Cronyism Book: Lincoln's Tariff and War Built the Corporate State

Patrick Newman's new book, "Cronyism: Rise of the Corporate State 1849-1929," argues that the American economy was shaped not by free markets but by state-backed corporate interests. Published by the Ludwig von Mises Institute, the book traces how business and political elites used tariffs, subsidies, and war to enrich themselves at public expense.

Newman, an economist at the Mises Institute, follows the same Rothbardian framework he used in his first volume, which covered 1607-1849. He sees history as a struggle between voluntary exchange and predatory state power. The state, he writes, is an instrument of exploitation, not a necessary provider of law and order. Law and order, he argues, could be supplied by private protection agencies more efficiently.

The book's central target is what Ludwig von Mises called the "hampered market economy" – a system where government intervention distorts competition, often at the behest of the very businesses it claims to regulate. Newman calls this cronyism and insists it should not be confused with capitalism.

Abraham Lincoln gets a full chapter. Newman shatters the log-cabin myth. Lincoln was a wealthy corporate lawyer who billed the Illinois Central Railroad $5,000 for a case – more than three times the governor's salary at the time. He lobbied for railroad charters and defended the company in court.

Lincoln's campaign for president hinged on high protective tariffs. The Morrill Tariff of 1861, signed by outgoing Democrat James Buchanan, was a key plank. Newman quotes economist William Stanley Jevons, who called it "the most retrograde piece of legislation that this country has witnessed." The tariff won Lincoln the manufacturing states of Pennsylvania and New Jersey. Without their 31 electoral votes, he would not have won the presidency.

Lincoln, Newman argues, deliberately provoked the Confederacy. He rejected a Confederate offer to purchase Fort Sumter and assume the South's share of the national debt. Instead, he sent armed relief, knowing it would goad the South into firing the first shot. That attack came in April 1861. Union propagandists portrayed it as unprovoked, turning public opinion in the Mid-Atlantic against secession.

The Civil War cost more than 700,000 lives, or over 2 percent of the total population of the North and South. The 1860s saw real income per capita fall 3 percent. Newman writes that the war erased at least five years of wealth accumulation. The South was devastated politically and economically. Newman adds that the war's harm "exacerbated whites' hostility toward blacks in both the North and the South."

The book has drawn high-profile attention. Nobel laureate Thomas Sargent wrote the foreword. Sargent credits Newman with extending Murray Rothbard's interpretation of government regulation as a cartel-enforcement device. Private cartels, Sargent notes, could not stop their own members from cheating or new entrants from joining. So industry associations persuaded the government to set up cartels disguised as regulatory commissions.

Sargent also notes that Newman describes how the Republican Party, after Lincoln's inauguration and the secession of eleven states, implemented longstanding big-government Whig-Republican proposals that Democratic presidents and Congresses had blocked – a national banking system, federal subsidies for a transcontinental railroad, and tariffs. Newman extends Rothbard's account of "regulatory capture" in the late nineteenth and early twentieth centuries.

Newman's book covers the period 1849-1929, ending before the Great Depression. The volume provides a detailed, source-heavy account of how business and government colluded to build what Newman calls the corporate state. The Civil War alone cut short more than 700,000 lives and erased five years of wealth, Newman writes.