The Banking Interests Behind the New Deal

In 2014 Nomi Prins wrote this piece in Fortune about the bankers behind the New Deal.  The New Deal was a banking revolution. The social aspects, cherished by the Democratic Party, were window dressing. Franklin Roosevelt had been a Wall Street fund manager, and he gave the American monetary system to Wall Street. That was the main point of the New Deal. 

Prins's story leads to Winthrop Aldrich, uncle of Nelson Aldrich Rockefeller and David Rockefeller.

Aldrich's father, Senator Nelson W. Aldrich, was the architect of the Federal Reserve Bank.

Incidentally, Bush's great grandfather, Samuel P. Bush, had served on the first board of the Cleveland Federal Reserve Bank. Samuel had been the president of Frank Rockefeller, John D. Rockefeller's brother's, company, Buckeye Steel.

FDR's great great grandfather, Isaac Roosevelt, had been Alexander Hamilton's partner in founding the Bank of New York, now part of Mellon. There's documentation, including a court case, that a bank for which Prescott Bush, Bush's grandfather, served on the board had helped fund Hitler.

Franklin Delano Roosevelt's uncle, Frederic A. Delano, was a Hong Kong-based railroad tycoon who served as the first vice chairman of the Federal Reserve Bank in Washington in 1914.

FDR represented the open control of America by elite financial interests that his cousin, Theodore Roosevelt, had put into play. Wilson signed the Federal Reserve Act, but Wilson would not have been elected if TR had not run as a third party candidate. The funder of his party, the Progressive or Bull Moose Party, was George Perkins, a close assistant to JP Morgan and former president of International Harvester.

Frank Vanderlip, who was present at the famous Fed-planning session at Jeckyll Island in 1910, was also a personal friend of Woodrow Wilson because of their work on shaping the modern American university system. Wilson, who had met JP Morgan because Morgan was a donor to Princeton, dropped Vanderlip as a friend and associate at the point at which Wilson entered the 1912 race. Vanderlip talks about that in his letters. No one knows the reason for sure, but it seems obvious.

A Short History of Progressivism

The Progressives claimed that they could expand government, but freedom's improvement in the standard of living and lessening of income inequality would continue.  The improvement in the standard of living stopped and income inequality increased, but the Progressives said that it wasn't due to Progressivism; it was, they said, due to freedom.

What You Get When You Elect an Extremist: Obama Fourth Worst President

The recent turmoil in Libya and consequent upswing of oil prices have serious ramifications for the US economy. Obama has either fumbled his way to an attack on the oil industry, or he and the oil industry are working together to push up prices.  Either way, Obama's performance has been so bad that it is worse than Bush's.  As someone interested in reforming the GOP, Obama's performance is discouraging.  The public is going to take any Republican, even George W. Bush, over the president who is single handedly destroying the American way of life and the American economy.

One would think that while Obama's policies have harmed global oil supply, he would raise exploration and development of domestic sources. But he has done the reverse. He has cut back on domestic supply while his incompetent foreign policy decisions have reduced global supply.  The failure of Obama's energy and Middle East policies directly follow two years of incompetent handling of the US economy, massive monetary expansion and passage of a destructive health care law.

The eight worst presidents in American history, starting with the worst, are:

(1) Lyndon Baynes Johnson
(2) Abraham Lincoln
(3) Woodrow Wilson
(4) Barack Obama
(5) Theodore Roosevelt
(6) Franklin D. Roosevelt
(7) George W. Bush
(8) Richard M. Nixon

Of course, Obama has two years to go. What new incompetent steps will O bring to bear on American society? Time will tell.

Symmetry of Waste: Why Aren't Big Government Advocates Pragmatic?

For much of its history, proponents of "state activist liberalism," have claimed that expansion of government is "pragmatic."  This claim was set against three historical patterns.   First, the American ideology until the early twentieth century was freedom.  Expansion of the state could be posed as a more modern alternative.  Second, the pragmatism of William James and Charles Sanders Pierce was popular in the early twentieth century and state activist liberals used its rhetoric.  Third, the public became alarmed at economic developments in the late 19th century, specifically the development of large railroads and trusts that seemed to have economic power.   The large businesses claimed to exercise the right of free contract and laissez-faire in a tone that reflected social Darwinism.  In fact, the railroads and Standard Oil depended on government support.

