In Defense of the Company Town

In my EconTalk with Russ Roberts on proprietary cities I only mentioned company towns in passing. Even the great Milton Friedman got company towns wrong, however, so it’s worthwhile spending a little time to dispel some myths.

Take company stores. Why did mining companies often own the town store? The standard answer: to squeeze every nickel from the workers so they would “owe their soul to the company store.” But that lyrical argument makes no sense and the truth is actually closer to the opposite.

The mining towns were isolated geographically but they weren’t isolated from the national labor market. The number of workers in these towns moved up and down in response to the price of coal and the workers often traveled long-distances to work in the mines, sometimes from other states or other countries. The company towns were isolated not because the workers couldn’t get out but because few people wanted to live where coal was abundant. As a result, workers had to be enticed to travel to and to live in these towns. Oil rigs are similarly isolated today and once on board the workers have nowhere to go but the company restaurant, the company theater and the company gym but that hardly means that the workers are exploited.

Since the mine workers weren’t isolated from the national labor market they had to be paid wages consistent with wages elsewhere and indeed on an hourly basis wages in mining were higher than in manufacturing (not surprising since these jobs were riskier). Moreover, workers weren’t dumb and so–just like workers today–they would consider the price of housing and the price of goods in these towns so see how far their wages would take them. All of this suggests that workers would not be fooled by high wages and really high prices at the company store that nullified those wages. And indeed, prices at company stores were not especially high and were similar to prices at independent stores in similar locations.

It was possible to find examples of a good at a particular company store which had a markedly higher price than at a particular independent store but this was cherry picking, (I am reminded of the exam question about two rival supermarkets both of which advertise “the average consumer at our store would pay 20% more if they shopped at our competitor.” The question asks how it can be possible that both stores are telling the truth.) Comparing identical baskets, prices at company stores were not higher than at similar independent stores.

I said that the traditional story actually gets things backward. We can see how by asking why the companies owned the stores. First, independent stores had to bear a lot of risk because they would be selling in a local economy that was dependent on a single mine. That risk was better born by the mining firm itself because it knew more about coal and fluctuations in the price of coal, its own plans, the time the mine would be expected to be open and so forth. Thus, it was cheaper for the mines to own the stores than for independents to own the stores.

Second, if an independent store did open they would have a monopoly and would want to charge a monopoly price but–and this is key–the higher the price charged by the independent store the higher the wages the coal mine would have to pay to compensate the workers. Thus monopoly independents would be bad for the workers but they would also be bad for the owners of the mine. If the mine owned the store, however, they would have a greater incentive than the independent store to lower prices because that meant they could save on wages. Overall, both workers and mine owners would be better off with company stores (A classic example of the double marginalization problem).

Similar arguments apply to company owned housing. On the one hand, this did mean that during a lengthy strike the firm could evict the workers from their housing. On the other hand, would you want to buy a house in an isolated town dependent on a single industry? Would you want to own a major asset that was likely to fall in price at the same time that you were likely to lose your job? Probably not. Rental housing meant that workers had the freedom to leave town easily when better work opportunities were available elsewhere – i.e., it meant that the workers were less isolated from the national labor market than they would be if they owned their homes and were tied down to a single place and a single employer. Moreover, the fact that the housing was company owned meant lower prices than if the housing was owned by an independent monopoly developer, the most relevant alternative (again because of the double marginalization problem).

The bottom line is that far from being an example of the abuse of monopoly power, the company town was an effort to constrain monopoly power.

References: The best source for an accurate view of the company towns in the mining industry is Price Fishback’s Soft Coal, Hard Choices: The Economic Welfare of Bituminous Coal Miners, 1890-1930. The book is based on a series of papers (JSTOR).

The company towns built by the mines weren’t especially pretty but some of the other company towns, especially those which employed high-skilled workers, were professionally designed by the leading architects of the day and they came with parks, playgrounds, retail areas, public transportation, churches and a variety of services. In essence, these company towns were doing what Google does today, competing for workers with amenities. Margaret Crawford’s book, Building the Workingman’s Paradise, is an interesting history showing how company towns pioneered a number of architectural and planning innovations that later found there way into many post World War II home developments.


Of course, a plantation is a "company town", with all the attributes described above. Are the inhabitants of the company town described above all that different from the inhabitants of the plantation? While the inhabitants of the company town may have the legal right to leave, what practical options do they have?

Didn't read the post, eh? Guess it saves time.

Neither extreme makes sense. Coal miners weren't slaves, but they didn't have perfect information either. As search/relocation costs increase, the risk of abuse rises. I'm glad to see that someone took the time to investigate this, and I find my prior has shifted. However, let's not just downplay union-busting tactics with just one sentence. (I'm sure mine owners could threaten more than just eviction.)

I was thinking the same thing. In an era before most people had cars and trucks, the relocation costs would have been quite high, I would think. Also, the information asymmetries would be large, too, because to the extent that the company town really does draw workers from out of state, these workers would know much less about local prices for room and board.

