Does Scott Brown Matter?

Jim Crum sent me an e-mail about David Horowitz's analysis of the Obama administration, which I enjoyed and copied below. The piece makes great points. But it ignores some history that might help us consider where we ought to be going. The Republicans need to develop a coherent game plan. I am celebrating the victory in Massachusetts like everyone else, but I did not hear anyone ask exactly what it is that Scott Brown believes other than his position on the current health care bill. It seems to me that the century-old Republican approach of voting for anyone who will keep the Democrats out is still in force. Look where it got us. Does Scott Brown believe in freedom, or is he a Progressive?

The missing link in the analysis below is the economic underpinning of the thrust toward socialism and centralization of power. It is not just because of the left. The left is a tool and an ally of more powerful advocates of centralization, the Wall Street-Military-Industrial Complex.

It is in fact the Republican Party that introduced big government. This was done by Theodore Roosevelt between 1901 (the year McKinley was shot) and 1908. The Federal Trade Commission Act was a cornerstone of Roosevelt's attempt to socialize big business. He was supported in this by a significant component of Wall Street and big business, notably JP Morgan's famous associate George Perkins, president of International Harvester. TR backed William Howard Taft in 1908, and Taft betrayed him, preferring to regulate trusts through the Sherman Anti-trust Act (itself an earlier boondoggle). This enraged Roosevelt. He ran against Taft in 1912 as a third party candidate, forcing the election of Woodrow Wilson. Wilson established the federal income tax and the Fed in 1913. The Fed was largely the result of pressure from the money center banks following JP Morgan's death in 1913. There was no public outcry or crisis resulting in its passage, and the law was passed during Christmas week in 1913.

Until Wilson the Democrats had offered the counterpoint to Republican centralization. In the 18th and 19th centuries the centralizers were the party of the rich--the Federalists, Whigs and Republicans. The Republicans were the big government party from Lincoln on. You will notice the real reason for the Civil War--retaining the federal governmental structure. The Democrats (preceded by the Democratic-Republicans) were the party of decentralization and laissez-faire.

In the post civil war era the Republicans adopted the laissez-faire philosophy but with a twist. In the pre civil war Jacksonian era, the Democrats preached the gold standard and laissez-faire as policies that benefit the common man. That was President Andrew Jackson's philosophy. In contrast, in the post Civil War era the Republicans associated laissez faire with the Social Darwinism of Herbert Spencer. This fit their claim that the big businesses that were coming into existence in that era reflected a natural process. As well, the early Republican pushes toward centralization besides the Civil War included: the greenbacks used to pay for it; the legal tender law that paved the way for the Fed; the Morrill and Homestead Acts; the National Banking Act; the Pendleton Act, creating the foundation of a civil service; and the Sherman Anti-Trust Act, which aimed to establish common law remedies against unfair monopolies at the federal level.

It is debatable how natural the growth of big business was. First, virtually all of the railroads were subsidized, as was the Standard Oil Company through a wide range of corrupt deals with state governments (small change in comparison with the corruption associated with Obama and the Fed nowadays). Second, government heavily protected business through very high tariffs, well above the amount needed to entirely fund the federal government. Third, although the Sherman anti-trust Act claimed to limit unfair competition it actually encouraged big business. For a period of about 15 years, the Supreme Court held that all combinations (all big businesses) were illegal. Then, in 1911, the Court abolished Standard Oil but said that big businesses were legal as long as they behaved in a reasonable manner (that they were "good trusts"). But the Sherman Anti-trust Act is unequivocal in saying that agreements between smaller firms are illegal, it is legal for them to combine to form a single company but not legal for them to reach agreements or "collude". Hence, the past 150 years have seen unending centralization and excessively large corporations. Previously, smaller firms engaged in unstable agreements not to raise prices. The Sherman Anti-trust Act illegalized these agreements but made it legal for them to merge.

Martin J. Sklar traces this history very carefully in a monumental book, Corporate Reconstruction of American Capitalism.

The upshot of my long winded discussion is that big business was institutionalized by the Sherman Anti-trust Act, the Fed, and by the impetus to centralize business and government. The New Deal also played a significant role, as did the explosion of regulation in the 1960s and 1970s. By institution of complex regulatory requirements and other legal barriers to entry in fields like banking, insurance, health care and education (note: all failed industries) competition was limited across increasing swathes of the American economy. If you add those four fields to government you probably have between seventy and eighty percent of the economy. And that leaves out numerous other pockets of socialized business in fields like human resource management, employee benefits, pharmaceuticals and food.

The result has been a 40-year-long stagnation in the real wage and increasing income inequality. As well, the widespread, fundamental innovation of the 19th century has drawn to a close, as manufacturing executives think of financial gimmicks and plant relocation as central to their business plans.

The Republican Party not only played a role in the trend toward centralization and socialization--through TR it was the leading impetus that was only supplanted in the 1930s by FDR's even more socialistic plans. The close links between the centrally planned big business core and the Republican Party make it unlikely that the GOP will favor freedom, free markets and decentralization unless there is some kind of radical change.

The role the left has played in this is that it has been allied with the interests of the Wall Street-Military-Industrial Complex. From the beginning, both left-wing socialists and big business Progressives had parallel goals. The Progressives wanted centralization so that economies of scale could be achieved, control rationalized, competition and innovation eliminated (what David Ames Wells called "overproduction" in his 1889 Recent Economic Changes). The left-wing socialist favored socialization because they believed that public control was desirable. Both advocated innovation-stifling, reactionary ideas that in practice were the same.

The good cop/bad cop routine has been quite effective. I do not hear many Republicans considering the possibility that their policies have neatly paralleled those of left-wing socialists. Rather, there is endless chimerical competition and hatred between the "left", which claims to be altruistic and favors centralization for altruistic reasons, and the "right" which claims to favor efficiency and favors centralization for supposedly productive reasons. The two sing the same song with slightly different tunes. Which side, the left represented by Obama or the right represented by Bill Kristol opposed the bail out and TARP? Shall we say both sang the same song? When it came down to giving trillions to the Street, Paul Krugman and George Bush gave each other a nice deep kiss.

The article is right about the media. Despite decades of P/progessive domination of the news media and left-wing control of education the American people retain elements of their Lockean heritage. But the news media has done much to confuse them. They are not asking the questions that they need to. For instance:

Will Scott Brown turn out to be a fighter for freedom, or is he a Roosevelt Progressive? If the latter, does his victory really make a difference?