The response to concerns about big business was big government. This meant legislation like the Sherman Anti-trust Act and the Interstate Commerce Act which aimed to regulate trusts and railroads.  These steps were extended during the Progressive era, when Theodore Roosevelt proposed the Federal Trade Commission and the regulation of trusts.  In his speeches, Roosevelt proposed most of the social legislation that was subsequently adopted during the New Deal.

However, the claim of pragmatism is that what works will be maintained and what fails will be terminated.  One of the earliest laws, the Sherman Anti-trust Act, did not work.  In fact, the Sherman Anti-trust Act resulted in firms growing larger each decade because it illegalized collusion among small firms, providing an incentive for mergers and takeovers. 

Without tracing the ensuing history, government was repeatedly extended, especially in the 1930s, 1960s and 1970s.  Yet, no one ever asked whether any of the programs worked or not.  No one asked whether the Fed was responsible for the greater economic instability and higher unemployment of the twentieth century than of the 19th century.  No one asked why welfare programs induced rather than reduced poverty and dependency.  No one asked why only three percent of government programs are terminated but 80 percent of businesses fail in their first five years.  Failure is an essential component of innovation.  Most ideas fail, and to find a good, workable idea many prototypes must be tried. But government programs never fail, hence they are not tested by reality.  They are not pragmatic.

It is not just that advocates of big government do not reject programs that fail.  Advocates of big government do not even QUESTION whether or not the programs that they advocate work.  There are no mechanisms in place to test whether social security, for example, works better than another alternative; or whether the post office is the optimal mode of mail delivery.  Not only is the information not known, the questions are scrupulously avoided.  To ask pragmatic questions is heresy to "state activist liberals."

In order to understand the reason why questions about program efficacy are avoided one needs to follow the money.  Government functions by borrowing money.  Banks make a profit off the lending.  The Federal Reserve Bank exists to expand the money supply so that the banks can profit by lending to the state. 

Banks do not care if the reasons for their lending work.  They want bigger government because they can lend more. Moreover, expansion of the state leads to monetary expansion and monetary expansion further subsidizes banks' profit margins.  This is so because increased government borrowing leads to crowding out of private sector borrowers.  Interest rates rise, the economy slows and the Fed can justify expansion of the money supply (lowering interest rates) to "stimulate" the economy to "help small business."  The result is that the Fed purchases treasury bonds from banks, and the monetary base expands.  The banks create a multiple of the reserves out of thin air, and business borrows.  Banks collect interest.  Much of the expanded money is diverted to privileged hedge funds, Wall Street and corporations.

In order to create the non-pragmatic version of "state activist liberalism" the government relies on two institutions: the media and the public schools.  The public schools fail to educate children, causing the majority to lack the basic cognitive skills needed to read, write, do basic math or follow a news story.  The graduates of American public schools are sub-literate, sub-numerate and lacking in basic reasoning skills.  At the same time, the graduates are ideologically trained to believe in government; in socialism and in state expansion. "Social justice education" is one of the fundamental goals of the banker-oriented education system.

The more capable, elite students are taught to scrupulously obey direction.  They are trained that the opinions of information sources such as newspapers and television are authentic while the opinions of friends or one's self are invalid.  They are trained to trust mass media rather than common sense.  The "other direction" that David Riesman described in the 1950s was a function of the financification of the US economy.

I've rarely met a "liberal" or left winger who was capable of thinking for him or herself. Rather, they parrot a newspaper or television station.   Many conservatives parrot radio and television talk shows.  Naturally, the newspapers and television stations are financially responsive to or owned by banks or other Fed-related institutions. 

There is a complete absence of pragmatism among both "conservatives" and "liberals".  "Conservatives" applauded the absurd Bush prescription drug plan and the Iraqi and Afghanistan Wars while "liberals" applauded the bailout, the stimulus and the absurdly designed Obama health care law.  Neither ends the other's programs.  The "liberals" have not ended the wars, which they claimed to oppose, and the "conservatives" have not cut back on the massive waste in Washington.  There is a perfect symmetry of waste.  The interest paid to the banking system mounts.

