Why Nations Fail: The Origins of Power, Prosperity, and Poverty

One of the most notorious of these was Cornelius Vanderbilt, who famously remarked, “What do I care about the Law? Hain’t I got the power?”
    Another was John D. Rockefeller, who started the Standard Oil Company in 1870. He quickly eliminated rivals in Cleveland and attempted to monopolize the transportation and retailing of oil and oil products. By 1882 he had created a massive monopoly—in the language of the day, a trust. By 1890 Standard Oil controlled 88 percent of the refined oil flows in the United States, and Rockefeller became the world’s first billionaire in 1916. Contemporary cartoons depict Standard Oil as an octopus wrapping itself around not just the oil industry but also Capitol Hill.
    Almost as infamous was John Pierpont Morgan, the founder of the modern banking conglomerate J.P. Morgan, which later, after many mergers over decades, eventually became JPMorgan Chase. Along with Andrew Carnegie, Morgan founded the U.S. Steel Company in 1901, the first corporation with a capitalized value of more than $1 billion and by far the largest steel corporation in the world. In the 1890s, large trusts began to emerge in nearly every sector of the economy, and many of them controlled more than 70 percent of the market in their sector. These included several household names, such as Du Pont, Eastman Kodak, and International Harvester. Historically the United States, at least the northern and midwestern United States, had relatively competitive markets and had been more egalitarian than other parts of the country, particularly the South. But during this period, competition gave way to monopoly, and wealth inequality rapidly increased.
    The pluralistic U.S. political system already empowered a broad segment of society that could stand up against such encroachments. Those who were the victims of the monopolistic practices of the Robber Barons, or who objected to their unscrupulous domination of their industries, began to organize against them. They formed the Populist and then subsequently the Progressive movements.
    The Populist movement emerged out of a long-running agrarian crisis, which afflicted the Midwest from the late 1860s onward. The National Grange of the Order of Patrons of Husbandry, known as the Grangers, was founded in 1867 and began to mobilize farmers against unfair and discriminatory business practices. In 1873 and 1874, the Grangers won control of eleven midwestern state legislatures, and rural discontent culminated in the formation of the People’s Party in 1892, which got 8.5 percent of the popular vote in the 1892 presidential election. In the next two elections, the Populists fell in behind the two unsuccessful Democratic campaigns by William Jennings Bryan, who made many of their issues his own. Grass-roots opposition to the spread of the trusts had now organized to try to counteract the influence that Rockefeller and other Robber Barons were exerting over national politics.
    These political movements slowly began to have an impact onpolitical attitudes and then on legislation, particularly concerning the role of the state in the regulation of monopoly. The first important piece of legislation was the Interstate Commerce Act of 1887, which created the Interstate Commerce Commission and initiated the development of the federal regulation of industry. This was quickly followed by the Sherman Antitrust Act of 1890. The Sherman Act, which is still a major part of U.S. antitrust regulation, would become the basis for attacks on the Robber Barons’ trusts. Major action against the trusts came after the election of presidents committed to reform and to limiting the power of the Robber Barons: Theodore Roosevelt, 1901–1909; William Taft, 1909–1913; and Woodrow Wilson, 1913–1921.
    A key political force behind antitrust and the move to impose federal regulation of industry was again the farm vote. Early attempts by individual states in the 1870s to regulate railroads came from farmers’ organizations. Indeed, nearly all the fifty-nine petitions that concerned trusts sent to Congress prior to the enactment of the Sherman Act came from farming states and emanated from organizations such as the Farmers’ Union, Farmers’ Alliance, Farmers’ Mutual Benefit Association, and Patrons of Animal Husbandry. Farmers found a collective interest in opposing the monopolistic practices of industry.
    From the ashes of the Populists, who seriously declined after throwing their weight behind the