Philip J. Berg (also see Texas Darlin), a Lafayette Hill and Philadelphia, Pennsylvania attorney and former deputy attorney general, has filed a law suit ( Berg vs. Obama, Civil Action No. 08-cv-4083)questioning Mr. Obama's candidacy on three grounds:
1. he is not a natural born citizen
2. he lost his citizenship when he was adopted in Indonesia and
3. he has dual loyalties because of citizenship in Kenya or Indonesia.
Questions Berg raises in his press release include:
Where was Obama born? Hawaii; an island off of Hawaii; Kenya; Canada; or ?
2. Was he a citizen of Kenya, Indonesia and/or Canada?
3. What was the early childhood of Obama in Hawaii; in Kenya; in Indonesia when he was adopted; and later, back to Hawaii?
4. An explanation as to the various names utilized by Obama that include: Barack Hussein Obama; Barry Soetoro; Barry Obama; Barack Dunham; and Barry Dunham.
5. Illinois Bar Application – Obama fails to acknowledge use of names other than Barack Hussein Obama, a blatant lie.
Berg's complaint is here.
On Saturday morning I heard Berg on the George Noory show that runs at 1:00 AM. Several bloggers have pointed out that Berg is previously associated with a 9/11 conspiracy suit, which is a drawback. But it is great that someone has taken the initiative to file a lawsuit as this is certainly one way that the various documentation questions that Andy Martin, Pamela Geller of Atlas Shrugs, Texas Darlin and Larry Johnson of No Quarter USA have raised.
I sent Mr. Berg the following e-mail:
----- Original Message -----
From: Mitchell Langbert
To: philjberg@gmail.com
Sent: Friday, August 22, 2008 10:47 PM
Subject: Fw: Obama Birth Certificate I sent FEC Petition with 5,400 signatures on Monday
Dear Mr. Berg-- I had forwarded a petition with 5,400 signatures on Monday asking the FEC to investigate Mr. Obama's birth certificate. I just heard about your upcoming appearance on the radio and your press release via a source in Washington. I would be delighted to assist you in your effort. I have listed some of the urls relevant to what I have done below. My phone number is xxx-xxx-xxxx (Woodstock, NY area). Best wishes, Mitchell Langbert, Ph.D.
Friday, August 22, 2008
Economic Change in the Civil War Era
David T. Gilchrist and W. David Lewis. Economic Change in the Civil War Era. Greenvile, Del.: Eleutherian-Mills-Hagley Foundation, 1965. 180 pages. Out of print, available from Amazon.com used.
God bless Amazon.com for making scholarly books available to a national market with little fuss or muss. Economic Change in the Civil War Era is a conference proceedings of a 1964 conference that the Eleutherian Mills-Hagley Foundation put together in 1964. Several of the leading historians of the late twentieth century, to include Alfred D. Chandler, Jr., Daniel J. Elazar, and Fritz Redlich were in attendance and/or presented papers.
Robert P. Sharkey's paper on commercial banking coupled with Fritz Redlich's response was fascinating. Louis Hartz's paper, "Government-Business Relations" is brilliant as is Alfred D. Chandler's paper on the transformation of the "Organization of Manufacturing" as was George Rogers Taylor's "National Economy Before and After the Civil War".
Taylor points out that the "extension of settlement in rural New England" in the pre-Civil War period was largely unprofitable because the lands being settled in northern New England and upstate New York were not so fertile as the land the first settlers occupied. Thus, "most of the hill towns of New England had reached their population peaks by 1830 or earlier." The railroads made it "easier to migrate to Illinois or Wisconsin" so that New England rural population began to decrease in the 1850s. The population of the Western states was growing, in part due to emigration from New England. Western settlers needed a market. Shipping to New Orleans via the Mississippi River was expensive and risky. Canals allowed eastward shipment of grain and by the 1840s eastward shipments equalled the the shipments to New Orleans, and the railroads enhanced this trend. Railroads were in part a response to westward migration. Thus, argues Taylor, eastern demand for western agricultural output plus immigration led to demand for railroads. New Englanders migrated from farms westward and to cities like Boston. "Eventually migrants to the frontier produced the food consumed by migrants to the cities" (p. 14). Immigrants from Europe provided an abundant labor supply and low labor costs in the ante-bellum period. But "trained workmen or skilled mechanics were often in short supply and had to be brought in from England or Scotland at considerable expense".
According to Robert P. Sharkey, who treated the subject of banking:
"In 1850 the banking network of the country consisted of some 824 state-chartered banks operating in all the thirty-one states except Texas, Arkansas and Iowa, which prohibited the chartering of banks altogether. The laws which governed banking varied from the extreme permissiveness of the statutes in Illinois, where "wildcatting" was in vogue, to the stringent provisions of the enactments in Louisiana, where reserve and lending practices were conservative in the extreme....Twenty-three years later, in 1873, this anarchic condition had totally disappeared. The number of banks had quadrupled to some 3,298, but of this number, 1,968 were national banks chartered under the National Banking Act of 1864. . Instead of hundreds of different kinds of currency, whose varying values were known only to the most avid readers of the Bank Note Reporter, there was now a national bank-note currency secured by the deposit of US bonds with the Treasurer of the United States and passing at par throughout the country. The state banks were showing a great renaissance at this time, their number having more than doubled from less than 600 in 1872 to more than 1,300 in 1873. Despite this resurgent vitality, state banks were no longer feared by most contemporaries, since their currency-issuing powers had been effectively curtailed by the punitive tax of 10 per cent on state bank issues levied by the act of Marc 3, 1865."
Among the important changes with respect to money and banking was the "ever growing volume of demand-deposit money...the growing volume of demand deposits which could be transferred by check mitigated to some extent the deflationary effects of the rapid currency contraction which followed the Civil War."
Private clearing houses, a kind of regional private central bank, were established in New York, Boston and Philadelphia between 1853 and 1858 (p. 25).
The National Banking Act was, in Sharkey's estimate, the result of the Civil War. "The Civil War created a great mass of government securities which the National Banking Act required national banks to buy as collateral for the national currency." New York Bankers did not like the monetary expansion. Sharkey quotes James Gallatin in 1868 (p. 26): "Not content with a large volume of government paper money, we made it the basis of another volume of auxiliary money in the form of bank issues. We built paper upon paper. Our paper house topples to its foundation, yet we are advised to build it higher, with more paper..." Sharkey adds (p. 27):
"For those who savor historical ironies, these divergent attitudes are not without their delights, for, as the National Banking System took shape after the War, it was apparent that human ingenuity would have had difficulty contriving a more perfect engine for class and sectional exploitation: creditors finally obtaining the upper hand as opposed to debtors, and the developed East holding the whip over the undeveloped West and South...The fundamental purposes of the National Banking Acts were to provide an adequate bank-note currency as well as a wartime market for government bonds...providing a bond-secured national bank currency...As the price for his support of the original act of 1863, John Sherman had insisted that the total volume of the national currency be limited to $300,000,000"
He adds (p. 28):
"The excesses of state banking as the existed prior to the Civil War have been widely condemned. Bray Hammond has performed a great service in demonstrating that the craze for easy money was no agrarian aberration but rather one peculiar to the enterprisers. Insofar as outright frauds were sometimes perpetrated by issuers of bank notes, these practices deserve the criticism that they have received. But what about the loans made by good and not-so-good banks to the 'enterprisers' who wanted to improve lands, develop mines, open factories, etc.?...To the extent that capital was purchased through the issue of depreciating bank notes which passed through the ands of inhabitants of the less developed regions, such depreciation was in essence a form of taxation...To the extent that such notes could be made to circulate the urban East, they constituted a kind of capital levy by the less developed upon the more developed regions...It is quite understandable that politicians of the Whig persuasion, such as Daniel Webster and William Seward, were concerned about the infiltration of doubtful bank notes and forcefully plead the case of the creditor section for what Seward called a 'sound, equal, uniform' currency."