Jewish Socialists Continue to Collaborate with the Holocaust

I recently blogged on Hannah Arendt's discussion of Jews' cooperation with the German National Socialists in their own mass murder through the Judenraten, the Jewish Councils that assisted the Nazis in facilitating an orderly movement of Jews into concentration camps. While Hannah Arendt attributes their cooperation to the moral decline associated with National Socialism, I claim that socialism per se, national socialism, socialism in one country or of any other variety, contributes to obedience to authority that in turn leads to collaboration with tyranny. Glenda McGee recently forwarded my blog to a left wing activist (and published poet) in the Village of Woodstock, NY who briefly responded to my blog and I respond to his comments.

The founding fathers, especially the Anti-Federalists, viewed private ownership of guns and the ability of private citizens to constitute a militia as crucial to defense against tyranny. English history is full of instances of taxation and tax revolts, and as well, other forms of tyranny such as religious suppression. But the founding fathers, although some like Hamilton were in fact socialists, could never have envisioned a system as horrific as the socialism that was conceptualized in the nineteenth and twentieth centuries nor the mass murders to which socialism led in Cambodia, Vietnam, Cuba, China, Germany and worst of all, the USSR.

The respondent writes:

>Yes, we (human beings) are almost always complicit, to a greater or lesser degree, in our victimization at the hands of other human beings. This is not news. Native Americans allowed themselves to be used as scouts by the U.S. Army in its brutal campaigns against the Indians in the mid- to late-19th century. Closer to our time and more apropos of the behavior of Jewish councils in World War II, the French notoriously collaborated with the Nazis (the "Resistance" was much, much smaller in number than postwar myth makes it out to be), as did citizens in every country the Nazis invaded (think of Quisling in Norway, whose name has become synonymous with treachery to one's own people). To posit that this very widespread human tendency to save one's own skin at the expense of others has something to do with an ingrained "tribal socialism" is misleading.

>Also, unless I'm mistaken, the Jewish councils were mostly composed of upstanding members of the community — the more well-to-do, the upper class. These people did not have socialist ideals; they had vested interests in maintaining the status quo. And we should note, too, that as far as Hitler was concerned, there was not a lot of difference between socialists (or communists) and Jews; they were all fodder for the ovens.

My response:

>Do upper class American Jews like George Soros and half of Hollywood have socialist or capitalist ideals? Since Soros was a prime backer of Obama, as was Warren Buffett, might we conclude that socialism and upper class socioeconomic status go hand in hand? And why would it have been different in the 1940s?

The leading Jewish Progressives in pre-World War II America included: Walter Lippmann, Walter Weyl, Bernard Baruch and Robert Moses. All were German Jews from upper class backgrounds and all were socialists or bordering on it (Progressive/corporatists like Moses or Baruch). Likewise, the leading WASP socialists of the pre World War I period were often trained in German universities, which were the source of Progressivism in America. The reason that Progressivism grew so rapidly in the US was the large number of upper class US graduate students who went to Germany for graduate school in the post Civil War era, the Gilded Age, at a time when only 5% of the population attended college. The graduates came back advocating the same socialism that upper class Jews of German ancestry like Walter Weyl advocated when he taught at Wharton.

It was the upper class that was most strongly socialist and this was true in the US going back to Alexander Hamilton, who advocated a socialist (government owned) manufacturing industry. The Whigs were the upper class, more socialist party in America between 1830 and 1856. Thereafter, the Republicans were the more socialist/upper class of the two parties (they were basically the same as the Whigs) until 1932, when the Democrats adopted Whig socialism cloaked in Jacksonian rhetoric, which has always been a lie. Of course, the socialism of Hamilton would not have repealed private property rights or fostered tyranny to the degree that the Marxist advocates of socialism in one country or the National Socialists of Germany did.

In America, socialism was advocated most strongly by the patrician Theodore Roosevelt and his advisers, Herbert Croly and George Perkins, president of International Harvester and adviser to JP Morgan before TR's patrician cousin, FDR, picked up the mantle. Socialism by its own nature favors the upper class because they can more flexibly implement their whims when all of the nation is forced to live at their mercy. Hence, the segment of the upper class with strongly developed power needs (Kennedy, Soros) have always been socialist leaders.

As far as Hitler, not only did he not mind socialism, he was an aggressive socialist himself. Prior to Hitler, the Nazi Party had been called the German Worker's Party. Its 25 point program was socialist and included advocacy of expansion of national health insurance. "'The German Workers' Party name was changed by Hitler to include the term National Socialist. Thus the full name was the National Socialist German Workers' Party (Nationalsozialistische Deutsche Arbeiterpartei or NSDAP) called for short, Nazi." Note that the terms "national socialist" that Hitler adopted and "socialism in one country" that Stalin adopted are logically equal. As a result, left-wing historians prefer to incorrectly call Hitler "fascist".

