Social Security Is a Welfare, Not a Pension, Plan

I'm going to be 64 this week, so I've been thinking about Social Security, a program I've actively opposed since the 1970s but one in which I have been compelled to participate.

Social Security is a welfare and not an insurance plan.  Its advocates claim that it is both, but that is impossible. Insurance is actuarially fair: It spreads the risk of loss fairly across a population. In contrast, welfare plans are redistributive: They compel some to give up wealth to subsidize others.

There are legitimate reasons to support welfare and charity, and there are legitimate reasons to reject political lying. In order to convince Americans to accept Social Security, the Democrats pretended that it is a fair insurance plan. To do so, they created a deception that the taxes into Social Security, FICA, are insurance premiums even though there is no legal connection between FICA and Social Security benefits.

They also created a deception that there is a Social Security fund that is equivalent to a pension fund and that FICA taxes build someone's fund, which is returned in retirement. There is a fund, but it is more in the nature of a cash box than a pension fund. Social Security has always been primarily a pay-as-you-go system. A relatively large excess accumulated because of the temporary Boomer population bubble, but that would have dissipated had the politicians not (legally) looted the fund.

Democratic Party politicians gave voters the impression that FICA is a contribution to an insurance plan and not a regressive income tax.  Many voters also believe that their Social Security benefits equate to their contributions.

Social Security benefits do not equate to contributions. The use of wage bands allocates higher benefits per dollar to lower-wage participants. Disability benefits are more heavily distributed to actuarially identifiable groups, but there is no charge to those groups.

Anyone who does not benefit from salary bands or disability benefits is unlikely to participate in Social Security. Hence, the Democrats had to make the plan authoritarian and compulsory. The authoritarianism and compulsion seal Social Security's status as a welfare rather than an insurance plan.

Insurance is an economically fair method of managing risk, and risk-averse consumers need no compulsion to purchase it. Social security is not economically fair; it is equivalent to any other form of welfare. Hence, there is limited economic motivation, save altruism, for net contributors to participate.

Miami Herald's Leonard Pitts Unschooled on Race and Conservatives

Leonard Pitts, Jr. writes a spin piece in today's Seattle Times (h/t Adam Schmidt on Facebook).  Pitts  argues that African Americans would be insane to support conservatives because conservatives have always been anti-Black. 

Pitts illustrates the historical ignorance that characterizes the American left and its pitiful media. Social conservatives in New England were the leaders of the abolitionist movement.  For example, John Brown's father was associated with Oberlin College, where Charles Finney, leader of the Second Great Awakening, was president. Oberlin, a Calvinist Presbyterian School, was the first college to admit African Americans in 1835.  Wikipedia writes of Charles Finney:

In addition to becoming a popular Christian evangelist, Finney was involved with the abolitionist movement and frequently denounced slavery from the pulpit. In 1835, he moved to Ohio where he became a professor and later president of Oberlin College from 1851 to 1866. Oberlin became active early in the movement to end slavery and was among the first American colleges to co-educate blacks and women with white men.^[8]

<sup>Pitts is also wrong because, later in the 19th century, the Mugwumps, who tended to support laissez faire as well as reforms such as the Pendleton Act, tended not to be anti-Black. They were the post-bellum Republican elitists during the period of carpetbaggers and Reconstruction.  During Reconstruction, the Ku Klux Klan's first victims were African American Republicans.  George Wallace, the leader of 1960s racism, was a Democrat and a supporter of Franklin D. Roosevelt.

As Pitts points out, the worst racists were Democrats. Although Pitts calls them conservatives, the racist Democrats voted for Democrat Franklin D. Roosevelt just as the northerners did. Pitts's argument is circular:  racism is conservative, therefore, conservatives are racists.  But the advocates of limited government were not necessarily more racist than the supporters of big government and big business--the GOP.  On the one hand, it is true that Andrew Jackson, the founder of today's Democratic Party, was a racist and that his Supreme Court Chief Justice Taney was responsible for the Dred Scott decision.  But the New York labor unions were probably more anti-African American than Jackson was.  That The Miami Herald's syndicated columnist Pitts is apparently unfamiliar with the Draft Riots and organized labor's sympathy for the South during the Civil War is an embarrassment to the pathetic legacy of American journalism.</sup> 

Pitts's argument is tautological:  racists are conservative, therefore conservatives never stood up for blacks.  In fact, the first “conservatives” might be said to have been the pro-laissez faire Mugwumps, who favored the gold standard, opposed tariffs, and favored limited government.   The founder of The Nation, EL Godkin, was not overly supportive of African Americans, but he was no racist.  The Republican Party in the late 19^th century was a big government, pro business party, and mostly laissez faire (at least in words).  

At the same time, the Progressives, especially Woodrow Wilson, were frequently overt racists.  Eugenics was a significant facet of Progressivism, and as C. Vann Woodward points out in The Strange Career of Jim Crow, Jim Crow exploded during the Progressive era, not the Gilded Age, which was characterized by policies and leadership that conservatives support today. 