It's also not entirely clear how free you actually were to leave, too - especially if you were in debt to the company. Extralegal coercion is common (including in modern "company towns", like agricultural laborer camps in Mexico today).

c.f. America

But the company towns would be 'closed shops' in the sense that the owners get to decide who lives there, and you had better be adding value if you want to stay. That is how the Arab kingdoms look at their feuds, and migrants who disagree with that vision are on the next plane out. So I can see this model colliding with the 'Open Borders' vision of Alex's colleagues, because when the borders are privately owned, there's no civil rights laws, no Section 8, no extruded procedural rights, and no public infrastructure to socialize the cost of your berry-pickers on the taxpayer.

Of course, most libertarians actually want a robust State to maintain Open Borders, not No Borders, because in the case of the latter people get to draw their own.

"the owners get to decide who lives there"

Isn't this just a definition of "property"?

The book looks quite interesting. I am surprised that you did not mention scrip. Is getting paid in the company's own money another overblown aspect of the company town?

Ding ding ding, indentured servitude FTW.

Probably depends on how fungible it was. Could a worker cash out and depart with all of their money in US dollars if they wanted?

Could workers cash out? No.

Did payment in scrip make it hard for competing stores or landlords to enter these markets (dropping, for the moment the implicit assumption that the market was so small as to require a monopoly store or landlord)? Yes. (For some first-person accounts, see (And this in Wikipedia, which seems about right:

(And note, in the Wikipedia entry that WalMart had been paying workers at some of its stores in Mexico in scrip as recently as 2008.)

And when mining companies/oil exploration companies/logging companies (the three primary users of scrip from the mod 19th century) stopped paying in scrip, did company stores retain their monopoly positions? No. Given a choice, workers and their families largely opted for the independent stores--even if the prices they charged were somewhat higher.

Recall that Prof. Tabarrok already showed that company stores offered better prices than private ones would have, and that workers preferred to rent houses from the company to owning their homes. Therefore, it follows that workers had no preference for cash, and in any event private banks could not have survived because there was no market for mortgages. So scrip was just another economically arrangement achieved through arms' length bargaining.

No, he claimed they offered similar prices to independents in the same areas. Keep that distinction in mind - it doesn't apply if the company bans outside goods and stores and checks to make sure people aren't bringing in "contraband".

As for "preferred" to rent, I'm skeptical. They just didn't have the option to buy unless they wanted to take a different job, and by the time they were at the mining town they probably had little resources left to relocate again.

No. He argued that workers may have preferred to rent, not that they preferred to rent from the company that employed them.

And he did not address what happened when workers were paid in a generally accepted medium of exchange instead of scrip--when competing stores were available, people opted for the independent stores, not for the company store.

(Note the implicit assumption that these markets were so small that there would perforce be a monopoly store or landlord, an assumption also not supported with evidence.)

So, just a few cites from wikipedia -

'In nineteenth century United States forested areas, cash was frequently rare[1][2][3] and hard to come by. This was particularly true in lumber camps, where workers were commonly paid in company-issued scrip rather than government issued currency.[3]

In Wisconsin, for example, forest-products and lumber companies were specifically exempted from the state law requiring employers to pay workers' wages in cash.[3] Lumber and timber companies frequently paid their workers in scrip which was redeemable at the company store. Company-run stores served as a convenience for workers and their families, but also allowed the companies to recapture some of their labor expenses. In certain cases, employers included contract provisions requiring employees to patronize the company stores. Employees who wanted to change their scrip to cash generally had to do so at a discount.'


But why look at history? - 'The practice continues today. On September 4, 2008, the Mexican Supreme Court of Justice ruled that Wal-Mart de Mexico, the Mexican subsidiary of Wal-Mart, must cease paying its employees in part with vouchers redeemable only at Wal-Mart stores'

Of course, in the socialist hell that is Great Britain, this applies - 'Company scrip is scrip (a substitute for government-issued legal tender or currency) issued by a company to pay its employees. It can only be exchanged in company stores owned by the employers.[1][2][3] In the UK, such truck systems have been formally outlawed under Truck Acts:'

Of course, one can be confident that a GMU econ prof would be familiar with this sort of government overreach - 'A truck system is an arrangement in which employees are paid in commodities or some currency substitute (such as vouchers or token coins, called in some dialects scrip or chit) rather than with standard currency. This limits employees' ability to choose how to spend their earnings—generally to the benefit of the employer. As an example, company scrip might be usable only for the purchase of goods at a company-owned store, where prices are set artificially high. The practice has been widely criticized as exploitative because there is no competition to lower prices. Legislation to curtail it, part of the larger field of labour law and employment standards, exists in many countries (for example, the British Truck Acts).'

But then, just wait long enough, and some GMu law and econ scholar is likely to begin praising the virtues of share cropping too.

Ah, what a surprise - MRU is on the case already -

This comment was from a clearly disappointed user - 'I"m having trouble finding these videos particularly worthwhile. I think i'd be better off just reading the Wikipedia articles on the same topics. ' Clearly, no future job is likely for that person at the Mercatus Center.

(Most amusing was this spam comment from 3 days ago - 'I definitely enjoy every little bit of it and I have you bookmarked to check out new stuff of your blog payday loans no credit check')

When 'scrip' is called 'Ithaca dollars', these concerns subside. Why?

Community scrip does not displace a widely acceptable medium of exchange; it exists alongside it. Also, it does not exist in the context of a monopoly (local-government-owned) set of stores and a monopoly landlord. Stores accept both the community scrip and a medium of exchange such as US dollars and other methods of payment such as credit cards. It's the lack of a monopoly element that matters.