"...The general thesis here is that the laissez faire conditions of enterprise in pre-Civil War America--in which the entrepreneur thrived and the position of the creditor was none too secure--gave way in the post-Civil War period to a new situation in which the creditor interest was dominant, large-scale instead of small-scale enterprise was favored and the East held the whip hand over the less developed regions of the country...The Civil War years...were in fact the culmination of the great age of free and unrestricted enterprise. On the great crest of inflation thousands of businesses saw the light of day and thrived. The entrepreneur flourished, but meanwhile the creditor interest languished as debts were repaid in money of constantly diminishing value. Between 1860 and 1864 the capital invested in New York banks actually fell, a good indication that banking was not very profitable under inflationary conditions. But meanwhile, the seeds of decay had been planted. The National Baning System, with its yet unsuspected exploitative potentialities, had been established..."
After the Civil War, "the stock of money was rapidly contracted. Prices fell steadily. Loans and discounts, the life blood of small enterprise, rose only $9,000,000 between 1860 and 1867 despite the great increase in population and production, while the banks' holdings of corporate and government securities rose from $70,000,000 to $536,000,000. What this meant was that access to the money market was becoming ever easier for the proprietors of the great corporations with their well-known issues, and increasingly difficult for the small enterprisers and farmers of the hinterland...New York became the great magnet for money. Even the reserves of the country banks found their way to Wall Street where they helped meet the insatiable demands of the call-money market. In place of the illiquid mortgage loans made in the hinterland before the Civil War, there was now the illiquidity of stock-secured loans in New York, further reducing the ability of country banks to serve their customers. Is it any wonder that the true advocates of free non-corporate enterprise such as Henry Carey screamed so unrestrainedly at what they called the 'money monopolies' of New York?..It was in this type of environment that the Vanderbilts, Carnegies, Rockefellers and Armours consolidated their gains, swallowing up their smaller competitors in time of crisis, moving ever forward to the nirvana of rationalization and oligopoly. The ground rules had been changed by many factors, but in this process banking and government finance played significant roles."
Fritz Redlich adds (p. 32):
"the problem was to create a market for government loans...Its solution led concomitantly to the creation of the National Banking System, which in the end revolutionized American commercial banking, although it was not devised to that end." The National Banking Act established "free banking" under general law rather than specific charter. "Free banking acts already in effect across the country had introduced into American practice the government-bond-backed bank note...this brought into existence, on a national scale, a market for government bonds."
There were sectional differences in inflation so that in the east there were frequent complaints of too much inflation in the post Civil War era, and in the south and west there were complaints of too little.
I am somewhat skeptical of Redlich's argument that small businessmen depended on bank loans because in our era banks have not been sources of capital to start ups.
In Louis Hartz's essay "Government Business Relations" Hartz notes (p. 89):
"It is a matter of War producing an efflorescence of egalitarian thought in Whiggery, and now a strong corporate Whiggery was able to dip its ambitions...Freedom from state control went hand in hand with the religion of opportunity, which in the broadest sense democratized economic power and made it acceptable to the egalitarian ethos of a liberal society. Technically, of course, this correlation was not essential. One could have the Horatio Alger dream functioning in the context of the old Whig paternalism: Ragged Dick could dream of making his million in a business fostered by the federal government itself, and we cannot excuse Hamilton from his failure to grasp the Alger secret by referring to the state of the American economy. There was sheer blindness, sheer failure to understand America, in the Hamiltonian attitude. At the same time the capacity of Whiggery to dispense with the state, or at least with a portion of the state, did make certain things possible...."
Daniel J. Elazar discusses the implications of land grant programs to aid in the construction of the railroads; the expansion of federal technical assistance to the states and the emergence of large-scale federal domestic programs. "The largest land-grant program of the period was deigned to aid in the construction of railroads under state supervision and, after 1862, under direct federal supervision in the western territories. Federal technical assistance to the states and localities was oriented toward improving state and local programs that were, themselves, designed to encourage economic growth.l In the decades immediately preceding the War, this technical assistance was largely confined to such tasks as helping city officials plan harbor-improvement projects...After the war, technical assistance expanded into other fields, particularly those relating to agricultural improvements and the geological surveys designed to uncover new mineral wealth...All this government expansion was accomplished in the generation between 1847 and 1877...
"...With all the expansion of government programs between 1847 and 1877, the character of government efforts remained substantially the same-supportive of private enterprise and industrialization, through government subsidization for developmental purposes...Beginning with the mid 1870's, however, government began to assume an active regulatory role as well...
"The expansion of federal domestic programs, which began around the middle of the century, reached such a point during the War years that one could easily call Lincoln's presidency the "New Deal" of the 1860's (a term used, curiously enough, by a Raleigh, North Carolina editor in march 1865 as an argument to encourage his state to voluntarily rejoin the Union. In the space of four years, the President and Congress created a bundle of programs whose central effect was to reassert an American conception of the role of government in the economy in a manner consonant with the new industrialization.
"Among the measures enacted between 1861 and 1865were (1) the National Banking Act of 18643 (with amending acts in 1864, 1865 and 1866), which created a national banking system and a national currency; (2) the Morrill Land-Grant College Act of 1862, which by providing for the establishment of college specifically devoted to education n 'agriculture and the mechanic arts' was ultimately to play a major role in developing the pool of skilled personnel needed to man the institutions of the new economy; (3) the great transcontinental railroad land grants of 1862, 1863 and 1864, which were to bind the continent together and make possible the postwar conquest of the last of the land frontier and (4) the Homestead Act of 1862, which by providing virtually free land in the greater West for all takers, shaped the character of the last great agricultural frontier. An income tax was levied for the first time in 1861 and national paper currency was first issued that same year, setting the stage for reformer-conservative conflicts over national tax and fiscal policies for the next generation. In 1864 the Contract Labor Act was passed, providing for licensed recruitment of European laborers to man the nation's new industrial plant. That same year congress granted California the Yosemite lands for the express purpose of creating a public nature preserve..A number of new federal bureaus were created, among them the Department of Agriculture (1862), the Bureau of Printing and Engraving (1862), the Office of Comptroller of the Currency (1863) and the Office of Immigration (1864). In 1863 Congress created the National Academy of Sciences, initially to screen technological innovations to ascertain their usefulness for the war effort...The Morrill Tariff of 1861 restored the protectionist approach to tariff policy and inaugurated two generations of federal subsidy for domestic manufacturing via the high tariff...Though the bulk of the new federal programs were inaugurated during the War years, the last actions of this "New Deal" came in the postwar period. In 1866 the Mining Claims Act was passed, opening the public domain to mining claims."
State government also expanded in the Civil War era. "Construction of the transcontinental railroads also began in earnest after the War in conjunction with redoubled state efforts to build connecting lines both in the Mississippi Valley and on the West Coast, utilizing other Federal land grants couple with local bond issues to accomplish the task. The federal-state partnership in railroad construction had developed in the 1850's in Michigan, Illinois, Alabama and points west, but it was not until the postwar period that this partnership was to bear its greatest fruit. Though new land grants were made by Congress after 1871, the implementation of the program inaugurated by the grants made between 1850 and that year occupied the next thirty years
"(D)uring this period...several of the larger northeastern states began to experiment in new areas of government economic regulation. Again let me cite some random examples. In 1867 New York enacted the first of several tenement house laws designed to ameliorate the terrible living conditions in parts of New York City. These laws, ineffectual as they turned out to be, represented the first effort in the nation to come to grips with the problem of urban housing. That city, two years earlier, had established the nation's first professional fire department...
