Railroading Economics: The Creation of the Free Market Mythology

by Michael Perelman

Most economic theory assumes a pure capitalism of perfect competition. This book is a penetrating critique of the rhetoric and practice of conventional economic theory. It explores how even in the United States—the most capitalist of countries—the market has always been subject to numerous constraints.
Perelman examines the way in which these constraints have been defended by such figures as Henry Ford, J. P. Morgan, and Herbert Hoover, and were indeed essential to the expansion of U.S. capitalism. In the process, he rediscovers the critical element in conservative thought—the “forgotten traditions of railroad economics”—that has been lost in the neoliberal present. This important and original historical reconstruction points the way to a discipline of economics freed from the mythology of the market.

Genres: Economics, Politics, History, Nonfiction

224 pages, Paperback

First published June 1, 2006

About the author

Michael Perelman (born October 1, 1939) is an American economist and economic historian, currently professor of economics at California State University, Chico. Perelman has written 19 books, including Railroading Economics, Manufacturing Discontent, The Perverse Economy, and The Invention of Capitalism. A student of economics at the University of Michigan and San Francisco State College, Perelman earned a Ph.D in agricultural economics from the University of California, Berkeley in 1971, under supervision of George Kuznets. Perelman writes that he was drawn away from the "framework of conventional economics," noticing that the agricultural system was "consuming ten times more energy than it was producing in the form of edible food." Perelman's research into how "profit-oriented agricultural system created hunger, pollution, serious public health consequences, and environmental disruption, while throwing millions of people off the land" led to his first book, Farming for Profit in a Hungry World (1977). Perelman continued to write extensively in criticism of conventional or mainstream economics, including in all his books (and especially his books published from 2000 to date), papers and interviews.

Although perceiving flaws in Marx's work as it is typically interpreted in the context of its modern reading, Perelman writes that "Marx’s crisis theory was far more sophisticated than many modern readers had realized," focusing on an interpretation that is largely bypassed by many readers of Marxian economic thought. Perelman views Marxist theory as vindicated through its account of crises that a capitalist economy must inherently generate.

Perelman has appeared on a number of programs, including Media Matters, Pacifica Radio, KPFA 94.1 Berkeley, and WBBR (Bloomberg Radio).

Reviews

[Public Scott · Rating 4 out of 5]

Unlike some of the other reviewers I didn't find this book boring at all. It takes some serious stones to open your economics book with a heavy critique of economics' very existence. Nicely played Perelman.

I found the old school skewering of free market theories by 19th century capitalists fascinating. It's refreshing to know that 100 years before the modern love affair with free market economics serious people had already experienced pure capitalism and found it wanting. We need to hear what they said and that is the reason this book exists.

[Mark · Rating 3 out of 5]

This book is like an ancient desert. Sooooo dry, but occasionally you come upon an oasis or a caravan or a pyramid and enjoy the unexpected marvel.

The book is an pretty academic economic text, so the dryness is to be expected. The small fonts, cramped spacing, and lack of diagrams don't help. The main thesis is that leading business (e.g. the railroads) have had a huge distorting effect on both the theory and practice of economics, and that the free market ideology developed under these distortions doesn't represent reality. The author goes through many many examples of this. How capital intensive industries (again e.g. the railroads) lead us outside the simple world of Adam Smith. How the industrial and financial businesses work at cross purposes to each other. How true competition leads to instability, and ways in which businesses pay lip service to competition while striving mightily to avoid it. Good stuff if you can power your way through it.

[Brian · Rating 2 out of 5]

It's great to say that capitalism has problems -- of course it does and no one seriously thinks otherwise. If you don't come up with something better, though, it's worse than useless.

[Jeffrey Cosen · Rating 3 out of 5]

Interesting ideas, but very poor macro- and micro-organization make for a tougher read, and less compelling argument, than I would have liked.

[Christopher Mitchell · Rating 4 out of 5]

This is both quite accessible and dense. Which is to say that it covers the topic well without requiring a tremendous amount of economics knowledge before picking it up. I read it because of the strong relationship between fixed-capital railroads and the fiber-optic networks I research and advocate for.

While reading, I had to reflect on our current time with so much monopolization in sector and sector and so much investment in financial games rather than productive capacity. It lines up too nicely with the 1920's to be comfortable. And one of the results of too little competition in these sectors is that our industry and businesses fall further behind international businesses and are less competitive in the long run.

The book offers good descriptions of the problem but I wouldn't read this if you are looking for solutions. There are some hints, but the focus is on understanding the history.