I believe no-one is obliged to receive Ithaca Hours and they are only offered by some employers. Everyone has the choice to do everything in good old US Dollars and most people in town do. My understanding is that the stores that are willing to pay wages in Ithaca Hours will set a maximum percentage they will pay out, as the Ithaca Hour economy is pretty small. The system was pretty close to dead a couple of years ago. I know there were efforts to revive it, but I haven't been in Ithaca to see how that's worked out.

I'm calling B.S.. What I notice--and ironically this is an anti-IP argument favored by AlexT--that competition lowers prices and raises quality. A company town has no competition so it will have higher prices and lower quality. Case in point: here in the Philippines they have weekend resorts where you can pay an entry fee to use their pool for the day, and the ocean in front of the resort, but you are strictly forbidden from bringing your own food. You must buy food at the 'company restaurant' and it is always of lower quality and higher price than you can get outside the resort. How does AlexT square this circle? I guess you can say that it's a way for the resort to extract a higher admission price? But why would not 'good food at lower prices' be an inducement to get more customers (I for one have stopped going to these resorts since the food is so terrible)? It could well be, as well, that these places, because they don't get much volume (mostly only on weekend) simply cannot afford to hire good cooks and their logistics are messed up due to low volume, so it's a supply problem not a strategic decision at all.

How does this tie to IP? Well you could argue that if the idea of a company town was novel and gave benefits to society, the cost of a uncompetitive company town is worth it, to encourage this kind of innovation. As it is, you have to wonder whether the idea of a company town being good, as AlexT suggests, is not simply historical revisionism of the 'freakonomics' kind (i.e., B.S. to sell books).

But Alex addresses the competition issue directly, and you have failed to engage his argument.

The lack of competition in company towns stems from the fact that they are small, isolated communities--not the fact that the company owns the store. Alex argues that an independent store has more incentive to exploit this situation than a company store.

The independent store always has to be wary of other independent stores popping up to replace it. Meanwhile, the company store has the backing of the company itself - they can just outright ban independent stores and brought-in goods if they want to (and many did).

Can you point to some evidence that many companies banned independent stores and brought-in goods?

It's mostly in oral accounts, about bringing outside goods into coal mining towns to get around the company town store's monopoly.

@dan1111 - you or Alex are not thinking through this enough: the company store exists because of a legal restriction, not isolation. In my resort restaurant example, even if another restaurant wanted to serve resort customers, the resort would forbid them from operating to maintain their monopoly. Likewise if McDonalds wanted to set up a fast food outlet on an oil rig (it would probably be profitable!) the oil company would likely forbid them, if they wanted to extract more money out of their employees. And most workers, pace Rational Expectations and AlexT's argument, are not going to ask for a 'pay raise to negate the lousy food at the company cafe', any more than they will refuse to take a job because the health benefits are lousy. It's just another clawback by the employer.

You are simply reasserting the popular view of the company store, which Alex argues against. You haven't addressed any of his arguments. You also haven't addressed the research he references which suggests prices at company stores were not actually high.

That's ridiculous, and anyway I was referring to my example, not AlexT's. Most likely the data for company stores--which existed well over 60 years ago--is bad or incomplete.

This assumes that the market must be be served by a monopoly store. I see nothing in the post that justified this assumption, and nothing in the historical record that supports it. The monopoly was maintained by the company refusing to permit competing stores--acting through its monopoly on space...

Who needs to actually read the article when you can rant on something not really related!

Ray--and how athletic facilities ban attendees from bringing in their own food/drink--now justified as a "security" measure?

Ray is right: The argument presented is unadulterated BS.

I believe that it wax Mark Twain who said that "there are three types of lies: lies, damn lies and statistics."
This book and it's reliance on dubious statistics seems to have proven Twain was right!

My father was a coal miner in Western PA and Eastern Ohio from 1897 (when he was 12 years of age) until he retired with
Black Lung Disease in 1955.

We lived in a company town, in a company house, and had a company store and a company doctor until I was 18 years of age.
The author is either a fool or a liar, and possibly both.

Was it really an open national labor market where laborers could easily move from place to place while having full information about what they were getting into? Even in America today, people get stuck in places they don't want to be because a job in that location didn't pan out for them.

People immigrated into the US from all over the world at the same time, often with even less information. The gold rush in California is another good example, a large portion of the US population moved into an unknown territory, thousands of miles and many months of travel away, just on the fact that they heard gold was discovered.

Underground mining tended to generate the most furious labor-management battles (and still does: consider those 33 miners who got gunned down by the South African cops a few years ago).

One reason is that management can't threaten to move the workplace. Another is that going underground builds esprit de corps among the workers, who have to depend upon each other to save their lives when the roof caves in. Also, ownership tends to be random. If you are working for Henry Ford, you have to be admit he probably knows more about building cars than you do. But once a lucky strike has been made, the owner isn't necessarily contributing much to the process.

good points

I like first two points, but I'm not sure about the last. Surely a lucky strike means you are a small-to-medium exploration specialist who grabs some title and then sells it on to BHP or Rio Tinto. Those guys definitely know about digging stuff out of holes.

It is so easy for miners to kill another underground and pass it off as an accident, that coerced solidarity is very strong. (There's presumably also a selection effect, as the better men decide they want no more of that, and leave.)

