at Work; Business, Government, and Energy elicited generous praise from Kolko, which is used as a blurb for the book.

But even as he wrote it, Bradley began to have concerns about Kolko’s views, and for that reason he included an appendix noting the criticisms that had been leveled at them. Appendix C of Capitalism at Work, “Gabriel Kolko’s Revisionism Reconsidered” (pp. 336–342) is something of a straddle, attempting to associate Kolko with Bradley’s own pluralistic definition of political capitalism.

If Kolko had merely contended that railroad regulation was the product of conflict among business interests including railroads, shippers, and others, his book would have been far less controversial than it was. Notwithstanding occasional backtracking, Kolko argued that railroads were the main engine of railroad regulation.

A Major Piece

A 2013 article in The Independent Review, Reconsidering Gabriel Kolko: A Half-Century Perspective (Spring 2013), goes much further. Of the more than thirty books and articles that deal with Railroads and Regulation, this piece is the most thorough dissection, and the only reliably free-market one. Bradley and Donway closely analyze Gabriel Kolko’s contention that nineteenth-century railroad officials sought regulation, identifying mistaken notions about private property and capitalism, as well as Kolko’s uncritical reliance on railroad statements that were coerced by the threat of legislation, weak citations, and even misquotes.

It takes a rigorous free-market perspective to notice that Albert Fink, head of the leading railroad pool, in 1885 asked Congress to pass legislation instructing the courts to enforce traffic- and revenue-pooling agreements voluntarily made between railroads, but explicitly cautioned against imposing such agreements. The distinction mattered to Fink, but not to Kolko. The railroads sought not government intervention but a remedy for a longstanding anomaly in the common law, the refusal of most courts to enforce (voluntary) collusive agreements on the grounds that they were against the public interest.

We should credit Kolko with upsetting Progressive historians’ Polyannish paradigm, Bradley and Donway conclude, while acknowledging the flaws in his method and the bias behind it.

My Take

My own introduction to Kolko came from George Hilton’s penetrating analyses of railroad regulation for Trains magazine during the late Sixties and early Seventies.[3] UCLA professor of economics (of the Chicago School persuasion) and a fine historian to boot, Hilton embraced Kolko’s views and passed them along to Trains readers. Only later did I discover that Rothbard and other libertarians also endorsed Kolko unreservedly.[4]

It was as a young Congressional staffer working on railroad regulatory reform legislation in 1975 that I began to have doubts. Where was the all-powerful railroad cartel? The railroad industry, far from being in control, was in a shambles.

In the Northeast and Midwest we had seven railroads in reorganization, including the largest bankruptcy to that time, Penn Central. Cash-starved lines had deferred maintenance for more than a decade; even standing cars derailed when the track came apart beneath them. Railroad rate structures—the whole point of cartelization—were being demolished by mushrooming trucking competition exploiting massive government investments in highways. Railroads scrambled to offer cheap “piggyback” services (trailers on flatcars) replacing higher-revenue boxcars that trucking had rendered uncompetitive.

Railroad executives uniformly pleaded not for protection, but for the freedom to cut costs, discontinue obsolete and money-losing services, and introduce promising new ones. In the Railroad Revitalization and Regulatory Reform Act of 1976, Congress tried to lift the dead hand of regulation off the industry and consolidate the reorganization of the bankrupt Northeastern railroads.

A minor provision restricting railroad rate bureaus, which still provided a mechanism for collusive pricing (where competition did not make it impossible), was its one bow to the Kolko thesis and those within the Justice Department, the Nader organization, and the media who had imbibed it. It was irrelevant at best.[5]

The situation more closely fit Albro Martin’s Enterprise Denied, which tells the story of how the expansion of railroad regulation that began in 1906 strangled the industry until, faced with its near-collapse, the federal government nationalized the railroads in late 1917. A footnote in the book accused Kolko of misrepresenting a key source. Apart from that cryptic comment, Martin, like some other leading railroad historians, found Kolko’s work not worth dissecting.[6]

George Hilton replied with an uncharacteristically snide review of Enterprise Denied asserting that any history of regulation not founded in “cartel theory” is not worth reading.[7] To which historians might retort that any book written to prove a theory is something other than history. This continues to be a frustrating aspect of the controversy—economists and historians talking past each other.

Part of Gabriel Kolko’s legacy is that we have become too accustomed to treating the history of regulation as a product of economic forces rather than a clash of ideas, arguments, and political agendas. Kolko’s materialism led him to downplay the role played by “naive” academics in bringing about increased regulation.