One source of Pitts's confusion (besides being due to an ideologically extremist university and educational system that indoctrinates in left wing groupthink rather than educates, leaving people like Pitts ignorant) is that popular lingo confuses laissez faire with conservatism and social democracy or socialism with liberalism. Thus, the Wikipedia article calls Charles Finney "progressive," but he would be considered a social conservative today. 

On the one hand, the first big government socialist president in American politics was Theodore Roosevelt, and he was not a racist. On the other hand, the first president who was a conservative (defined in opposition to the first "liberal," Roosevelt) was William Howard Taft, and he wasn’t a racist either.  Roosevelt backed Taft before he learned that Taft would not support regulatory solutions to the trust issue—that he would instead support a litigated settlement in the Standard Oil case.  The Taft Supreme Court (Taft was the only president to later become Chief Justice) was  conservative.  Roosevelt ran against Taft in 1912, electing racist-cum-Progressive Woodrow Wilson in Taft’s place.  Wilson began the American socialist project by pushing through the income tax and the Federal Reserve Bank the following year, 1913.  He also implemented Jim Crow in Washington, DC.

Princeton, of which Wilson had been president, has been well known as the most anti-Semitic of the Ivy League universities.   Here is what Wikipedia says about Taft:

Taft met with and publicly endorsed Booker T. Washington's program for uplifting the black race, advising them to stay out of politics at the time and emphasize education and entrepreneurship. A supporter of free immigration, Taft vetoed a law passed by Congress and supported by labor unions that would have restricted unskilled laborers by imposing a literacy test.^[63]

Moreover, the Southern Democrats, the racists,  repeatedly supported left-wing Democrats. They voted for Woodrow Wilson, Franklin D. Roosevelt, and Adlai Stevenson.  It was not until the 1960s that racism and the Republican Party crossed paths.  By then, both parties had become advocates of Progressivism and supporters of the Roosevelt/Rockefeller agenda. In 1944, the entire Jim Crow South voted for the paragon of American socialism, Franklin D. Roosevelt.  Alabama, for example, the state remembered for Rosa Parks and the Montgomery boycott of the 1950s, voted 81% for FDR.  In 1952 and 1956, the most social democratic candidate between FDR and BHO was Adlai Stevenson.  In 1956, the ONLY states in which Stevenson won were the Jim Crow states:   Missouri, Arkansas, Mississippi, Alabama, Georgia, South Carolina, and North Carolina.

So Mr. Pitts, you're a doody head.

The Bush Administration's French-Style Socialism is Impoverishing You

A poster on this blog linked to a Time article arguing that America is becoming more like France, and the article is right. The transformation is nothing new, though. It goes back to 1901 and the assassination of President McKinley. At that point, Theodore Roosevelt, a Republican vice-president with an experience base similar to Sarah Palin's, took office. Roosevelt advocated the socialistic ideas of Walter Weyl and Herber Croly, founders of the New Republic. These ideas were largely rooted in European models that had become increasingly attractive to the American elite because a large segment of them had been educated in Europe. Weyl was a first-generation American Jew whose parents had immigrated here from Germany. Weyl was eager to emulate European models only two decades before the holocaust wiped out European Jewry.

Theodore Roosevelt and Woodrow Wilson made tentative steps toward statism. During World War I, Wilson nationalized much of the economy. This history is well documented in Murray N. Rothbard's and Ronald Radosh's New History of Leviathan. Following the war, Wilson repealed much of his central planning and industry cartel edifice. During the 1920s, Republicans Warren G. Harding and Calvin Coolidge did not oppose the statist edifice that Theodore Roosevelt and Woodrow Wilson had otherwise established such as the Hepburn Act. Most important of these was the Federal Reserve Bank, which provided a means for government's management of credit markets, to include the stock market. Later in the 1920s, one of the most aggressive progressives, Herbert Hoover, took a number of interventionist steps to attempt to manage the economy. These included aggressive public works projects such as the Hoover Dam and intervention in the labor market.

Thus, when the stock market crashed due to Fed tightening, the Fed did not take counter measures at Hoover's insistence. Moreover, Hoover had "jaw boned" major corporations into not cutting wages. In other words, the European-style interventionism caused the chief crisis in American economic history, the Great Depression.

Subsequent to the failure of Hoover's French-style socialism, Franklin D. Roosevelt was elected on a social democratic platform that aimed to somewhat intensify Hooverite Progressivism. The steps that Roosevelt took, namely adoption of social security, the Fair Labor Standards Act, a pretense of securities regulation and an attempt to socialize the American economy (the National Industrial Recovery Act) that was declared unconstitutional, had the effect of intensifying unemployment by raising wages.

The most important of the socialist reforms that FDR implemented, the abolition of the gold standard, had the effect of providing a long term subsidy to Wall Street at the expense of American wage earners. Real wages increased during the depression even though nominal wages were falling. After World War II, however, real wage gains began to flatten.