Except not all company towns were mining towns. Your thesis falls to dust with Pullman.

Pullman's town failed when it couldn't compete with nearby Chicago, I think the theory holds.

Pullman didn't fail it was annexed by Chicago after the riots.

It is almost like you and Alex don't know what you are talking about:,_Chicago

It's interesting that the oil industry in America traditionally got along better with its workers than the mining industry.

I don't know exactly why that is.

Mining is manual labor producing over the life of the mine. Oil is largely shorter term development projects followed by long term lower employment numbers maintenance. A different dynamic.

So oil's more entrepreneurial?

Oil companies tend to face the I-drink-your-milkshake problem where competitors can siphon off their oil, whereas the entrance underground mines tended to be wholly controlled by the company. If an oil company was too harsh on its employees they'd go work for new competitors on the periphery, who'd suck up some of the oil.

Oil is much more capital-intensive than coal, and miners' wages are a much larger factor in profit and loss for a coal company than an oil company.

Okay, that makes sense: pick and shovel coal mining was tremendously labor intensive, while oil drilling and refining was always state of the art technologically.

Probably because oil was more profitable.


The salient feature of the standard story about mining towns was not who owned the store and other amenities; it was that living and working conditions were awful and that the workers were trapped in poverty, with many actually winding up indebted to their employer. You can contrast this with the story about oil boom towns today, where living conditions are poor (but not as bad as the old mining towns), but the pay is said to be high enough to make up for it. Are you disputing the standard story? If so, then where did the story come from? Are we meant to believe that it is all propaganda and lies? Who at the time had both the motivation to spread such propaganda and the resources to overwhelm any counter-propaganda from the mining companies?

Perhaps the answers to all of these questions are in the book you cited, but at $125 a pop, I think it's safe to say that most of us are not going to take the gamble to find out, and it's a bit much to ask people to accept such a substantial revision of history on your say-so alone.

Aside: what's the deal with the prices for scholarly books, anyhow? One of the reviews for Fishback's book says, "Students of labor relations in the turn-of-the-century coal industry will find Soft Coal, Hard Choices an invaluable reference. But it deserves to be read more broadly...," but at those prices, you can be pretty certain that it won't be. Do scholars not want their findings to be read? You would think that they would be in a better position than regular authors to offer their books at an affordable price, since they get paid their university salary while they are writing, so why are they so expensive? If the answer lies in the sizes of print runs and such, then why is there not a cheap e-book edition?

I think the real issue was less economic than political. Company towns tended to be totalitarian places for would-be union organizers.

Of course, in turn, that was a fight over how to split up the wealth in the ground. The coal or copper wasn't created by the mine owners, so the question of how the returns from minerals would be divvied up was more salient. And miners were battle-hardened by the dangers of going underground, so they made pretty good strikers. Owners would try to head off union organizers by putting spies in the town and evicting families.

But lots of workers were poor at that time, and many were even poorer than coal miners, so I don't think it's right to say that the hostility to mining towns was about the plight of the worker. I suspect that the vitriol was reserved for company towns, scrip, etc. because they evoked images of slavery, indentured servitude, etc. in people's minds. I think Alex is arguing that that association is unfair, and the arrangement benefited worker and owner alike.

Huge fractions of Americans were self-employed farmers or small tradesmen. Being your own boss was seen as part of American independence. So living in a company town was the opposite of what I call Benjamin Franklin's American Dream:

Not to mention Jefferson's "yeoman farmer".

Company stores in England during parts of the Industrial Revolution carry a similarly ludicrous reputation as being a way of gouging the workers. It's ludicrous because if the employer were so all-powerful he'd just pay the buggers lower wages. The reason for the stores' existence is actually interesting - there was a nationwide shortage of small coins. If the wages were to be paid in coin of the realm, plus employer tokens for the small change, it made sense for the employer to provide a store that would accept the tokens as payment for goods.

"It’s ludicrous because if the employer were so all-powerful he’d just pay the buggers lower wages."

They did that, too, according to my only source on the topic: How Green Was My Valley.

Then why go through the charade of a company store? It makes no sense.

I was just joking. HGWMV was obviously a major proponent of the stereotypes Alex was questioning.

I basically agree with your point. The counterargument would be that the company store is a sneakier way to lower wages, without it being so obvious. However, I think Alex is right that workers wouldn't be readily tricked by this.

So, let us return to the truck system - 'In the Midland Tour of his Rural Rides, the agriculturist and political reformer William Cobbett reports the use of the truck or tommy system in Wolverhampton and Shrewsbury. He describes the logic of the Tommy as:

The manner of carrying on the tommy system is this: suppose there to be a master who employs a hundred men. That hundred men, let us suppose, to earn a pound a week each. This is not the case in the iron-works; but no matter, we can illustrate our meaning by one sum as well as by another. These men lay out weekly the whole of the hundred pounds in victuals, drink, clothing, bedding, fuel, and house-rent. Now, the master finding the profits of his trade fall off very much, and being at the same time in want of money to pay the hundred pounds weekly, and perceiving that these hundred pounds are carried away at once, and given to shopkeepers of various descriptions; to butchers, bakers, drapers, hatters, shoemakers, and the rest; and knowing that, on an average, these shopkeepers must all have a profit of thirty per cent., or more, he determines to keep this thirty per cent. to himself; and this is thirty pounds a week gained as a shop-keeper, which amounts to 1,560l. a year. He, therefore, sets up a tommy shop: a long place containing every commodity that the workman can want, liquor and house-room excepted.'