>Important information for conservative thinkers. I would title this piece “Digest This And Decide For Yourself What To Do”
In the past few days, watching the fiasco for the left that revealed itself in Massachusetts, and realizing that conservatives not only have an opportunity to be heard, they have an opportunity to remake their vision of the fight for the country, I finally watched the Horowitz-produced links sent by a friend (actually a number of friends sent me the same link). Watching the speakers, including Horowitz and Pat Caddell, I realized that Caddell, a “classical Democrat” has a lot to say to conservative independents like me. This is not an "opinion piece." It is a call to action. Let me say first that the Republican Party, as currently organized and in its behavior, is not the avenue to salvation. For whatever reason, Republicans are totally unconscious of the dangers currently revealing themselves from the Congress and the White House. You can't "play nice" with progressive radicals. They don't understand "dialogue." They only understand their own goals. If you don't believe it, take the time to dissect the speeches of Barack Obama, from the campaign trail through his first year as president. They are a web of lies, woven skillfully together, but lies just the same. This is why many laughingly say that any promise by Obama should come with an expiration date. But it's more than that. He believes he can say anything to advance his agenda, and his speech at the Massachusetts campaign the other night makes it clear that he doesn't always stick to either his agenda or his oratory. The "truck" comments that made it to national TV are more revealing than most would think. He has contempt for anyone who is not on his agenda track. Yes, contempt. Revealing also was how little he said about the Democrat candidate for TV, in contrast to how much he said about her opponent. I'm surprised he even got her name right. Obviously, the people of Massachusetts noted it as well.
In the past months, during which for at least nine weeks I was absent, a number of factors are becoming clear. First, the Democrat Party has been “occupied” by radical leftists and their fellow travelling “useful idiots,” who actually believe that George Soros, Barack Obama and all the “czars” are a production of American politics (they aren’t), and second, the American people (independents and Democrats who feel betrayed, mostly) are waking up. A political tsunami may well be building in the heartland against the people who today dominate Washington politics. Thanks to Republican brain-dead policies and actions in the past decade, the real fighters in American politics, the Democrats, have been subsumed by a group of sinister destroyers, operating pretty much as the Capone mob ruled Chicago. The thing to remember is that those behind this movement are deadly serious, and willing to do anything, and I mean anything to achieve their aims, which are to remake American society, economics and culture in the image of Communism. The activists are indefensible and unabashed radicals, following the Rules for Radicals concepts of Saul Alinsky. They openly and publicly admit both their source of strategy and their aims. Americans are finally listening, but it is debatable how much damage can yet be done before these radicals are actually recognized for what their objectives are.
One observation should set the tone: David Horowitz observed in a recent presentation titled “What We Are Up Against” (see link below—I urge everyone who can to watch—it is important), that Alinsky 1) learned his organizing strategies by apprenticing with Frank Nitty, the Capone mob “czar” who ran the operations while Capone went to prison, and 2) Alinsky’s book “Rules For Radicals” was Originally titled “Rules For Revolution.” The book is a Communist/crime syndicate “how-to” book that is currently in use in the White House. This transfer of Chicago-style mob-influenced politics has been carried to a national level right from the streets of Chicago to the White House.
Horowitz, a very concerned and savvy analyst of radical tactics, strategy and agendas, points out that the reason these movement members are so influential today against the rest of the “sleeping nation” is that Democrats in general and radicals especially are fighters. Conservatives, he says, are “builders,” while the radical left are “destroyers.” This explains why the radical left, funded by numerous foundations, billionaires like George Soros, et al, are holding sway. They own big media by virtue of either being influential or by being physical owners of the resource. So, the major media and major educational operations, including a lot of national education policy, are dominated by those who have fabulous sums of money to throw at them. Conservatives, on the other hand, including the Founders of our nation, were and are uncomfortable with political power. It is not for nothing that Ronald Reagan, possibly the most influential conservative of modern times, quipped that “Those who have the most to lose have done the least to prevent its happening.” Another fact that bears on the current situation is that for the most part, it is citizens, born Americans, who are bringing on this movement for change that may (God forbid) actually bring on a civil war of some kind. One quote struck me as appropriate to describe the modus operandi of current leftist progressive members of our government, including the President: “We believe in the power of persuasion, but if that doesn’t work, we also believe in the persuasion of power.” This quote was attributed to Andy Stern, founder of the Weather Underground, current Obama Advisor, and friend of Bill Ayers, who also was a founding member of the Weather Underground and who is an unrepentant sixties terrorist bomber and currently is an influential educator, and who has received more than fifty million dollars from the hard-left Annenburg legacy to promote his radical agendas in education. This is the same Bill Ayers who Obama at first denied knowing “except to recognize in the neighborhood,” but who hosted a fundraising event at his home for Obama’s senatorial campaign. Additionally, John Holdren, an Obama “czar” has echoed George Soros’ words in saying, publicly, that “we have to deconstruct capitalism.” In the context of what is being done in the Congress and from the White House by presidential order, this makes clear that exploitation of energy resources, advancing American exceptionalism in any way, or even considering that Americans have to have time to “digest” some of the radical and rushed steps being taken by a radical dominated Congress and White House, are not in the cards. These people are not going to give up easily. In view of the Massachusetts election last night, where Ted Kennedy’s seat was, literally, returned to the people of Massachusetts, Nancy Pelosi, Speaker of the House, announced that she was not concerned about it. I believe her words were “We are going to have health care, regardless.” She is probably right. The structure for forcing the immensely unpopular bill, which is getting every day more unpopular, is still intact, whether there is a sixtieth senate vote for it or not. By parliamentary procedure, it can still pass. Remember this: They don’t think they can fail. They are willing to go the whole nine yards to pass this, and other bills like cap-and-tax, and other revenue producing penalizations of the American taxpayer for the advancement of elite political agendas, whether they retain the Congress in November or not. This is the dedication of radical progressive Democrats. We the citizens of the United States have to understand the stakes. They don’t believe we do.
Let me be clear here: Were it not for Glenn Beck’s use of Horowitz’ site listed below http://www.discoverthenetworks.org/default.asp , Van Jones would still be the “green jobs czar” with access to the White House. [An aside here: Those of us who have worked in government know about security clearances and access to classified information. During the “What We Are Up Against” broadcast, this question came up, and the answer seems to be that the FBI background checks that have been for years mandatory to have a White House Pass were summarily suspended by the Obama team. That means that all these radicals, who are advisors to the President currently in the White House, have access to both the White House and the President without ever having had their access scrutinized by any type of security procedure. Given the access from the White House to extremely classified information, we have to deduce that the Obama Team, including Barack Obama himself, has what can only be called a cavalier attitude towards both White House and national security. I consider this a grave oversight on the part of the government.] And all I can say is “Thank God for Glenn Beck. He has been a voice crying in the wilderness, but he just passed his first anniversary at Fox News, and continues his crusade on talk radio. And he’s “just an ordinary guy.” But he’s a patriot and a concerned American.
During the program, Democrat analyst and former presidential advisor Pat Caddell, who has been featured prominently on Glenn Beck’s recent analysis of the “czar” program, pointed out that the Apollo Alliance, and all “green jobs” militancy in the current administration, as well as ACORN and SEIU are a cover for radical operations. The green jobs hype is being used as a patronage system for Communists, in and out of government.
In the resources offered below, I have cited a couple of things that might help folks who read this brief attempt at warning to understand the gravity of our nation’s situation. This is not a game. These people are at war with our way of life and our economic system. They want to replace it with something else, and that something has already failed endlessly around the world in the last century. They hate American exceptionalism. Barack Obama is the first president in American history who does not believe that the United States is an exceptional occurrence in world history. He thinks we should all be part of a global “whole.” This is the Communist International talking. He is their mouthpiece—in the highest office in the land. This, to the ComIntern, is the opening campaign of a war of global conquest. They’ve been waiting for it since Stalin blew them off taking power in the USSR. It is the ideology of totalitarian communitarianism.
Conclusion: If we are going to save our country from this debacle, and if we are going to preserve any semblance of our way of life for those who come after, it now seems to me that we are going to have to get “engaged” in the process like never before. From the local to the national, concerned citizens of all parties are going to have to unite against this sinister attempt to subvert our entire nation and re-direct the largest economy in history off the precipice.
I can’t say it any stronger.
Bob B

Ronald Radosh's and Murray N. Rothbard's New History of Leviathan

Ronald Radosh and Murray N. Rothbard, editors A New History of Leviathan. New York: EP Dutton and Co. Inc., 1972. 265 pages. Out of print. Available used from Amazon.com for $49.99-55.00.

In 1972, the softcover New History of Leviathan originally sold for $3.95, but today it sells for as much as $55.00 used. It would have made a good investment as it has done at least as well as the Dow Jones Industrial Average. Although it is out of print, it is a classic of the libertarian/New Left revisionist history of Progressivism. The book includes several left-wing authors, including William Appleman Williams and editor Ronald Radosh as well as Rothbard, who of course was the founder of the Cato Institute and the Libertarian Party. I met Rothbard twice, once at a California State Libertarian convention in Sacramento in 1980 while I was an MBA student at UCLA and once at a conference at a hotel on Central Park South sometime around 1988 when I was a doctoral student at Columbia Business School. A little after that I was book review editor of the Columbia Journal of World Business and asked Rothbard to review a book, which he consented to do. That must have been around 1988 or 1989. Rothbard died in 1995. Although I was active in the Free Libertarian Party in the late 1970s, Rothbard had resigned a little before I arrived because of an argument with my friend Howard S. Katz.

Reading this book for the first time 36 years after its publication was a valuable experience. All of the articles in the book are first rate. The chapters that intrigued me most given my interest in public sector management was William Appleman Williams's introduction, Martin J. Sklar's chapter on Woodrow Wilson, Rothbard's chapters on "War Collectivism in World War I" and "Herbert Hoover and the Myth of Laissez-Faire". James Gilbert's chapter on James Burnham is also very interesting. The statist argument had reached a crescendo in the 1970s when this book was written. Although statism is still the dominant American ideology, the establishment's confidence is not what it once was, in part thanks to this book.

The theme of the book is that the Progressives were largely pro-business; that Herbert Hoover was a big-government Progressive who anticipated virtually every one of the components of Franklin D. Roosevelt's New Deal; that the New Deal was not much of a shift from the pro-business interventionist policies of Progressivism; and that the New Deal was a pro-business policy maneuver that may have helped the poor to a small degree but was primarily a means to support business interests.

William Appleman Williams begins with a decisive introduction. He claims that "the true architects of elitist democracy...were the Jacksonian Democrats" (p. 2). This of course differs from Louis Hartz, who views the Whigs as elitist. There is no simple resolution to this difference. It is true that the Jacksonian Democracy was in favor of universal suffrage for white males, but it is also true that the Whigs were far more tolerant both of African Americans and of Native Americans. The Whigs opposed the forced march of the Cherokee Indians (Supreme Court Chief Justice John Marshall held it was illegal), but the march was a Jacksonian policy. Almost all of the abolitionists were Whigs. On the other hand, the Whigs were economic elitists who favored statism and the wealthy. If anything, the Whigs were in many ways predecessors of the Progressives and the New Deal in that they favored big government, public works and a central bank. On the other hand, the Jacksonians were working class racists who believed in the principle of equality for white males and were economic democrats.

In the next paragraph, Williams rips into the "New Leviathan" (pp. 2-3):

"What we now have is a conscious, willful and managed elitism with very little representation, responsiveness or democracy..."

Sklar on Wilson

In Martin J. Sklar's chapter on Woodrow Wilson, he argues that it is a historical misconception that there were two distinct compartments to Wilson's mentality, the moralistic and the realistic. The Puritan ethic in which Wilson was trained (p. 8) does not distinguish between the real political world and the spiritual world. Moreover, Wilson was heavily influenced by Burke and Bagehot. In turn, this conservative influence was consistent with institutionalist theory (p. 11), and Wilson believed that the individual entrepreneur was in a state of decline. But Wilson did not want to fight individualist decline and he approved of large-scale industry. The economic facts of life had changed (p. 14) due to industrialization, the closing of the frontier and the replacement of the individual entrepreneur by large-scale industry in Wilson's view. He believed that the law needed to be updated to oversee the trusts in specific ways, such as requiring reasonable competition (p. 19). By 1908 Wilson did not advocate laissez-faire economics, and his acceptance of the Federal Trade Commission to oversee trusts was consistent with his belief in government regulation and the rule of reason doctrine enunciated in the Standard Oil and American Tobacco cases as well as his belief that corporations should be regulated by a rule of law as opposed to arbitrary rule by elected officials.