Nazism was very much socialist in operation. Hitler's government oversaw and directed industry. Germany's was a socialist, centrally planned economy.

Without socialism the Jews would have been much more able to resist. For instance, if they had owned guns and had private property rights resistance would have been much easier. Who favors gun control today, socialist Jews or the Tea Party? In other words, American Jews continue to advocate the holocaust accomodation that killed the Jews in Germany. They call themselves "progressives" in doing so.

Nazism was financed through the same Keynesian economics that Jewish progressives and neo-conservatives advocate today. Nazism was very much liked by progressive Democrats of the World War II era, such as Joseph Kennedy, who advocated appeasement and lost his job as ambassador to Britain because he said that Germany was the new progressive model and democracy was finished.

As well, the Swedish socialist economist Gunnar Myrdal was an open supporter of Hitler and the Nazis during the 1930s. The socialist Swedes were officially neutral but quietly admired and supported Hitler (including his anti-Semitism, according to some) through the war.

It seems evident that the socialist impulse toward belief in collectivism; toward belief in the justice of unlimited majority power; opposition to individual rights such as the right to bear arms and the right of private property; belief in the right of the state to monopolize money and redirect its value into the hands of the military and banking elite all militate toward holocaust risk to this day. Socialists believe that the collective ought to have authority over the individual. Where in socialist ideology is there emphasis on the right of the individual to resist forcible tyranny of the collective? People who trust in the authority of the state are more, not less, likely to trust in the authority of the Nazi state, or of some future tyrannical state.

Even today, the increasing power of the United States is viewed as tyrannical by Jewish libertarians, but viewed with ardor by Jewish socialists. In their eyes, the state can do no wrong. So where would the Jews of Europe have found the intellectual resources to resist the Nazi state? Where in the socialist imagination would such resistance reside?

Milton Friedman made similar arguments in Capitalism and Freedom, and he was right. The Jews have been their own worst enemies. The current positions of the majority of Jews are exactly the same as those that were widespread in Germany between 1880 and 1920 and that are directly linked to the rise of Nazism.

Theodore Roosevelt on Government Regulation

Conservatives and libertarians have been frustrated by the lack of choice between the two parties. There is a belief that the Republican Party is a conservative party and that the Republican Congress of the mid 1990s and early 2000s failed to actualize the Republicans' true nature. Many conservatives argue that Republicans are a moderately conservative party and that Democrats are a moderately social democratic party and that a moderate conservatism is all that can be expected. However, there is a limited historical reason to believe that the Republican Party is a conservative or libertarian party even in a moderate sense. If not, then conservatives' recent disappointment with the Republican Congress is not a result of failure to deliver or deviation but a case of Republicans' returning to their true nature.

With respect to the Democrats, there is reason to believe that the Democratic Party is a moderate social democratic party and not a conservative or socialistic one, although there is a strong strain of socialism running through the membership. There have always been divisions within the Democratic Party. There was traditionally a southern Democratic Party which was very different from the northeastern urban Democratic Party. But those differences have evaporated as divisions about race have subsided. Today there is a significant presence of left-wing Democrats coupled with a more moderate social democratic element that is not so interested in aggressive redistribution of wealth. However, the differences within the Republican Party are greater than within the Democrats.

The notion that the Republican Party is a conservative one arises from the New Deal. Franklin D. Roosevelt and his associates applied the same tactics to the Republicans that Theodore Roosevelt applied to his opponents in the early 1900s, whom he called "reactionary" and "stool-pigeon progressives". The truth is that the current social democratic edifice of government regulation was largely formulated by Republicans, notably Theodore Roosevelt and his appointees such as Herbert Knox Smith, whom Roosevelt had appointed to head the Bureau of Corporations.

