Category: Economic History

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Theodore Vail Chooses Regulation

Readers of history know that government efforts to reduce monopoly power and protect the consumer often fall short.  Some protect competitors rather than  the consumer. Famous  break-ups of large companies like Standard Oil and Alcoa have had little impact on the companies’ success. And regulators tend to be captured by the regulated [1].

So can government intervention be beneficial to a company—and also serve the community? Let me introduce you to Theodore Vail, president of AT&T in its early days. I learned about him from the great management guru Peter Drucker. You be the judge.

Continue reading “Theodore Vail Chooses Regulation”

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Blame the Gristmills

Yates Mill, North Carolina

You may remember the extremely cold winter of 2021. In Texas, the system of electricity collapsed; 4.5 million homes lost power—for days. More than 200 people died, half of them of hypothermia (cold). This wasn’t supposed to happen, of course. Texas’s electric utilities are regulated and the regulation had been modernized beginning in 1999.

Why wasn’t the public interest served?

The issue is so complicated that I can’t answer that question. But the ongoing debate over the Texas tragedy has plunged me into a new project: trying to understand why electric utilities are regulated in the first place. Why do state commissions control the activities of companies like Duke and PNG that produce and send electricity to our homes?

That effort sends us back to colonial days in America. [1]

Continue reading “Blame the Gristmills”

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Jack Welch and the Mysterious Business of Business

Jack Welch

Since I haven’t had many deep thoughts lately, I want to share with you some essays about history that have caught my attention. In this case, the history is pretty recent—it’s about the late Jack Welch, CEO of General Electric from 1981 to 2001.

When I was an economics editor at Business Week in the 1980s,  Jack Welch was becoming a legend. My editor-in-chief admired him, talked with him a lot, and featured him as a speaker at magazine functions. In 1999, Fortune called him the “manager of the century.” He was bold, smart, and unafraid.

But did he bring General Electric down?

General Electric  was founded by Thomas Edison and J. P. Morgan in 1892. It developed a ubiquitous brand name and seemed to “own” the field of electric appliances.

By 1981, however, when Welch became CEO, it lacked vigor. It was a $12 billion company, but stodgy and bureaucratic. Welch attacked that bureaucracy, laid off workers,  and started acquiring companies. When Welch left in 2001  the  company was worth $600 billion and in terms of revenues was the fifth-largest company in the U.S.

But gradually  the company fell apart. Continue reading “Jack Welch and the Mysterious Business of Business”

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“Canal Mania”—A Waste of Money?

C & O Canal, Georgetown, a sign of canal mania.

I recently stumbled on the fact that  eight states, mostly in the Midwest,  defaulted on their state bonds in the 1840s. Okay, that may not seem too exciting, but when I learned about it, I also discovered a realm of American history I had not come across before: “canal mania.”

Many of those states had spent a lot of money on canals, much of it borrowed money (bonds rather than taxes), which ultimately they could not pay back. Other problems also plagued these states such as investments in railroads and banks, but canals were big.

Most of these canal ventures were kicked off by one success—the  amazing Erie Canal, which opened in 1825.  A few canals had been built in the East before that, such as the 27-mile canal between the Merrimack River and Boston. But the Erie Canal ran from Albany, New York, across the state to Buffalo: 363 miles. The canal required 83 locks. Continue reading ““Canal Mania”—A Waste of Money?”

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Toward a (Small) Theory of History

A library with books and statues.

Historians, both famed and anonymous, have developed theories that try to explain the course of history. The “Whig theory” of steady progress  was widely shared until the horrors of the twentieth century demolished it. Marx’s theory of one class replacing another had a long run. The “Great Man” theory (now, Great Person theory) still has some adherents.

I too am trying to develop a theory of history, but not a grandiose one. I’m trying to figure out if there are consistent ways to better understand certain historical outcomes. Why was St. Louis an “also-ran” to Chicago? Why did so many orphans work in the early factories of the Industrial Revolution? Was soil exhaustion a contributor to the Civil War?

In answering such questions, I borrow tools from my friends the economists. Economists don’t spend a lot of time digging into the past but when they do they come up with surprising findings. When Deirdre McCloskey explained the scattered private fields in medieval England, she solved a mystery that had stumped historians for decades, and  Eric Edwards and Walter Thurman just revealed an explanation for the U. S. Corn Belt that historians have largely ignored.

So let me see if a few basic economic tenets can expand our understanding. Here are three important ones (from the book Common Sense Economics).[1] Continue reading “Toward a (Small) Theory of History”