The distinction between the creation and the appropriation of wealth is vital, if not always clear. But our ability to recognise it will determine, not just the fate of individuals, but the future of modern capitalism.
The phrase “robber baron” is popularly used to describe the titans of late 19th-century US business – men such as John D. Rockefeller, Jay Gould and John Pierpont Morgan. But the term is much older. The Rhine valley has been Europe’s principal highway for 1,000 years. Today the principal route through it is by road, along two parallel motorways. But for most of that time, traffic floated down the river.
Then as now, the people who lived along the river bank provided services to the users and collected revenues. Then as now, they hoped to minimise the services while maximising the revenues. Between Bingen and Koblenz, the river enters the Rhine Gorge. The narrow passage means that even in the 13th century it was easy to impede the flow of traffic. For centuries, the Holy Roman Empire derived patronage by assigning rights to a limited number of toll points. But when the Emperor Frederick III died in 1250 there was no agreed successor, and hence no regulator. This was when robber barons started to collect unauthorised taxes on the gorge.
There was a vigorous consumer response. The first Rhine League was an association of merchants given legitimacy by aristocratic participation. The League’s simple, brutal and effective strategy was to employ a militia to raid the toll gatherers’ hideouts. After attacking the notorious Werner von Bolander, they stormed and destroyed the redoubt of the resourceful Philip von Hohenfels, who built a replacement castle on a rocky outcrop. His Castle Reichenstein, reconstructed at the start of the 20th century, is today a luxury hotel.
Our sympathies now lie with the besieging militias, not the robber barons. But is there an economic or moral difference between the enterprising von Hohenfels and the complacent archbishops of Trier, whose rich ecclesiastical domains relied on the revenues they derived from authorised levies on river traffic?
The important distinction is not between the free-market robber baron and the authorised and regulated toll gatherer. It is between those who devote effort to activities that create value for others, like the riverside artisans and watermen who offered products and services, and those, such as the baron and the archbishops, who simply used their position to extract a share of the value of the cargoes that passed by.
The acceleration of economic growth since the 13th century is partly the result of the substitution of competitive markets for the archbishops’ monopoly. The French autoroute from Mulhouse to Karlsruhe is, exceptionally, free because it competes with the untolled German autobahn on the right bank. But, as the 13th-century experience shows, we need not just competition but the right sort of competition. The key to growth was redirecting the entrepreneurial energy of men like von Hohenfels from brigandry to productive business.
The figures of the gilded age, such as Rockefeller, Gould and Morgan, were engaged in both activities, perhaps to varied degrees. Today, the courts must decide whether the rewards of men such as Jeff Skilling, the jailed Enron chief executive, and Conrad Black, the former owner of The Daily Telegraph released from prison last month, resemble more closely the wages of the captain of the Rhine barge (admirable), the revenues of the Archbishop of Trier (despicable but innocent) or the booty of the robber baron, von Hohenfels (greedy and criminal).
Nor is it easy to decide whether the hedge funds that helped bring down Enron and expose Lord Black are the equivalent of the militias that stormed the castles or the toll collectors who impeded the flow of economic activity.
The distinction between the creation and the appropriation of wealth – between those who add value to the cargo and those who help themselves to a fraction of it as it sails by – is vital, if not always clear. But our ability to recognise it will determine, not just the fate of individuals, but the future of modern capitalism.