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[This article is excerpted from chapter 7 of How Capitalism Saved America.]

Free-market capitalism is a network of free and voluntary exchanges in which producers work, produce, and exchange their products for the products of others through prices voluntarily arrived at. State capitalism consists of one or more groups making use of the coercive apparatus of the government… for themselves by expropriating the production of others by force and violence.

— Murray N. Rothbard, The Logic of Action (1997)

The late nineteenth and early twentieth centuries are often referred to as the time of the “robber barons.”

It is a staple of history books to attach this derogatory phrase to such figures as John D. Rockefeller, Cornelius Vanderbilt, and the great nineteenth-century railroad operators — Grenville Dodge, Leland Stanford, Henry Villard, James J. Hill, and others. To most historians writing on this period, these entrepreneurs committed thinly veiled acts of larceny to enrich themselves at the expense of their customers. Once again we see the image of the greedy, exploitative capitalist, but in many cases this is a distortion of the truth.

As common as it is to speak of “robber barons,” most who use that term are confused about the role of capitalism in the American economy and fail to make an important distinction — the distinction between what might be called a market entrepreneur and a political entrepreneur. A pure market entrepreneur, or capitalist, succeeds financially by selling a newer, better, or less expensive product on the free market without any government subsidies, direct or indirect. The key to his success as a capitalist is his ability to please the consumer, for in a capitalist society the consumer ultimately calls the economic shots. By contrast, a political entrepreneur succeeds primarily by influencing government to subsidize his business or industry, or to enact legislation or regulation that harms his competitors.

In the mousetrap industry, for instance, you can be a market entrepreneur by making better mousetraps and thereby convincing consumers to buy more of your mousetraps and less of your competitors’, or you can lobby Congress to prohibit the importation of all foreign-made mousetraps. In the former situation the consumer voluntarily hands over his money for the superior mousetrap; in the latter case the consumer, not given anything (better) in return, pays more for existing mousetraps just because the import quota has reduced supply and therefore driven up prices.

The American economy has always included a mix of market and political entrepreneurs — self-made men and women as well as political connivers and manipulators. And sometimes, people who have achieved success as market entrepreneurs in one period of their lives later become political entrepreneurs. But the distinction between the two is critical to make, for market entrepreneurship is a hallmark of genuine capitalism, whereas political entrepreneurship is not — it is neomercantilism.

In some cases, of course, the entrepreneurs commonly labeled “robber barons” did indeed profit by exploiting American customers, but these were not market entrepreneurs. For example, Leland Stanford, a former governor and US senator from California, used his political connections to have the state pass laws prohibiting competition for his Central Pacific railroad,1 and he and his business partners profited from this monopoly scheme. Unfortunately, the resentment that this naturally generated among the public was unfairly directed at other entrepreneurs who succeeded in the railroad industry without political interference that tilted the playing field in their direction. Thanks to historians who fail to (or refuse to) make this crucial distinction, many Americans have an inaccurate view of American capitalism.

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From Mises.org, here.

Driving into work today, I saw garbage bins overflowing and city dumpsters spilling out with trash. It stinks. It’s disgusting. It’s uncivilized. It’s probably dangerous to some extent.

It’s a holiday, so of course the government workers charged with picking up this nasty refuse can’t work, even though construction workers in private firms are busy bees taking advantage of the extra time.

It’s true with house trash too: pickup is once per week — on schedule — and there is nothing you can do to make it more frequent. It’s part of the master plan, don’t you know, and if you make more trash than the once-per-week pickup can contain, that is your problem, not the city’s.

The very fear that people have about private trash collection — that it will pile up and no one will do anything about it — turns out to be a regular feature of government trash collection. But we look the other way. Why?

Before getting to this, let us first establish that garbage is a serious issue. Libertarians were once chided by William F. Buckley, his head full of schemes for threatening populations with nuclear annihilation, for bothering with such petty concerns as trash collection.

“It is only because of the conservatives’ disposition to sacrifice in order to withstand the enemy,” wrote Buckley in 1961, “that [libertarians] are able to enjoy their monasticism, and pursue their busy little seminars on whether or not to demunicipalize the garbage collectors.”

Ah yes, little seminars. Seminars about such things as the avoiding the plague. Humanity has some experience with the results of failing to dispose of trash properly, and that experience is deadly. Plagues swept the ancient world every 50 years or so, spread mainly through a lack of good sanitation. The Black Death in Europe might have been avoided with better sanitation and a decent system for disposing of trash, rather than letting it pile up on the streets.

History’s fight with the plague in the developed world came to an end at the time of the rise of capitalism in the late middle ages, and no surprise there. With the accumulation of capital came innovation in trash disposal, since living in sanitary conditions and staying alive turns out to be something of a priority for people. This is why the largest advances in garbage collection came about during the Industrial Revolution.

And yet here we are in 2009, with trash piled up on the streets and stinking to high heaven, bags full of raw animal parts (chickens, pigs, cows, fish), baby diapers stuffed with waste, rotting eggs mixed with sour cream dip from game-day parties, piles that are right now being scavenged by roaches and rats. This is in a town that prides itself on its tidiness.

And we put up with this for the same reason that we put up with lost mail, potholes in roads, dilapidated schools, depreciated money, and a clogged court system: because these services are monopolized by government.

Now you can make all the public-goods arguments you want to about roads and courts, but trash disposal is not rocket science and could be easily handled by the market. Everyone wants trash removed, and the sooner the better.

That means that there is a market demand for the service. There is money to be made. The only way to keep something like this at bay is to make it illegal.

If the market were in charge, pickup would surely be more than once per week. We wouldn’t have to drag our trash bins out to the curb. In fact, we would be faced with several or many possible options for trash pickup.

If we made more trash than we “should,” we wouldn’t get angry notes from the city government. The private pickup companies would be thrilled. We might be paying by frequency of pickup or perhaps by the pound. That would be for the market to decide.

In fact, trash pickup services might actually be characterized by — perish the thought — innovation, just as they were in the early part of the 20th century, when trash collection was mostly private. Our houses might be directly connected to underground trash-transmission services that would whisk it all away in an instant. Our kitchens might have highly effective trash chutes that would zap away trash as we make it.

But because of this ghastly tradition of municipalizing trash pickup (or we might call it Sovietizing), the entire industry is stuck in the past, utterly impervious to improvement and modernization.

We get our news through fiber optics, walk around with tiny wireless phones that can instantly connect with anyone anywhere, and shop digitally with any vendor in the world. But when it comes to trash, we are still relying on once-per-week, strictly scheduled pickups by tax-funded workers driving monstrous, old-model trucks.

In my town, even the trashcans are paid for and owned by the government, as if the private sector has yet to figure out on its own initiative how to make a tub for holding things.

So why does this system persist? I asked a few people about this, and the answer usually came down to some system of graft. Powerful people make the trucks, manage the landfills, and dole out the contracts. Perhaps so, but why do we put up with it?

It seems like a preposterously unobjectionable plan: open this system to private ownership and competition, and thereby innovation.

I don’t just mean contracting out. I mean abolishing city trash pickup and letting private enterprise completely take over. There is just no way that the existing muck would persist, for it offends every aesthetic sensibility and it may pose a ghastly health risk.

As for the old conservative claim that libertarians are insufficiently worried about the Soviet threat and too much about garbage collection, note that the Soviet Union is gone and the garbage problem is still with us.

From Mises.org, here.