Progressivism was a Republican ideology. The one exception to this rule was Woodrow Wilson, who came to progressivism late and who emphasized individualism and small business interests to a greater degree than did the Republican progressives, especially Roosevelt and Taft. Although Warren G. Harding and Calvin Coolidge were Republicans, they were not progressive. But they were not conservative in today's meaning either. Both were "home grown" in their "conservatism". Coolidge was from Vermont and his upbringing was in the tradition of home grown Yankee Americanism. He did not have a well-formulated ideology and he integrates a number of progressive ideas with conservative ones in his autobiography. Likewise, his predecessor, Harding, was an Ohio newspaper editor with limited philosophical and economic training. Harding was not adverse to progressivism any more than he was a proponent of limited government or Burkean conservatism. Harding and Coolidge, who had limited reform agendas in any direction, were elected because America had tired of progressivism, Wilson's idealism and World War I. Herbert Hoover, who was the third Republican elected in the 1920s, was, like Roosevelt and Wilson, an ideological progressive who advocated reform.

American politics since 1932 largely has been a battle between two ideologies: the ideology of progressivism and the ideology of New Deal social democracy. The Republicans were the party of progressivism, which emphasized efficiency and bureaucracy, while the Democrats' New Deal social democracy advocated application of Progressive principles to redistribution of wealth. (Claiming that the redistribution was from rich to poor, by abolishing restraint on the money supply Roosevelt accomplished a longer term redistribution from poor to rich. Post World War II inflation and today's stagnant real wages and wealth inequality follow directly from the abolition of restraint on the Federal Reserve Bank's ability to create money. Progressives like Wilson did not believe in Keynesian economics because it was not created until the 1930s and did not anticipate this aspect of Roosevelt's New Deal.)

The home-grown conservative element in the Republican Party from 1908 to 1964 was a fossil. The fossil-conservatives reacted to the New Deal in tandem with the non-New Deal progressives, who were the most visible element called "conservative". I suspect that many involved in the Liberty League that some big businessmen founded in the early 1930s to fight the New Deal were progressives, not traditional conservatives. I suspect that few if any of them believed in the ideas of Sumner, Cobden or EL Godkin. Rather, they, like the Republican Party more generally, were a statist movement that had been preempted by a different statist movement. Until Barry Goldwater reformulated the image of conservatism in the 1960s the Republican Party was dominated by progressives. By the 1980s these progressives were called "Rockefeller Republicans". Even Ronald Reagan carried forward many elements of their progressivism.

In June 1906 Roosevelt pushed through the Hepburn Act which gave the Interstate Commerce Commission the power to set just and reasonable railroad rates and to view railroads' financial records even if the railroads were privately held. Some have argued that the Hepburn Act led to the railroads' inability to compete with trucking in ensuing decades. As well, bestowing the power to federal agencies to set prices and manage corporations can easily be interpreted as the first step toward socialism. The public tired of Roosevelt's radicalism. No subsequent president except for his cousin, Franklin D. Roosevelt, was as radical as Theodore Roosevelt.

In The Writings of Theodore Roosevelt* William H. Harbaugh edits a series of Roosevelt's speeches and articles. Here is an excerpt from Roosevelt's 1906 Annual Message to Congress which Harbaugh entitles "For More Thorough-Going Regulation". This Progressive motif has not disappeared from elements within the Republican Party to this day (p. 93):

"The present Congress has taken long strides in the direction of securing proper supervision and control by the National Government over corporations engaged in interstate business--and the enormous majority of corporations of any size are engaged in interstate business. The passage of the railway-rate bill...of the pure-food bill, and the provision for increasing and rendering more effective national control over the beef-packing industry, mark an important advance in the proper direction. In the short session it will perhaps be difficult to do much further along this line; and it may be best to wait until the laws have been in operation for a number of months before endeavoring to increase their scope, because only operation will show with exactness their merits and their shortcomings and thus give opportunity to define what further remedial legislation is needed. Yet in my judgment it will in the end be advisable in connection with the packing-house-inspection law to provide for putting a date on the label and for charging the cost of inspection to the packers. All three laws have already justified their enactment...

"In enacting and enforcing such legislation as this Congress already has to its credit, we are working on a coherent plan, with the steady endeavor to secure the needed reform by the joint action of the moderate men, the plain men who do not wish anything hysterical or dangerous, but who do intended to deal in resolute common-sense fashion with the real and great evils of the present system. The reactionaries and violent extremists show symptoms of joining hands against us. Both assert, for instance, that if logical we should go to government ownership of railroads and the like...As a matter of fact our position is as remote from that of the Bourbon** reactionary as from that of the impracticable or sinister visionary...

