Capitalism-and-Its-Critics-A-History-From-the

If George’s basic principle of taxing unearned wealth still resonates strongly, so does his broader critique of monopolization and rent extraction by powerful economic interests. Even outside of the monopolistic tech sector, many major US industries, such as energy, airlines, and electronic payments, are dominated by a handful of big companies. And even in parts of the economy that used to be competitive, private equity companies are busy “rolling up” small businesses and consolidating control. The late Georgist Andrew Mazzone, an economist and businessman, reworked the 2016 national income accounts to “encompass the broader instances of monopoly that are found in today’s economy.” He concluded that “together they amount to approximately 22 percent of GDP.”74 Economists with no affiliation to George have also warned about the decline of competition. During the Obama administration, a study by the White House Council of Economic Advisers concluded that “many industries may be becoming more concentrated  … new firm entry is declining, and  … some firms are generating returns that are greatly in excess of historical standards.”75

Findings like these confirm the enduring pertinence of George’s message, although reducing it to statistical tabulations arguably misses some of its essence. “Moral insight is the bedrock of George’s economics,” the New School economist Edward Nell, another Georgist, pointed out in his 2018 book Progress and Poverty in Economics. “He favored initial equality: everyone has an equal right to share in what the earth has to offer.”76 In George’s worldview, rising monopoly power violated this basic moral principle, and the great agglomerations of wealth that it produced had pernicious effects not only on the economy but on democracy itself. In the final sections of Progress and Poverty, George issued this timeless warning:

In theory we are intense democrats … But is there not growing up among us a class who have all the power without any of the virtues of aristocracy? We have simple citizens who control thousands of miles of railroad, millions of acres of land, the means of livelihood of great numbers of men; who name the Governors of sovereign states as they name their clerks, choose Senators as they choose attorneys, and whose will is as supreme with Legislatures as that of a French King sitting in bed of justice.77

If liberty and democracy were to be preserved, George went on, every single person “must have liberty to avail themselves of the opportunities and means of life; they must stand on equal terms with reference to the bounty of nature.”78 Citing the example of ancient Rome, he pointed to “the tendency to the unequal distribution of wealth and power” as the thing that had destroyed every previous civilization.79 This was “the universal law,” he concluded. “This is the lesson of the centuries. Unless its foundations be laid in justice the social structure cannot stand.”80

“The ideal pecuniary man is like the ideal delinquent”

Thorstein Veblen and the Captains of Industry

It was Mark Twain and his coauthor Charles Dudley Warner, in their 1873 novel The Gilded Age, who gave a label to an American era characterized by political corruption and vulgar displays of wealth.1 And it was the economist Thorstein Veblen, in his 1899 book The Theory of the Leisure Class, who coined some of the most memorable terms to describe the sociology of that era, including “conspicuous consumption” and “the leisure class” itself. Although Veblen and the early Twain wrote more than a quarter of a century apart, their subject was the same: the corruption of values in a society increasingly based on the manic pursuit of wealth and the desire to show it off publicly.

By the time Veblen published his most famous works, the acceleration in capitalist development Henry George witnessed during the post–Civil War years had generated some of the largest agglomerations of private riches the world had ever seen, as entrepreneurs like Cornelius Vanderbilt, John D. Rockefeller, and Andrew Carnegie created huge industrial combines. Vanderbilt, also known as “the Commodore,” was one of the original US railroad barons who fought with one another and consolidated their industry. When Vanderbilt died, in 1877, he left a fortune of some \$100 million (nearly \$3 billion in 2024 dollars). Rockefeller, through the Standard Oil Trust Agreement of 1882, combined forty companies involved in the production, refining, and marketing of oil under a single board of trustees. Although this arrangement fell short of full-scale merger, it enabled Standard Oil to eliminate price wars and other competitive threats. Seeing the success of the Rockefeller trust, other industrialists sought to replicate it. In 1887 Henry Osborne Havemeyer put together the Sugar Refineries Company, or Sugar Trust, which soon produced 98 percent of the sugar in the United States. In 1890 J. B. Duke created the American Tobacco Company, the constituent businesses of which controlled about 90 percent of the cigarette market.2

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The creators of these behemoths claimed that their size and hierarchical organization enabled them to coordinate production, exploit economies of scale, and provide goods and services more cheaply. Some modern scholars, including the late Harvard business historian Alfred Chandler, have expressed sympathy with this argument. In his influential 1977 book, The Visible Hand: The Managerial Revolution in American Business, Chandler argued that small firms didn’t have the capacity or know-how to organize, say, a nationwide oil distribution network or a factory assembly line. “Modern business enterprise became a viable institution only after the visible hand of management proved to be more efficient than the invisible hand of market forces in co-ordinating the flow of materials through the economy,” Chandler wrote.3