Oddly, Prof. Tabarrok doesn't mention the company retaining the profit margin formerly going to another source of a worker's choosing as a motivation completely distinct from a worker's well being (company scrip being essential in the American version, admittedly). Not that Wal-Mart in Mexico was unaware of that, of course. Until an overreaching court stepped in to stop Wal-Mart from earning further profits by having its workers paid in part with vouchers that could only be redeemed at Wal-Mart.

What on earth has this dotty yarn from Cobbett to do with the issue? In Wolverhampton or Shrewsbury the workman has a choice of shops to use - the wonders of competition and all that.

I have lived in or near two company towns. They both had hospitals built by the major industry, large tracts of housing as well. In both the residents describe the company providing services that don't exist elsewhere such as plowing snow from driveways. Not all positive, the work was dangerous, the environmental pollution was extensive. It wasn't hard in either to find hard luck stories told by middle class men who owned their houses and were able to put their kids through school. Something about being paid a few pennies less than someone in another town.

Oddly, in Canada and in the US to a lesser degree the inability to increase spending on social programs has been replaced by placing social costs on businesses who employ people. For example, if one of my workers is experiencing some kind of emotional stress that would possibly create a dangerous working situation either through inattention, self medicating or violence towards co workers, my responsibility is to detect such things and direct or provide some way of alleviating. In the US I would have to buy women't birth control. A perverse desire to recreate company towns.

Consider the difference between a factory where people operate heavy equipment and a clothes shop. Surely it makes more sense for the first employer to expend more effort than the second preventing worker fatigue. Thus if an error by a fatigued worker causes an accident, it really does make sense for the employer owner to share some of the blame.

I'll leave it to your imagination which industries naturally should be providing contraception.

The mining town that I lived in (from 1932 until 1950) did not have a hospital, did not plow snow off of driveways,
and only the merchant middle class owned houses!

In the company town that I knew, not far from where I grew up, the local sheriff and police force were instruments of the plant. If there was a strike, guess who got shot or teargassed.

And, guess who decided what your house looked like.

Sing the song,

"Little houses, on the hillside, all made of Ticky Tacky,

All look the same."

Oh man, heavens save us from the scourge of pastel colored housing!

To be fair, lots of modern housing developments fit that same description. Only the high-end developments really defy the "all look kinda tacky, all look the same" description. Or maybe I just have expensive tastes.

Well, yes, the housing in company towns did usually look the same, at least within an income/job bracket.

Although an argument can be made that companies built the company towns because that was more efficient and faster than waiting for the private market to do so, it's also true that controlling the housing market gave the company extraordinary control over entire communities.

As in, if you lost your job you had to vacate the company housing.

Can't a company that owns the town prevent a competitor from buying land that would allow it to compete with the company-owned store? This would be especially relevent when cars are rare or non-existent.

Then why did 'Company Towns' were so 'good' to the workers that they no longer exist (and exist much after 1970)? Also, why Company towns are growing in the less developed nations? In a sense we are seeing it in China with factories but will these towns last generations? And we do we have such bad memories of one and movies "How Green My Valley"? My guess are:

1) Company towns were originally very good to their workers & families to get them to move there. So the store and rent were subsidized to import workers.

2) As a generation past or fall in prices, capital got tired of subsidizing store or rent. So with less revenues, capital and labor must take cuts and leads to conflict.

3) Our memories are only when the town disappeared. After a generation with less profits and wages, the best and brightest from capital and labor move away and tell stories of the town.

In the end, I think company towns are sort of libertarians great dream society much like liberals views of worker owned companies. They are the dream of the group but they are not stable in the long run.

There is a pdf of one of the relevant articles here:

Prices were about the same at company stores in the 1920s but during the depression prices could be much higher. Twice as high as non-company stores in one example given in the article.

Libertarians may be happy with clever coal mine operators who figured out a way of retrieving the excess wages paid to workers when there was a surplus of workers; In real life, this annoys the fuck out of people.

Then why did ‘Company Towns’ were so ‘good’ to the workers that they no longer exist (and exist much after 1970)?

Have you ever seen a tech company campus like Google or Microsoft? The sort of places that provide workers (often young, shortly out of college, and without families) with food, games, yoga, exercise centers, massage rooms, parks, and everything that they could want so they never leave? It's not all that different from a company town.

Bingo. College campuses are often like this as well - not just for students but also for faculty.

"the best and brightest from capital and labor move away and tell stories of the town."

Good point. I suspect they were particularly boring to smart kids, like the future rocket scientist in "October Sky" whose father is the manager of a coal mine. It seemed like an unpleasant social setting when most of the other kids' parents hate your dad.

I read the book October Sky as well, but the protagonist didn't seem to be unpopular in general with other kids, just one or two people and the rest seemed to protect him from those potential persecutors. His father seemed fairly popular as well. Actually it sounded like a pretty idyllic upbringing in many ways.

