Herbert Clark Hoover on Twentieth Century Human Resource Management

In most standard treatments of twentieth century history such as Louis Hartz's Liberal Tradition in America Herbert Hoover is painted as a conservative advocate of laissez-faire who caused the Great Depression through indifference and inaction. He is contrasted with Franklin Roosevelt who is painted as a true social democrat and harbinger of socialist progress. In New History of Leviathan Murray Rothbard does a good job of debunking this nonsensical mythology. Hoover was very much a Progressive in the early twentieth century sense, and his policies anticipated much of the substance of the New Deal. One of the sources that Rothbard cites is the reprinting of a speech that Hoover gave in November 1920 to the Federated American Enginnering Societies in the American Federationist, the journal of the American Federation of Labor (January 1921 issue, volume XXVIII, pp. 35-40).

What is remarkable about Hoover's speech is not just his warmth toward organized labor and his fulsome expression of favor toward regulation of industry and collective bargaining but also the degree to which he anticipated flexible labor relationships that characterized late twentieth century Japanese and US factories. Hoover advocates competency-based pay, cooperation between labor and management guided by collective bargaining, employee involvement in problem solving, flexible work hours to adjust for business downturns, hours of labor that vary with trades and government restructuring of labor markets to facilitate job search among seasonal workers. This last concept was being touted as innovative by labor economists of the 1990s, seventy years after Hoover discussed it. Along with the flexible work practices, Hoover advocated collective bargaining and regulation of industry. He was not an advocate of laissez-faire. One must wonder about the historians who would claim so given easily available evidence such as this speech. Allow me to quote from part of the speech:

"Among the greatest of the problems before our country -and in fact before the world- are those growing out of industrial development....The congestion of population is producing subnormal conditions of life. The intermittency of employment due to bad coordination of industry...The aggregation of great wealth with its power of economic domination, present social, economic ills which we are constantly struggling to remedy...Our mass of regulation of public utilities and of many other types of industry...is a monument to our efforts to limit economic domination...A profound development in our economic system apart from control of capital and service during the last score of years has been the great growth and consolidation of voluntary local and national associations. These associations represent great economic groups of common purpose...And to me, one question of the successful development of our economic system rests upon whether we develop the aspects of these great national associations towards coordination with each other in the solution of national economic problems or whether they grow into groups for more violent conflict...There are certain areas of conflict of interest but there is between these groups a far greater area for common interest...

"...In the question of industrial conflict resulting in lockout and strike one mitigating measure has been agreed upon in principle by all sections of the community. That is collective bargaining...

"There lies at the heart of all these questions the great human conception that this is a community working for the benefit of its human members, not for the benefit of its machines or to aggrandize individuals..."

Among the steps that Hoover advocated to encourage community of interests were hours of labor varying with trades; improvement of labor exchanges; flexible hours to adjust for business downturns; competency- or pay-for-knowledge-based wages with wage structures graded for skill; cooperation between labor and management; employee involvement in problem solving; and the use of the closed shop to encourage greater worker efficiency. The Japanese have done much along the lines of the last point with their "enterprise unions", but Hoover was not saying "company unions" or "representation plans". He used the phrase "closed shop", an approach that was illegalized under the Taft Hartley Act as granting excessive power to labor.

It is also of special interest that Hoover emphasized the role of factions or special interest groups. His hope that they would cooperate never really materialized, although as Rothbard shows during World War I and as Radosh shows during the early period of the New Deal, fascist-like regulation of the economy through governmentally-mandated cartels were attempted.

Late 19th Century Closing of America's (Economic) Frontier

In the 19th century there were two strands in American political ideology: the statist-developmental and the laissez-faire-agrarian. In the Federalist period from 1788-1800 the conflict between Hamilton and Jefferson concerned in part the extent of government intervention, taxation, central banking and centralized planning in which the federal government should be engaged. The Federalists favored a high degree, Jefferson's Democratic Republicans a lesser degree. Due to the nature of American economic development, the influence of the French physiocrats who emphasized the importance of agriculture to wealth, and Jefferson's personal background in Virginia, he coupled his belief in reduced centralized power with a belief in the importance of agriculture. The Jeffersonian perspective defeated the Federalist one in 1800, and for two decades there was a single party. Differences reappeared over centralization by the 1820s. Henry Clay's Whigs, an offshoot of the Democratic Republicans, adopted some of the impulses of the Federalists coupled with Jeffersonian distrust of big cities. Clay's American System emphasized government investment in public works and canals, economic development, central banking, and high tariffs to support business, and in these ways shared some of Madison's Federalist impulses. Thus, the American System and the Whigs were more Madisonian than Jeffersonian. Madison had initially been a Federalist, and then rejected Hamilton's more aggressively statist ideas. The Whigs' basic orientation was derived from the country philosophy but may be said to be suburban as opposed to country. Clay and the Whigs believed in balance in government and opposed the spoils system. They favored a middle course between city and country and perhaps today's love of suburban life hearkens back to the Whigs. In contrast, Jackson is most famously associated with the spoils system and central banking. The opposition to central banking is a country position but the spoils system is a court position.

