Intro
This week’s assigned reading is a speech by Dr. Burt titled Folsom: The Myth of the Robber Barons. In the speech, Dr. Burt begins by explaining that when the United States was founded, it had a very low economic standing. To address this, the Constitution created a framework of freedom while limiting government power, allowing for many entrepreneurs to drive the economy forward. Dr. Burt argues that involving the government in funding disrupts competition and wastes money, which ultimately stifles innovation and economic progress.
The Rise of Steamships and the Debate Over Government Funding
In the early 1800s, England began to industrialize and mass-produce goods, leaving the United States behind in terms of economic development. Some critics of the economy argued that the U.S. government should step in to help boost economic development in order to catch up. Dr. Burt highlights how long communication and travel times between countries led to high prices, which put U.S. businesses at a disadvantage. With the advent of the steamship, travel time was dramatically reduced, which transformed the economy and created new opportunities for faster trade and global competition. Recognizing the importance of steamships for maintaining global competitiveness, the U.S. government looked to fund steamship ventures. However, at the time, government funding for private businesses was highly debated and uncertain, as the Constitution didn’t explicitly allow the government to lend money to private citizens or companies.
Collins’ Steamship Venture
A businessman named Collins saw the potential for steamships to revolutionize trade and sought government funding for his idea. He requested $385,000 to start a mail steamship company and an additional $3,000,000 to build ships. Eventually, Congress approved the pitch, and Collins’ ships began transporting goods and passengers. However, Collins continued to request additional funds to support his growing operation. This sets the stage for a key moment in Dr. Burt's argument: the tension between the entrepreneurial spirit that drives innovation and the inefficiencies that arise when the government becomes too involved in funding private enterprises.
Vanderbilt's Competition
Cornelius Vanderbilt, skeptical of Collins' methods, went before Congress with an offer to provide similar services at half the cost. Collins, however, won out because of his familiarity with the system and the perceived risk of switching leadership. Vanderbilt, despite the setback, entered the market and began competing using his own faster ships, although they consumed more fuel. Vanderbilt was not deterred by these costs; instead, he found ways to cut other expenses and increase profits, such as offering cheaper tickets and including food on his ships. Meanwhile, Collins continued to request more funding, now arguing that the government needed to help him compete with Vanderbilt, who had proven himself to be a serious competitor. Eventually, Collins' ships suffered a series of disasters, including two sinking after hitting icebergs. He was left with only two ships and again turned to Congress for more money. In response, Congress granted him additional funds to build a third ship, but that ship ended up being flawed and was sold for just $10,000. Undeterred, Collins requested another $1,000,000, but this time Congress refused and even withdrew his annual subsidy.
The Downfall of Collins
By contrast, Vanderbilt’s success continued to soar. He thrived without government subsidies and eventually became the wealthiest man in U.S. history. Dr. Burt points out that while Collins' company contributed to a third of the national debt, Vanderbilt succeeded entirely through private investment, innovation, and competition, without any government assistance. This stark contrast between the two men highlights the inefficiency and waste that can result from government intervention in the market, and serves as a powerful illustration of how competition, rather than subsidies, drives true economic success.
The Failure of the Government-Sponsored Railroads
The speaker also delves into the history of the transcontinental railroad, another example of government subsidies gone wrong. To speed up construction, Congress provided subsidies to two railroads to encourage competition. However, the subsidies were awarded based on the miles of track laid, which led to wasteful practices. For instance, the railroads intentionally laid tracks in unnecessary curves or through difficult-to-navigate mountainous areas, just to claim additional mileage. Eventually, the two railroads clashed, and their competition turned destructive, with each side using dynamite to blow up sections of the other’s track. The situation became so chaotic that Congress had to intervene and force the railroads to meet at Promontory Point, the location where the two tracks would finally connect.
The Shift Away from Subsidies
Over time, Congress realized the problems associated with subsidies and withdrew nearly all of them. This shift allowed the United States to emerge as an economic powerhouse, with figures like Rockefeller, who was able to dominate the oil industry and control 65% of the market without relying on government subsidies. This outcome supports Dr. Burt’s point that innovation and success are best achieved when entrepreneurs are allowed to operate without unnecessary government interference.
Conclusion
Dr. Burt’s speech highlights the dangers of government involvement in business, showing how subsidies often lead to inefficiency, waste, and economic distortion. He argues that true entrepreneurial success comes from competition and innovation, not reliance on public funds. The stark contrast between Collins’ failure with subsidies and Vanderbilt’s success without them illustrates the power of competition in driving economic progress. This serves as a powerful reminder that markets function best when left free from government interference, allowing businesses to thrive on their own merits and contribute to a stronger, more efficient economy.