Wilson was not an opponent of big business; he believed that there needed to be realistic legal standards to govern big business. He believed (p. 25) that international expansion of markets was necessary to replace the frontier in order to enable US corporations to grow. Thus, Wilson argued for "'development' of agrarian areas" (p. 27) internationally since exports were essential. He also believed (p. 26) in government support for the merchant marine, a belief that Harding was to replicate. Sklar quotes a Wilson speech on p. 27: "Our domestic markets no longer suffice. We need foreign markets..." "Wilson stressed three major reforms to meet the new necessities of the time--the downward revision of the tariff, the development of a strong merchant marine, and laws permitting foreign branch banking tied to a commercial-acceptance system," that is the Federal Reserve Bank.

Wilson's appointees to the Department of Commerce (William C. Redfield), the Federal Trade Commission (Edward N. Hurley and George L. Rublee) and various ambassadors to China, Great Britain were all advocates of corporate expansion into foreign markets. The claim that Wilson was an anti-big business "democrat" is unfounded. Wilson was a booster of corporate interests, not an opponent.

As evidence Sklar discusses the May 1914 First National Foreign Trade Convention. Secretary of Commerce Redfield and Edward Hurley, Vice Chairman of the Federal Trade Commission worked with various corporate lobbying organizations at the convention. Secretary of State William Jennings Bryan was also present. Willard Straight, the head of an international trade organizations, the American Asiatic Association, cited Wilson's tariff revision, the "Underwood Tariff" as an important step (p. 32) and added that "the opportunity provided by the reserve act for the extension of foreign banking and investment left business 'in a better position than at any time in our history...to undertake the development of export trade...'" Sklar quotes PHW Ross, president of the National Marine League to the effect that the public must realize:

"that government assistance to American shipping and the American export trade is not only a business but a patriotic policy, pertaining to national defense as well as to our industrial welfare."

Sklar argues that business executives believed that large corporations "were most suited to successful export trade" because of low unit costs, ability to obtain credit and related economies of scale. "A domestic policy, therefore, designed to atomize large corporations could only prove self-defeating" (p. 41). Wilson agreed with this and adopted policies to support big business.

At the trade convention, Secretary of State William Jennings Bryan "cited the tariff and the reserve act as measures taken by the Administration for the promotion of foreign trade and "the large corporate spokesmen among the delegates analyzed the two laws in precisely the same way." Sklar quotes John E. Gardin, vice-president of the National City Bank of New York (p. 46):

"'...The administration...certainly has given us two things of which we might be proud: one, the reduction of the tariff...opening up the markets of the world--if we want to sell we have got to buy; and the other is the Federal Reserve Law, which relieves us from bondage...' of an outmoded banking law."

Sklar emphasizes that small business opposed the Underwood Tariff, which chiefly eliminated duties on products produced by small business (p. 47). "In effect, the Underwood Tariff strengthened the position of the larger corporations as against the smaller" (p. 48).

Sklar writes:

"The Federal Reserve Act may be interpreted...in terms of a movement of large finance and corporate-industrial interests, extending back to and before the National Monetary Commission, for branch banking, a commercial-acceptance market for the facilitation of foreign trade and investment, and a reserve system that would protect the gold stock from foreign and domestic runs; a movement that, by expanding the credit structure would reduce industrial corporations' dependence upon the money markets for investment capital and insulate industrial operations from stock-market fluctuations and speculators; a movement that Wilson approved and responded to favorably without himself being in any way responsible for its initiation."

Thus, the Progressive reform movements (p. 50-5) "were led by large corporate interests and political and intellectual leaders affirming the large corporate-industrial capitalist system and convinced of the necessity of institutionalized reforms, legal and otherwise, to accommodate the nation's law and habits and the people's thinking to the new corporate business structure...Wilson emerged as a foremost ideological and political leader of a social movement affirming corporate-industrial capitalism."

Murray N. Rothbard's "War Collectivism in World War I"

Rothbard argues that World War I's "war collectivism" under Wilson served as the inspiration for state corporate capitalism ever since. "War collectivism showed the big business interests of the Western world that it was possible to shift radically from the previous, largely free-market capitalism to a new order marked by strong government and extensive and pervasive government intervention and planning, for the purpose of providing a network of subsidies and monopolistic privileges to business and especially to large business interests" (p. 66).

Much of the war collectivism involved government working with big business to establish cartels which enabled restriction of production and artificially inflated prices. "In many ways, the new order was a striking reversion to mercantilism...The original mercantilism had been brutally frank in its class rule...Instead the new dispensation cloaked the new form of rule in the guise of promotion of the overall national interest, of the welfare of the workers through the representation of labor, and of the common good of all citizens" (p. 67).

From the beginning, business was "enthusiastic about the extensive planning and economic mobilization that the war would entail." Some of the interest groups involved included the Chamber of Commerce and the Committee on Industrial Preparedness, a public-private organization, the governmental Council of National Defense replaced. The Council was dominated by corporate executives such as Walter S. Gifford, chief statistician of AT&T, Daniel Willard of the B&O Railroad, Bernard M. Baruch, Julius Rosenwald, president of Sears Roebuck and Samuel Gompers, head of the AFL-CIO. Herbert Hoover, then a retired mining entrepreneur, was appointed head of the Food Administration (p. 72). Subsequently, Frank A Scott, a Cleveland manufacturer, was appointed head of a spin off War Industries Board. "The functions of the WIB soon became the coordinating of purchase, the allocation of commodities and the fixing of prices and priorities." Bernard M. Baruch took over the WIB in March 1918. The War Industries Board became the central planning agency of the Wilson administration. The WIB had sixty "commodities sections" that dealt with industrial representatives in "over three hundred 'war service committees'" (p. 77).

Big business leaders dominated the War Industries Board (p. 74). These included Alexander Legge of International Harvester, George N. Peek, formerly of Deere & Co., Robert S. Lovett of the Union Pacific Railroad and J. Leonard Replogle, former president of American Vanadium Co.

Rothbard quotes Grosvenor Clarkson (p. 74):

"Individualistic American industrialists were aghast when they realized that industry had been drafted, much as manpower had been...Business willed its own domination, forged its bonds and policed its own subjection. There were bitter and stormy protests here and there, especially from those industries that were curtailed or suspended...But the rents in the garment of authority were amply filled by the docile and cooperative spirit of industry. The occasional obstructor fled from the mandates of the Board only to find himself ostracized by his fellows in industry."

The Conservation Division (p. 75) set out to "rationalize, standardize and cartelize industry in a way that would, hopefully, continue permanently after the end of the war." Rothbard also quotes Margaret L. Coit's biography of Bernard Baruch, Mr. Baruch,to the effect that the Wartime Board enforced compulsory standardization:

"Wartime conservation had reduced styles, varieties, and colors of clothing. It had standardized sizes...It had outlawed 250 different types of plow models in the US to say nothing of 755 types of drills...mass production and mass distribution had become the law of the land...This then would be the goal of the next quarter of the 20th century: "To Standardize American Industry": to make of wartime necessity a matter of peacetime advantage."

Thus, World War I provided a teaching ground for a government-and-big-business controlled economy. "The result of all this new-found harmony within each industry was to substitute cooperation for competition." (p. 78). The Food Control Act of 1917 fixed the price of wheat at a minimum of two dollars a bushel when it had been as low as one dollar within the previous year. Hoover established the "Grain Corporation" which bought wheat from farmers at inflated prices and then resold the wheat to millers, guaranteeing the millers that they would buy back any unsold wheat or flour. If a miller refused to cooperate with the cartelization of the industry, their license would be revoked. Bakers were required to mix other ingredients in with the flour to cheapen the final product.

With respect to the railroads, they were (p.88) "seized and operated directly by the federal government". The railroads formed the Railroad War Board soon after the war began. "Once again, the government-promoted monopoly was an inspiration to many who were looking ahead to the peacetime economy." So, President Wilson guaranteed to the railroads high profits based on the peak years of 1916/17 (p. 90) and in turn offered to run the railroads for the management.

Moreover, much of the activity of the WIB involved price-fixing. This is ironic because the Progressive era up to World War I was dominated by fear of monopoly and unreasonable restraints of trade. In World War I, the government, with the approval of the same Progressives, came out and legally mandated unreasonable restraints of trade. Oddly, through the 1960s historians continued to claim that Progressives like Wilson and Roosevelt were anti-business. Rothbard writes (p. 79):

"Typical of the price-fixing operation was the situation in the cotton textile industry. Chairman Brookings reported in April 1918 that the cotton goods committee had decided to 'get together in a friendly way' to try to stabilize the market...(p. 80) The general enthusiasm of the business world, and especially big business, for the system of war collectivism can now be explained. The enthusiasm was a product of the resulting stabilization of prices, the ironing out of market fluctuations and the fact that prices were almost always set by mutual consent of government and the representatives of each industry."