More recently, the Berkeley economic historian Brad DeLong has emphasized the role that large corporations on both sides of the Atlantic played in fostering innovation. “What changed after 1870 was that the most advanced North Atlantic economies had invented invention,” DeLong wrote in his 2022 book Slouching Towards Utopia, a sweeping economic history of the modern world. “They had invented not just textile machinery and railroads, but also the industrial research lab and the forms of bureaucracy that gave rise to the large corporation. Thereafter, what was invented in the industrial research labs could be deployed at national or continental scale.”4 DeLong wasn’t mounting a defense of the trusts and their monopolization. His emphasis was on corporations operating in competitive markets that invested in science and product development as competitive weapons. Over the long term, he pointed out, this practice would become commonplace in many different industries, and the systematizing of innovation would have a transformative impact on economic growth and living standards.

To many contemporaries of Carnegie and Rockefeller, the organizational and scientific advances that came with the rise of big business weren’t immediately obvious. They saw the great combinations squeezing out smaller competitors, monopolizing the market, and raising their profits. Reacting to public pressure, Congress in 1890 passed the Sherman Anti-Trust Act, which outlawed efforts to create monopolies, including any business combination “in the form of a trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states.”5 The new law seemed strict on paper, but the industrial giants quickly found ways to get around it. Some followed the example of Standard Oil, which jettisoned its trust status and reorganized itself as a holding company. The Sugar Trust fought the federal government, and in 1895 the Supreme Court struck down a federal challenge to its monopoly. After this ruling, there were more consolidations, culminating, in March 1901, with J. P. Morgan’s creation of US Steel, which combined Carnegie Steel and a number of its erstwhile competitors. At its inception, US Steel controlled two-thirds of the American steel market and was capitalized at \$1.4 billion, making it the world’s first billion-dollar corporation.6

As the robber barons—a term first applied to Vanderbilt—saw their fortunes grow to previously unimagined sizes, their spending became ever more showy. Cornelius II, the eldest grandson of Cornelius, constructed an Italian palazzo overlooking the Atlantic Ocean in Newport, Rhode Island. It boasted forty-eight bedrooms and an ornate Great Hall with a fifty-foot ceiling. This was merely a summer house. On Manhattan’s Fifth Avenue, William H. Vanderbilt, Cornelius’s eldest son and the father of Cornelius II, built mammoth adjoining brownstone townhouses—one for himself and his wife, and one for his two daughters—that stretched for an entire city block between 51st and 52nd Streets. Vanderbilt’s “Triple Palace” featured Numidian marble colonnades, stained glass skylights, ornate bronze doors, and oak wainscoting taken from French châteaus. For decoration, there were Italian tapestries, Japanese embroidery, and art treasures transported from Europe. On the evening of March 26, 1883, the Vanderbilts hosted a fancy dress ball, at which Mrs. William K. Vanderbilt outfitted herself as a Venetian princess. Other guests came as Louis XVI, King Lear, and Joan of Arc.7

The rise of a plutocracy, and the transformation of the US economy on which it was based, cried out for serious economic analysis. Some younger American economists recognized that their profession wasn’t rising to the challenge. In September 1885, they met at Saratoga Springs, New York, and founded the American Economic Association. In a manifesto for the new organization, Richard T. Ely, an economist at Johns Hopkins University who had studied in Germany and was skeptical of free market Anglo-American theories, declared, “We regard the state as an educational and ethical agency whose positive aid is an indispensable condition of human progress. While we recognize the necessity of individual initiative in industrial life, we hold that the doctrine of laissez-faire is unsafe in politics and unsound in morals.”8 Ely’s colleagues watered down his language but retained part of it in a statement of principles.

As the commercial success of George’s Progress and Poverty challenged the moribund US economics profession from without, the initiative of Ely and others breathed some life into it from within. Ely would eventually move to the University of Wisconsin, where he helped to create an institutionalist school of economics that emphasized history and structure over abstract theory. But the young economist who was to emerge as the most original challenger to the ruling orthodoxy wasn’t to be found at Saratoga Springs.

