Woodrow Wilson advocated states' rights as part of his progressive philosphy. In his book Constitutional Government in the United States, first published in 1908 and still considered a classic in the political science field, Wilson argues for the importance of the states. The model of centralized federal authority was a product of the two Roosevelts, not of Wilson, despite his inadvertent contribution by creating both the income tax and the Federal Reserve Bank. Theodore Roosevelt, the most statist of all of our presidents, argued for integration of government and business. Franklin Roosevelt extended state power in numerous areas, most importantly by abolishing the gold standard.
Despite the twentieth century's centralization of power, Wilson understood the importance of local government to community. Excessive centralizaton overlooks the importance of community and so is anti-democratic. Since the primary thrust of the New Deal was such centralization, it was at odds with the progressive era's emphasis on democracy, or at least Wilson's version of it.
Wilson writes (pp. 50-1):
"Not only are the separate and independent powers of the states based upon real economic and social differences between section and section of an enormous country, differences which necessitate adaptations of law and of administrative policy such as only local authorities acting in real independence can intelligently effect; but the states are our great and permanent contrbiution to constitutional development. I call them a great contribution because they have given to the understandings upon which constitutional government is based an intimacy and detail, an adjustment to local circumstances, a national diversity, an immediate adaptation to the variety of the people themselves, such as a little country may perhaps dispense with but a great continent cannot...They have furnished us with an ideal means of integrating a vast and various population, adapting law to changing and temporary conditions, modulating development and permanently securing each item of progress. They have been an incomparable means of sensitive adjustment between popular thought and governmental method, and may yet afford the world itself the model of federation and liberty it may in God's providence come to seek...Constitutional government can exist only where there is actual community of interest and of purpose, and cannot, if it be also self-government, express the life of any body of people that does not consitute a veritable community. Are the United States a community? In some things yes, in most things no. How impossible it is to generalize about the United States."
Big business has likely pressed for centralization, and it is likely in the interest of big business to have consistent regulation and policy across the states. But big business has exited the nation. Manufacturing has moved to Asia and Mexico. The remaining large firms often do not pay high wages. Do the American people owe a favor to the firms that have not been interested in supporting them? Moreover, the problems that confronted big business in decades past have been modified, reduced and eliminated by technology. The coordination of separate regulatory, accounting and legal systems today is far from the problem that it was in the 1930s and 1940s. Integrated computer systems make compliance across diverse regulatory systems simple. Thus, large firms will suffer little from decentralization. Moreover, given the globalization of business and the eagerness with which firms have entered foreign countries with diverse regulatory systems, it is difficult to understand why adding more diversity will pose much of a problem to them, or given the eagerness with which firms have adjusted to diverse regulatory systems they can properly claim that they are an impediment here in the United States.
Tuesday, April 29, 2008
Monday, April 28, 2008
Toward Separate American Communities
Woodrow Wilson argued that America ought to become a community that is united by common belief. However, Wilson did not anticipate the brokerage of special interest coalitions engendered by the expansive state. Instead of a community of interests, the expansion of the welfare state resulted in heightened factionalism to a degree unforeseen by Madison and the founders of the American constitution. The factionalism is in large part economic. The Federal Reserve Bank has served as a redistributive, extractive mechanism by which wealth is taken from workers and savers and redistributed to investment bankers. This is accomplished with the full support and flourish of the New York Times and the mass media in the name of rationalization of credit markets and similar vacuous phrases. The brokerage of coalitions and privilege extends to almost all facets of state and federal government. It is related to the passage of every law. It imbues the very substance of the American system. Under New Deal Progressivism, America has not become, as Wilson envisioned, a community of shared interests, but rather a land where various minorities wage economic war on the majority.
Progressivism entailed an increase in executive power and a reduction in the power of the states. It depended upon the federal government reflecting a popular will. But today, the popular will is fractured not only by economic but also by severe political criteria. The liberalism of Roosevelt has, for many, turned out to be a failure. The states where the New Deal has been taken to its furthest extremes, such as New York, are the dying states. Yet, the mass media cling to the New Deal paradigm as any reactionary clings to his fossilized ideology.
