Of Kochs and Carnegies: The Myth of Capitalist Market Purity

Charles and David Koch flood the U.S. government with cash, and get subsides in return.

Charles and David Koch flood the U.S. government with cash, and get to shape the government-private sector relationship in return.

This week a story broke that would surprise no one with even a passing knowledge of the shady relationship between business and government in the U.S. It turns out that a previously unknown conservative “sugar daddy” group called Freedom Partners had raised a cool $256 million in 2012 and then funneled out $236 million of that cash to a rogue’s gallery of right-wing organizations, including Americans for Prosperity, the National Rifle Association, and, of course, the U.S. Chamber of Commerce. The group organized as a 501(c)6 tax-exempt chamber of commerce, allowing it remain in the shadows raising so-called “dark money” from a host of secret donors. Several members of the board have close ties to Koch Industries, the vast industrial conglomerate based out of Witchita, Kansas and owned by ultra right-wing billionaires Charles and David Koch — better known the general public, and to those with a soul — as the Koch Brothers.

The Koch Brothers are hard-core Libertarians who for years have spent millions lobbying for right-wing organizations and flooding Republican Party coffers with cash to champion the standard conservative pet issues of free markets, smaller government, and the destruction of the American welfare state. And BOY are they conservative. The Koch’s father, Fred, was an original member of the ultimate paranoid, delusional, red-baiting collection of mixed nuts, the John Birch Society. The Koch brothers themselves didn’t share their father’s total embrace of the Birchers, but, as Jane Mayer describes in her profile of the industrial titans, both brothers became devotees of radical thinker Robert LeFevre, a guy who wanted to abolish the notion of the state but rejected the label “anarchist” in favor of the term “autarchist;” basically an anarchist who REALLY likes free market capitalism.

By the late 1970s, the Kochs took their brand of Anarcho Capitalism into politics and they haven’t stopped since. They aren’t just mere rich guys wanting a smaller tax burden, though they do want that; more broadly, the Kochs want to fundamentally alter American society in a way that completely separates the state from the private sector. As Mayer writes, they’re true believers:

The Kochs have gone well beyond their immediate self-interest, however, funding organizations that aim to push the country in a libertarian direction. Among the institutions that they have subsidized are the Institute for Justice, which files lawsuits opposing state and federal regulations; the Institute for Humane Studies, which underwrites libertarian academics; and the Bill of Rights Institute, which promotes a conservative slant on the Constitution. Many of the organizations funded by the Kochs employ specialists who write position papers that are subsequently quoted by politicians and pundits.

At its core, the Koch brothers’ vision boils down to an extreme pro-business ideology that sees government involvement in the private sector as damaging, taxation as theft, the welfare state as immoral (since it supposedly discourages hard work), and views wealth acquisition in and of itself as evidence of social and moral superiority. Not coincidentally, Mayer notes, “these views dovetail with the brothers’ corporate interests.” Like a lot of conservative boot-strappers, however, the Kochs won the birth lottery, inheriting their immense fortune from their father. Yet, being born on third base hasn’t stopped them from thinking they hit a triple. Thus, they insist that each individual in society work hard alone, on their own merits, via the power of a pure capitalist marketplace unfettered by state intervention. For the Kochs, a person’s failure to succeed in the pure market is evidence of moral failure itself.  This type of ideological position is nothing new for American robber barons. In fact, the Kochs fit into a long business tradition of laissez faire ideological pimping mixed with an astonishing deficit (or denial) of awareness of the actual relationship between the state and private enterprise.

The Koch brothers’ forefathers emerged during latter half of the 19th century — the first Gilded Age — in the form of American corporate titans like steel magnate Andrew Carnegie, who championed free-market views while using the state to actively shape markets to benefit their own interests. That’s right, I said shape markets, because that’s the big point here. Mark Twain helped popularize the term “Gilded Age” to describe an era gilt with gold but rotting with corruption just beneath the surface. The rot stemmed from the consolidation of big business that threatened to lessen the effects of market competition, and from various tycoons’ cozie relationships with the state, which they used to shape the market to their own advantage.