In the summer of 1885, Veblen was a twenty-nine-year-old slacker lolling around the attic of his family’s farmhouse in Nerstrand, Minnesota, which is about an hour south of Minneapolis. The sixth of twelve children in a family of Norwegian immigrants who spoke a Norwegian dialect at home, Veblen was far from a typical American farm boy. A year earlier, he had obtained a doctorate in philosophy from Yale. Despite a letter of recommendation from the university’s president, the philosopher Noah Porter, who had supervised his thesis on Kant, Veblen had failed to land an academic post and returned home to Nerstrand, where he seemed content to spend his days reading.9 “He read and loafed, and the next day, he loafed and read,” one of his brothers subsequently recalled.10

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There are suggestions that Veblen had contracted a debilitating disease—he would later say he had malaria. In 1888, he roused himself sufficiently to marry Ellen Rolfe, the niece of the president of Carleton College, whom he had met during their time there as undergraduates. The couple moved to the Rolfe family farm in Stacyville, Iowa. Some of Veblen’s family members were keen for him to find gainful employment, but an effort to get the Santa Fe Railroad to hire him failed. Eventually Veblen decided to get a second doctorate, this time in economics, which was a more thriving field than philosophy. At the start of 1891, he enrolled at Cornell University, in Ithaca, New York.

Despite his long hiatus from academia, he was well prepared. At Carleton, in Northfield, Minnesota, where he had been an undergraduate, he had studied economics under a rising young scholar, John Bates Clark, who later described Veblen as a brilliant “misfit.” (One talk he delivered at Carleton was titled “A Plea for Cannibalism.”)11 At Johns Hopkins, Veblen had taken classes with Ely. And at Yale, his minor subject had been economics.

The head of Cornell’s economics department, James Laurence Laughlin, was an orthodox economist: he had prepared an abridged version of Mill’s textbook, Principles of Political Economy, and was an expert on money and banking. Under Laughlin’s tutelage, Veblen quickly cranked out three academic articles that were anything but radical. In “The Overproduction Fallacy,” published in 1892, he dismissed the possibility of “general” overproduction as “palpably absurd.”12 In “Some Neglected Points in the Theory of Socialism,” published the year before, he said that recent capitalist development had brought about “the most rapid advance in average wealth and industrial efficiency that the world has seen,” along with a substantial “amelioration of the lot of the less favored.” Although Veblen did acknowledge the growing attraction to socialism in some quarters, he attributed it to “envy” and “jealousy” driven by a desire for “economic emulation.”13

In the fall of 1892, Laughlin left Cornell for the recently founded University of Chicago, which had hired him to create a department of political economy. The new university was located on a plot of land in the residential suburb of Hyde Park that the department store entrepreneur Marshall Field had donated. J. D. Rockefeller provided most of the money to build the new school, which he wanted to rival Harvard, Yale, and Princeton. He hired as Chicago’s president a young Yale professor, William Rainey Harper, and gave him broad license to bring in academic stars. It was Rainey who offered Laughlin a job.

As a condition of acceptance, Laughlin insisted on bringing along three junior colleagues, one of whom was Veblen.14 Shortly after arriving in Chicago, Laughlin established a new economics journal, the Journal of Political Economy, which he deputized Veblen to run on a day-to-day basis. As well as carrying out his editing duties, Veblen contributed articles of his own. He also taught classes and translated into English a book on public finance by the German scholar Gustav Cohn. Having arrived in Chicago as a “senior fellow,” he was quickly promoted to the position of “reader,” which carried an annual stipend of \$600. Although this position wasn’t tenured, it guaranteed Veblen at least some financial security.15

Outside the cloistered environs of Hyde Park, the US economy was entering another deep slump. On February 20, 1893, the heavily indebted Philadelphia and Reading Railroad, one of the nation’s biggest, declared bankruptcy, sending shudders through the financial markets. In early May these tremors turned to panic selling as the New Jersey–based National Cordage Company, the country’s biggest manufacturer of rope, suddenly went into receivership. In a reprise of the Great Panic of 1873, several banks failed, and the fallout spread to the rest of the economy. “Never before has there been such a sudden and striking cessation of industrial activity,” The Commercial and Financial Chronicle noted in September 1893. “Nor was any sector of the county exempt from the paralysis; mills, factories, furnaces, mines nearly everywhere shut down in large numbers … and hundreds of thousands of men [were] thrown out of employment.”16

With no unemployment insurance or federal emergency relief in place, many of the jobless suffered great hardship. In the spring of 1894, Jacob Coxey, a populist Ohio businessman, assembled about five hundred unemployed workers to march on Washington and call for the establishment of a federal public works program financed by the issuance of currency. Since the 1870s, the United States had adhered to the gold standard, which tied the amount of money in circulation to the stock of gold. For years, the farmers of the West had been demanding a new currency backed by silver, which they hoped would raise the depressed prices of agricultural commodities. “Coxey’s Army” went further than the proponents of “free silver”: it demanded the printing of fiat currency backed only by the word of its issuer, the US government.17