"...What we need is not vainly to try to prevent all combination, but to secure such rigorous and adequate control and supervision of the combinations as to prevent their injuring the public, or existing in such form as inevitably to threaten injury--for the mere fact that a combination has secured practically complete control of a necessary of life would under any circumstances show that such combination was to be presumed to be adverse to the public interest. It is unfortunate that our present laws should forbid all combinations,instead of sharply discriminating between those combinations which do good and those combinations which do evil."

Theodore Roosevelt established the state regulatory edifice that both the Democrats and Republicans support. With the big-government tradition that Roosevelt bequeathed to the Republican Party, it is incorrect to call the Republicans a conservative or libertarian party.

*Theodore Roosevelt. The Writings of Theodore Roosevelt. Edited by William H. Harbaugh. Indianpolis, Ind.: Bobbs-Merrill Company, 1967.
**The Bourbon Democrats were a 19th century Democratic Party faction who supported free trade, the gold standard and laissez faire policies.

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.

Democratic versus Achievement Motives in American History

David M. Tucker. Mugwumps: Public Moralists of The Gilded Age. Columbia, Mo.: University of Missouri Press, 1998. 139 pp.

David M. Tucker's Mugwumps: Public Moralists of the Gilded Age is an excellent overview of the Mugwumps. It is sympathetic to its subject, unlike others who have written about the Mugwumps. Phrases like "Old Right" abound in the post-war libertarian literature, but the image often is vague. Tucker's book shows that the 19th century classical liberals, known as independent Republicans, were former abolitionists, not bigots in any sense of the word (the few that turned out to be, such as Henry Adams ceased to be considered Mugwumps and became associated with Populism), and were very conscious of their libertarian ideology, their commitment to Adam Smith, the Manchester liberals and John Stuart Mill, with whom several corresponded. The Mugwumps were:

-A small movement, no larger than today's Libertarian Party as a percentage of the voting public, and probably smaller
-sharply differentiated from the two major parties in terms of their commitment to liberal or libertarian ideas, specifically tariff reduction (which the Democrats tended to support and the Republicans tended to oppose); hard money and the gold standard (which neither party really supported); and opposition to imperialism
-support for the newly formed (under the Pendleton Act) federal civil service, which they thought would end corruption in government and reduce the opportunity for spoils, which led the public to support corrupt government (in other words, they wanted to end special interest capture of government)

The book is very well written (although at times there could have been slightly better transitioning and linkage of ideas) and of serious interest to libertarians, conservatives, and those with an interest in the decline of morals in business and government.

Although the Mugwumps were the first post-industrial libertarian movement, they also were at the root of today's progressive-liberalism, as Richard Hofstadter has pointed out. The effectiveness of their tactics, the use of social control and groupthink to effectuate a uniform party platform, served as a model to the next generation's emphasis on big government, imperialism and state intervention in the economy. Most of all, Mugwumps pioneered the use of groupthink as a political tactic. This has been copied not only by the progressive-liberals but also by today's Libertarian Party, which borrows the Mugwumps' appellation for the Republican Party, "the party of principle".

Tucker's perspective on the Mugwumps is sharply from John R. Dobson's Politics in the Gilded Age which I blog here. Tucker has more respect for the Mugwumps.

David Riesmann has argued that in the twentieth century Americans turned from a 19th century inner directedness that involves a goal and future orientation to an other directedness that involves a focus on peers, influence from popular media, fashion and interpersonal relationships at work. But the tension between these two impulses was already evident in the 1870s.

Several of the Mugwumps, such as Theodore Roosevelt and Henry Cabot Lodge, sacrificed their Mugwump ideals for conformity to the Republicans' political demands. They refused to join the other Mugwumps in exiting the Republican Party in 1884. Both Roosevelt and Lodge had much more successful political careers than the other Mugwumps because they put politics over principle, and they did so by adopt the other-directed progressive-liberal ideas of the early twentieth century. Theodore Roosevelt may be thought of as the first other-directed American.

A few of the Mugwumps, such as Henry Adams, who rejected Mugwumpery in favor of anti-Semitism, Populism and free silver (Tucker suggests that the Adamses' exit from Mugwumpery was related to their failure in real estate speculation in Spokane and Kansas City and their hope for a silver inflation). Henry Adams became a Populist who blamed Jewish bankers for his business failings.