Thus Judge Elbert Gary, CEO of United States Steel, was put in charge of price setting for the steel industry. Iron Age wrote that:

"it has apparently taken the most gigantic war in all history to give the idea of cooperation any such place in the general economic program as the country's steel manufacturers sought to give it in their own industry nearly ten years ago."

The big steelmakers had urged government price fixing. In industries that were less interested in cooperation with government the WIB was less successful. As for the steel industry (p. 82):

"Under this regime, the steel industry achieved the highest level of profits in its history, averaging twenty-five percent per year".

The story with Herbert Hoover's (Louis Hartz, recall, claims that Hoover was an advocate of laissez-faire) Food Administration was similar but (p. 83) the Food Administration relied on licensing instead of price fixing. "Instead of direct control over food, the FA was given the absolute power to issue licenses for any and all divisions of the food industry...Every dealer, every manufacturer, distributor and warehouser of food commodities was required by Hoover to maintain its federal license." Hoover used mass propaganda to encourage the public to enforce his decrees. The Food Administration used a cost plus approach to setting profits. Although "the program was touted to the public as a means of keeping profits and food prices down" "the goal was also and more importantly to cartelize...prices in general were to be set at a level to guarantee a reasonable profit to everyone...the goal was not lower prices, but uniform, stabilized, noncompetitive prices for all."

Early in the war, wheat prices went up from one dollar to three dollars in a matter of months, then (p. 85) President Wilson fixed the minimum price of wheat at $2.26 in mid-1918. A system of artificial purchases by a federally established Grain Corporation led to guarantees of "fair prices". Federal mandates requiring reduced quality of final baked goods institutionalized the price inflation (p. 86).

The railroads were cartelized under Secretary of the Treasury William Gibbs McAdoo, an entrepreneur, financier and railroad executive. Railroad regulation was colored by a battle between the industrial firms that ship via the railroads and the railroads themselves (p. 91). The shippers attacked McAdoo but failed to overturn him and the railroad executives:

"As in the case of the War Industries Board, the railroad executives used their coercive governmental powers to deal a crippling blow to diversity and competition, on behalf of monopoly, in the name of 'efficiency' and standardizaton. Again, over the opposition of the shippers, the railroad administration ordered the compulsory standardization of locomotive and equipment design, eliminated duplicate passenger service and coal transportation, shut down off-line traffic offices and ordered the cessation of competitive solicitation of freight by the railroads. All of these edicts reduced railroad service to the hapless shippers." (pp. 92-3).

"The granting of absolute power to the railroad-dominated Railroad Administration was cemented by the Federal Control Act of March 1918 which ex post facto legalized the illegal federal takeover" (p. 92).

Rothbard argues that the war collectivisation was not "episodic" (p. 92) but rather was "inspirational". "The wartime economy especially galvanized such business leaders as Beranrd Baruch and Herbert Hoover, who would promote the cooperative 'associaton' of business trade groups as Secretary of Commerce during the 1920s, an associationism that paved the way for the cooperative statism of Franklin Roosevelt's Agricultural Adjustment Act and National Recovery Act" (p. 3). According to Rothbard, war collectivization served as a model to intellectuals, and Baruch and Hoover continued to aim to replicate the model. In the spring of 1930"Baruch proposed a peacetime reincarnation of the WIB" (p. 95). In the same year Gerard Swope, president of General Electric, presented "an elaborate plan for a corporate state that essentially revived the system of wartime planning. Moreover, "as soon as the war was over, Hoover set out to 'reconstruct America' along the lines of peacetime cooperation" (p. 96). Hoover urged national planning and cooperation. "The Federal Reserve system was to allocate capital to essential industries and therebyh to eliminate the competitive wastes of the free market...in his term as Secretary of Commerce during the 1920s, Hoover assiduously encouraged the cartelization of industry through trade associations." Moreover, academics were delighted: "Never before had so many intellectuals and academicians swarmed into government to help regulate and mobilize the economic system. The intellectuals served as advisers, technicians, framers of legislation and administrators of bureaus." "Virtually the entire New Deal apparatus--including the bringing to Washington of a host of liberal intellectuals and planners--owed its inspiration to the war collectivism of World War I. The Reconstruction Finance Corporation, founded by Hoover in 1932 and expanded by Roosevelt's New Deal, was a revival and expansion of the old War Finance Corporation. Wartime experience also provided the inspiration for the public housing movement of the New Deal" (p. 99) "Many of the industrial War Service Committees, and their WIB Section counterparts urged the continuance of the WIB and its price fixing system" (p. 101). However, Wilson did not believe in that degree of centralized planning, and so disbanded the agencies. There is little doubt that had Teddy Roosevelt been president, the WIB would have bene permanent.

In December 1918 (p. 105) "the Chamber of Commerce of the United States called a meeting of the various industrial War Service Committees to convene as a 'Reconstruction Congress of American Industry. Lumber executive William M. Ritter spearheaded an "Industrial Board" supported by Secretary of Commerce William C. Redfield. It was promoted as a device to secure price reductions and so President Wilson adopted the board, but its real purpose (p. 106) was "not to reduce, but rather to stabilize prices at existing levels." Once Wilson approved it, the Board tried to establish industrial price agreements "arrived at in collaboration with the Board" (p. 106). The small steel firms disliked the Industrial Board's steel prices but the large ones supported them. The Railroad Administration and the Justice Department objected to the price fixing scheme (p. 107), and President Wilson dissolved the IB in 1919. The $2.26 wheat price continued until 1920 (p. 108). The Railroad Administration, the government operation of the railroad led to several bills proposing government reorganization of the railroad industry but the industrial shippers stopped the bill. In March 1920 the war measures ended.

Murray N. Rothbard's Herbert Hoover and the Myth of Laissez-Faire

In this chapter Rothbard argues that Herbert Hoover "was in every way the precursor of Roosevelt and the New Deal" and that Hoover was the preeminent "corporate liberal". Thus, the New Deal was not all that distinguishable from Progressivism. Hoover advocated (p. 112) "voluntary cooperation under 'central direction'" with the Federal Reserve allocating capial, federal development of dams, improvement of "waterways, a federal home-loan banking system, the promotion of unions and collective bargainig and governmental regulation of the stock market to eliminate vicious speculation."

During the Harding administration as Secretary of Commerce Hoover "organized a federal committee on unemployment, which supplied unemployment relief through branches and subbranches in every state...Hoover organized the various federal, state and miunicipal governments to increase public works and persuaded employers to spread unemployment by cutting hours for all workers."

"Throughout the 1920s Hoover supported numerous bills in Congress for public works programs" (p. 115) and subsidization of the construction industry. President Coolidge supported Hoover's "Road to Plenty" or "Hoover" plan to use public works to end depression as did the AF of L (p. 116). "Hoover had long agitated for industry to encourage and incorporate labor unionism within the framework of the emerging industrial order. Moreover, he played a crucial role in converting the labor leaders themselves to the idea of a corporate state with unions as junior partners in the system".

"Workers would be protected from the unfair competition of the sweatshop...Still more did this mean protection of the lower-cost large employers from the competition of their smaller sweatshop rivals...Hoover called for a new economic system, what was in effect a corporate state..." Hoover (pp. 118-19) "persuaded Harding to hold a conference of steel manufacturers in May 1922 after which he and Harding called upon the steel magnates to bow to the workers' demand to shift from a twelve-hour to an eight-hour day." Hoover (p. 119) was coauthor along with Donald Richberg and David E. Lilienthal, of the Railway Labor Act of 1926. "Herbert Hoover's entire program of activities as Secretary of Commerce was designed to advance the subsidization of industry" (p. 120). He "expanded the Bureau of Foreign and Domestic Commerce" five-fold (p.l21). He urged the coffee trade to band together to form a National Coffee Council (p. 121). He helped organzie a rubber cartel. He threatened legislation against American investment bankers unless they required that loans that they made abroad be used to purchase American goods. Hoover encouraged cartelization of oil (p. 122), coal (p. 123) and cotton textiles (p. 124). He played a leading role in "nationalizing the airwaves of the fledgling radio industry." During the 1920s, Hoover aimed to monopolize industry by "standardization and 'simplification'...for example of automobile wheels and tires and threads for nuts and bolts. All in all, about three thousand articles were thus 'simplified'" (p. 125). He emphasized cartelization of agriculture (p. 125) in part through lending to farm co-ops. "He was one of the earliest proponents of a Federal Farm Board, designed to raise and support farm prices" and "as a presidential candidate in 1928 he promised the farm bloc that he would promptly institute a farm price-support program" (p. 126) which he did as president via the Agricultural Marketing Act of 1929, which created a Federal Farm Board with a revolving fund of $500 million to raise and support farm prices. Rothbard notes that (p. 127) "It is one of the great ironies of historiography that the founder of every single one of the features of Franklin Roosevelt's New Deal was to become enshrined among historians and the general public as the last stalwart defender of laissez-faire."