Veblen wasn’t very sympathetic to these demands. In a June 1894 commentary in the Journal of Political Economy, he dismissed the proposals for a fiat currency and a nationwide public works program as an “articulate hallucination” that assumed “the feasibility of paternalism, or socialism, on a scale that is not borne out by the experience of the past.” Still, the emergence of the protests was a “new departure,” Veblen went on, one that reflected a rejection of the American individualist creed and a growing acknowledgment that “the entire community is a single industrial organism, whose integration is advancing day by day, regardless of any traditional or conventional boundary lines or demarcations, whether between classes or between localities.”18

The reference to society as a living organism reflected Veblen’s fascination with evolution and anthropology, which strongly influenced virtually all his work. In embracing Charles Darwin’s intellectual legacy, he was hardly alone, of course. “Evolutionism, organicism, adulation of science: these were familiar points of view, and often accepted ones, on the American intellectual landscape in the last quarter of the nineteenth century,” Charles Camic, a sociologist at Northwestern University, wrote in his admirable 2020 biography of Veblen.19 As they adopted an evolutionary perspective, some of Veblen’s progressive peers veered down some very ugly byways, where they embraced eugenicist concerns that the proliferation of “unfit” elements of the population was undermining US economic prospects. In an 1894 article on immigration, Ely said Americans should “ponder well the effects which a large admixture of baser foreign elements is likely to have upon American nationality.”20 In a 1901 address, the sociologist Edward A. Ross, who had studied under Ely at Johns Hopkins, suggested that low birth rates among white Anglo-Saxon Americans could mean that “the higher race quietly and unmurmuringly eliminates itself,” a phenomenon he referred to as “race suicide.”21

Veblen had an enduring fascination with ethnology and race, but he didn’t embrace this thesis. He was skeptical of any simplistic argument, including the effort by some Social Darwinists to equate the rise of capitalism with the survival of the fittest. The “competitive system” would not “by any means uniformly result in working out of favorable results by a process of natural selection,” he wrote in an 1896 review of Italian criminologist Enrico Ferri’s Socialism and Positive Science, which had recently been published in French.22 (In addition to Norwegian and English, Veblen could read French, German, and Latin.)

Even as Veblen rejected reductionist evolutionary justifications of capitalism, however, he hailed Darwin and his disciple Herbert Spencer for breathing new life into the physical, biological, and psychological sciences. Referring to his own discipline, he quoted Ferri’s judgment that the evolutionary approach had “barely rippled the surface of the still waters of that pool of orthodoxy in social science, Political Economy.”23 Veblen was determined to change this. In his classes, which included History of Political Economy, Economic Factors in Civilization, and Socialism,24 he adopted an evolutionary approach, referring his students to monographs on ancient societies. “Economics is to be brought into line with modern evolutionary science, which it has not been hitherto,” he wrote in a January 1896 letter to one of his graduate students, Sarah Hardy. “The point of departure for this rehabilitation, or rather the basis of it, will be the modern anthropological and psychological sciences, perhaps most immediately  … folk psychology.”25

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Veblen was thinking about writing a multivolume book applying evolutionary ideas to economics. In a November 1895 letter to Hardy, he said he had composed part of an introductory chapter to the first volume, which would be titled The Theory of the Leisure Class. A month later, in yet another letter to Hardy, with whom he was becoming besotted, he said he hadn’t yet reached “the doctrine of conspicuous waste,” which would “constitute the substantial nucleus of this writing.”26 By conspicuous waste, Veblen meant spending that wasn’t directed at meeting actual physical needs.

His intellectual interests reflected the times. As incomes rose, a culture of consumerism was rapidly developing in the United States. Across the country, new department stores were showcasing all sorts of products, from clothes to household goods: Wanamaker’s in Philadelphia; Marshall Field’s in Chicago; and Filene’s in Boston. In the great interior, farmers and townsfolk were perusing the annual Sears, Roebuck and Co. catalogue for novelties and bargains. The 1897 edition ran to seven hundred pages and described itself as “AN ARTIFACT TO MAKE THE MOUTH WATER.”27 In response to heavy demand from its customers, Sears built a Gilded Age version of an Amazon distribution center on the West Side of Chicago. As catalogue houses catered to the mass market, upscale New York retailers, including the jeweler Tiffany’s, the department store B. Altman, and the home furnishings store W&J Sloane, were serving the nouveau riche.