When “Limited Government” Fails to Stop Cronyism and State-Sponsored Wealth Grabbing

[Cronyism: Rise of the Corporate State 1849-1929 by Patrick Newman (Ludwig von Mises Institute, 2026; 412 pp.)]

This book confirms Patrick Newman’s standing as our leading Rothbardian economic historian, already established by the first volume of the series, Cronyism: Liberty versus Power in Early America 1607-1849 (Mises Institute, 2021). Like Rothbard, Newman views history as a struggle between Liberty and Power. On the one hand, people peacefully benefit from cooperation in the free market. This makes possible the expansion of production through taking advantage of the division of labor. Trade takes place when all the parties to an exchange expect to benefit from it, as otherwise there would be no point in engaging in the transaction.

Unfortunately, some people are not satisfied with this happy state of affairs and seek to seize the wealth of others. These predators establish the state, which may be seen as an instrument of exploitation, not at all necessary for the conditions of law and order needed for the market to function. Law and order can be provided by free market protection agencies far more efficiently than even a limited state can do.

The state—allied with business and financial interests that want to seize wealth—regularly interferes with the market economy. In some cases, it endeavors to replace the market with a totally planned system, but this leads to a collapsed economy and totalitarian controls. It is more common that the state brings about what Mises calls a “hampered market economy.” It is Newman’s primary concern that this hampered economy, which he calls “cronyism,” ought not to be confused with the free market; and in fact most of the complaints people have against the market are the fault of cronyism.

Newman’s monumental achievement is to recount in great detail the history of cronyism. In doing so he relies on a vast array of sources, bringing to light surprising facts that enable us to see American economic history in a new way. To use a favorite phrase of Rothbard’s, he sees historical events as a battle for “power and pelf,” with power primarily seen as a means of aggrandizing “pelf.” Though he does not dismiss the importance of ideas, it is safe to say that he regards them primarily as rationales for particular economic interests. This is especially the case after the failure of the Jacksonian Democrats, genuinely devoted to the free market, to change in a permanent way the interventionist system. After this failure, all the major political groups were exponents of cronyism; and although there were substantial differences of policy, economic interest was primary.

In what follows, I’ll cover a very few points dealt with in the book, but I urge readers to study the book carefully in order to gauge the full extent of corporate dominance of the economy. I propose to concentrate on Abraham Lincoln and the American System he imposed on America.

Lincoln, we learn, was not the poor man of legend but a wealthy corporate lawyer:

In the 1850s, Lincoln was a tremendously successful attorney for the Illinois Central Railroad and other business concerns such as the Bank of Illinois and the Columbia Machine Manufacturing Company. Lincoln and the Illinois Central went hand in hand: he had served as a lobbyist for one of the factions wrangling for a railroad charter and frequently defended the company in legal disputes. In one case he billed the Illinois Central $5,000—an amount more than three times the governor’s salary.

A key point in Lincoln’s successful campaign for the presidency was his ardent support of high protective tariffs:

Protectionists then decided to use the bill [the Morrill Tariff] as a campaign plank in the upcoming presidential election. The Republicans “re-adopted Protection” through Abraham Lincoln’s nomination, according to Henry Carey, who eagerly promoted him in the Philadelphia press. The issue played a pivotal role in securing victory in the manufacturing states of Pennsylvania and New Jersey, which were crucial for Lincoln’s campaign strategy: without receiving thirty-one Electoral College votes from them he would not have secured an electoral majority. Lincoln tellingly confided to a friend that “to the Tariff Whig element of Pennsylvania was he most indebted (and he will not betray it).”

The great economist William Stanley Jevons had a different view of the tariff:

When the Democratic president James Buchanan signed the bill right before Lincoln’s inauguration, free traders lamented the outcome. The British economist William Stanley Jevons, realizing how the law sundered US trade relations with Great Britain, called it “the most retrograde piece of legislation that this country has witnessed.”

Lincoln deliberately provoked the attack on Fort Sumter: 

The American System depended on a unified domain, and Lincoln was determined to keep it that way. He even supported a constitutional amendment, the Corwin amendment, that prohibited federal interference with slavery. But the Confederacy still did not trust the Republican Party. . . and desired a peaceful secession. When Lincoln assumed office in March, Davis offered to purchase Union forts, such as South Carolina’s Fort Sumter, and assume the South’s portion of the national debt. Lincoln would have none of it. He decided to surreptitiously send armed relief to Fort Sumter, going against the advice of his military advisors, who thought Lincoln should abandon the post. But for Lincoln, such reprovisioning could goad the South into firing the first shot and thereby commence hostilities. When this occurred in April, Union propagandists were quick to present the Confederacy’s bombardment of the fort as an unprovoked attack, and many in the Mid-Atlantic sympathetic to secession turned against the South.

The unnecessary war that Lincoln instigated was immensely costly:

With Lincoln applying the American System’s aggressive nationalism against states that wanted to peacefully secede, the die had been cast. The unpopular Civil War was extremely costly—it cut short more than seven hundred thousand lives, or over 2 percent of the total population of the North and South. At least five years of wealth accumulation were erased. The 1860s posted weak private-sector economic growth, and real income per capita fell by 3 percent during the decade. The South was politically and economically devastated. These harmful consequences exacerbated whites’ hostility toward blacks in both the North and the South.

We Rothbardians often lament that the mainstream does not take note of our work. There are signs this might be changing. The Nobel laureate Thomas Sargent has written a foreword to Cronyism and speaks highly of Newman: 

Newman’s Cronyism: Rise of the Corporatist State, 1849–1929 continues telling how ideas and networks of private interests influenced outcomes. It describes how the inauguration of Abraham Lincoln in 1861 and the consequent secession of eleven states allowed the Republican Party to implement longstanding, big-government Whig-Republican proposals that Democratic presidents and Congresses had blocked—a national banking system, federal subsidies for building a transcontinental railroad, and tariffs. He describes and interprets late nineteenth-century changes in industrial structures as responses to new technologies, other countries’ trade and monetary policies, and US policies to restrict competition. Newman extends Murray Rothbard’s interpretation of some government regulations as arrangements to enforce cartels. Private cartels’ own members cheated too often, and their monopoly profits attracted new entrants, so industry associations induced the government to set up cartels disguised as government regulatory commissions. Newman extends Rothbard’s and other scholars’ accounts of “regulatory capture” in the late nineteenth and early twentieth centuries.

Sargent has studied Rothbard in depth:

Parts of Murray Rothbard’s The Progressive Era (2017) and of his History of Money and Banking in the United States (2002) remind me of Beard’s hypothesis. Others remind me of Hofstadter’s. In America’s Great Depression (1963), Rothbard described how Herbert Hoover implemented versions of the same misdirected interventionist policies that would be important components of Franklin Roosevelt’s New Deal. Hoover’s and Roosevelt’s pursuit of similar policies reflected their common belief in the interventionist policies pursued during World War I, when both men had been prominent members of the Wilson administration.

Patrick Newman is my academic colleague at the Mises Institute, but I do not think I can be charged with cronyism in giving Cronyism my highest recommendation.