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Crony Capitalism: There Is Nothing New Under the Sun

I recently watched Nicholas Nickleby (2002), based on the Charles Dickens novel of the same name, and I thoroughly enjoyed it.  It is a very light-hearted drama, or perhaps a comedy with dramatic touches — I am not quite sure how to describe it.  I was sufficiently touched by the film to read Dickens’ novel, published as a serial in the 1830s.

I am only a little ways in, but I have already found a very interesting aspect to the story that did not make it into the film — and I think I can see why: It is a reminder that there is nothing new under the sun. The villain is Ralph Nickleby, and in the film we learn only that he is engaged in some sort of speculative financial activity that has made him very wealthy — and which requires him to associate with some really sleazy but wealthy people who are intent on becoming more wealthy.

Exactly what that speculation is, we never learn from the film, but clearly it is something a bit questionable.  As both novel and film explain, a previous round of this questionable practice meant, “A mania prevailed, a bubble burst, four stock-brokers took villa residences at Florence, four hundred nobodies were ruined….”

In reading the novel, I find myself delighted with how Dickens explains how the villain is making his money. Today, Ralph Nickleby would likely be a bundler for the Obama re-election campaign. In chapter two, we learn that Nickleby and his unindicted co-conspirators are promoting — in the public interest, of course — a startup called the “United Metropolitan Improved Hot Muffin and Crumpet Baking and Punctual Delivery Company.” Nickleby and friends intend to get rich by taking the company public, and immediately selling their founder’s stock.

Okay, this does not sound so terribly nefarious: they are starting a company that satisfies a public need.  Well, not quite. Ralph Nickleby and friends organize a public meeting at which various figures speak of the horrifying social problems that the existing competitive system of bakers and independent delivery contractors create: how the poor were “destitute of the slightest vestige of a muffin”; how “drunkenness, debauchery, and profligacy” were the state of muffin-sellers and the poor “who ought to be muffin consumers”; that the “unhappy youths” who delivered muffins and crumpets to customers at all hours suffered because of bad weather and traffic accidents.

The purpose of the public meeting is to sway emotions of the crowd so that they will sign a petition to Parliament chartering this new corporation — and oh yes, two members of the board, who are M.P.s, will sponsor the bill granting the charter.  The charter, of course, does not simply create a corporation.  It will abolish “’all muffin (or crumpet) sellers, all traders in muffins (or crumpets) of whatsoever description, whether male or female, boys or men, ringing hand-bells or otherwise’.”

Does any of this sound familiar?  Dickens, of course, is having fun with this, but he is describing a surprisingly common problem throughout history: crony capitalism. Most Americans are unaware of how common this is, and not just in the Obama administration.  Some of the earliest Supreme Court decisions concerning the meaning of the Constitution’s interstate commerce clause come out of a monopoly granted by the state of New York to two individuals to operate steamboats between New York and other states. When New Jersey challenged the monopoly, by granting others the right to operate steamboats between the two states, the U.S. Supreme Court ruled that a state could not grant a monopoly involving interstate commerce.

But while state authority to grant monopolies in interstate commerce did not survive, a great many arrangements remained involving strictly intrastate commerce — and some survive today.  The states lost power over interstate commerce. Congress made similar, often corrupt, and frequently unseemly deals involving the expansion of the railroads across the United States.  The size of these grants is staggering: the Union Pacific received land roughly equal to “New Hampshire and New Jersey combined.”  Kansas Pacific received land as large as Vermont and Rhode Island.  A total of 131,230,358 acres of government land were granted to the railroads — or more than 205,000 square miles.  You can see why sleazy maneuvering in Congress concerning railroads is a constant part of the nineteenth century — and why railroad companies abusing their enormous economic power was a big part of what drove nineteenth century populism.

President Obama recently compared his administration’s promotion of green energy to the federal government’s encouragement of the “intercontinental railroad.” (He meant “transcontinental railroad,” but we can’t expect someone as poorly educated as Obama to know the difference.)  It is an apt comparison: we gave away an enormous amount of land to promote development, accelerating westward expansion and the inevitable collision with the Plains Indians.  There is no question that, one way or another, conflict between the expanding United States and the Indians was going to happen — but you do have to wonder if it would have been as fast or destructive in its results, without the federal government’s subsidies to railroads.

You also have to wonder if the concentration of wealth that is part of the Gilded Age at the end of the nineteenth century would have been quite this extreme, without those land grants.  Cornelius Vanderbilt, one of the great robber barons of the time, was a steamship and railroad tycoon.  Obama and the other apologists for crony capitalism (or as they imagine it, government encouragement of the common good) seem completely unaware that interfering with the free market can have very destructive effects — even if a bit more subtle than Nicholas Nickleby’s “United Metropolitan Improved Hot Muffin and Crumpet Baking and Punctual Delivery Company.”