"In 1869 Massachusetts created the nation's first state board of health and first bureau of labor. During the 1860s the Bay State was in the vanguard of regulation pioneers, experimenting with government intervention in the fields of insurance, banking and railroads. These three fields also attracted the attention of states in other parts of the country and were the first to be regulated on anything like a nationwide basis...
"The increase in the over-all scope of local activity is nowhere better illustrated than in the great rise in municipal debt between 1866 and 1876...In 1866 the total debt of the nation's 130 largest cities was $221,300,000. Ten years later it was $644,400,000...
"It is likely that the Civil War was most helpful in adjusting American public opinion to government expenditure of large sums of money. Teaching the American people that government could legitimately spend on a grand scale..was extremely important in the short run and in the long run...the changes that took place in the Civil War generation did not so much lead to an increase in the role of the federal government as they did to an increase in the role of all levels of government in the nation's economy..."
Louis Hartz, however, took issue with Elazar's argument (p. 109): "Are you to extract form this evidence the conclusion that in fact the concept and the experience of state action in the economic sphere expanded in and through and after the Civil War as compared to the pre-Civil War period? I would reject that proposition even in the face of your evidence...The period before the Civil War, the period of the 1820s and the 1830s, took it as an accepted fact that most states could regulate working conditions on a broad scale. The Colonial period, under mercantilist regulations, took it for granted that an invasion of the sphere of economic enterprise by the state was legitimate, and indeed the state did implement such an invasion. Now after the Civil War, as a result of certain judicial decisions, this was held to be illegitimate, and much regulation which had been accepted before was dodged...
Elazar responds to Hartz: "I was confirming your point that there was almost a derogration of government activity at this time, although in fact government was actually increasing. However, it was supportive activity rather than regulatory activity...It was not until after the Civil War generation--after Justice Waite, for example left the Court in the late 1880s--that the notions of the Fourteenth Amendment emobided in the Slaughterhouse Cases were adjusted by the new majority on the Court so as to write the new corporation-endorsed doctrine of laissez faire nto consitutional law. Up until this period, of course, it was still assumed that regulation was permissible...
The final article in this fine book that I will discuss is Alfrd D. Chandler's "Organziation of Manufacturing and Transportation". Chandler argues that "the simulataneous adoption of three methods of communication in the dozen or so years before the Civil War did make an enormous difference and so become an initiator of important institutional changes. I would like to substantiate this thesis--that is, of the signficance of the transportation revolution in the dozen or so years before the Civil War--by focusing on the coming ot two important institutional forms: one, the use of the factory for the mass production of durable goods, and the other, the use of the corporation as an administrative device for the managing and controlling of large amounts of men, money and materials."
The transportation revolution involved the widespread adoption of the railroad, telegraph and steamship, which expanded the market between 1847 and 1854. "Beside increasing the volume and regularity of transportation, adding to the national income and beocming a brand new market for American industry, they created new patterns of economic an dbusiness action and new institutional forms...The massive financial requirements of the railroads caused the centralizing and institutionalizing of the nation's investment market in New York City...sudden demand for a large number of new railroads in the 1850s, rather than the financial needs of the Civil War created modern Wall Street, with its national stock exchange, its international investment-banking houses, its brokers' offices and its speculative techniques."
Chandler's arguments are excellent and parallel those he makes elsewhere, as in his book Visible Hand.
Overall, the conference concluded that the Civil War itself did not change the economy much. Rather, it was the population, technological, banking, monetary and other shifts that were occurring independently of the War that made the nineteenth century one of rapid change.
God bless Amazon.com for making scholarly books available to a national market with little fuss or muss. Economic Change in the Civil War Era is a conference proceedings of a 1964 conference that the Eleutherian Mills-Hagley Foundation put together in 1964. Several of the leading historians of the late twentieth century, to include Alfred D. Chandler, Jr., Daniel J. Elazar, and Fritz Redlich were in attendance and/or presented papers.
Robert P. Sharkey's paper on commercial banking coupled with Fritz Redlich's response was fascinating. Louis Hartz's paper, "Government-Business Relations" is brilliant as is Alfred D. Chandler's paper on the transformation of the "Organization of Manufacturing" as was George Rogers Taylor's "National Economy Before and After the Civil War".
Taylor points out that the "extension of settlement in rural New England" in the pre-Civil War period was largely unprofitable because the lands being settled in northern New England and upstate New York were not so fertile as the land the first settlers occupied. Thus, "most of the hill towns of New England had reached their population peaks by 1830 or earlier." The railroads made it "easier to migrate to Illinois or Wisconsin" so that New England rural population began to decrease in the 1850s. The population of the Western states was growing, in part due to emigration from New England. Western settlers needed a market. Shipping to New Orleans via the Mississippi River was expensive and risky. Canals allowed eastward shipment of grain and by the 1840s eastward shipments equalled the the shipments to New Orleans, and the railroads enhanced this trend. Railroads were in part a response to westward migration. Thus, argues Taylor, eastern demand for western agricultural output plus immigration led to demand for railroads. New Englanders migrated from farms westward and to cities like Boston. "Eventually migrants to the frontier produced the food consumed by migrants to the cities" (p. 14). Immigrants from Europe provided an abundant labor supply and low labor costs in the ante-bellum period. But "trained workmen or skilled mechanics were often in short supply and had to be brought in from England or Scotland at considerable expense".
According to Robert P. Sharkey, who treated the subject of banking:
"In 1850 the banking network of the country consisted of some 824 state-chartered banks operating in all the thirty-one states except Texas, Arkansas and Iowa, which prohibited the chartering of banks altogether. The laws which governed banking varied from the extreme permissiveness of the statutes in Illinois, where "wildcatting" was in vogue, to the stringent provisions of the enactments in Louisiana, where reserve and lending practices were conservative in the extreme....Twenty-three years later, in 1873, this anarchic condition had totally disappeared. The number of banks had quadrupled to some 3,298, but of this number, 1,968 were national banks chartered under the National Banking Act of 1864. . Instead of hundreds of different kinds of currency, whose varying values were known only to the most avid readers of the Bank Note Reporter, there was now a national bank-note currency secured by the deposit of US bonds with the Treasurer of the United States and passing at par throughout the country. The state banks were showing a great renaissance at this time, their number having more than doubled from less than 600 in 1872 to more than 1,300 in 1873. Despite this resurgent vitality, state banks were no longer feared by most contemporaries, since their currency-issuing powers had been effectively curtailed by the punitive tax of 10 per cent on state bank issues levied by the act of Marc 3, 1865."
Among the important changes with respect to money and banking was the "ever growing volume of demand-deposit money...the growing volume of demand deposits which could be transferred by check mitigated to some extent the deflationary effects of the rapid currency contraction which followed the Civil War."
Private clearing houses, a kind of regional private central bank, were established in New York, Boston and Philadelphia between 1853 and 1858 (p. 25).