The most effective Mugwumps were those who played off the two-party system, favoring one or the other party depending on who was following the most libertarian course. They became famous for this in 1884, when they contributed to the defeat of James G. Blaine in favor of Grover Cleveland, who was a largely libertarian president.

The Mugwumps ran only two independent candidates in their roughly 35-year history: Horace Greeley of the Liberal Republicans in 1872 and John M. Palmer of the National Democrats in 1895. Neither fared well. There is a lesson for the Libertarian Party here. The LP would function more effectively as an election spoiler than as an independent political party.

The Mugwumps (or Independent Republicans) were mostly upper class northeasterners, mainly from New England and New York. They tended to have been educated in religious, Protestant schools and to have had a strong moral sense. Many were former abolitionists. They were not religious themselves, but their grounding and education was. They were concerned with the decay of morals in American politics, and were inclined to foresake personal gain and office on behalf of their ideals, which did not match their economic interests. In other words, many of them benefited from paper money and inflation, but they opposed it on moral grounds, and the same is true of tariffs. Many left wing historians, who lack grounding in economics and ethics, look for class or personal motives in the Mugwumps' position. Ironically, support for inflation, free silver, greenbacks and Keynesian economics is very much the position that favors the upper class, banking interests, Wall Street, hedge fund billionaires, large coroporations and corporate executvies. It was Theodore Roosevelt who benefited from his cynical adoption of progressive-liberalism, the ideology of the American upper class from 1900 to 2007. EL Godkin, Carl Schurz, Horace White and the other Mugwumps paid dearly for their idealistic commitment to morality in politics. The fact that historians have often treated them shabbily suggests shabbines in academia more than anything else.

The Independent Republicans had one advantage over today's libertarians and conservatives: the intellectual support of mainstream universities. Relatively few Americans were capable of thinking through monetary issues even in the 1870s. Today, probably even a smaller percentage of the population is willing to expend the effort to do so. However, when the Mugwumps could say that their ideas had the backing of Harvard economists, the public was much more likely to defer. In this sense, they provided a role model to today's progressive-liberals, who dominate our society through their control of higher education. This intrigues me because it suggests a tighter link between the ideology of higher education, economic interests and what Howard S. Katz calls "the paper aristocracy" than I used to think.

The Mugwumps had limited data on which to base their arguments, and they fell into a number of errors. The most grievous Mugwumps fell were their support for the establishment of the Federal Reserve Bank and their belief that the civil service would end special interest politics and government corruption. Their emphasis on the Fed came from three factors: (1) they believed that the Fed would be constrained by the gold standard, which Roosevelt abolished in the 1930s; (2) they believed that separating money from politics would reduce the temptation to inflate (they overrated the institutional separation of the Fed from Congress; (3) they did not anticipate Keynesian economics, which provided an ideological rationale for the inflationist view which (not to blame them, who could would have known?).

Their notions of morality led to their belief in free trade, the gold standard and honest government, notably via civil service reform. Their advocacy of sound money and free trade, which they explicitly linked to the elimination of special privilege, favoritism for the rich (the debtor class, according to their arguments, being the chief beneficiaries of paper money, then as now) was explicitly rooted in their moral sense. They saw individual achievement, self sufficiency and hard work as moral principles that protectionism and paper money would debase.

Then as now there were powerful forces arrayed against moralist and hard money positions. There was strong western agitation for greenbacks and then silver inflation by landowners (much as the subprime crisis today has been a strong motivation of reallocation of wealth to wealthy investment bankers and landowners), and politicians were inclined to support the demands for inflation. In fact, there were several greenback and free silver bills passed, that Mugwump agitation was able to stop, and some that the Mugwumps could not stop.

The Mugwumps saw the debate as one involving moral principle against personal gain. Those who favored personal gain over morals joined the regular party ranks. Theodore Roosevelt and Henry Cabot Lodge, are cited as two examples of reformers who chose to emphasize their careers as opposed to their morals. When James G. B

Gain in democracatic politics is linked to popular appeal. Hence other directedness results from focus on public opinion. However, the advances in American society came not from the political but from the creative, scientific, engineering and management fields, which do not depend on public opinion. Theodore Roosevelt was among the first other-directed, twentieth century men. In choosing personal gain and political advantage over moral belief, he set the stage for the progressive-liberalism of the twentieth century, its moral vacuity and the economic decline that will result from focus on relationships and opinion rather than achievement.