(Bloomberg Opinion) -- It was a giant ad on the side of a double-decker bus that did it. I have finally succumbed to a barrage of publicity and started to watch “The Gilded Age.” I haven’t thought much of it so far. The HBO extravaganza has all the ingredients that made “Downton Abbey” a global hit — a grand dame who is determined to keep out the riffraff, a ridiculously rich social climber who refuses to be kept out, and an array of liveried footmen, temperamental cooks and worldly wise butlers — but they don’t cohere properly: The social observations are too heavy-handed and the characters too wooden.
I am nevertheless grateful to Julian Fellowes, the creative force behind both series, for putting the TV spotlight on the most extraordinary epoch of American history: the period between 1870 and 1900 that Mark Twain and Charles Dudley Warner dubbed “the gilded age” in their 1873 novel of that title, and that is forever synonymous with “robber barons” and octopus-like monopolies.
That there are extraordinary parallels between our own age and the gilded one is hardly a new observation: The latest reminder is Jeff Bezos’s $485 million yacht, which is so big that a section of a bridge in Rotterdam may have to be temporarily removed so that it can reach the sea. But so what? The interesting question is not whether parallels exist, but what we are to make of them.
The left is in no doubt about the answer to the question: the Gilded Age was a period of darkness that mercifully gave way to the light of the Progressive Era when great presidents such as Teddy Roosevelt and, later down the line, his distant cousin Franklin reasserted the power of the state. Any politician who shows a bit of spunk is immediately dubbed a worthy successor to Teddy (John McCain) or Franklin (Barack Obama). But was the Gilded Age really so dark (or gilded)? And were the solutions that America adopted to its presumed problems really the right ones? I think the answer is a lot more complicated — and interesting — than today’s progressives believe.
The Gilded Age was actually a period of extraordinary economic progress — and not just for a handful of plutocrats but also for the bulk of the (rapidly expanding) population. The age saw the foundations of a modern economy constructed in the blink of Clio’s eye: railways to transport people across a vast continent; oil to power machines; electricity to light the darkness; skyscrapers to house an expanding managerial class. Fifty-three of the firms on the Fortune 500 list in 2000 were founded in the 1880s, 39 in the 1890s and 52 in the 1900s.
The United States supplanted the United Kingdom as the world’s leading economy: From 1870 to 1910, its share of global manufacturing increased from 23.2% to 35.3% while Britain’s share fell from 31.8% to 14.7%. And Americans secured their position as the world’s richest workers, with a per capita income in 1914 of $346 compared with $244 in Britain, $184 in Germany and $108 in Italy. “The old nations creep on at a snail’s pace,” Andrew Carnegie pronounced. “The Republic thunders past with the rush of an express.”
The likes of Carnegie were instruments of progress rather than mere rent-seekers. They felt in their bones that the material basis of civilization was about to change — that steel would replace iron and oil would replace wood and whale blubber — and built giant organizations to hasten that change. Mammoth steel mills and oil refineries emerged from nowhere. Railways shrank geography and time. The unit costs of the basic inputs to the economy fell and with them the real price of consumer goods.
It is hard to talk about an express train rushing past the rest of the world today, in the era of the rise of Asia in general and China in particular. America is nevertheless holding its own far better than the rest of the old world. In June 2021 the Economist calculated that 43 of the world’s firms that are worth more than $100 billion were set up from scratch in the past half-century: Twenty-seven of those were founded in the U.S., ten in China and only one in Europe, “the continent that ambition forgot.”
The reason for the U.S.’s relative success is the same as it was in the Gilded Age: its ability to mass-produce entrepreneurs who sense that the world is changing and then rapidly build gigantic organizations that bring that change into being. Today’s entrepreneurs have most of the weird peccadillos of the robber barons who preceded them, such as a belief that they — and they alone — can save the world’s eternal problems: Andrew Carnegie wanted to introduce universal peace just as Peter Thiel wants to “turn death from a fact of life to a problem to be solved.” But they also possess the imperialism of the soul that allows them to transform the world.
The most important lesson to learn from the Gilded Age is that America needs to cherish the formula that allows it to mass-produce these flawed giants. This means a liberal immigration policy at least for the most talented and ambitious: Sergey Brin is the son of Russian immigrants just as Carnegie was the son of an impoverished Scottish textile worker. It means tolerating failure: One thing that Steve Jobs had in common with Henry Ford (and indeed R. H. Macy and H. J. Heinz) is that he went bankrupt. It means enabling entrepreneurs to found companies and take them public.