The National Banking Act was, in Sharkey's estimate, the result of the Civil War. "The Civil War created a great mass of government securities which the National Banking Act required national banks to buy as collateral for the national currency." New York Bankers did not like the monetary expansion. Sharkey quotes James Gallatin in 1868 (p. 26): "Not content with a large volume of government paper money, we made it the basis of another volume of auxiliary money in the form of bank issues. We built paper upon paper. Our paper house topples to its foundation, yet we are advised to build it higher, with more paper..." Sharkey adds (p. 27):
"For those who savor historical ironies, these divergent attitudes are not without their delights, for, as the National Banking System took shape after the War, it was apparent that human ingenuity would have had difficulty contriving a more perfect engine for class and sectional exploitation: creditors finally obtaining the upper hand as opposed to debtors, and the developed East holding the whip over the undeveloped West and South...The fundamental purposes of the National Banking Acts were to provide an adequate bank-note currency as well as a wartime market for government bonds...providing a bond-secured national bank currency...As the price for his support of the original act of 1863, John Sherman had insisted that the total volume of the national currency be limited to $300,000,000"
He adds (p. 28):
"The excesses of state banking as the existed prior to the Civil War have been widely condemned. Bray Hammond has performed a great service in demonstrating that the craze for easy money was no agrarian aberration but rather one peculiar to the enterprisers. Insofar as outright frauds were sometimes perpetrated by issuers of bank notes, these practices deserve the criticism that they have received. But what about the loans made by good and not-so-good banks to the 'enterprisers' who wanted to improve lands, develop mines, open factories, etc.?...To the extent that capital was purchased through the issue of depreciating bank notes which passed through the ands of inhabitants of the less developed regions, such depreciation was in essence a form of taxation...To the extent that such notes could be made to circulate the urban East, they constituted a kind of capital levy by the less developed upon the more developed regions...It is quite understandable that politicians of the Whig persuasion, such as Daniel Webster and William Seward, were concerned about the infiltration of doubtful bank notes and forcefully plead the case of the creditor section for what Seward called a 'sound, equal, uniform' currency."
"...The general thesis here is that the laissez faire conditions of enterprise in pre-Civil War America--in which the entrepreneur thrived and the position of the creditor was none too secure--gave way in the post-Civil War period to a new situation in which the creditor interest was dominant, large-scale instead of small-scale enterprise was favored and the East held the whip hand over the less developed regions of the country...The Civil War years...were in fact the culmination of the great age of free and unrestricted enterprise. On the great crest of inflation thousands of businesses saw the light of day and thrived. The entrepreneur flourished, but meanwhile the creditor interest languished as debts were repaid in money of constantly diminishing value. Between 1860 and 1864 the capital invested in New York banks actually fell, a good indication that banking was not very profitable under inflationary conditions. But meanwhile, the seeds of decay had been planted. The National Baning System, with its yet unsuspected exploitative potentialities, had been established..."
After the Civil War, "the stock of money was rapidly contracted. Prices fell steadily. Loans and discounts, the life blood of small enterprise, rose only $9,000,000 between 1860 and 1867 despite the great increase in population and production, while the banks' holdings of corporate and government securities rose from $70,000,000 to $536,000,000. What this meant was that access to the money market was becoming ever easier for the proprietors of the great corporations with their well-known issues, and increasingly difficult for the small enterprisers and farmers of the hinterland...New York became the great magnet for money. Even the reserves of the country banks found their way to Wall Street where they helped meet the insatiable demands of the call-money market. In place of the illiquid mortgage loans made in the hinterland before the Civil War, there was now the illiquidity of stock-secured loans in New York, further reducing the ability of country banks to serve their customers. Is it any wonder that the true advocates of free non-corporate enterprise such as Henry Carey screamed so unrestrainedly at what they called the 'money monopolies' of New York?..It was in this type of environment that the Vanderbilts, Carnegies, Rockefellers and Armours consolidated their gains, swallowing up their smaller competitors in time of crisis, moving ever forward to the nirvana of rationalization and oligopoly. The ground rules had been changed by many factors, but in this process banking and government finance played significant roles."
Fritz Redlich adds (p. 32):
"the problem was to create a market for government loans...Its solution led concomitantly to the creation of the National Banking System, which in the end revolutionized American commercial banking, although it was not devised to that end." The National Banking Act established "free banking" under general law rather than specific charter. "Free banking acts already in effect across the country had introduced into American practice the government-bond-backed bank note...this brought into existence, on a national scale, a market for government bonds."
There were sectional differences in inflation so that in the east there were frequent complaints of too much inflation in the post Civil War era, and in the south and west there were complaints of too little.
I am somewhat skeptical of Redlich's argument that small businessmen depended on bank loans because in our era banks have not been sources of capital to start ups.
In Louis Hartz's essay "Government Business Relations" Hartz notes (p. 89):
"It is a matter of War producing an efflorescence of egalitarian thought in Whiggery, and now a strong corporate Whiggery was able to dip its ambitions...Freedom from state control went hand in hand with the religion of opportunity, which in the broadest sense democratized economic power and made it acceptable to the egalitarian ethos of a liberal society. Technically, of course, this correlation was not essential. One could have the Horatio Alger dream functioning in the context of the old Whig paternalism: Ragged Dick could dream of making his million in a business fostered by the federal government itself, and we cannot excuse Hamilton from his failure to grasp the Alger secret by referring to the state of the American economy. There was sheer blindness, sheer failure to understand America, in the Hamiltonian attitude. At the same time the capacity of Whiggery to dispense with the state, or at least with a portion of the state, did make certain things possible...."
Daniel J. Elazar discusses the implications of land grant programs to aid in the construction of the railroads; the expansion of federal technical assistance to the states and the emergence of large-scale federal domestic programs. "The largest land-grant program of the period was deigned to aid in the construction of railroads under state supervision and, after 1862, under direct federal supervision in the western territories. Federal technical assistance to the states and localities was oriented toward improving state and local programs that were, themselves, designed to encourage economic growth.l In the decades immediately preceding the War, this technical assistance was largely confined to such tasks as helping city officials plan harbor-improvement projects...After the war, technical assistance expanded into other fields, particularly those relating to agricultural improvements and the geological surveys designed to uncover new mineral wealth...All this government expansion was accomplished in the generation between 1847 and 1877...
"...With all the expansion of government programs between 1847 and 1877, the character of government efforts remained substantially the same-supportive of private enterprise and industrialization, through government subsidization for developmental purposes...Beginning with the mid 1870's, however, government began to assume an active regulatory role as well...
"The expansion of federal domestic programs, which began around the middle of the century, reached such a point during the War years that one could easily call Lincoln's presidency the "New Deal" of the 1860's (a term used, curiously enough, by a Raleigh, North Carolina editor in march 1865 as an argument to encourage his state to voluntarily rejoin the Union. In the space of four years, the President and Congress created a bundle of programs whose central effect was to reassert an American conception of the role of government in the economy in a manner consonant with the new industrialization.
"Among the measures enacted between 1861 and 1865were (1) the National Banking Act of 18643 (with amending acts in 1864, 1865 and 1866), which created a national banking system and a national currency; (2) the Morrill Land-Grant College Act of 1862, which by providing for the establishment of college specifically devoted to education n 'agriculture and the mechanic arts' was ultimately to play a major role in developing the pool of skilled personnel needed to man the institutions of the new economy; (3) the great transcontinental railroad land grants of 1862, 1863 and 1864, which were to bind the continent together and make possible the postwar conquest of the last of the land frontier and (4) the Homestead Act of 1862, which by providing virtually free land in the greater West for all takers, shaped the character of the last great agricultural frontier. An income tax was levied for the first time in 1861 and national paper currency was first issued that same year, setting the stage for reformer-conservative conflicts over national tax and fiscal policies for the next generation. In 1864 the Contract Labor Act was passed, providing for licensed recruitment of European laborers to man the nation's new industrial plant. That same year congress granted California the Yosemite lands for the express purpose of creating a public nature preserve..A number of new federal bureaus were created, among them the Department of Agriculture (1862), the Bureau of Printing and Engraving (1862), the Office of Comptroller of the Currency (1863) and the Office of Immigration (1864). In 1863 Congress created the National Academy of Sciences, initially to screen technological innovations to ascertain their usefulness for the war effort...The Morrill Tariff of 1861 restored the protectionist approach to tariff policy and inaugurated two generations of federal subsidy for domestic manufacturing via the high tariff...Though the bulk of the new federal programs were inaugurated during the War years, the last actions of this "New Deal" came in the postwar period. In 1866 the Mining Claims Act was passed, opening the public domain to mining claims."