But it is easy to draw a line from the anti-capitalist economists who formed the American Economic Association in 1885 to the Interstate Commerce Commission and from there to Theodore Roosevelt and the legislation that reregulated the railroads, the Hepburn Act of 1906 and the Mann-Elkins Act of 1910.[8]

Progressive historians were not interested in evaluating regulation from what today we would call a “public choice” perspective, and neither was Kolko. As a result, insufficient attention has been given to the role that the ICC itself, humiliated after the Supreme Court stripped it of nearly all authority in the late 1890s, played in obtaining new powers.

From 1897 to 1906, the Commission relentlessly campaigned for legislation to overhaul the Interstate Commerce Act. Its arguments adapted to changing realities but always led to the same recommendation: more power. In this campaign the ICC was supported by public intellectuals like William Z. Ripley and the AEA economists.[9]

The one specific proposal that some railroad leaders advanced, legalization of pooling, was used by the Commission and its allies to justify new powers limiting maximum rates. President Roosevelt left pooling in the lurch in December 1905, and nothing was done about it until 1920. Kolko never really explained why the railroads, supposedly in control of the situation, got the stick but not the carrot.

Conclusion

Gabriel Kolko dismissed pluralism, and that has been the principal criticism from historians ever since. Pluralism, as he saw it, gave too much weight to the role played by lesser interests and detracted from a proper focus on the influence of big business in politics. But this doctrinaire insistence that money was the only factor that mattered ignores another explanation in plain sight: Progressives-on-the-make, some of them drawing government paychecks, avowedly statist and hungry to gain the power to change the world.

Reformers, not only business interests, drive political capitalism.

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[1] Gabriel Kolko, The Triumph of Conservatism (New York: The Free Press, 1963); and Kolko, Railroads and Regulation 1877-1916 (Princeton, N.J.: Princeton University Press, 1965).

[2] Maury Klein, “Competition and Regulation: The Railroad Model,” in Unfinished Business: The Railroad in American Life, (Hanover, N.H.: University Press of New England, 1994), 127n. Klein cites Richard H.K. Vietor, “Businessmen and the Political Economy: The Railroad Rate Controversy of 1905,” Journal of American History 64 (June 1977): 47-66, and Thomas K. McCraw, “Regulation in America: A Review Article,” Business History Review 49 (Summer 1975): 159-183.

[3] George W. Hilton, “What Went Wrong and What to Do About It,” January 1967 Trains, 41-42; Hilton, “Ralph [Nader] in the Roundhouse,” November 1970 Trains, 44-45; Hilton, and “What Does the ICC Cost You and Me?” October 1972 Trains, 24.

[4] See, e.g, Murray N. Rothbard, “Left and Right: The Prospects for Liberty,” in Egalitarianism as a Revolt Against Nature and Other Essays, 2nd ed. (Auburn, Ala.: Ludwig von Mises Institute, 2000), 38-42; and Roy A. Childs, “Big Business and the Rise of American Statism,” February 1971 Reason, 12-18 and March 1971 Reason, 9-12. The Rothbard piece originally appeared in the Spring 1965 issue of Rothbard’s journal Left and Right.

[5] The “4R Act” reforms encountered resistance at the ICC, and in 1980 Congress passed the Staggers Rail Act substantially deregulating the railroads.

[6] Albro Martin, Enterprise Denied: Origins of the Decline of American Railroads, 1897-1917 (New York: Columbia University Press, 1971). The allegation that Kolko misrepresented his sources is found in a footnote on page 112.

[7] George W. Hilton, review of Enterprise Denied, in Bell Journal of Economics and Management Science 3 (Autumn 1972): 628-631.

[8] Henry Carter Adams and his acolytes at the Interstate Commerce Commission are the leading examples. An co-founder of the American Economic Association, Adams was appointed ICC chief statistician in 1887 and remained there until 1911. He influenced and drafted portions of the Hepburn Act in 1906.

[9] Ripley’s oft-cited book, Railroads: Rates and Regulation (New York: Longmans, Green & Co., 1912), essentially takes a victory lap after passage of the Mann-Elkins Act in 1910.

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WILLIAM D. BURT had a thirty-year career in the railroad industry that included the presidency of three affiliated short line railroads. He now writes railroad history in Geneseo, New York. A railroad public policy expert, he has authored book reviews of The Life and Legend of Jay Gould (Reason, April 1987) by Maury Klein and Railroad Triumphant by Albro Martin (Reason, August/September 1992).