Many Americans have renewed their faith in traditional American values and adopted a conservative position that evolves from twentieth century progressive-liberalism. The conservative position finds that the ideas of the nineteenth century had more substance than the old Progressives thought. It finds that markets are required for flexibility and progress. It also finds that new ideas cannot be adopted by government rooted in special interest privilege.
The competition between the forces of conservative progress and the forces of progressive-liberal reaction is bitter. There can be no community of interest in a society where one half of the public hates the values of the other; where progressive-liberals reject the conditions for progress, i.e., markets and the entrepreneurial creative destruction; and where progressive-liberals hold their own country as well as conservatives in contempt. Likewise, it is unfair to those progressive-liberals who would like to be subject to government control; who want the guidance of a powerful executive leader and do not care about the independence of entrepreneurship and self employment to have freedom thrust upon them. It is unfair to ask progressive-liberals who need social and political guidance to think for themselves.
The solution to this dilemma of war of all against all, of economic interest against economic interest, is separation. A separation of state powers to enhance competing models. Through competition the states can serve as laboratories of experiment for both conservative and progressive-liberal ideas. A libertarian state can be juxtaposed to one that is progressive-liberal. Differing ideologies and the mutual contempt in which the advocates of liberty and the advocates of state power hold each other need not be brought into overt conflict. Instead, let them separate. Let them experiment. Let us see which state flourishes: the state that extols private use emininent domain, central banking and government intervention; or that state that dispenses with these institutions, views them as failed and frees entrepreneurial talent from government control. Will the anarchic state or the totalitarian state flourish? It is only through experiment that the answer can be found.
The separation of power into separate states would have advantages beyond the role of experimentation. The brokerage of special interests would be diminished with more local control. Special interest pleading depends in large part on asymmetry of resources and organization costs. As political entitites diminish in scope, the asymmetries become smaller and the advantages of wealth and concentrated power diminish as well. Perhaps progressive-liberalism will perform to a better degree should it cover a smaller geographic expanse. Perhaps European states manage themselves more professionally because of their smaller scale and lesser concomitant corruption.
Progressivism entailed an increase in executive power and a reduction in the power of the states. It depended upon the federal government reflecting a popular will. But today, the popular will is fractured not only by economic but also by severe political criteria. The liberalism of Roosevelt has, for many, turned out to be a failure. The states where the New Deal has been taken to its furthest extremes, such as New York, are the dying states. Yet, the mass media cling to the New Deal paradigm as any reactionary clings to his fossilized ideology.
Many Americans have renewed their faith in traditional American values and adopted a conservative position that evolves from twentieth century progressive-liberalism. The conservative position finds that the ideas of the nineteenth century had more substance than the old Progressives thought. It finds that markets are required for flexibility and progress. It also finds that new ideas cannot be adopted by government rooted in special interest privilege.
The competition between the forces of conservative progress and the forces of progressive-liberal reaction is bitter. There can be no community of interest in a society where one half of the public hates the values of the other; where progressive-liberals reject the conditions for progress, i.e., markets and the entrepreneurial creative destruction; and where progressive-liberals hold their own country as well as conservatives in contempt. Likewise, it is unfair to those progressive-liberals who would like to be subject to government control; who want the guidance of a powerful executive leader and do not care about the independence of entrepreneurship and self employment to have freedom thrust upon them. It is unfair to ask progressive-liberals who need social and political guidance to think for themselves.
The solution to this dilemma of war of all against all, of economic interest against economic interest, is separation. A separation of state powers to enhance competing models. Through competition the states can serve as laboratories of experiment for both conservative and progressive-liberal ideas. A libertarian state can be juxtaposed to one that is progressive-liberal. Differing ideologies and the mutual contempt in which the advocates of liberty and the advocates of state power hold each other need not be brought into overt conflict. Instead, let them separate. Let them experiment. Let us see which state flourishes: the state that extols private use emininent domain, central banking and government intervention; or that state that dispenses with these institutions, views them as failed and frees entrepreneurial talent from government control. Will the anarchic state or the totalitarian state flourish? It is only through experiment that the answer can be found.