State government also expanded in the Civil War era. "Construction of the transcontinental railroads also began in earnest after the War in conjunction with redoubled state efforts to build connecting lines both in the Mississippi Valley and on the West Coast, utilizing other Federal land grants couple with local bond issues to accomplish the task. The federal-state partnership in railroad construction had developed in the 1850's in Michigan, Illinois, Alabama and points west, but it was not until the postwar period that this partnership was to bear its greatest fruit. Though new land grants were made by Congress after 1871, the implementation of the program inaugurated by the grants made between 1850 and that year occupied the next thirty years
"(D)uring this period...several of the larger northeastern states began to experiment in new areas of government economic regulation. Again let me cite some random examples. In 1867 New York enacted the first of several tenement house laws designed to ameliorate the terrible living conditions in parts of New York City. These laws, ineffectual as they turned out to be, represented the first effort in the nation to come to grips with the problem of urban housing. That city, two years earlier, had established the nation's first professional fire department...
"In 1869 Massachusetts created the nation's first state board of health and first bureau of labor. During the 1860s the Bay State was in the vanguard of regulation pioneers, experimenting with government intervention in the fields of insurance, banking and railroads. These three fields also attracted the attention of states in other parts of the country and were the first to be regulated on anything like a nationwide basis...
"The increase in the over-all scope of local activity is nowhere better illustrated than in the great rise in municipal debt between 1866 and 1876...In 1866 the total debt of the nation's 130 largest cities was $221,300,000. Ten years later it was $644,400,000...
"It is likely that the Civil War was most helpful in adjusting American public opinion to government expenditure of large sums of money. Teaching the American people that government could legitimately spend on a grand scale..was extremely important in the short run and in the long run...the changes that took place in the Civil War generation did not so much lead to an increase in the role of the federal government as they did to an increase in the role of all levels of government in the nation's economy..."
Louis Hartz, however, took issue with Elazar's argument (p. 109): "Are you to extract form this evidence the conclusion that in fact the concept and the experience of state action in the economic sphere expanded in and through and after the Civil War as compared to the pre-Civil War period? I would reject that proposition even in the face of your evidence...The period before the Civil War, the period of the 1820s and the 1830s, took it as an accepted fact that most states could regulate working conditions on a broad scale. The Colonial period, under mercantilist regulations, took it for granted that an invasion of the sphere of economic enterprise by the state was legitimate, and indeed the state did implement such an invasion. Now after the Civil War, as a result of certain judicial decisions, this was held to be illegitimate, and much regulation which had been accepted before was dodged...
Elazar responds to Hartz: "I was confirming your point that there was almost a derogration of government activity at this time, although in fact government was actually increasing. However, it was supportive activity rather than regulatory activity...It was not until after the Civil War generation--after Justice Waite, for example left the Court in the late 1880s--that the notions of the Fourteenth Amendment emobided in the Slaughterhouse Cases were adjusted by the new majority on the Court so as to write the new corporation-endorsed doctrine of laissez faire nto consitutional law. Up until this period, of course, it was still assumed that regulation was permissible...
The final article in this fine book that I will discuss is Alfrd D. Chandler's "Organziation of Manufacturing and Transportation". Chandler argues that "the simulataneous adoption of three methods of communication in the dozen or so years before the Civil War did make an enormous difference and so become an initiator of important institutional changes. I would like to substantiate this thesis--that is, of the signficance of the transportation revolution in the dozen or so years before the Civil War--by focusing on the coming ot two important institutional forms: one, the use of the factory for the mass production of durable goods, and the other, the use of the corporation as an administrative device for the managing and controlling of large amounts of men, money and materials."
The transportation revolution involved the widespread adoption of the railroad, telegraph and steamship, which expanded the market between 1847 and 1854. "Beside increasing the volume and regularity of transportation, adding to the national income and beocming a brand new market for American industry, they created new patterns of economic an dbusiness action and new institutional forms...The massive financial requirements of the railroads caused the centralizing and institutionalizing of the nation's investment market in New York City...sudden demand for a large number of new railroads in the 1850s, rather than the financial needs of the Civil War created modern Wall Street, with its national stock exchange, its international investment-banking houses, its brokers' offices and its speculative techniques."
Chandler's arguments are excellent and parallel those he makes elsewhere, as in his book Visible Hand.
Overall, the conference concluded that the Civil War itself did not change the economy much. Rather, it was the population, technological, banking, monetary and other shifts that were occurring independently of the War that made the nineteenth century one of rapid change.
Why Politics Leaves You Cold
The American political ideology is Progressive in the early twentieth century sense. Both political parties, the Democratic and the Republican, are heirs to Progressivism. But Progressivism was and is alien to at least two of the three primary American political belief systems. It is in part derived from European social democracy, and its emphasis on centralization is alien to all American political culture that is rooted in agrarian and small town life. Progressivism was brought to America in the late nineteenth century when many Americans (as many as ten thousand), such as John Dewey, attended German universities as graduate students. Progressivism was in part a reaction to the growth and power of large companies. It reflected an impulse to substitute government and centralized planning for free market processes. The argument that dominated the Progressive era was that big business had too much monopoly power and government was necessary to manage that power. Progressivism also emphasized local economic improvement such as housing reform and, as well, reflected professional interests in fields like law and medicine. Progressivism denied the viability of the small community because corporations had become international and small business could no longer compete with big. It argued for an activist federal government and ultimately the transfer of economic power from villages, towns and states to the federal government in order to better manage big business. Progressivism elaborated on many traditional themes in American culture, such as its emphasis on efficiency and morality, but it modified them by arguing that national legislation was needed to achieve them. The Republican Progressives, such as Herbert Hoover and to a lesser degree William Howard Taft, emphasized efficiency. Taft focused on application of the Sherman Anti-Trust Act to big business. Hoover favored the use of governmentally guided but voluntary cartels to restrict production and eliminate waste. In contrast, the Democratic Progressives, Woodrow Wilson and Franklin D. Roosevelt, emphasized the moral aspect of Progressivism, Wilson with respect to international relations and the League of Nations and Roosevelt with respect to labor relations, work relief, business regulation and social security. Wilson cartelized American industry during World War I, but dismantled the cartels after the war. Like Wilson, Roosevelt attempted to cartelize industry under the National Industrial Recovery Act, but this 1933 law was declared unconstitutional. Thus, today's Democrats favor more government at the federal level, believe that government is more efficient than the market and advocate regulatory systems that cost small firms more than large firms to comply as a proportion of sales. The Republicans say they favor less government, but inevitably expand it, argue that markets are more efficient than government but increase the intensity of regulation anyway. Both parties favor monetary expansion that transfers wealth from workers to business owners and stock holders. Where monetary expansion does not provide a sufficient subsidy, direct bounties are increasingly available to big, but not to small, firms that fail.
Thus, both Democrats and Republicans favor a corporate-centered economy. Democrats use the Progressive rhetoric of morality while Republicans use the Progressive rhetoric of efficiency. But the Democrats are not particularly supportive of morality and the Republicans are not particularly supportive of efficiency. Both favor subsidies to big business; both favor a central bank that provides subsidies through inflation; both favor offering a privileged position to business; and both are responsive to the university ideology of elite America--the urban, collectivist, morally skeptical and issue-oriented culture of the news media, the mass-conformist urban culture and of universities.
American political culture at most loosely conforms to Progressivism, and it is puzzling as to why Americans have favored the modernist, large scale programs that Progressivism has to offer. It may be that the expansionist ethos of the frontier finds expression in the government expansionism of Progressivism. But government solutions reduce efficiency and have led to declining real hourly wages.