Rothbard argues that Hoover caused the unusual length of the Great Depression through federal government intervention (p. 128). Following the stock market crash on October 24, 1929 he called a series of conferences and induced business leaders to "pledge that wage rates would not be lowered and that they would expand their investments...Industrial group after group pledged that wage rates would be maintained." Business leaders making the pledge included Henry Ford, Julius Rosenwald, Walter Teagle, Owen D. Young, Alfred P. Sloan, Jr. and Pierre du Pont (p. 129). Artificially high wages meant sustained unemployment. This interpretation differs from Milton Friedman's, who argues that Hoover insisted that interest rates be raised in 1929 to stop the stock market bubble. By 1932, businesses were forced to start reducing wages, two years into the depression (p. 130). "Even with the cuts in wages, wage rates fell by only twenty-three percent from 1929 to 1933--less than the decline of prices...Unemployment rose to 25 percent of the labor force by 1933".

Rothbard argues that Hoover's monetary stance was inflationary: "Hoover did his best, furthermore, to engineer a massive inflation of money and credit...Federal Reserve holdings rose from $300 millino in September 1929 to $1,840 million in March 1933...Ordinarily this woul dhave led to a sixfold expansion of bank reserves and an enormous inflation of the money supply. But the Hoover drive for inflation was thwarted by the forces of the economy. Federal Reserve rediscounts fell by half a billion due to sluggish business deamdn, despite a sharp drop in the Federal Reserve rediscount rate; cash in circulation increased by one and a half billion due to the public's growing distrust of the shakey an dinflated banking system; and the banks began to pile up excess reserves because of their fear of making investments amidst the sea of business failures." In response, Hoover pressured the banks. In February 1932 Hoover "established the Citizens' Reconstruction Organization under Colonel Frank Knox of Chicago dedicated to condemning hoarders and unpatriotic 'traitors'."

"Federal expenditures rose from $3.3 billion in fiscal 1929 to $4.6 billion in fiscal 1932 and 1933...meanwhile, federal budget receipts fell in half...demonstrating that Hoover was so much of a proto-Keynsian that he was willing to incur a deficit of nearly sixty percent of the budget."

"In February 1932, Hoover's Emergency Committee for Employment was instrumental in pushing through Congress Senator Wagner's Employment Stabilization Act to expand public works in a depression...He...launched the Boulder, Grand Coulee and California Central Valley dams, and after agitating for the project since 1921, Hoover signed a treaty with Canada to build a St. Lawrence Seaway, a treaty rejected by the Senate" (p. 133).

"Another massive dose of government intervention was President Hoover's Home Loan Bank System, established in the Federal Home Loan Act of July 1932." This law paralleled the Federal Reserve Bank for S&Ls. In 1932 he established the Reconstruction Finance Corporation, which provided loans to shaky firms. In 1932 the RFC made $1 billion in loans to banks and railroads. The railroads used the loans to repay bank loans. The program was extended into the Emergency Relief and Construction Act in July 1932, which doubled the RFC's capital to $2 billion and greatly widened the scope of RFC lending. Hoover opposed speculation, and he strong armed the New York Stock Exchange to refuse to give loans for short selling. His Federal Farm Board loaned $100 million to farmers to help them keep wheat off the market to boost prices (p. 137). "By November, the government's Grain Stabilization Corporationhad purchased over 65 million bushels of wheat to hold off the market, but to no avail" (p. 138).

Despite all of these governmental programs, Hoover held back (p. 134) from demands for even greater amounts of public works projects. Rothbard states that for this reason, Hoover is remembered as an advocate of laissez-faire. Moreover, while Hoover was interested in lending money to railroads and banks, he was not interested in extending relief to the poor (p. 136), although in 1932 he indeed established a federal relief program (p. 137). According to Rothbard "an impatience with the pace of America's movement toward the corporate state" spread throughout industry. "In short, a general clamor arose for an economy of fascism" based on compulsory cartels. Advocates including Gerard Swope of GE, Henry I. Harriman of the Chamber of Commerce, Charles F. Abbott of the American Institute of Steel Companies, and the AFL. "Dr. Virgil Jordan, economist for the national Industrial Conference Board, summed up the state of business opinion when he concluded, approvingly, that businessmen were ready for an economic Mussolini." (quoted on p. 143). Roosevelt, of course, pushed through the National Recovery Act, but the Supreme Court held it to be unconstitutional.

Ronald Radosh's "Myth of the New Deal"

Radosh argues that the New Deal functioned in a probusiness manner. He quotes Paul Conkin's The New Deal (p. 148):

"The enemies of the New Deal were wrong. They should have been friends...the meager benefits of Social Security were insignificant in comparison to the building system of security for large, established businesses...The New Deal tried to frame institutions to protect capitalism from major business cycles...instead of higher wages creating a market, at the short-term expense of profits, the government subsidized the businessman, without takin the cost out of his hide.

Radosh asks: "How could rhetoric alone convince so many that their lives had changed (by the New Deal) if, indeed, life was the same as it had always been?"

He quotes Arthur Schlesinger's pragmatist response (p. 150)that Roosevelt:

"led our nation through a crisis of confidence by convincing the American people that they had unsuspected reserves of decency, steadfastness and concern. He defeated the grand ideologists of his age by showing how experiment could overcome dogma, in peace and in war...(Social Security) meant a tremendous break with the inhibitions of the past."

Radosh argues that various historians (p. 151) have disproven Schlesinger's thesis that "Liberalism in America has been ordinarily the movement of the part of the other sections of society to restrain the power of the business community" (p. 150-1). That's an interesting quote. It was true up until 1890 or so. But the term liberal changed its meaning and started to mean interventionist as opposed to laissez-faire. That shift meant that liberalism became the philosophy of subsidy to business.

Radosh asks how is it possible that the public believed that the "dispossessed and white working class" had benefited from the New Deal when they hadn't. He looks at the National Recovery Administration, the Congress of Industrial Organizations, the origins of the Wagner or National Labor Relations Act and Social Security. The National Association of Manufacturers, which represented small business, opposed Social Security. Mainstream historians like Arthur Schlesinger held that all of business opposed social security, but the NAM was not representative of big business. "Particularly important is the backing given the Act by the Business Advisory Council, which formed a committee on Social Security headed by Gerard Swope, president of General Electric, Walter Teagle of Standard Oil..." The leadership of the Business Advisory Council was a Who's Who of big business. (pp.157-8). Congress watered down the bill because "many congressmen and senators reflected their local constituencies, which included local antilabor and small town mentality NAM business types" (p. 158).

The idea of GE's Swope and others was to institute a fascist economy led by elite business executives: "Although they would make major decisions and all groups were to be represented, decision-making would remain within the hands of the elite who ruled for the society at large." Radosh calls this "an American corporate state". This was consistent, in Radosh's views, with the fascination many social democratic (aka "liberal") Americans had for fascism. It is intriguing that the use of the term "liberal" had become so perverted by the 1970s that Radosh, adopting common usage, could say "many liberals viewed fascist economic theory as a promising alternative". The perversion of the English language in causing the term "liberal" to refer to someone who favors government coercion is parallel to the Nazis' use of the "term" "Heil" to refer to Hitler. The term "heil" suggests healing and holiness in German, much as the term "liberal" refers to freedom in its Latin root.

Radosh quotes an article by John P. Diggins from the American Historical Review entitled "Flirtation with Fascism: American Pragmatic Liberals and Mussolini's Italy": (AHR LXXI, January 1966, pp. 497-505).

"fascism appeared to be a continuous creative effort that found its affirmation in the subordination of end to means. In its attempt to strike a balance between the dogmas of capitalism and socialism, moreover, Fascism avoided doctrinal myopia. Rejecting the fetishes of both the Left and Right, it presented an admirable alternative to an ironclad ideology on the on ehand and a tenaciously shallow sentimentalism on the other."

Radosh adds: "To liberals, fascism appeared to be a system of planning that transcended classes and led to an equilibrium of contending social forces. Thus, it was 'essentially the theoretical appeals of corporatism that interested the liberals."

The New Deal adopted "planning techniques that had antecedents in the trade associations developed within industry during the Hoover years."

The draftsmen of the NRA were associated with the World War I measures that Rothbard describes. William McAdoo wrote Bernard Baruch in favor of government regulation "for the prevention of waste, overproduction and monopolistic oppression" (p. 163). Radosh emphasizes that the NRA was a pro-business law:

"The immediate consequence of the war was not a New Jerusalem of the planners but the Whiggery of Herbert Hoover as Secretary of Commerce. While the war mobiliazations did establish meaningful precedents for New Deal reforms, it was hardly the 'war socialism' some theorists thought it ought to be. Corporatism "had been accepted as part of the American scene" (p. 166). Radosh quotes Eugene Golob's point that the NRA was "the greatest effort in history to adapt the principals of medieval guild regulation to the industrial economy of a democratic nation." Laissez-faire liberals such as Senator William E. Borah attempted to stop the NRA arguing that it would lead to income and wealth inequality. In the Senate, Robert F. Wagner (D NY) argued that the NRA was the "first step toward that which the liberals of the country have been preparing for years" (p. 168). Industry executives were to prepare codes of fair competition, and the advocates of the New Deal did not mind. The conservative advocates of the NRA realized "the dire need to include social reform as an essential component of the corporate state. They understood that many liberals and even political radicals would overlook the conservative origin and effect of the NRA if reform, especially public works, was offered as part of a package deal" (p. 169). Public works were used to camouflage the major extent to which New Deal reforms benefited corporate interests.