The separation of power into separate states would have advantages beyond the role of experimentation. The brokerage of special interests would be diminished with more local control. Special interest pleading depends in large part on asymmetry of resources and organization costs. As political entitites diminish in scope, the asymmetries become smaller and the advantages of wealth and concentrated power diminish as well. Perhaps progressive-liberalism will perform to a better degree should it cover a smaller geographic expanse. Perhaps European states manage themselves more professionally because of their smaller scale and lesser concomitant corruption.
The New York Times on Ben Bernanke, June 20, 1913
The New York Times wrote an article on the McAdoo-Owen-Glass Banking bill, which became the Federal Reserve Act, on June 20, 1913. The Federal Reserve Act was passed in December of that year. The Times wrote:
"Banking and politics would be one. All experience forbids us to assume with any degree of confidence that appointments made by the President and confirmed by the Senate would be made with that careful attention to the need of securing fit and experienced men which the great importance of the banking business and its delicate and easily disturbed relation to the industries of the country so urgently require. We know that our Government is one of the least efficient, most wasteful and loosely conducted of the great business institutions of the country. And into such incompetent hands it is proposed to intrust the control of banking upon which all other business is so intimately dependent. Loans upon the security of farming lands are provided for. Does anybody suppose that the policy of the Federal Reserve Banks or of the Federal Reserve Board would in this particular be determined with entire indifference to the farmer vote? Or that in Congressional or Presidential campaign years the regulation of the discount rate or the determination of banking policy in general would be decided on by minds taking no thought of political ends to be gained? The germinal principle of the bill appears to be distrust of banks and bankers. We may assume that not only financiers and bankers, but business men generally will take sober thought concerning the centralizing features of the bill and the spirit and the policy which have inspired it."
"Banking and politics would be one. All experience forbids us to assume with any degree of confidence that appointments made by the President and confirmed by the Senate would be made with that careful attention to the need of securing fit and experienced men which the great importance of the banking business and its delicate and easily disturbed relation to the industries of the country so urgently require. We know that our Government is one of the least efficient, most wasteful and loosely conducted of the great business institutions of the country. And into such incompetent hands it is proposed to intrust the control of banking upon which all other business is so intimately dependent. Loans upon the security of farming lands are provided for. Does anybody suppose that the policy of the Federal Reserve Banks or of the Federal Reserve Board would in this particular be determined with entire indifference to the farmer vote? Or that in Congressional or Presidential campaign years the regulation of the discount rate or the determination of banking policy in general would be decided on by minds taking no thought of political ends to be gained? The germinal principle of the bill appears to be distrust of banks and bankers. We may assume that not only financiers and bankers, but business men generally will take sober thought concerning the centralizing features of the bill and the spirit and the policy which have inspired it."
Woodrow Wilson's The New Freedom: Hoisted By His Own Petard
Woodrow Wilson, The New Freedom: A Call for the Emancipation of the Generous Energies of a People. Englewood Cliffs, NJ: Prentice-Hall. Classics in History series. 173 pages. $1.95.
Woodrow Wilson was a Mugwump and was, according to Frank E. Leuchtenberg's introduction to this book. an advocate of liberal (libertarian) ideas until he was elected governor of New Jersey. Even then and thereafter much of his rhetoric is couched in the philosophies of individualism and laissez faire. This book is a compilation of articles in a magazine called World's Work that Wilson wrote in 1912 (the original edition was published in 1913) when he was campaigning for president against Theodore Roosevelt (running on the Progressive Party ticket) and William Howard Taft. The Republican vote was divided between Roosevelt and Taft, and Wilson, a Democrat, won.
