Since the financial collapse of 2008, the advocates of regulation and the supporters of competition (via breaking up the banks) have echoed a debate that took place 100 years ago.
The presidential election of 1912, which occurred at the climax of modern industrialization and finance capitalism, featured four candidates espousing different solutions.
Eugene V. Debs, running on the Socialist Party ticket, called for government ownership of railroads, utilities and large-scale manufacturers. William Howard Taft, the champion of the regular Republican Party, implied leaving control in the hands of the political and economic Old Guard. Debs gave Woodrow Wilson and others a scare by receiving almost 1 million votes, though neither extreme had any chance of winning.
Rather, the contest was between two visions of Progressive reform. Theodore Roosevelt, the creator of the dissident Bull Moose Party, offered a more radical program -- democratic collectivism. Roosevelt advocated a strong centralized state, empowering a trade commission to regulate the new industrial giants in the public interest. He rejected as hopeless and self- defeating the attempt to restore a romantic and “mythical” competition. Instead, he called on the nation to harness the technology, efficiency and managerial skills of the modern corporation.
At the same time, the federal government needed to use its power to improve the lot of the powerless (women, children and the poor) through a cap on work hours for women, the outlawing of child labor, workmen’s compensation and expanded health services. Inheritance and income taxes would pay for the program, termed the New Nationalism.
Wilson, the Democratic Party’s nominee, was originally a conservative, laissez-faire Southern Democrat. But catching the spirit of the times, he adopted Progressivism and passed a remarkable reform program as governor of New Jersey. Now pushed by the Populist William Jennings Bryan and advised by Louis D. Brandeis, Wilson argued that monopolies were inherently evil and that Roosevelt’s solution would result in big business domination of the nation. Increased competition, however, would unleash economic growth at home and abroad while fostering entrepreneurship. His platform was known as the New Freedom.
A funny thing happened on the way to Wilsonian reform, a pattern that would be repeated throughout the following century. Largely influenced by Brandeis, Wilson paid lip service to restoring competition and supporting labor with the Clayton Antitrust Act, but backed the regulatory approach of the New Nationalism.
Congress created the Federal Trade Commission, which mostly protected big corporations from antitrust prosecution, and Wilson’s appointees were friendly to big business. The most critical battle shifted to banking legislation, which required major updates after the Panic of 1907. The Federal Reserve System represented a compromise between government and private control, with Washington taking responsibility for the money supply.
The FTC became the model for subsequent regulatory agencies: the Federal Communications Commission, the Civil Aeronautics Board, the Securities and Exchange Commission and the Federal Farm Board. Indeed, large corporations came to support these institutions because they advanced the interests and agendas of big companies, promoted efficiency and predictability and cushioned them from public criticism and state intervention.
Meanwhile, the existing antitrust laws and Populist rhetoric preserved the myths of competition, the importance of the “man on the make” and the responsibility to protect the consumer.
The New Deal added a few competitive measures, and Thurman Arnold, a crusading assistant attorney general in the Franklin D. Roosevelt administration, flirted with a new antitrust initiative until World War II stopped it cold. More significant was the strengthening of the federal government’s control over banking and securities in response to Wall Street’s sins, the stock-market crash and the Great Depression. But neither Roosevelt, nor any of his Democratic or Republican successors, tried to curtail oligopoly or wreck big business. The infrequent prosecutions of actual or near monopolies -- AT&T Corp. and International Business Machines Corp. (IBM) come to mind -- were partly dictated by new technology, and these companies remained as dominant as before (just as Exxon Mobil Corp. later resurrected the Standard Oil of New Jersey empire).
Therefore, except for egregious behavior, big business has generally been given a pass. Indeed, the charge of government- business collusion in the savings-and-loan collapse of the 1980s, in the recent mortgage debacle, in meat inspection and in the questionable approval of drugs and medical devices has a basis in fact.
As in the past, the threat to the U.S. financial system may force some national action. Based on the historical record, that’s apt to take the form of more regulation, not the breakup of the biggest banks.
(Noel H. Pugach is professor emeritus of history at the University of New Mexico. The opinions expressed are his own.)
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