In a wonderful book, American Federalism: A View from the States*, Daniel Elazar argues (p. 113) that there are four key values in American culture: efficiency, commerce, legitimacy and agrarianism. The four values generate three underlying political cultures: individualistic, moralistic and traditionalistic. It is evident that although Progressivism stood for efficiency early in the twentieth century, today's economy has evolved past its chief solutions, scale, bureaucracy and hierarchy. Likewise, The evolution of technology has rendered the centralized media less relevant to public policy debate. Governments cannot manage large scale programs efficiently because the flexibility needed to organize an agency runs up against conflicts of interest and moral hazard, and the absence of incentives to encourage efficient operation. Progressivism leads not to efficiency but to inefficiency.
The three political cultures that Elazar describes, individualistic, moralistic and traditionalistic (p. 115) are as follows. "The individualistic political culture emphasizes the conception of the democratic order as a marketplace. In this view, government is instituted for strictly utilitarian reasons...politics is a business...politicians are interested in office as a means of controlling the distribution of the favors or rewards of government rather than as a means of exercising governmental power for programmatic ends..."
The individualistic world view does not lend itself to Progressivism unless there is widespread popular demand for Progressive reform. It encourages private initiative and is ambivalent about bureaucracy.
Elazar writes that "(t)he moralistic political culture emphasizes the commonwealth conception as the basis for democratic government. Politics, to the moralistic political culture, is considered one of the great activities of humanity...Consequently, in the moralistic political culture both the general public and the politicians conceive of politics as a public activity centered on some notion of the public good and properly devoted to the advancement of the public interest."
Elazar does not distinguish between moralists who advocate individualist solutions, such as the Libertarians, and moralists who advocate Progressive solutions. It would seem that increasingly the Progressives do not have a corner on this.
The Progressives built on the moralistic impulse, but there are some crucial differences. "The moralistic culture is localistic: the strong commitment to communitarianism characteristic of moralistic political culture leads to channel the interest in government intervention into highly localistic paths. A willingness to encourage local government intervention to set public standards does not necessarily reflect a concomitant willingness to allow outside governments equal opportunity to intervene...The moralistic political culture's major difficulty in adjusting bureaucracy to the political order is tied to the potential conflict between communitarian principles and the necessity for large-scale organization to increase bureaucractic efficiency, a problem that could affect the attitudes of moralistic culture states toward federal activity of certain kinds" (p. 118).
Finally, "(t)he traditionalistic political culture is rooted in an ambivalent attitude toward the marketplace coupled with a paternalistic and elitist conception of the commonwealth...Like its moralistic counterpart, the traditionalistic political culture accepts government as an actor with a positive role in the community, but it tries to limit that role in securing the continued maintenance of the existing social order" (p. 118). Government is viewed as a means of maintaining the existing order and a governing elite re enforces its own position. Participation in politics is viewed as a privilege and competition between elite-dominated factions characterizes party competition.
Elazar argues that centuries-long migration patterns from New England, which was characterized by the moralistic commonwealth culture; the Middle Atlantic, which was characterized by the individualistic culture; and the South, which was characterized by the traditional culture determined the political cultures of states in the 1980s. Elazar traces the migration patterns across the country, and argues that the Western states had cultures that combined the cultural values of the settlers.
Of the three cultural values, the one that is closest to Progressivism is the moralistic. In particular, the moralistic culture is issue-oriented and favors bureaucracy and government intervention. But Progressivism dispensed with the Puritan religious values that infused the early New England communities, and many Americans have not. Moreover, the attempt to impose a commonwealth culture on Americans who deviate sharply from the value system suggests problems, such as alienation. Moreover, the value system that Progressives advocate deviates sharply between Democrats and Republicans. Within the Democratic Party there are more mainstream and more elitist elements, who introduce a culture that does not correspond to the three cultures. Political correctness, identity politics and group rights, progressive education and dislike of the United States have become institutionalized cultural values among American elites but have little to do with legitimacy, agrarianism, efficiency or commerce. University trained elites have tended to view communities as clay to be molded rather than as ecological systems composed of human beings who are ends to themselves.
The mechanics of Progressive government necessarily deviate from the differentiated American political cultures. A single government that accrues substantial economic power must develop specific policies. And as the three cultures plus the elite, university culture, all have distance from each other, the single Progressive culture must as well have distance from all the others. As the complexity of policies and the size of government expands, the sum of the distances from the various American political cultures must also expand. Politics no longer reflects human values, but rather the views of the media, university elites and the outcome of struggle among moralists, individualists and traditionalists. The result may be said to be representative government, but it is an increasingly distant government. Progressivism placed too much Federal in Federalism.
*Daniel Elazar, American Federalism: A View From the States: New York, Harper and Row, 1984.
Thus, both Democrats and Republicans favor a corporate-centered economy. Democrats use the Progressive rhetoric of morality while Republicans use the Progressive rhetoric of efficiency. But the Democrats are not particularly supportive of morality and the Republicans are not particularly supportive of efficiency. Both favor subsidies to big business; both favor a central bank that provides subsidies through inflation; both favor offering a privileged position to business; and both are responsive to the university ideology of elite America--the urban, collectivist, morally skeptical and issue-oriented culture of the news media, the mass-conformist urban culture and of universities.
American political culture at most loosely conforms to Progressivism, and it is puzzling as to why Americans have favored the modernist, large scale programs that Progressivism has to offer. It may be that the expansionist ethos of the frontier finds expression in the government expansionism of Progressivism. But government solutions reduce efficiency and have led to declining real hourly wages.
In a wonderful book, American Federalism: A View from the States*, Daniel Elazar argues (p. 113) that there are four key values in American culture: efficiency, commerce, legitimacy and agrarianism. The four values generate three underlying political cultures: individualistic, moralistic and traditionalistic. It is evident that although Progressivism stood for efficiency early in the twentieth century, today's economy has evolved past its chief solutions, scale, bureaucracy and hierarchy. Likewise, The evolution of technology has rendered the centralized media less relevant to public policy debate. Governments cannot manage large scale programs efficiently because the flexibility needed to organize an agency runs up against conflicts of interest and moral hazard, and the absence of incentives to encourage efficient operation. Progressivism leads not to efficiency but to inefficiency.
The three political cultures that Elazar describes, individualistic, moralistic and traditionalistic (p. 115) are as follows. "The individualistic political culture emphasizes the conception of the democratic order as a marketplace. In this view, government is instituted for strictly utilitarian reasons...politics is a business...politicians are interested in office as a means of controlling the distribution of the favors or rewards of government rather than as a means of exercising governmental power for programmatic ends..."
The individualistic world view does not lend itself to Progressivism unless there is widespread popular demand for Progressive reform. It encourages private initiative and is ambivalent about bureaucracy.
Elazar writes that "(t)he moralistic political culture emphasizes the commonwealth conception as the basis for democratic government. Politics, to the moralistic political culture, is considered one of the great activities of humanity...Consequently, in the moralistic political culture both the general public and the politicians conceive of politics as a public activity centered on some notion of the public good and properly devoted to the advancement of the public interest."
Elazar does not distinguish between moralists who advocate individualist solutions, such as the Libertarians, and moralists who advocate Progressive solutions. It would seem that increasingly the Progressives do not have a corner on this.
The Progressives built on the moralistic impulse, but there are some crucial differences. "The moralistic culture is localistic: the strong commitment to communitarianism characteristic of moralistic political culture leads to channel the interest in government intervention into highly localistic paths. A willingness to encourage local government intervention to set public standards does not necessarily reflect a concomitant willingness to allow outside governments equal opportunity to intervene...The moralistic political culture's major difficulty in adjusting bureaucracy to the political order is tied to the potential conflict between communitarian principles and the necessity for large-scale organization to increase bureaucractic efficiency, a problem that could affect the attitudes of moralistic culture states toward federal activity of certain kinds" (p. 118).
