Modern history

Free Markets and Rugged Individuals

American industrialization developed as rapidly as it did in large part because it was reinforced by traditional ideas and values. The notion that hard work and diligence would result in success meant that individuals felt justified, even duty-bound, to strive to achieve upward mobility and accumulate wealth. Churches, schools, intellectuals, and popular writers combined to buttress this doctrine of success. Those who succeeded believed that they had done so because they were more talented, industrious, and resourceful than others. Thus prosperous businessmen regarded competition and the free market as essential to the health of an economic world they saw based on merit. Yet these same businessmen also created trusts that destroyed competition, and they depended on the government for resources and protection. This obvious contradiction, along with the profoundly unequal distribution of wealth that characterized the late-nineteenth-century economy, generated a good deal of criticism of business tycoons and their beliefs.

The Doctrine of Success

Those at the top of the new industrial order justified their great wealth in a manner that most Americans could understand. The ideas of the Scottish economist Adam Smith, in The Wealth of Nations (1776), had gained popularity during the American Revolution. Advocating laissez-faire (“let things alone”), Smith contended that an “Invisible Hand,” guided by natural law, guaranteed the greatest economic success if the government let individuals pursue their own self-interest unhindered by outside and artificial influences. In the late nineteenth century, businessmen and their conservative allies on the Supreme Court used Smith’s doctrines to argue against restrictive government regulation. They equated their right to own and manage property with the personal liberty protected by the Fourteenth Amendment. Thus the Declaration of Independence, with its defense of “life, liberty, and the pursuit of happiness,” and the Constitution, which enshrined citizens’ political freedom, became instruments to guarantee unfettered economic opportunity and safeguard private property.

The view that success depended on individual initiative was reinforced in schools and churches. The McGuffey Readers, widely used to educate children, taught moral lessons of hard work, individual initiative, reliability, and thrift. The popular dime novels of Horatio Alger portrayed the story of young men, such as Ragged Dick, who rose through pluck and luck from “rags to riches.” Americans could also hear success stories in houses of worship. Russell Conwell, pastor of the Grace Baptist Church in Philadelphia, delivered a widely printed sermon entitled “Acres of Diamonds,” which equated godliness with riches and argued that ordinary people had an obligation to strive for material wealth. “I say that you ought to get rich, and it is your duty to get rich,” Conwell declared, “because to make money honestly is to preach the gospel.”

Conwell followed his own advice and became wealthy from the fees he earned delivering his popular sermon.

If economic success was a matter of personal merit, it followed that economic failure was as well. The British philosopher Herbert Spencer proposed a theory of social evolution based on this premise in his book Social Statics (1851). Imagining a future utopia, Spencer wrote, “Man was not created with an instinct for his own degradation, but from the lower he has risen to the higher forms. Nor is there any conceivable end to his march to perfection.” In his view, those at the top of the economic ladder were closer to perfection than were those at the bottom. Any effort to aid the unfortunate would only slow the march of progress for society as a whole. Spencer’s book proved extremely popular, selling nearly 400,000 copies in the United States by 1900. In recalling how Spencer’s ideas influenced him, Carnegie wrote, “I remember that light came as in a flood and all was clear.” Publication of Charles Darwin’s landmark On the Origin of Species (1859) appeared to provide some scientific legitimacy for Spencer’s view. The British naturalist argued that plants, animals, and humans progressed or declined because of their ability or inability to adapt favorably to the environment and transmit these characteristics to future generations. The connection between the two men’s ideas has led some to label Spencer and his supporters “Social Darwinists.” However, few defenders of laissez-faire principles in the late nineteenth century had actually read Darwin or referred to themselves as Social Darwinists, a term that came into widespread use only in the twentieth century.

Doctrines of success gained favor because they helped Americans explain the rapid economic changes that were disrupting their lives. Although most ordinary people would not climb out of poverty to middle-class respectability, let alone affluence, they clung to ideas that promised hope. After all, if a man like Carnegie could rise from poverty to become a multimillionaire, why not them? It mattered little that most of those who achieved extraordinary wealth did not emerge from the working class but rather came from the middle class. Ideas such as Spencer’s that linked success with progress provided a way for those who did not do well to understand their failure and blame themselves for their own inadequacies. At the same time, the notion that economic success derived from personal merit legitimized the fabulous wealth of those who did rise to the top.