Unlike the Republican Theodore Roosevelt, who argued for close government regulation and licensure of "trusts", Wilson argued for a loose regulatory regime. Wilson passionately believed in entrepreneurship and the importance of Americans' working for themselves. Arguably, he was more free market and individualist in orientation than any post-New Deal president, including Ronald Reagan. Of the major post-World War II political figures only Barry Goldwater would have been more interested in economic freedom. It is ironic that Wilson inadvertently did as much as any president to stall economic freedom and laissez faire during his administration notably thorugh the installation of the federal income tax as part of the United States Revenue Act of May 1913 and the Federal Reserve Act in December 1913. It is noteworthy that the federal income tax was an addendum to a tariff reduction bill (the Revenue Act of 1913)that reduced tariffs to their lowest levels in more than 50 years. Moreover, the income tax applied to only one percent of the population (those couples earning over $4,000 per year) and had been authorized by the Sixteenth Amendment, also ratified in 1913. The top rate of 7% was payable by those earning over $500,000 per year, which would be equivalent to more than $10 million per year today.
As much as any man's, Wilson's career reflects human inability to foretell the future or to grasp the facts. Wilson saw the trusts (not so much big business as the conglomerate trusts) as a threat to human freedom. He believed that government subsidies to big business, to include tariffs and land grants, permitted inefficient trusts to flourish. Wilson believed that the kind of close regulation of the trusts that Roosevelt advocated in the 1912 election would have resulted in regulatory capture of government by business. He believed that access to credit should be democratized and likely believed that establishment of the Federal Reserve Bank would loosen the control of credit by big business and Wall Street and improve availability of credit to entrepreneurs. He saw progressivism as a way to protect the rights of entrepreneurs and small business. He did not anticipate that special interests would capture Fed policy and he did not anticipate that the Federal Reserve Bank would serve to narrow access to credit ever further.
Although Wilson argues for greater government assertiveness with respect to monopoly and the trusts, he does so in a way that emphasizes the importance of eliminating government intervention on behalf of the trusts and favoritism by government. In his essay "What Is Progress?" he argues that (p.36) "the laws have not kept up with the change of economic circumstances" and that the law had not adjusted to changes in business, but he is not overly aggressive, and somewhat obfuscatory, about the changes that he would have proposed. He argues (p. 40):
"I believe, for one, that you cannot tear up ancient rootages and safely plant the tree of liberty in soil which is not native to it. I believe that the ancient traditions of a people are its ballast...You must knit the new into the old...If I did not believe that to be progressive was to preserve the essentials of our institutions, I for one could not be a progressive."
Wilson's writing illustrates that progressivism was in large part empty of meaning. Roosevelt argued that progressivism meant that there should be centralized control and direction of industry. Wilson argued that progressivism meant the protection of the man on the make from big business and monopoly. Both called themselves "progressives". Wilson opposed tariffs and argued that they interfere with business competition. Roosevelt favored protection and government integration with big business. Wilson, unlike Roosevelt, was no friend to privilege for business, and he criticized Roosevelt for his close link to George W. Perkins, organizer the US Steel and International Harvester trusts (p. 117).
In his essay "The Old Order Changeth" Wilson illustrates the progressives' interest in "the new". Progressivism is the ultimate modernist philosophy. He writes (p. 20):
"We have come upon a very different age from any that preceded us. We have come upon an age when we do not do business in the way in which we used to do business...You know what happens when you are the servant of a corporation. You have in no instance access to the men who are really determining the policy of the corporation...Your individuality is swallowed up in the individuality and purpose of a great organization."
Yet Wilson does not advocate breaking up big business or excessively regulating it. He was as suspicious of government welfare as of employment in big business. He was no New Dealer. Many of the reforms he advocated, such as workers' compensation and disclosure requirements associated with the issuance of financial securities (p.28) were barely more than changes that modernized common law principles rather than being intrusively regulatory. Wilson emphasized bringing "light" to bear on business practice in order to make the economy fairer. But the remedies he proposed were not intrusive to the operation of business. On the other hand, they have not succeeded in his objectives. For as the late 1990s illustrated, unscruplous businesses can find their ways around regulations; and disclosure requirements are not protection against fraud. But having such requirements is not overly burdensome to business and likely encourages stability in the markets.