Radosh argues thta the Wagner Act integrated labor into the corporate capitalist system and so was "conservative" in the same sense that the NRA was. Radosh argues that the National Labor Relations Act encouraged industrial unionism. "A split developed between the moderate sophisticated corporate leaders and the old-line antilabor diehards" (p. 175). Quoting G. William Domhoff's Higher Circles"

"A powerful mass of organized workers did not overwhelm a united power elite position. Rather, moderate members of the power elite, faced with a very serious Depression, massive unemployment decline wages, growing unrest and spontaneous union organizing and after much planning and discussion, chose a path that had been traced out gradually over a period of years by the National Civic Federation, the Commission on Industrial Relations and other pro-union forces within the power elite. By making certain concessions and institutionalizing their conflict with labor, they avoided the possibility of serious political opposition to the structure of the corporate system."

"As early as 1926, (Gerard) Swope had sought to convince AF of L president William Green to form a nationwide union of electrical workers organized on an industrial basis...William Green, because he had to maintain his commitment to the craft unions comprising the AF of L, rejected Swope's pleas."

Swope also supported Hugo Black's bill for a thirty hour week (p. 177) and Secretary of Labor Frances Perkins's minimum wage bill (p. 177). Swope proposed creation of a National Labor Relations Board (p. 177). Swope favored collective bargaining with industrial unions because multiple craft unions in a single plant would have been less efficient (p. 178). Radosh quotes Domhoff on Roosevelt as an:

"integral member of the upper class and its power elite. However, he was a member of that part of the power elite that had chosen a more moderate course in attempting to deal with the relationship of labor and capital...While he did not encourage unionism, his record during the thirties makes very clear, he was nonetheless unwilling to smash it in the way the NAM had hoped to do since 1902."

It is true (p. 185) that nonelite groups "were the beneficiaries of many of the new social reforms. Social Security did produce benefits despite its limitations. NRA did eliminate sweatshops and organzied labor was able to strengthen its position in society."* But (p. 186) "The New Deal reforms were not mere incremental gestures...They were of such a character tht they would be able to create a long-lasting mythology about the existence of a pluralistic American democracy, in which big labor supposedly exerts its countering influence...The populace resopnded to FDR's radical rhetoric only because it mirrored their own deeply held illusions."

The contemporary political dialogue inherents the propagandistic flavor of the New Deal and of the Progressives. Reality rarely conforms to rhetoric. The advocates of social democracy implement policies in the interest of the professional and stock jobbing classes. The proponents of small and efficient government adopt ever-larger and more wasteful government programs. It is nearly impossible for citizens to grasp the contours of government. Any set of pleasant-sounding lies will do. The media, short-term profit seeking, intellectually lazy and doctrinaire is unwilling to discuss the myriad problems and failures in government. The result is a governmental system that is increasingly deviating from the intentions, hopes and goals of the American public.



*The fallacy of thinking in terms of less than five or six decades is evident here. Although Radosh was writing nearly four decades after passage of the NLRA globalization had not yet facilitated the contemporary response to improved working conditions in the US--hiring of sweatshop labor in Asia and private sector union density is now where it was in the 1920s .

Martin J. Sklar's Corporate Reconstruction of American Capitalism 1890-1916

Martin J. Sklar. The Corporate Reconstruction of American Capitalism: 1890-1916: The Market, the Law and Politics. Cambridge: Cambridge University Press. 1988. 484 pages.

One of the joys of being an academic is that I can read great books, and Martin J. Sklar's Corporate Reconstruction is one of them. Sklar targets academics as his primary audience. The book is brilliant, thorough, deep and penetrating. I would argue that all business Ph.D. students should be required to read this book. It explains the American business system in a way that is much more accurate, convincing, and forthright than almost any other.

Sklar begins by reviewing the intellectual foundations of Progressivism, then moves into a detailed analysis of anti-trust law and the two key Supreme Court interpretations of the Sherman Anti-trust Act that led to the Standard Oil and American Tobacco Decisions in 1911. Sklar shows how the courts' interpretation of the Sherman Act as applying to all combinations rather than just unreasonable ones led to increasing demand for a Progressive political transformation. The Standard Oil and American Tobacco decisions led to a Progressive consensus. In President Taft's interpretation, aggressive enforcement of the Sherman Act was sufficient to eliminate unreasonable or unfair restraints of trade. In Wilson's interpretation, a degree of regulation as reflected in the Clayton and Federal Trade Commission Acts were integrated with judicial enforcement. Sklar goes into various political and regulatory reform movements that were associated with Progressivism and that led to passage in 1914 of the Clayton and Federal Trade Commission Acts. He finishes this carefully written, detailed book with a discussion of the leading politicians of the era, Roosevelt, Taft and Wilson.

Sklar argues (p. 20) that the Progressive era resulted from a conflict between the proprietary-competitive stage and the corporate-administered stage of market capitalism. A key part of Sklar's argument is that (p. 22) corporate capitalism could integrate interests of small business, the working class and professions. Perhaps he overstates the importance of corporate capitalism, for the professionalization of medicine, for example, was proceeding in tandem with other aspects of Progressivism and it may not have been affected either way by corporate capitalism. Nancy Cohen argues that the Mugwumps were already establishing professional interests in the late 19th century and this likely was independent of corporate capitalism.

Sklar argues (p.22):

"In its very centralizing and standardizing characteristics, corporate capitalism was inclusive of social diversity in a way that proprietary capitalism-competitive capitalism could not be. Its partisans, accordingly, called corporate capitalism progressive."

Thus, in Sklar's view, (p. 30) capitalists had made a transition from debtor to investor and there was a "consensus" in favor of a regulated market and central banking.

The antitrust debates and the antitrust law (p. 33) were critical to the debate about progressivism because many argued that all corporations ought to be illegal under the Sherman Anti-trust Act. Corporations did not assume their final modern form until circa 1890, and the debate about Progressivism was intimately connected to the 25-year-long debate (1889-1914) about the degree to which corporations should be permitted to exist and the degree to which they should be regulated. Sklar argues that the debate was ultimately decided in favor of the idea that society should have "supremacy over the state", but this question was up in the air. There were serious quesions (p. 34) whether anything besides small producer capitalism was compatible with American society and whether big business ought to be permitted. Corporate capitalism favored administered markets and regulation but rejected socialism. I would add that I have yet to find any evidence in the historical literature that a laissez faire corporate capitalism could not have succeeded. There is certainly plenty of evidence that contemporary businessmen disliked laissez faire which leads me to question how the advocates of statism managed to depict laissez faire as a business ideology. It was in fact a profoundly anti-business ideology but one which left more savings in the hands of the average American.

It is certain that big business executives and their friends in the Republican Party disliked the idea of laissez faire because it meant lower profits and fewer advantages and supports to big business. Sklar (p. 35) argues that corporate capitalism was a "cross class" ideology. This may be true in terms of the public debate, which like any deliberation is based on imperfect information. However, the results of corporate capitalism as opposed to laissez faire was in the interest of corporate managers. Sklar argues that because labor unions supported corporate capitalism, corporate capitalism must have served the interests of labor (as opposed to union leadership) as well. Professor Sklar does note (in a footnote on p. 44) that savings rates were much higher in the 1880s and 1890s, the era of supposed unemployment, overproduction and vicious competition, then they were in the "Progressive" era.

The three major schools of thought concerning corporate capitalism reflected the ideas of the three Progressive presidents, Roosevelt, Taft and Wilson. Roosevelt's was the most statist; Wilson's was a "center left" approach and Taft's was a "minimalist-regulatory corporate liberalism on the center right" that sounds most like today's Republicans. Sklar doesn't trace the relationship between Taft and later conservative movements in America, but it seems to me that Barry Goldwater's laissez faire ideology had to represent a minority current in the Republican Party for the 58 years between 1908 and 1964.

Theodore Roosevelt (p. 38) would view the entire large corporate sector of the economy as monopolistic and would have subjected all of big business to direct, socialistic state control. Today's Republican advocates who speak of "Republican principles" and "traditions" would do well to study the history of their own party. The most socialist president in American history was a Republican, although much of Theodore Roosevelt's socialism came when he ran as the Bull Moose candidate. Wilson was less statist than Roosevelt because he and his followers "distinguished more finely between positive government and statism."

Between the 1880s 1904 (p. 46) "there were roughly 300 industrial combinations with an aggregate capitalization" and about three fourths with a capitalization of about $6 billion occurred in 1898-1904.

Sklar points out that the corporate view of the period "conceived" that (p. 55) "overproduction" was "chronic tendency inherent in modern industrial capitalist development. Concentration...was the inevitable concomitant of modern industrial methods..."

Economic necessity required either alliances, contracts to restrict price, corporate mergers and consolidations. Thus, firms felt impelled to merge, but the Sherman Anti-Trust Act posed a problem.

In the Progressive era, the leading advocates of the overproduction thesis that justified mergers included Arthur Twining Hadley, Jeremiah Whipple Jenks and Charles Arthur Conant. These Progressive writers had a theory of business strategy that emphasized the importance of economies of scale and fixed investment, a situation that the Progressive era assumed would carry forward indefinitely (p. 58):

"Large fixed investment put a premium on economies of scale, and, as Andrew Carnegie explained in what came to be known as 'Carnegie's law of surplus,' every manufacturer preferred to lose one dollar by running full and holding markets through selling at lower prices than to lose two dollars by running less than full or close down and incur the risk of losing markets, defaulting on interest payments and falling into bankruptcy. Four years before Carnegie made this piont in print, Hadley had already noted...that the idea of competition in which prices tended to be proportional to the cost of production approximated reality in Ricardo's time but not in an era of growing fixed investment. 'It very often involves worse loss to stop producing than to produce below cost.'"