Among the most powerful of the Gilded Age industrialists was Andrew Carnegie. Unlike the Koch brothers, he really did succeed on his own, coming from a poor immigrant Scottish family. Carnegie made his early money in finance through a combination of shrewd investing in the sleeping car industry, telegraphs, and oil. He also made a ton of shady market deals selling worthless bonds to unwitting foreign investors.

But Carnegie made his biggest fortune in steel production, where he introduced modern management techniques to the steel-making process by investing in new and better equipment. Carnegie was a brilliant businessman and a dedicated philanthropist who constructed multiple libraries for public use. His philanthropic actions, however, stemmed from a paternalistic vision of society: he was, above all else, a proponent of laissez faire economics who resisted government intrusion in the economy. He adopted a Spencerian “survival of the fittest” approach to business that made him fervently anti-union and, like the Koch brothers, beholden to the idea that success in market capitalism was akin to organic, evolutionary success in the biological world.

Like the Koch’s, however, Carnegie spouted free-market axioms while actively shaping the market to his whims. Carnegie owed a massive amount of his wealth to U.S. steel tariffs, for which he, as a pro-big business Republican, spent a fortune in time and money lobbying Congress to pass to shield his company from foreign competition. Carnegie’s crowning achievement in this area was the passage of the 1870 steel tariff. As David Nasaw notes in his massive biography of Carnegie, Republicans controlled Congress and the White House that year, and under heavy influence from Carnegie, they passed a $28 dollar per ton tariff on imported steel. This law, in turn, shaped the whole U.S. economy. As Nasaw writes, “it [the 1870 tariff] became the centerpiece of Republican policy and…a cornerstone of national economic policy. The passage of the 1870 tariff was, Carnegie later claimed, the single most important event in prompting him to enter the steel industry.”*

Andrew Carnegie: free market proponent...and supporter of tariffs.

Andrew Carnegie: free market proponent…and supporter of tariffs.

We can draw a direct ideological line to Gilded Age age tycoons like Carnegie to the Koch brothers, conservative tycoons of the new Gilded Age. Like Carnegie, the Koch’s give a lot to philanthropic causes and spout free-market views while actively spending millions to lobby the U.S. government to shape the market in their companies’ favor. In so doing, the Kochs, as did Carnegie, also shape the broader trajectory of U.S. economic policy.

Therein lies the myth of market purity. By lobbying politicians and funding libertarian think tanks to the tune of hundreds of millions of dollars with the goal of shaping market conditions, tycoons from Carnegie to the Kochs show how the state supports and provides the basic framework for the operations of the capitalist market. There is no true free market that exists in some sort of primal, organic state. Markets are creations of humans, and they operate according to distinct human decisions and actions. In the modern world, humans direct these decisions and actions through the apparatus of the state. Markets cannot exists unfettered by the intrusions of the state because markets cannot exist without the state.

The Koch brothers — like Carnegie and other tycoons of America’s business past — actively work through the government to shape market conditions. In this respect they are no different from any American who votes or lobbies the government: we all hope to bend market conditions in our favor. In doing so, however, we inherently render the market impure from some theoretical pristine “freeness” from the state.

Of course, conservatives could easily respond to this point by observing that the Koch brothers’ meddling in politics is a necessary corrective to perceived liberal attempts to shackle the market with excessive regulations. This would true on a fundamental level, but this stance misses another lesson from the first Gilded Age that still rings true today: 19th century corporations left to their own devices formed trusts, practiced vertical integration (an attempt to control all aspects of the business process, from raw material production to sales of finished products), and established monopolies, all in the name of stopping market competition. Historically, as well as today, the biggest opponents of pure and free markets have been American capitalists.

Despite their conservative, free-market rhetoric, the Koch brothers, like Carnegie before them, are well aware, whether consciously or unconsciously, that markets cannot really be free. Some modern Libertarians recognize that this has been the case historically, even as they continue to tout utopian, pie-the-sky dreams of someday fully separating the market from the state. U.S. politics would run a lot more smoothly if we recognized that some markets are freer than others ( Soviet Union anyone?), but as human creations, they will always be subject to particular human whims.

Note: Comments from Charles and David Koch will be happily accepted and then mocked.

* David Nasaw, Andrew Carnegie (New York: Penguin, 2006), 141.

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