Finally, "(t)he traditionalistic political culture is rooted in an ambivalent attitude toward the marketplace coupled with a paternalistic and elitist conception of the commonwealth...Like its moralistic counterpart, the traditionalistic political culture accepts government as an actor with a positive role in the community, but it tries to limit that role in securing the continued maintenance of the existing social order" (p. 118). Government is viewed as a means of maintaining the existing order and a governing elite re enforces its own position. Participation in politics is viewed as a privilege and competition between elite-dominated factions characterizes party competition.
Elazar argues that centuries-long migration patterns from New England, which was characterized by the moralistic commonwealth culture; the Middle Atlantic, which was characterized by the individualistic culture; and the South, which was characterized by the traditional culture determined the political cultures of states in the 1980s. Elazar traces the migration patterns across the country, and argues that the Western states had cultures that combined the cultural values of the settlers.
Of the three cultural values, the one that is closest to Progressivism is the moralistic. In particular, the moralistic culture is issue-oriented and favors bureaucracy and government intervention. But Progressivism dispensed with the Puritan religious values that infused the early New England communities, and many Americans have not. Moreover, the attempt to impose a commonwealth culture on Americans who deviate sharply from the value system suggests problems, such as alienation. Moreover, the value system that Progressives advocate deviates sharply between Democrats and Republicans. Within the Democratic Party there are more mainstream and more elitist elements, who introduce a culture that does not correspond to the three cultures. Political correctness, identity politics and group rights, progressive education and dislike of the United States have become institutionalized cultural values among American elites but have little to do with legitimacy, agrarianism, efficiency or commerce. University trained elites have tended to view communities as clay to be molded rather than as ecological systems composed of human beings who are ends to themselves.
The mechanics of Progressive government necessarily deviate from the differentiated American political cultures. A single government that accrues substantial economic power must develop specific policies. And as the three cultures plus the elite, university culture, all have distance from each other, the single Progressive culture must as well have distance from all the others. As the complexity of policies and the size of government expands, the sum of the distances from the various American political cultures must also expand. Politics no longer reflects human values, but rather the views of the media, university elites and the outcome of struggle among moralists, individualists and traditionalists. The result may be said to be representative government, but it is an increasingly distant government. Progressivism placed too much Federal in Federalism.
*Daniel Elazar, American Federalism: A View From the States: New York, Harper and Row, 1984.
Wednesday, August 20, 2008
The Paradox of Economies of Scale and Government Bounties to Big Business
One of the key arguments that economists and historians have traditionally made in favor of big business, and one that the public has generally accepted, is that it is necessary because of economies of scale. This image was exemplified by the Ford production plants of the 1920s, which could produce thousands of cars per week. The reason that economists and the general public have traditionally believed that economies of scale are important is that the fixed costs of production, costs that will be there whether one or a million units are produced such as advertising, rent, and administrative staff costs, when spread over a large number of units of output become lower per unit. The argument for scale amounted to an argument for centrally planned economies. In his book "Managerial Revolution", written in the 1930s before the murderous nature of Nazism had been fully revealed, James Burnham argued that a new managerial class was independent of owners and he cheered the advent of national socialism in Germany because government control and guidance of large industry reflected the realities of the new managerial power. Thirty years later, in the early 1960s, John Kenneth Galbraith described the economy of big business as based on planning by a "technocratic" elite in his book New Industrial State.
But while the public has accepted the argument that big business is necessary for consumerism because only large firms can produce large numbers of outputs, big business has tactically demanded and likely required government subsidies in order to survive. And there is a paradox. For if big business is most efficient, then why does it need subsidies? In his 1977 book Politics and Markets Charles Lindblom argued that business occupies a "privileged position". More fundamentally, ever since the days of Hamilton, and with the exception of some business interests in the late nineteenth century, much of American business has asked for two crucial kinds of subsidies: protectionist tariffs and monetary expansion. When Jackson abolished the Second Bank in the early 1830s he limited the degree of monetary expansion. That period, from the 1830s to 1900, was the period of greatest innovation in technology and strongest gains in real hourly wages of workers of any in American history. It was also a period of uncertainty, volatility and conflict between labor and management. However, even in the nineteenth century monetary expansion associated with the Civil War facilitated expansion of credit and therefore enhanced the size of business. By the late nineteenth century the Mugwumps, traditional, mostly Protestant (there were some Catholics and Jews as well in their ranks) Yankee elites in Boston and New York protested the support to speculators like Jay Gould that the monetary expansion had provided, coupled with erosion of their annuities and bank accounts.
The expansion of the railroads contributed mightily to the expansion of US markets into a single whole, and were the crucial step in making big business economically viable and efficient. But the railroads were largely the product of subsidy, and the canals that preceded them were government public works projects, not private enterprise. Neither the railroads or canals were entirely responses to market demand. Rather, they were made possible by land grants and rights of way granted by often corrupt state and local governments. An example is New York, where Jay Gould was so indebted to Boss Tweed that he paid Tweed's bail when Tweed was arrested for corruption. Thus, the Civil War inflation and government subsidies to railroads made expansion of the railroads possible. In turn, the railroads coupled with high tariffs made expansion of business possible. In turn, business enjoying both these supports and economies of scale, consolidated in the nineteenth century.
Late nineteenth century big business was poorly managed. It is likely that the labor conflicts and inefficiencies of the large firms were due to their too-rapid expansion. In management, experience is the foundation on which expansion depends. In a laissez-faire market, a firm becomes large as its managers gain expertise in one market and then duplicate the success in subsequent markets. An example is McDonald's. The founders of McDonald's, Dick and Mac MacDonald owned a single store in San Beranardino, California. Ray Kroc, a multi-mixer distributor, read about their success and visited the store. Kroc's vision of a national chain of stores led to his agreement with the McDonald brothers. But it took Kroc many years to make McDonald's a success. He had to learn the importance of standardization through multiple false starts in California. He had to learn the importance of professionalization of the franchisee relationship through mismanagement of franchises by his friends from his country club who did not focus on managing the stores. He had to learn how to use real estate investment to help finance store expansion and contribute to profit margins from Harry J. Sonneborn. He had to learn how to standardize equipment and the size of French Fries. Kroc did not conceptualize almost any of the food offerings, most of which were the result of suggestions from franchisees. He did not create the clown, which was the result of a local advertising campaign by one of his large Washington, DC franchisees.
Would any of the steps that McDonald's took have been made had there been a massive tariff on hamburgers or if state governments, in return for bribes, had offered exclusive distributorships to Ray Kroc, or if credit expansion through the Federal Reserve Bank had benefited McDonald's as it does Wall Street today? Would any of the innovation in McDonald's have occurred?
In the early 1960s Ronald Coase wrote about the reason that organizations reach a given scale or size. He argued that, like much else in economics, it is due to an equilibration of costs and benefits. The costs of scale include ability to manage, incentives to top management, conflicts between labor and management, difficulties in obtaining information about operations, inflexibility in changing direction when markets change and office politics. The advantages of scale include economies of scale and economies of scope, i.e., the ability to share information learned in one business to a different business, much as Time Warner's AOL unit was able to share information with Roadrunner (that's a joke; the Time Warner and AOL units were in constant conflict after their ill-advised and incompetently executed merger).