The best company towns could be alright, at the beginning. Lowell and Pullman weren't too bad, albeit a touch totalitarian in some of their rules. But even they went sour once competition cut into the profits of the firms owning them, at which point they cut wages and amenities - but without cutting rent.

The fact is that there were more workers than their were jobs in the 1920s and 1930s,
so companies did not have \to be "good" to workers to lure them to company towns.

Who controlled the police forces and court systems in these towns?

Who controls the British pound? Who keeps the metric system down?

If you didn't like the situation, you were free to leave surely? It is not the mine owners fault that there wasn't a better alternative.


Sure you were free to leave with youfr family and starve until a job became available..

And there is always Hank Scorpio in Cypress Creek. He seems like he would have been a wonderful boss!

Sorry, I meant to post this with it.

Your entire thesis relies on the premise that miners were paid in US dollars or otherwise transferable.widely accepted currency. Which it was usually not - specifically because in remote and isolated towns and settlements, there was no need to pay in dollars or other currency, as the company owned all the outlets where currency could be spent. SO sure, the prices might have been similar to an independently run establishment...but the employees were still effectively indentured, because they lacked employment mobility; they couldn't take a better offer with another employer, as any unspent scrip would have no value at their new employer.

AT, this was a poorly thought out argument.

The managers were smarter and more forward-looking than the workers on average, so they tended to have the ability to outsmart workers over debt, currency, and other complex transactions.

"AT, this was a poorly thought out argument."

I agree that company script was, in general, bad for the employees. But AT wasn't making that argument. He was discussing Company Stores in particular. You are conflating the two issues, which while connected aren't the same.

I'd say that company script was a negative, but that company stores were more likely to be fairly neutral.

This argument depends on workers not being allowed to obtain their salary in cash or exchange the scrip for cash. The Wikipedia article doesn't provide any evidence that was the case. It also repeats (without citation) a lot of the popular beliefs Alex is arguing against.

Article referenced by lemmy caution above indicates that the popular conception of scrip is also a misconception:

Finally, miners were typically not in debt to the stores nor paid entirely in scrip. Scrip was offered as an advance on payday, when miners, on average, received 30 to 80 percent of their earnings in cash after deductions for rent, fuel, doctors, and store purchases between paydays.

So would you similarly argue that Google and other Silicon Valley employees are being taken advantage of by being paid in nice meals and perks instead of cash?

My brother-in-law works as a consultant for Google, so he gets to eat in their cafeteria. Man, has he put on a lot of weight! I suspect that this is a short-sighted policy on the part of Google, unless the plan is to have their older workers eat themselves to death.

I'm pretty sure the strategy is "We can pay them in meals instead of money, and deduct the meal money." Though apparently the IRS is starting to think that if the meals are *too good* then they're compensation and thus taxable, instead of a cost of doing business and deductible.

The post was long enough already so I didn't go into scrip but that story too has elements of myth. The best way of thinking about scrip is that it was an early form of credit card. Thus, the company town provided a service that wouldn't become common for other Americans for several decades. See the Fishback book referenced for more on this.

Based on dan1111's comment above, it sounds like payday lending, which, if the effective interest rates were close to that of modern payday lenders, makes the "I owe my soul to the company store" lyric a lot more understandable, even if you are right about overall prices at the company store. If you were lousy at budgeting and delaying gratification.....

Well, arguably the company was providing the sort of service that apparently, undoubtedly due to government overreach, is currently not allowed - 'The CFPB has received complaints from employees that some companies, especially fast-food restaurants and retail stores, pay all their employees with payroll cards. Workers said they were upset about high and unexpected fees for routine transactions, such as checking the card balance and withdrawing cash.

Natalie Gunshannon used to work at a McDonald's franchise in Dallas, Penn. She asked for direct deposit to her credit union, but was told a payroll card—one loaded with fees—was her only option.

"No one should be forced to pay a fee to get their hard-earned wages," she told me. "They were taking advantage of people who cannot afford to pay these fees."

Gunshannon said she feared that once all the fees were taken out, her pay would go below minimum wage.'

Maybe you could ask your colleague Prof. Zywicki for some examples of why such payment schemes are beneficial to the employees.

Then why didn't she leave her job and find another one that didn't require these onerous requirements?

You know my job requires me to do all sorts of things that I would rather not do. But I do them because overall having this job is better than the alternative.

Three comments on scrip as a proto-credit card.

First, store credit was extremely common in the US (and in other countries) as early as the early 19th century, and persisted in small grocery stores in the US at least until the 1960s. There was no reason why such "credit" needed to be supplied in the form of scrip. (

Second, as a form of credit, scrip is fairly inefficient relative to store record-keeping, as scrip can be lost or destroyed.

Finally, if the notion is that scrip represented a form of general, rather than store-specific, credit, that is belied by the fact that scrip was only usable in the company's stores.

And the fact was that credit was usually not available to most worker in the years prior to the 1950s.

The rule was cash on the barrelhead or the company store.

"the company town was an effort to constrain monopoly power" -- an effort by whom? The company was intentionally making an effort to constrain its own monopoly power? Or should this read "the company town was in some ways a constraint on monopoly power"?

I'm looking forward to an analysis of the Bisbee Deportation--was it a company-provided travel-expenses-paid vacation?

The vacation was to the vacation spot of Ludlow, Colorado.

Benny put his finger on it. How can this issue be discussed without any reference to Pullman?