Neither the Whigs nor the Jacksonian democrats were fully associated with the court and country philosophies that characterized England under George III. Historians emphasize this distinction, but by the 1830s both sides had elements of the country philosophy and both sides had elements of the court philosophy. Jacksonians believed in the spoils system, which was characteristic of the elitist court philosophy but tended to favor agrarianism, states' rights, slavery, racism, dispossession of the Cherokees and other Native Americans, and the rights of plantation farmers, the closest American class to the English landed gentry who were associated with the English country philosophy.

In contrast, the Whigs favored central banking, the corporate form of economic development, government investment in the economy and linkages between government and business, which were court philosophies. On the biggest fight between the Jacksonian Democrats and the Whigs, the Whigs took the pro-bank court position and the Jacksonians took the anti-bank country position. Clay and his followers, including John Pendleton Kennedy, Daniel Webster, and evangelical leaders like Charles G. Finney began calling their party the "Whigs" in part because they saw Jackson as an excessively strong executive. With respect to his own power, Jackson adopted a court perspective.

The Whigs combined the religious views of evangelicals who were often Abolitionists with an opposition to slavery, opposition to "manifest destiny" and expansion through war, especially the Mexican War, and rights of Native Americans, which were all anti-elitist views. Also, they were less aggressively in favor of the spoils system than were Jackson's Democrats. But they favored economic development through statist, centralized means.

Jackson, a Democrat who was in many ways Jefferson's heir, believed in the country philosophy too, but the Democratic egalitarianism was reserved for white males. As president, Jackson ignored John Marshall's Supreme Court (Marshall was a Whig, not a Democrat) and allowed Georgia to force the Cherokees to leave their settlements that had previously been established by legal treaty to march in the famous "trail of tears". The nineteenth century attacks on the Indians and racism were in large measure partisan attitudes. The Whigs opposed them, the Jacksonian Democrats favored them.

Abraham Lincoln was a Whig who implemented many of Henry Clay's ideas. This was overshadowed by the Civil War and abolition. Although the nineteenth century is remembered as a laissez-faire period, it is important to keep in mind that key improvements such as the Erie Canal and high tariffs throughout the century protected American business. Thus, big business flourished not just because of laissez-faire but because of laissez-faire and government support. It is not clear that firms would have become so large without the government support.

In the post-Civil War period the Republicans, the successors of the Whigs, adopted a more laissez-faire economic philosophy than the ante-bellum Whigs held. The reason for this may be that business had grown to the point where public works, tariffs and other subsidies became less important than they had previously been because business, to include the railroads, oil and manufacturing, had begun to grow to a point where it was internationally competitive.

The ideological assertion of laissez-faire in the late nineteenth century via the ideas of Charles Graham Sumner, EL Godkin and other "Mugwumps" was short lived. One of the characteristics of the Whigs was their strong emphasis on morality, and these late 19th century Whigs (cum Republicans) shared the belief that the economy ought to be moral and ought to inculcate morality. Thus, the apparent conflict between the corruption associated with the growth of big business, urban government-business connections and the laissez-faire ideas of the late nineteenth century Republicans created considerable cognitive dissonance. Again, it was not the laissez-faire so much as the government support coupled with laissez-faire that caused the corruption in cities. You cannot have bribery unless politicians are bribed.

This led to an odd step. Seeing the corruption in government associated with big business, Americans began to argue that the corruption could be solved by more government. This is an "infinite regress" argument that is a logical fallacy. But almost all of social democratic ideology (under the misappropriated rubrics "liberalism" and "progressivism") is based on this infinite regress. If government in the cities was corrupt and so failed to manage its relationships ethically, then the solution is to add additional layers of government. By the 1880s Charles Sumner in his book "What the Social Classes Owe to Each Other" was debating this logical fallacy, but it somehow was ignored by the advocates of social democracy. Hence, over the next 100 years, increasingly corrupt and ineffective government expanded for illogical reasons. The end products of social democracy, Enron, Worldcom, Bear Stearns and Fannie Mae are examples of corruption and incompetence on a scale that nineteenth century moralists could not have imagined.

Frederick Jackson Turner's thesis that the frontier had closed intensified a sense of scarcity as the rugged individualism of the late nineteenth century seemed to have lost its primary outlet. Moreover, in the late nineteenth century Americans increasingly looked to Germany for higher education because of the absence of research universities here. In the late nineteenth century more than 10,000 Americans obtained degrees in Germany at a time when fewer than five percent of the population had attended college. This coincided with the institution of Bismarck's social democracy, and it is natural that many of those educated in Germany would have imported social democratic impulses when they returned to the United States. This resulted in battles between the Mugwumps and advocates of the anti-laissez-faire historical school that Richard T. Ely and John R. Commons advocated in America in the late nineteenth and early twentieth century. Although institutionalist economics never became dominant in economics here, it had a strong effect on practical policy. Commons drafted the first workers' compensation laws, for example.