The subsidies to big business have increased, not diminished, over time. The Democrats have inadvertently or not, been big business's best friend by demanding regulation, supposedly in support of big labor, that squelches smaller firms by further increasing the advantages of scale economies. They have also established the Federal Reserve Bank, which once the Republicans realized was actually the most important of all the subsidies to big business went on a binge and nearly doubled the rate at which the money supply grew after 1971. The Democrats have never complained, and have follwed the same course since. Thus, both parties have seen subsidization of Wall Street and big business at public expense as the cornerstone of their economic policies. The Democrats came up with the idea and the Republicans enhanced it. I became a Republican because the Democrats are better at initiating big government programs that subsidize big business. They do it by telling everyone that they support the poor and that the regulation supports the poor. But there were no segregated inner cities before the Democrats began to "support" the poor.
Which will outbalance the other--office politics or economies of scale and scope? Clearly, if government is providing support to big business, the amount of support needs to be subtracted from the gains from economies of scale.
Moreover, time has revealed that scale is not the most important factor in management. The Japanese were able to defeat big American business not because of scale but because of skill. Wal-Mart was able to defeat K-Mart not because of scale (it was a smaller firm until the 1990s) but because of skill. In particular, management of information, incentives, labor relations, inventory, factory management, total quality management, technology, product design and marketing, and similar factors can generate competitive advantages. Large firms like Nike have found it necessary to emulate small firms. They outsource their manufacturing and reserve the product design and marketing for themselves. In effect, they are consultants who control the business. These ideas have been circulating for many years. Yet, they bring into question whether scale provides much of an advantage. Coca Cola has found that local manufacturers can out-think them with respect to understanding local tastes, and has had to scramble to decentralize in order to compete globally. Its original vision of a one-world market drinking trillions of gallons of Coca-Cola was illusory.
Thus, the American idea, rooted in the expansion into the frontier, that scale and the expansion of markets is necessary results in a paradox. If scale is the source of economic gains, then why are such extensive subsidies to big business necessary? And if scale is crucial, why has there been so much volatility in world business?
But while the public has accepted the argument that big business is necessary for consumerism because only large firms can produce large numbers of outputs, big business has tactically demanded and likely required government subsidies in order to survive. And there is a paradox. For if big business is most efficient, then why does it need subsidies? In his 1977 book Politics and Markets Charles Lindblom argued that business occupies a "privileged position". More fundamentally, ever since the days of Hamilton, and with the exception of some business interests in the late nineteenth century, much of American business has asked for two crucial kinds of subsidies: protectionist tariffs and monetary expansion. When Jackson abolished the Second Bank in the early 1830s he limited the degree of monetary expansion. That period, from the 1830s to 1900, was the period of greatest innovation in technology and strongest gains in real hourly wages of workers of any in American history. It was also a period of uncertainty, volatility and conflict between labor and management. However, even in the nineteenth century monetary expansion associated with the Civil War facilitated expansion of credit and therefore enhanced the size of business. By the late nineteenth century the Mugwumps, traditional, mostly Protestant (there were some Catholics and Jews as well in their ranks) Yankee elites in Boston and New York protested the support to speculators like Jay Gould that the monetary expansion had provided, coupled with erosion of their annuities and bank accounts.
The expansion of the railroads contributed mightily to the expansion of US markets into a single whole, and were the crucial step in making big business economically viable and efficient. But the railroads were largely the product of subsidy, and the canals that preceded them were government public works projects, not private enterprise. Neither the railroads or canals were entirely responses to market demand. Rather, they were made possible by land grants and rights of way granted by often corrupt state and local governments. An example is New York, where Jay Gould was so indebted to Boss Tweed that he paid Tweed's bail when Tweed was arrested for corruption. Thus, the Civil War inflation and government subsidies to railroads made expansion of the railroads possible. In turn, the railroads coupled with high tariffs made expansion of business possible. In turn, business enjoying both these supports and economies of scale, consolidated in the nineteenth century.
Late nineteenth century big business was poorly managed. It is likely that the labor conflicts and inefficiencies of the large firms were due to their too-rapid expansion. In management, experience is the foundation on which expansion depends. In a laissez-faire market, a firm becomes large as its managers gain expertise in one market and then duplicate the success in subsequent markets. An example is McDonald's. The founders of McDonald's, Dick and Mac MacDonald owned a single store in San Beranardino, California. Ray Kroc, a multi-mixer distributor, read about their success and visited the store. Kroc's vision of a national chain of stores led to his agreement with the McDonald brothers. But it took Kroc many years to make McDonald's a success. He had to learn the importance of standardization through multiple false starts in California. He had to learn the importance of professionalization of the franchisee relationship through mismanagement of franchises by his friends from his country club who did not focus on managing the stores. He had to learn how to use real estate investment to help finance store expansion and contribute to profit margins from Harry J. Sonneborn. He had to learn how to standardize equipment and the size of French Fries. Kroc did not conceptualize almost any of the food offerings, most of which were the result of suggestions from franchisees. He did not create the clown, which was the result of a local advertising campaign by one of his large Washington, DC franchisees.
Would any of the steps that McDonald's took have been made had there been a massive tariff on hamburgers or if state governments, in return for bribes, had offered exclusive distributorships to Ray Kroc, or if credit expansion through the Federal Reserve Bank had benefited McDonald's as it does Wall Street today? Would any of the innovation in McDonald's have occurred?
In the early 1960s Ronald Coase wrote about the reason that organizations reach a given scale or size. He argued that, like much else in economics, it is due to an equilibration of costs and benefits. The costs of scale include ability to manage, incentives to top management, conflicts between labor and management, difficulties in obtaining information about operations, inflexibility in changing direction when markets change and office politics. The advantages of scale include economies of scale and economies of scope, i.e., the ability to share information learned in one business to a different business, much as Time Warner's AOL unit was able to share information with Roadrunner (that's a joke; the Time Warner and AOL units were in constant conflict after their ill-advised and incompetently executed merger).
The subsidies to big business have increased, not diminished, over time. The Democrats have inadvertently or not, been big business's best friend by demanding regulation, supposedly in support of big labor, that squelches smaller firms by further increasing the advantages of scale economies. They have also established the Federal Reserve Bank, which once the Republicans realized was actually the most important of all the subsidies to big business went on a binge and nearly doubled the rate at which the money supply grew after 1971. The Democrats have never complained, and have follwed the same course since. Thus, both parties have seen subsidization of Wall Street and big business at public expense as the cornerstone of their economic policies. The Democrats came up with the idea and the Republicans enhanced it. I became a Republican because the Democrats are better at initiating big government programs that subsidize big business. They do it by telling everyone that they support the poor and that the regulation supports the poor. But there were no segregated inner cities before the Democrats began to "support" the poor.
Which will outbalance the other--office politics or economies of scale and scope? Clearly, if government is providing support to big business, the amount of support needs to be subtracted from the gains from economies of scale.
Moreover, time has revealed that scale is not the most important factor in management. The Japanese were able to defeat big American business not because of scale but because of skill. Wal-Mart was able to defeat K-Mart not because of scale (it was a smaller firm until the 1990s) but because of skill. In particular, management of information, incentives, labor relations, inventory, factory management, total quality management, technology, product design and marketing, and similar factors can generate competitive advantages. Large firms like Nike have found it necessary to emulate small firms. They outsource their manufacturing and reserve the product design and marketing for themselves. In effect, they are consultants who control the business. These ideas have been circulating for many years. Yet, they bring into question whether scale provides much of an advantage. Coca Cola has found that local manufacturers can out-think them with respect to understanding local tastes, and has had to scramble to decentralize in order to compete globally. Its original vision of a one-world market drinking trillions of gallons of Coca-Cola was illusory.
Thus, the American idea, rooted in the expansion into the frontier, that scale and the expansion of markets is necessary results in a paradox. If scale is the source of economic gains, then why are such extensive subsidies to big business necessary? And if scale is crucial, why has there been so much volatility in world business?
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