So why only two cheers rather than a full-throated three? The reason is that the progressives are right about an important big thing: the dangers inherent in the transformation of a collection of entrepreneurs into a business aristocracy. The problem with the Gilded Age was not the “creative destruction” that Schumpeter celebrated, but the “conspicuous consumption” that Thorstein Veblen diagnosed in “The Theory of the Leisure Class” (and that Fellowes moons over in his TV series). The decade from 1895 to 1905 saw more than 1,800 manufacturing firms absorbed into giant consolidations as J. P. Morgan went around tidying up the economy and squeezing out “unnecessary” competition. Unit costs stopped falling in basic industries such as steel. And the robber barons gave way to their idle and extravagant children: One of William Vanderbilt’s sons, Cornelius, built a mansion in Newport, Rhode Island, the Breakers, that boasted 70 rooms; his other son, George, retaliated by building a house in North Carolina, the Biltmore, that had 250.
Here the parallels with contemporary America become more uncomfortable. Economic concentration reached new heights in 2020, according to the Bank of America, which has tracked the problem in Russell 3000 firms since 1986. Oligopoly is almost as prevalent in the new economy of Silicon Valley as it is in the old economy of airlines with their lousy service and suspiciously high profits: Five new economy giants seem to be dividing the virtual world into separate spheres (though there are a few encouraging signs of skirmishes of late). Thiel channels the spirit of J. P. Morgan when he writes that “all failed companies are the same. They failed to escape competition.”
America’s plutocrats are transforming themselves into hereditary dynasties, thanks to a prolonged campaign against inheritance taxes (or “death taxes” as they have been ingeniously dubbed). The research firm Cerulli estimates that almost half of the estimated $72.6 trillion that will be transferred to the next generation between 2020 and 2045 will come from the richest 1.5% of households. Welcome to the world of trillion-dollar trust fund babies.
The rise of such dynasties clashes with America’s fundamental belief in equal opportunity and upward mobility. It leads to social closure as the children of the privileged hoard positions at the top of society. It produces economic distortions as high IQ types get jobs as “money butlers.” (Chuck Collins, the author of “The Wealth Hoarders,” estimates that at least 90,000 people are employed in what he calls the “wealth defense industry.”) And it destroys the faith in upward mobility. Twain and Dudley Warner were summarizing everyday wisdom when they wrote in the preface to “The Gilded Age” that “in America nearly every man has his dream, his pet scheme, whereby he is to advance himself socially or pecuniarily.” Today the educated are losing their faith in upward mobility.
America’s great challenge is to preserve the positive side of the Gilded Age (creative destruction) without institutionalizing the negative side (commercial dynasties). Here, today’s self-described progressives are a poor guide. Alexandria Ocasio-Cortez has coined the phrase “every billionaire is a policy failure.” That is a recipe for economic stagnation. School administrators in New York, Boston and San Francisco have tried to abolish selective schools. That is a recipe for wasted talent and parental fury: Three members of the San Francisco school board have recently lost their seats by big margins in a recall vote. Progressives everywhere are obsessed by dividing America by ethnicity rather than uniting it by common aspirations.
The first generation of progressives are a much better guide. Teddy Roosevelt believed in breaking up the great trusts in order to restore competition to the heart of the economy and in imposing inheritance taxes to prevent the “tyranny of plutocracy.” Had Roosevelt’s inheritance tax remained in place, America would not be contemplating the arrival of the richest trustafarians in history. Woodrow Wilson believed in reforming government to promote the “Best Men” and render administration “facile, well-ordered and effective.” University reformers believed in providing more opportunities for upward mobility.
Julian Fellowes’s extravaganza may not be worth bothering with. But the Gilded Age is always worth studying not only because it demonstrates so clearly what is so right about America, but also because it provides such a good lesson in using what is right about America — its reverence for competition and dynamism — to fix what is wrong.
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Adrian Wooldridge is the global business columnist for Bloomberg Opinion. He was previously a writer at the Economist. His latest book is "The Aristocracy of Talent: How Meritocracy Made the Modern World."
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