In 1971 Richard M. Nixon took another step toward French-style socialism that also furthered the aims of big business progressives. He abolished the international gold standard that had been re-established in 1944. Since 1971, with the Fed freed from any constraint as to expanding the money supply, real wages have been declining due to the Federal Reserve. Americans have been in denial, but our standard of living has begun to sink to the level of France's. This has been made less apparent through an orgy of credit expansion that made credit cards and sub-prime mortgages available to the public. This was only possible because of French-style socialism. The French are not so cynical as the Americans, so they do not use credit in this way, but without government intervention the sub-prime crisis and credit card phenomena would not have been possible.

Corporate America has been the chief beneficiary of French-style socialism brought to America, and corporate America's apologists in academia and in the media have been eager to justify the expansion of statism, the virtues of the Federal Reserve System and Keynesian economics.

The left, unable to cognize the economic effects of this system (with exceptions such as William Appleman Williams) celebrates the expansion of the American state.

One of the tragedies of the Francification of the American economy has been the decline in substantive innovation. This tracks events in England. France was never an overly important country economically. In the 19th century, in response to increasing laissez-faire, the British economy became the most innovative in the world, and England became the wealthiest country in the world. This did not, as many historians erroneously believe, occur because of imperialism. It arose because of ongoing productivity gains due to innovation.

By the late nineteenth century, America had become the most laissez-faire country in the world. During this period, real wages increased. More importantly, breakthrough technologies changed the world. These include the telephone, AC electricity, the electric light and the mass produced automobile. The increased productivity was met with hostility despite rising real wages. In response to the public anxiety concerning the creation of large companies and naive interpretations of competition as depending upon the existence of small firms (and lack of understanding of Schumpeterian creative destruction and Hayekian coordination) the Populists and advocates of the Social Gospel as well as a range of other advocates (single taxers, socialists, etc.) pressured for increased government intervention. The Progressives, who took the Populist ideas and molded them into a French and European-style format (Weyl prferred the French Republic as a model) lacked the analytical tools to address this question. In particular, the Progressives believed that the creation of large industrial firms was a static reality; that technological and management innovation had reached its apex; and that coordination could be accomplished through "socialist calculation". All of these assumptions turned out to be untrue. However, the Progressive policies had the effect of squashing innovation. Since World War I, the pace of nineteenth century innovation has been seriously dampened. Moreover, since 1971, the unrestricted ability of the Federal Reserve Bank to expand the money supply has resulted in four things.

1. Wall Street has diverted investment capital into decreasingly productive uses, with the process leading to the sub-prime crisis
2. Inflation has reduced real wages
3. There is less innovation because of the diversion of capital away from optimal uses
4. There is increasing income inequality as workers suffer from inflation due to monetary expansion and the stock and real estate markets have been inflated by low interest rates due to the same process. Since the wealthy own stocks and the poor work, Federal Reserve Policy has been distastefully cruel. Theft is wrong. But to institute an ongoing policy of subsidizing the wealthy at the expense of workers is an especially depraved policy.

The end result of this process is the establishment of a new American feudal socialism along the lines of France's. Like the French, America has become an increasingly stratified society, with an elite that benefits from Wall Street's access to Federal Reserve counterfeit. The average productive worker no longer can hope to save to start an entrepreneurial firm because of bloated home costs and taxes, and entrepreneurship and innovation are squashed by big business's monopolization of credit and its diversion into ill conceived real estate development.

One more note--the level of American political discourse has devolved to the point where there are two Progressive Parties--the pro business socialist Progressives of George Bush and the social democratic Progressives of Barack Obama. Yet, a large percentage of Americans do not agree with either view.

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.

Profit Sharing Circa 1868

Leter to Railroad Executive Charles Francis Adams, Jr.* written in New York, February 8, 1868, almost 140 years ago to the day:

"I am very much obliged for your note and for the pamphlet on "Railroad Legislation" by which it was accompanied...

"The plan of paying railroad employees in funds out of profits has been tried on the Orleans railroad in France. I am not quite sure about the particular line, but certainly it is one of the French ones, and I am informed with great success. I think cooperation, or some modification of it, will yet be resorted to in all employments and occupations, in which zeal is of high importance, and cannot be secured by constant inspection. On railroads, the effect of dependence of the servants for part of their wages, on net receipts, would undoubtedly diminish waste, promote vigilance and politeness to passangers. I think the employer's art--the art that is of getting the most out of men, of bringing their faculties most effectively into play in industry, is still in the rudest condition in all civilized countries. Fixed wages is one degree better than slavery, which only appeals to one motive of action, and that a low one."

--Edwin Lawrence Godkin, founder and editor of the Nation and editor of the New York Evening Post
William K. Armstrong, editor, The Gilded Age Letters of E.L. Godkin,, pp. 119-20
Albany, NY 1974: SUNY Press

Question: How much has management improved since 1868?



*"Adams was...the great-grandson of both United States President John Adams and United States Secretary of the Navy Benjamin Williams Crowninshield, and the grandson of president John Quincy Adams...After graduating from Harvard University in 1856, Adams served on the Union side in the American Civil War...He received the brevet rank of brigadier-general in the Regular Army in 1865...Adams was president of the Union Pacific Railroad from 1884 to 1890, having previously become widely known as an authority on the management of railways. Among his writings are Railroads, Their Origin and Problems (1878)."