The laissez-faire philosophy of the late nineteenth century anticipated developments that were to occur in the twentieth century, but its advocates could not anticipate the developments theoretically and so lost the policy debate. First, the growth of corporations in large scale "trusts" and the employment of thousands of workers in a single firm or even in a single plant seemed to augur the end of individual entrepreneurship. Second, the belief of Abraham Lincoln and the Whigs that work as an employee was a temporary stop-off to self-employment was difficult to believe given the increasing scale of industry. Third, the spoils system in the cities between the 1830s and the early twentieth century had become associated with corruption and with support for the same large firms, so that the moralistic Whig impulses were violated by the growth of somewhat corrupt big businessmen like Jay Gould. Fourth, the opponents of laissez-faire emphasized the role of freedom in the growth of big business, ignoring the tariffs, land subsidies to railroads, public improvements and various other supports that government had provided to big business in order to facilitate its growth. Fifth, the advocates of dissolution of the trusts and then Progressivism ignored the fundamentally fluid nature of the economy which meant that the trusts were not permanent and were not necessarily economically viable unless grounded in efficiency. Over time, it turned out that some trusts, like Standard Oil, were efficient, but that others were not. Sixth, and most importantly, developments in the economy beginning in the 1930s began to render scale of considerably less significance in economic development. These developments included changes in the nature and rate of innovation, changes in manufacturing technology and changes in the importance of information flow to production processes. America (and the developed world) began to move from a mass scale economy where low costs were paramount to one where innovation was the most important variable. The supports to business that encouraged investment of capital in a single, large-scale firm with long production lines and large plant investments that would take a long time to recapture were no longer what was needed for economic development.

However, government policy did not change. The Progressives, failing to anticipate the coming emphasis on lean manufacturing, the transmission of information, flexibility, and the need to replace firms with new ones that were better attuned to change, emphasized policies that facilitated investment in large plants. These included regulatory regimes that deterred entrepreneurial start ups, central banking, diversion of capital to large firms and support for large firms' exports that favored large firms over small ones at the very time that fluidity and innovation were becoming more important in the economy than scale.

Sadly, the late nineteenth advocates of laissez-faire did not anticipate the importance of fluidity of the economy until the Austrian economists, Ludwig von Mises and Friderich A. Hayek discussed the impossibility of centralized economic planning. Thus, the Progressives, believing themselves to be pragmatists and to be coping with change and solving problems related to change instead developed regulatory and central banking that were forestalling economic development and change. The American frontier closed not physically but fiscally because of human inability to know the future direction of economic and technological innovation. The cognitive limits on information have been so severe, that eight decades past the point where these changes began to manifest, social democrats like Barack Obama and the New York Times continue to ritualistically harp on the importance of modernist regulation that is eight decades out of date.

Needed: An Anti-Obama Chicago Seven

A correspondent has forwarded an e-mail from David Plouffe stating that Barack Obama intends to make his nomination acceptance speech at the Democratic National Convention outdoors among 75,000 people (also see Rocky Mountain Newsarticle). Might not a creative counter-demonstration be appropriate?

>This was sent to a friend of mine on "Facebook" because she is a supporter!...

>Big Announcement: Open Convention
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Monday, July 7, 2008 at 4:46pm

>I wanted you to be the first to hear the news.

>At the Democratic National Convention next month, we're going to kick off the general election with an event that opens up the political process the same way we've opened it up throughout this campaign.

>Barack has made it clear that this is your convention, not his.

>On Thursday, August 28th, he's scheduled to formally accept the Democratic nomination in a speech at the convention hall in front of the assembled delegates.

>Instead, Barack will leave the convention hall and join more than 75,000 people for a huge, free, open-air event where he will deliver his acceptance speech to the American people.

>It's going to be an amazing event, and Barack would like you to join him. Free tickets will become available as the date approaches, but we've reserved a special place for a few of the people who brought us this far and who continue to drive this campaign.

>If you make a donation of $5 or more between now and midnight on July 31st, you could be one of 10 supporters chosen to fly to Denver and spend two days and nights at the convention, meet Barack backstage, and watch his acceptance speech in person. Each of the ten supporters who are selected will be able to bring one guest to join them.

>Make a donation now and you could have a front row seat to history.

>We'll follow up with more details on this and other convention activities as we get closer, but please take a moment and pass this note to someone you know who might like to be there.

>It will be an event you'll never forget.

>Thank you,

David

David Plouffe
Campaign Manager
Obama for America

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

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

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

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

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

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

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

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

Sklar on Wilson

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

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

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

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

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

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

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

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

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

Sklar writes:

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

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

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

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

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

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

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

Rothbard quotes Grosvenor Clarkson (p. 74):

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ronald Radosh's "Myth of the New Deal"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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