He argues vigorously for the importance of the entrepreneur and individual enterprise (p.26):
"The originative part of America, the part of America that makes new enterprises, the part into which the ambitious and gifted workingman makes his was up, the class that saves, that plans, that organizes, that presently spreads its enterprises until they have a national scope and character--that middle class is being more and more squeezed out...what alarms me is that they are not originating prosperity. No country can afford to have its prosperity originated by a small controlling class...There has come over the land that un-American set of conditions which enables a small number of men who control the government to get favors from the government; by those favors to exclude their fellows from equal business opportunity; by those favors to extend a network of control..."
Perhaps the most telling paragraph in the book is on page 56:
"For my part, I am very much more afraid of the man who does a bad thing and does not know it is bad than of the man who does a bad thing and knows it is bad; because I think that in public affairs stupidity is more dangerous than knavery, because harder to fight and dislodge."
Wilson established an income tax to compensate for the repeal of tariffs. At the time, he thought the top rate for those making over $10 million in today's dollars was 7%. He established a Federal Reserve Bank thinking that it would democratize credit. Within twenty years the Fed had caused the Great Depression and within 50 years both the Fed and the income tax had become the government's chief tools to suppress individual initiative, to steal from the populace to further the aims of elitist liberals who depend on a monopoly of power, and to suppress entrepreneurship. His legacy was hoisted by Wilson's own petard.
Woodrow Wilson was a Mugwump and was, according to Frank E. Leuchtenberg's introduction to this book. an advocate of liberal (libertarian) ideas until he was elected governor of New Jersey. Even then and thereafter much of his rhetoric is couched in the philosophies of individualism and laissez faire. This book is a compilation of articles in a magazine called World's Work that Wilson wrote in 1912 (the original edition was published in 1913) when he was campaigning for president against Theodore Roosevelt (running on the Progressive Party ticket) and William Howard Taft. The Republican vote was divided between Roosevelt and Taft, and Wilson, a Democrat, won.
Unlike the Republican Theodore Roosevelt, who argued for close government regulation and licensure of "trusts", Wilson argued for a loose regulatory regime. Wilson passionately believed in entrepreneurship and the importance of Americans' working for themselves. Arguably, he was more free market and individualist in orientation than any post-New Deal president, including Ronald Reagan. Of the major post-World War II political figures only Barry Goldwater would have been more interested in economic freedom. It is ironic that Wilson inadvertently did as much as any president to stall economic freedom and laissez faire during his administration notably thorugh the installation of the federal income tax as part of the United States Revenue Act of May 1913 and the Federal Reserve Act in December 1913. It is noteworthy that the federal income tax was an addendum to a tariff reduction bill (the Revenue Act of 1913)that reduced tariffs to their lowest levels in more than 50 years. Moreover, the income tax applied to only one percent of the population (those couples earning over $4,000 per year) and had been authorized by the Sixteenth Amendment, also ratified in 1913. The top rate of 7% was payable by those earning over $500,000 per year, which would be equivalent to more than $10 million per year today.
As much as any man's, Wilson's career reflects human inability to foretell the future or to grasp the facts. Wilson saw the trusts (not so much big business as the conglomerate trusts) as a threat to human freedom. He believed that government subsidies to big business, to include tariffs and land grants, permitted inefficient trusts to flourish. Wilson believed that the kind of close regulation of the trusts that Roosevelt advocated in the 1912 election would have resulted in regulatory capture of government by business. He believed that access to credit should be democratized and likely believed that establishment of the Federal Reserve Bank would loosen the control of credit by big business and Wall Street and improve availability of credit to entrepreneurs. He saw progressivism as a way to protect the rights of entrepreneurs and small business. He did not anticipate that special interests would capture Fed policy and he did not anticipate that the Federal Reserve Bank would serve to narrow access to credit ever further.