Like David Ames Wells, Hadley believed that large fixed investment changed the relationship between marginal costs and marginal revenues for profit maximizing firms. He believed the long term equation of marginal costs and revenues to have been eliminated by fixed investment. From the standpoint of today's microeconomics, this is a peculiar argument, and it suggests a reason for Progressivism's fixation on statism. The equilibration of marginal costs and benefits is a condition for rational behavior. The Progressives thus believed that firms behaved irrationally. The existence of fixed costs does not alter the rationality of the equation of long term costs and benefits. For firms to behave otherwise would suggest an inability to develop coherent business strategy. Firms will continue producing until the present value of expected margainal costs of production equal expected the present value of expected marginal revenues. If fixed cost investment causes irrational, sub-optimizing behavior in some firms, more rational firms would leave the market, leaving it to the sub-optimizing firms. In turn, supply would be reduced. Although such adjustment would take time and be painful to owners, it would certainly occur. Moreover, the Progressive model diametrically opposes basic thinking about business strategy. Progressives like Hadley argued that firms were incapable of strategic thinking and were unable to change direction. The idea that a firm would continue producing ad infinitum because it is cheaper to produce than to close shop, an argument found in David Ames Wells's work as well as Hadley's, ignores valuation based on future earnngs. Firms are valued not only on the basis of cash flow and current earnings but on the present value of future earnings. Publicly traded firms that are willing to take losses ad infinitum will have share prices that reflect infinite losses and will therefore be valued at close to zero. Short term gains due to closing may be less than short closing costs, but short term closing costs cannot be greater than ad inifinitum production losses. Although cash flow might be hurt by closing, the argument that existence of fixed costs repeals the principle that firms will produce to the point where their expected costs of production just equal the expected revenues because is false.

In his section on the anti-trust law Sklar emphasizes that the British American common law (p. 93)prohibited restraints of trade. Under the case of Horner v. Graves price fixing and contracts to restrain trade were totally legal unless (p. 95) "they directly and unduly or unreasonably restrained competition and were therefore detrimental to the public interest." Contracts "restraining trade completely" were against public policy. Thus, (p. 100) "Invalid restraints of trade at common law were those contracts, agreements or combinations that were unreasonable and therefore void..." Unreasonable restraints of trade attempted to control an entire industry, restrict entry by new businesses. Reasonable restraints of trade were consistent with freedom of contract and property. "The common law, then, was not intended to protect weaker or inefficient competitors from stronger or more efficient competitors nor even to compel competition" (p. 104)

When the Sherman Act was passed, the courts first interpreted it merely as a restatement of the common law that added treble damages and made unreasonable restraints of trade federal crimes (p. 105). Sklar goes into the Sherman Act's legislative history and shows that Sherman's original draft did not satisfy a common law interpretation, although that was Sherman's intent, and more expert Senators such as James Z. George and John T. Morgan redrafted the bill to ensure its common law implication (p. 115). Between 1890 and 1897 the federal courts interpreted the Sherman Act consistent with the reasonable/unreasonable distinction.

In 1897, led by Justice Harlan, the Supreme Court reversed itself (p. 127) in the case United States v. Trans-Missouri Freight Association. In Trans Missouri the Supreme Court held that all combinations, reasonable and unreasonable, hence potentially all corporations, were illegal restraints of trade. The Supreme Court reached a similar decision in United States v. Joint Traffic Association and Addyston Pipe, in which Judge William Howard Taft ruled that reasonable and unreasonable restraints of trade must be declared illegal even though that interpretation disagreed with his analysis of the common law. The aggressive interpretation of the Sherman Anti-trust Act lasted from 1897 to 1911.

In 1911 the Supreme Court returned to the common law interpretation because of judicial and public criticism (p. 146). The Standard Oil and American Tobacco cases involved the break ups of those two firms, but the Supreme Courts did so in such a way to say that the corporate economy was safe, in other words that it was returning to the common law interpretation of the Sherman Act as illegalizing unreasonable but not reasonable restraints of trade. The United States had been unique in the world in prohibiting all restraints of trade (p. 154) so the return to the unreasonable standard was a return to the global norm.

I think this material sheds a lot of light on William Howard Taft's labor law decisions when he became Chief Justice after losing to Wilson. The labor history has tended to overlook the importance of anti-trust law to Taft's career, and his anti-union interpretation of the Sherman Act during his nine years on the Supreme Court, which led to the Norris La Guardia Act in 1932, needs to be viewed in light of his broader anti-trust ideas.

The two interpretations of the Sherman Anti-trust Act respectively reflected the interests of rural, single proprietor firms versus large corporations. It was not realistic to attempt to impede the growth of large corporations in this way.

In his section on the politics of antitrust law Sklar traces the history of the Bureau of Corporations, which Congress created in February 1903. The commission originally advocated publicity about corporate affairs and federal licensing of corporations (p. 185). The supporters of the Bureau of Corporations included George W. Perkins of JP Morgan. Sklar traces considerable detail about legislative proposals of Jeremiah Jenks and Herbert Knox Smith. Herbert Knox Smith didn't agree with Roosevelt's extreme statism. Roosevelt favored federal incorporation or licensing of corporations and Knox worked on this to please Roosevelt, but he disagreed (p. 201). He also traces in considerable detail the reform efforts of the National Civic Federation led by Mugwump and Progressive Seth Low.

The case of Loewe v. Lawlor also known as the Danbury Hatters' case, had important implications. As Theodore Roosevelt was cajoling (p. 230) Seth Low on behalf of the Civic Federation to propose a generalization of the Hepburn Act that would have radically increased federal authority over corporations. (The Hepburn Act applied centralized economic planning principles, rate setting and the like to railroads.) Under a proposed bill that was kicked around, all corporations engaged in interstate commerce could register with the federal government. All combinations and contracts of the corporation would be filed with the federal government. If a corporation chose to file it would not be proscecuted for past Sherman Act violations. The bill provided for favorable treatment of labor unions. This was Roosevelt's bill, but Roosevelt refrained from aggressively supporting it because it was so radical. Sklar notes (p. 245) that had it passed it would have done a few things: (1) it legalized large corporations; (2) it subjected them to federal regulation; and (3) it established administrtive executive supervision rather than judicial review. The Bureau of Corporations would have become a central planning agency and American big business would have been state directed. The bill would have mandated a degree of direct government control (p. 248) over big business that the business executives did not expect. The bill did not catch on and died.

Herbert Knox Smith, who was an official of the Bureau of Corporations, although a Roosevelt follower, did not agree with the bill. He was (p. 300) troubled by the "centralizing tendency and implications of a government-directed economy. He was no less concerned, at the same time, with the economically and socially deleterious effects of concentrated market power represented by big corporations." Smith favored a publicity function of the Bureau of Corporations and that this could be accomplished by requiring registration of corporations with the federal government without too much additional regulation (p. 305): "Most important, in Smith's mind, the registration system he favored would avoid the state direction of market transactions implied in (other) proposals." Senator Newlands introduced an interstate trade commission bill in July 1911 (p. 310) which was a "tough license-registration measure." However, the bill stalled because of labor issues and Smith convinced Newlands to moderate the bill. Smith argued that a system of regulation would be smoother than a system of court enforcement.

Sklar traces through the evolution of the Federal Trade Commission and Clayton Acts of 1914, the rather minimal regulatory outcomes of the debates about whether to regulate corporations. Although Progressivism was mostly Republican, it reached its climax with Woodrow Wilson, who pushed for the Federal Reserve, which had been a Mugwump idea. It is important to understand that the Federal Reserve adopted in 1913 was very different from today because there was a gold standard and so the central bank's power to create money was limited. However, it was the first of three steps that led to unlimited money creation power.

In the final sections of the book, Sklar gives a really fine review of the ideas of Roosevelt, Taft and Wilson.

Overall, I found Martin J. Sklar's book to be energizing and informing. It took me a long time to read, but it was worth it.