Makes you wonder what inspired someone with a Professorship to suggest that all those people who hated the company monopoly were fools. Apparently open markets are bad if the right people are closing them.

Well, let's talk about Pullman. During economic downturns, Pullman cut wages and laid people off, but did not cut rents. The housing arm of the company was expected to show a profit (as a return on equity) similar to that of the railroad-car business. Pullman, at least, did not immediately evict those laid off, but did evict them if they couldn't pay their rents. (As far as I can tell, Pullman did not own the stores in the town, but did own the buildings and space).

So why were people willing to put up with this? Because, even with these drawbacks, it was a relatively good job.

So if it was a relatively good job, why did the workers at Pullman, at great risk to themselves, I might add, attempt to unionize? Because they thought things could be better, and that collective negotiations were the best way to make things better.

workers have nowhere to go but the company restaurant, the company theater and the company gym but that hardly means that the workers are exploited.

Spoken like a true communist.

No, just an economic realist!

Perhaps this is right. However, it leads to a conceptual problem. One would think, if the Appalachia coal mine operators were paying a good hourly rate, then the people would become wealthy. If the people became wealthy, then there would be more affluent neighborhoods and they would build industrial infrastructure.

However, that did not happen. Despite the richness of the land and the exploitation over the last 150 years, Appalachia remains dirt poor. This means that the money from the coal mines went somewhere outside Appalachia, i.e., to the out of town mine owners.

Based upon how poor the coal-rich areas of the US are, I have to conclude that the wages paid to the miners were not so good and that the company towns and stores were no panacea.

"One would think, if the Appalachia coal mine operators were paying a good hourly rate, then the people would become wealthy. "

I don't think the phrase "a good hourly rate" naturally leads to expectations of becoming wealthy in the minds of most Americans. Indeed, "You'll never get rich working for someone else" is a common adage.

Actually I think the argument presented is still consistent with your observation. if the company didn't own the town then the monopoly extraction by some other single provider (and this might be where your story diverges from the one in the post but don't know the detail of mining in Appalachia) the monopoly pricing would have made the mining a more expensive effort perhaps resulting in the mine shutting down. That would certainly be the expectation if the particular, isolated mine, was the marginal mine.

The rent or excessive profits on deep underground coal is small. There were a few capitalists who go rich by being in the right place at the right time, but even if every penny they made had been confiscated and shared among the many orders of magnitude more workers, they would not have been rich. Consider - if it had really been the case that coal mining in Appalachia was super-profitable, why didn't more people get into the act? Likely the normal commodity price economics have been in play over the life of coal mining there, basically people invest until prices get driven down to the point where your capital only returns its cost, in other words, normally there is no rent in mining. The mining industry is just re-discovering this principle.

Some company towns were (Ludlow) or are hellholes, other company towns are decent places to live. An interesting question to study would be why some are hellholes and others are decent.
But it attracts more attention to try to defend or condemn "the company town" in the abstract.
Disappointing post and predictable comment thread.

I can point out a few of those hellholes in Eastern Ohio that still exist.

Don't forget that it was the large mines that promoted unions as a way of raising costs on their more large-intensive competitors.
Wage Rates as a Barrier to Entry: The Pennington Case in Perspective
Oliver E. Williamson
The Quarterly Journal of Economics
Vol. 82, No. 1 (Feb., 1968), pp. 85-116

The Grateful Dead have a good analysis of this situation in the song Cumberland Blues. For example:

"Make good money, five dollars a day
Make any more and I'd move away"

Lotta poor men got to walk the line just to pay his union dues.

What does that mean?

"Walking the line means you have not chosen which path or direction to lean or turn...kind of like standing on a fence where one side is good, and one side is evil, or one side is stay with the girl, and the other side is to leave her, are going to have to jump to one side or the other eventually." (;_ylt=A0LEVrj3L8hUepoAl5MPxQt.;_ylu=X3oDMTEzNzVyMmFlBHNlYwNzcgRwb3MDNQRjb2xvA2JmMQR2dGlkA1lIUzAwM18x?qid=20080119145131AAhvWXX)

I don't know, buddy, I just don't know. . .

I guess I'd have to say that living in an isolated town dominated by a single employer would suck in many, many ways (the isolation, the likely domination of the local economy, government, and civic groups by the company big shots, etc) but in that situation, I'd accept Alex's argument that it is probably better for the company to own the houses and stores than not. And given that people willingly moved to these isolated towns to live and take the jobs, we can presume it was their best option, but there's no reason to pretend that wasn't sad or the general disappearance of company towns hasn't been a good thing.

And I don't think Google, et al with their company-provided massages and sushi bars are equivalent at all because there's no isolated location. Tech companies provide these perks not because independent vendors would have monopolies and rip off their workers but rather because A) they're non-taxable (at least for now, and B) they tend to allow their workers (who are often young and single) to spend even more time at work.

I do agree 'Silicon Valley' has sort become a latest version of a 'Company Town' Looking back at history, wasn't Detroit in the 1950s sort of true urban company town with a few big employers and numerous services around them? Look at FoxConn or other Chinese manufacturing where employees benefit from increased services. Alex is right the Company Towns were originally good for society but once the economic pie shrank, the people in the town had to move on. And, the best and brightest who grew in the towns grew up with a bittersweet memory of the company town but remember their main goal in life was to get out.