Capitalists such as Carnegie found a way to soften both the message of extreme competition and its impact on the American public. Denying that the government should help the poor, they proclaimed that men of wealth had a duty to furnish some assistance. In his famous essay “The Gospel of Wealth" (1889), Carnegie declared that “a man who died rich died disgraced.” He argued that the rich should act as stewards of the wealth they earned. As trustees, they should administer their surplus income for the benefit of the community. Carnegie distinguished between charity (direct handouts to individuals), which he deplored, and philanthropy (building institutions that would raise educational and cultural standards), which he advocated. For example, Carnegie, Rockefeller, and railroad tycoons Leland Stanford and Cornelius Vanderbilt all gave endowments (and their names) to universities to provide education for those who worked hard to achieve it. Russell Conwell also gave away his fortune to various philanthropic enterprises, most notably the founding of Temple University in Philadelphia, which opened its doors to poor men seeking a higher education. Carnegie was particularly generous in funding libraries (he provided the buildings but not the books) because they allowed people to gain knowledge through their own efforts.

Capitalists may have sung the praises of individualism and laissez-faire, but their actions contradicted their words. Successful industrialists in the late nineteenth century sought to destroy competition, not perpetuate it. Their efforts over the course of several decades produced giant corporations that measured the worth of individuals by calculating their value to the organization. As John D. Rockefeller, the master of consolidation, proclaimed, “The day of individual competition in large affairs is past and gone.”

Nor did capitalists strictly oppose government involvement. Although industrialists did not want the federal government to take any action that retarded their economic efforts, they did favor the use of the government’s power to promote their enterprises and to stimulate entrepreneurial energies. Thus manufacturers pushed for congressional passage of high tariffs to protect goods from foreign competition and to foster development of the national marketplace. Industrialists demanded that federal and state governments dispatch troops when labor strikes threatened their businesses. They persuaded Washington to provide land grants for railroad construction and to send the army to clear Native Americans and bison from their tracks. They argued for state and federal courts to interpret constitutional and statutory law in a way that shielded property rights against attacks from workers. In large measure, capitalists succeeded not in spite of governmental support but because of it.

Challenges to Laissez-Faire

Proponents of government restraint and unbridled individualism did not go unchallenged. Critics of laissez-faire created an alternative ideology for those who sought to organize workers and expand the role of government as ways of restricting capitalists’ power over labor and ordinary citizens.

Lester Frank Ward attacked laissez-faire in his book Dynamic Sociology (1883). A largely self-taught man who worked as a civil servant for the federal government, Ward did not disparage individualism but viewed the main function of society as “the organization of happiness.” Contradicting Herbert Spencer, Ward maintained that societies progressed when government directly intervened to help citizens—even the unfortunate. Indeed, society could initiate “the systematic realization of its own interests, in the same manner that an intelligent and keen-sighted individual pursues his life-purposes.” Rejecting laissez-faire, Ward argued that what people “really need is more government in its primary sense, greater protection from the rapacity of the favored few.”

Some academics supported Ward’s ideas. Most notably, economist Richard T. Ely applied Christian ethics to his scholarly assessment of capital and labor. He condemned the railroads for dragging “their slimy length over our country, and every turn in their progress is marked by a progeny of evils.” In his book The Labor Movement (1886), Ely suggested that the ultimate solution for social ills resulting from industrialization lay in “the union of capital and labor in the same hands, in grand, wide-reaching, co-operative enterprises.”

Two popular writers, Henry George and Edward Bellamy, added to the critique of materialism and greed. In Progress and Poverty (1879), George lamented: “Amid the greatest accumulations of wealth, men die of starvation.” He blamed the problem on rent, which he viewed as an unjustifiable payment on the increase in the value of land, what he called “unearned increment.” His remedy was to have government confiscate rent earned on land by levying a single tax on landownership. Though he advocated government intervention, he did not envision an enduring role for the state once it had imposed the single tax. By contrast, Bellamy imagined a powerful central government. In his novel Looking Backward, 2000—1887 (1888), Bellamy scorned the “imbecility of private enterprise” and attacked industrialists who “maim and slaughter workers by thousands.” In his view, the federal government should take over large-scale firms, administer them as workers’ collectives, and redistribute wealth equally among all citizens.

Neither Bellamy, George, Ward, nor Ely endorsed the militant socialism of Karl Marx. The German philosopher predicted that capitalism would be overthrown and replaced by a revolutionary movement of industrial workers that would control the means of economic production and establish an egalitarian society. Although his ideas gained popularity among European labor leaders, they were not widely accepted in the United States during this period. George referred to Marx as “the prince of muddleheads.” George and other critics believed that the American political system could be reformed without resorting to the extreme solution of a socialist revolution. They favored a cooperative commonwealth of capital and labor, with the government acting as an umpire between the two.

REVIEW & RELATE

• In the late nineteenth century, how did many Americans explain individual economic success and failure?

• How did the business community view the role of government in the economy at the end of the nineteenth century?

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