Progressivism in Decline

The early twentieth century saw the triumph of Progressivism. By the time Theodore Roosevelt assumed the presidency following the assassination of William McKinley in 1901 Progressive doctrines had become dominant in elite circles. As Martin J. Sklar shows in his monumental Corporate Reconstruction of American Capitalism 1890-1916, the key debate in the Progressive era was among three or four schools of thought. Both today's conservatism and today's liberalism are offshoots of those schools of thought. The first school was small business populism which held that all big business was undesirable. In response to this movement, the US Supreme Court held for about 15 years that all business combinations were in violation of the Sherman Anti-Trust Act beginning with the 1897 decision in United States v. Trans-Missouri Freight Association. Progressives were troubled by this decision because they believed that only unreasonable restraints of trade should be illegal under the Sherman Anti-Trust Act, and that was the opinion of the law's authors. In response to this decision, Progressives held that corporations should be permitted to exist but should be regulated. The most aggressive advocate of regulation was Theodore Roosevelt, who evolved into the position that the state should largely control and set policy for corporations (Sklar provides rich detail about Roosevelt's ideological evolution). In contrast, William H. Taft, who succeeded Roosevelt as president in 1908. Taft believed in very minimal regulation of the trusts with aggressive enforcement of the Sherman Anti-trust Act through the courts. This was so following the Supreme Court's Standard Oil decision, which broke up Standard Oil (arguably to satisfy populists and the left) but overturned the Trans-Missouri decision and reinstated the common law interpretation of the Sherman Act that only unreasonably uncompetitive trusts are illegal. Thus Taft's Republican position was that corporations ought to be minimally regulated with aggressive enforcement of the anti-trust law to satisfy small business interests, anti-union small manufacturers and the left. Roosevelt might have agreed with Taft's approach during his presidency, but had veered to a highly statist viewpoint and so ran against Taft as the Bull Moose candidate in 1912. The third view, that of Democrat Woodrow Wilson, was that big business was natural but there needed to be a combination of meaningful regulation (but less than the Republican Roosevelt advocated) but also enforcement through the courts. Taft can be viewed as the progenitor of today's Republicans while Roosevelt can be viewed as the progenitor of today's "progressives". Both were Progressives in the early twentieth sense, so today's politics can be viewed as a battle between forms of Progressivism. By 1900 there was no serious advocate of laissez faire and this was not part of any significant conservative movement. Nor did the advocates of laissez fair in the late nineteenth century grasp the arguments of the twentieth century Austrians, Friedman and Schumpeter. Thus, today's free market economics, while relying on marginalism that John Bates Clark, an advocate of the kind of big business statism that the Progressives adopted, as well as crucial insights of Smith and Ricardo, was a twentieth century develop and appeared after progressive-liberalism, the conservative Progressivism of Taft, the evolutionary Progressivism of Wilson and the radical Progressivism of Roosevelt.

That said, there was a devolution of Progressive ideas that occurred in the twentieth century's subsequent 8 decades. Progressivism was largely concerned with molding of the system of regulation of business. Theodore Roosevelt was most concerned with balancing labor and corporate interests, and all the Progressives were interested in developing a system of business regulation and corporate enterprise that would be dynamic and productive but would not permit excessive power to corporations. However, the Progressives were overly impressed with the size and power of contemporary business. They did not realize that technology had the potential to overturn large firms fairly quickly. Thus, they implemented systems of support and structure that served to protect the very power of big business that they claimed to wish to minimize. The establishment of regulatory systems raised entry costs; the establishment of the income tax created barriers to capital formation among the poor and small business interests; the establishment of the Federal Reserve Bank facilitated a monopoly of capital by big business, commercial banking and the investment banks that tended to foreclose entrepreneurship; and the labor regulations that Roosevelt, Herbert Croly and other Progressives advocated that saw much of its realization later in the 20th century, also created entry barriers and high fixed costs for small business. The result was excessive protection to big business.

The model of manufacturing that the Progressives reinforced was mass production or continuous flow, in the terminology of Joan Woodward. This model was characteristic of the late nineteenth through the mid twentieth century. It involved a degree of technology and managerial sophistication, but it relied on large scale production runs. This kind of technology requires consistency of output. Its apex was the Model T Ford, which had little variation and could be produced at low cost but had poor quality. The American regulatory system thus geared itself to protecting the modernist, mass production model by allocating credit; at various times via protectionism; and by creating entry barriers.

Franklin D. Roosevelt's New Deal of the 1930s reinforced the Progressive model in a number of key respects. First, it established a modernist labor regulation system which assumed that labor unions that required large bargaining units would represent employees. In response, the industrial labor unions of the Congress of Industrial Organizations was formed. In short order following the National Labor Relations Act the number of unionized workers more than doubled and by 1945 about 35% of the workforce was unionized. The NLRA labor system assumed that unions would face the same modernist model that the Progressives thought firms would eternally face: large work units characterized by low skill workers who could be organized in large groups by industrial unions (unions that represent all the workers in the plant) such as the United Auto Workers union. However, this model was not to materialize.

The chief problem facing union organization is the same as the chief problem facing the Progressive regulatory regime. Within 40 years of the establishment of the Progressive regime Toyota Motor Company in Japan began experimenting with a process known as lean production. Taiichi Ohno, Toyota's executive vice president for manufacturing in the post-World War II era and the creator of lean production says that he worked on the lean production or kanban model for 15 years, from the late 1940s until the early 1960s, before Toyota finally iron out the process. The important point about lean manufacturing is that it inverts the assumptions of modernism. It depends on producing one unit at a time; it depends on teamwork; it depends on highly committed workers who cannot be in a conflictual relationship with the firm and who need to feel secure in their jobs; it emphasizes not mass production but coordination; and it views the factory as a series of supermarkets where line workers are consumers who obtain just enough inventory from the next lower level of the production process. Thus, information becomes critical, and highly trained workers who are flexible are equally crucial. Likewise, single units are produced at a time.

The characteristics of Ohno's lean manufacturing are amplified by the ideas of Edward I Deming, who was also appreciated in Japan before being recognized in the United States in the 1980s and 1990s. Deming argued that quality is a process rather than an outcome; that quality depends on both management and employee; that teamwork is crucial; that systems are the foundation of quality and that employees need to be trained and have long term relationships with their firms. Decision making is profound and subtle, and often criteria used to improve processes are impossible to communicate to outsiders. They depend on the knowledge that only workers possess. Therefore, the assumption of Progressivism that rational knowledge is fundamental to good management is overturned by quality management processes. No expert can replace the profound knowledge of simple line workers who are familiar with machinery.

While these management developments were occurring, there were no changes in the Progressive and New Deal regulatory formation. Indeed, quite the opposite. In 1931 Franklin D. Roosevelt abolished the gold standard, which released banking from market discipline. Banks could lend entirely on the basis of personal relationships rather than market performance, and firms could be rewarded with capital infusions regardless of performance. At the same time, American firms did not suffer from competition in part because of World War II and in part because firms had not yet reached the scale sufficient to compete with the American firms. However, continued American ascendency would have depended upon competitive quality developments; rapid innovation; and a market-drive economy, and these patterns were increasingly absent from the economy. Small businesses had increasing trouble forming because of high marginal tax rates, regulation and inability to obtain credit, which was locked by the Fed and given to connected large banks and their client large corporations. The corporations, such as General Motors, felt no need to compete with smaller foreign firms that were still learning how to manufacture. This began to end in the 1950s, when Ford built the Falcon which imitated Volkswagons, but American manufacturing firms had little concept of lean manufacturing or TQM until these processes were well familiar to Japanese firms. Thus, American firms lost their ascendency due to the protective, stable system that the Progressives and the New Deal had created; the lax management in fields like steel and autos that flourished because of the stable system and lack of competition; and the inability of the US government which oversaw the Progressive regulatory model to understand or to anticipate the fundamental changes in production knowledge that the Japanese were accruing.

Thus, the early twentieth century saw the formation of a Progressive regulatory model that aimed to adjust the economy to the rise of big business. But the system the Progressives created did not contemplate the possibility of progress. The Progressives could not foresee that Franklin D. Roosevelt would ratchet up the degree of regulation and take a number of steps that inhibited the formation of new businesses. But the Progressives also did not grasp that the big business system of large scale mass production was only a step in the development of industry, a process which will continue well beyond this and the next centuries.

Progressivism's rigidity and inability to attract experts with the requisite ability to understand developments like lean production was only part of the reason for the inability of the Progressive model to anticipate progress. The model of Progressivism is based on a faulty concept of planning. It contemplated the existing business structure as capable of innovation and that scale rather than process and new ideas were the key variables. AS the twentieth century progressed, though, it was new ideas, the ability to anticipate change and the ability for nimble, often small firms, to cooperate in innovation that mattered most. Yet, such firms are crippled by the banking and credit systems, which allocate credit to secure risks such as large corporations and real estate developers. Thus, the American economy has seen a frenzy of large retail and home building but considerably less innovation in a wide range of fields outside of electronics and telecommunications that might have occurred.

Moreover, there are a number of artifacts of Progressivism that the Progressives themselves attribute to markets, but can do so only by claiming that the Progressive/New Deal model had not been established in the first place by Taft and Franklin D. Roosevelt. First, the skewness in accessibility to credit has facilited a higher degree of income inequality than would exist in a market economic system. This has occurred because the Federal Reserve Bank has inflated asset levels, notably the stock and real estate markets, at the expense of wages. Second, relatively high paid manufacturing jobs have left the United States because of financial manipulation by the Fed, most directly the propping of the value of the dollar through encouragement of foreign governments to hold United States bonds. Third, the stimulaton of the stock market coupled with corporate emphasis on stock options has made executives sensitive to low-risk means of increasing short term profits, which would suggest moving plants to Mexico and overseas. This was done while the Progressive system provided loan guarantees to Chrysler and various protectionism measures to the automobile firms in the 1970s and 1980s.

Thus, Progressivism is responsible for US manufacturing firms' lack of emphasis on quality management, which they felt little pressure to adopt during the 1960s and 1970s, and the rewarding of corporate executives despite their firms' poor performance because of outsourcing. Indeed, Progressivism devolved into a system of special interest brokerage which ensures that little of benefit occurs on the public's behalf; that large firms benefit at the expense of small; and that the public is harmed by the Progressive regulatory regime.