No, there were several major auto companies and countless large and small suppliers (as is still the case, actually). So it wasn't a case of one single employer predominating. And it wasn't remote and isolated in a way that would create a lack of competition for housing, grocery stores, so there was never any reason for auto companies to own stores or worker housing.

People only \"willingly moved to these isolated towns" for decades to put bread on the table!

I often like to flip an argument, to see the reaction from a different perspective


Hear Goes:

What would Alex say about

A Town That Owned a Plant.


Libertarians in general love voluntary cooperatives.

Oil companies build company towns in Saudi Arabia to let American women not get arrested by the virtue police.

Compounds in KSA serve to protect outsiders (Europeans usually) from KSA values but also to protect KSA from outsider values. Interestingly they are not necessary in Iran.

Politics does make strange bedmates.

Prof. Tabarrok brings up good points about workers choosing and seeking to work at these disparate mines, but I wonder about later generations having the same choice.

In these isolated areas with workers having little in savings for their children, would their children have as many options? Their parents invested in moving to these towns and had some ROI based on their jobs, but their children may not have the same capital to make the same moves and I worry that later generations may face monopsony conditions as it relates to their labor.

I am one of those "later generations" who left the mine fields.

I went into the Navy in 1951, got out in 1955 and graduated from college in 1957,
the first and only one in my family to do so.

My employer has a cafeteria where I can (and do) purchase a hot lunch everyday. I had no idea I was being exploited by my company store since it always appeared to me that I was paying half of what I would pay at the local deli.


Get back to work.

We created this cafeteria so you wouldn't leave to eat out and come back from lunch drunk.

Also, what are you doing wasting your time on this blog anyway?

Don't you know we own this computer, and monitor what you write on it.

Now, get to work!

Is your company caf the only place to eat within a 25 mile radius?
Does your company pay you in "Rob42bux" that can only be spent in said caf?
Does your company own your home with the ability to evict you if you're caught surfing the web when you should be working?

I'm guessing, no, no, and no. Maybe try another analogy.

There are some very attractive company towns in New England. They are usually referred to as "College Towns".

If the real wage is what is relevant, it seems like there should be many conditions under which the company's profit-maximizing choice would be to have multiple aggressive competitors providing goods in the town. Otherwise they have to absorb the deadweight losses from their own monopoly by paying a higher nominal wage in order to produce the same real wage that would exist with competetive provision of goods.

What might be an interesting companion to this would be the historical investigation into the common view that the company towns were exploitive. One aspect of the post that is prompting that thought is simply the distance in time between the views. In other words, could this be a case of enough time passing and the data failing to really convey the truth of the situations so we get theory that fails to reflect actual behavior? Or perhaps the theory and analysis is spot on and the view of the exploitive company town something between urban myth and one or two bad cases and politics gone wrong -- or may I should say politics gone per norm.

Aren't we missing something very basic in the song?

"I owe my soul to the company store." This is a line about debt, not wages or prices.

Regardless of prices and wages, it would be in the interest of the mine owner to have the workers in debt to the company store, as that would be a big barrier to mobility. So while it's relevant to talk about relative wages and relative prices, if we are going to make a mobility argument we have to consider debt.

Think of one philosophy of sales management: get your salesmen to buy luxury goods, so they stay in debt. While they are in debt, they will be more motivated to do the hard work of selling.

Even the ever-so-nice Ernie Banks said as a coach in 1976: "I like my players to be married and in debt. That's the way you motivate them." (source for that quote:

I'm sure most of us have friends who make comfortable incomes, and yet have managed to be persuaded into unhealthy levels of debt.

Of course Alex is right. The notion that mine owners would try to take advantage of their workers is ludicrous on the face of it.

Alex, What do you mean that you mention company towns just in passing? Jamshedpur is a company town. It was for the longest time, Tata Steel's town. Only recently has the administration moved to some other authority.

Also a good analogy to the building of the Panama Canal; e.g., the decision(s) to migrate toward government run housing, stores, logistics etc rather than rely on contractors.

When you are working in a capital intensive industry like mineral extraction, you tend to have a skilled labor force. That labor force has employment options other than your operation in the middle of nowhere. The employees and their families must be enticed to work and live in those places.

That generally means better pay and whatever else the company can do to make the living situation better (good schools, low crime, subsidies for whatever…)

At least that’s been my experience working in and around the minerals industries in the US for the last 35 years.

Good theory but not practice.

For an analysis leading to different conclusions from those of Price Fishback and Alex Tabarrok, see

These discussions are a helpful reminder about what anyone, particularly workers, who make up the bulk of the population, deserve: the answer is nothing. We are all born naked, cold, and helpless, and we die much the same way. If the workers ever had conditions that improved upon this state, then the employers were improving their lot beyond what they would otherwise have.

Complaints about conditions in these company towns were just sentimental whining by bleeding hearts that has an unfortunate tradition dating back to exaggerated claims of bad conditions on plantations dating back to the early 1800s which have always displayed a naivete about the realities of capital investment and harrowing, dangerous financial risks associated by great men.

You are all heart!



That subject was attempted 40 years ago by Robert Fogel and Stanley Engerman with a tome entitled
"Time on the Cross"

. It was not well-received!

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