Although Wilson argues for greater government assertiveness with respect to monopoly and the trusts, he does so in a way that emphasizes the importance of eliminating government intervention on behalf of the trusts and favoritism by government. In his essay "What Is Progress?" he argues that (p.36) "the laws have not kept up with the change of economic circumstances" and that the law had not adjusted to changes in business, but he is not overly aggressive, and somewhat obfuscatory, about the changes that he would have proposed. He argues (p. 40):
"I believe, for one, that you cannot tear up ancient rootages and safely plant the tree of liberty in soil which is not native to it. I believe that the ancient traditions of a people are its ballast...You must knit the new into the old...If I did not believe that to be progressive was to preserve the essentials of our institutions, I for one could not be a progressive."
Wilson's writing illustrates that progressivism was in large part empty of meaning. Roosevelt argued that progressivism meant that there should be centralized control and direction of industry. Wilson argued that progressivism meant the protection of the man on the make from big business and monopoly. Both called themselves "progressives". Wilson opposed tariffs and argued that they interfere with business competition. Roosevelt favored protection and government integration with big business. Wilson, unlike Roosevelt, was no friend to privilege for business, and he criticized Roosevelt for his close link to George W. Perkins, organizer the US Steel and International Harvester trusts (p. 117).
In his essay "The Old Order Changeth" Wilson illustrates the progressives' interest in "the new". Progressivism is the ultimate modernist philosophy. He writes (p. 20):
"We have come upon a very different age from any that preceded us. We have come upon an age when we do not do business in the way in which we used to do business...You know what happens when you are the servant of a corporation. You have in no instance access to the men who are really determining the policy of the corporation...Your individuality is swallowed up in the individuality and purpose of a great organization."
Yet Wilson does not advocate breaking up big business or excessively regulating it. He was as suspicious of government welfare as of employment in big business. He was no New Dealer. Many of the reforms he advocated, such as workers' compensation and disclosure requirements associated with the issuance of financial securities (p.28) were barely more than changes that modernized common law principles rather than being intrusively regulatory. Wilson emphasized bringing "light" to bear on business practice in order to make the economy fairer. But the remedies he proposed were not intrusive to the operation of business. On the other hand, they have not succeeded in his objectives. For as the late 1990s illustrated, unscruplous businesses can find their ways around regulations; and disclosure requirements are not protection against fraud. But having such requirements is not overly burdensome to business and likely encourages stability in the markets.
He argues vigorously for the importance of the entrepreneur and individual enterprise (p.26):
"The originative part of America, the part of America that makes new enterprises, the part into which the ambitious and gifted workingman makes his was up, the class that saves, that plans, that organizes, that presently spreads its enterprises until they have a national scope and character--that middle class is being more and more squeezed out...what alarms me is that they are not originating prosperity. No country can afford to have its prosperity originated by a small controlling class...There has come over the land that un-American set of conditions which enables a small number of men who control the government to get favors from the government; by those favors to exclude their fellows from equal business opportunity; by those favors to extend a network of control..."
Perhaps the most telling paragraph in the book is on page 56:
"For my part, I am very much more afraid of the man who does a bad thing and does not know it is bad than of the man who does a bad thing and knows it is bad; because I think that in public affairs stupidity is more dangerous than knavery, because harder to fight and dislodge."
Wilson established an income tax to compensate for the repeal of tariffs. At the time, he thought the top rate for those making over $10 million in today's dollars was 7%. He established a Federal Reserve Bank thinking that it would democratize credit. Within twenty years the Fed had caused the Great Depression and within 50 years both the Fed and the income tax had become the government's chief tools to suppress individual initiative, to steal from the populace to further the aims of elitist liberals who depend on a monopoly of power, and to suppress entrepreneurship. His legacy was hoisted by Wilson's own petard.
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