When public institutions are governed by private interests. By Ralph Nader, 4 Oct 2017 on Common Dreams
A major chapter in American history – rarely taught in our schools – is how ever larger corporations have moved to game, neutralize and undermine the people’s continual efforts to protect our touted democratic society. It is a fascinating story of the relentless exercise of power conceived or seized by corporations, with the strategic guidance of corporate lawyers.
Start with their birth certificate – the state charters that bring these corporate entities into existence, with limited liability for their investors. In the early 1800s, the Massachusetts legislature chartered many of the textile manufacturing companies. These charters could be renewed on good behavior, because lawmakers then viewed charters as privileges contingent on meeting the broad interests of society.
Fast forward to now. The charter can be granted online in a matter of hours; there are no renewal periods and the job is often given over to a state commission. Over the decades, corporate lobbyists have had either the legislatures or the courts grant them more privileges, immunities and concentration of power in management, rendering shareholders – their owners – increasingly powerless. The same corporate fixers work for corporations and their subsidiaries abroad to help them avoid US laws, taxes and escape disclosures.
Remarkably, the artificial creation called the “corporation” has now achieved almost all of the rights of real people under our “We the People” Constitution that never mentions the words “corporation” or “company.”
Corporations cannot vote, at least not yet; only people can. That was seen as a major lever of democratic power over corporations. So what has happened? Commercial money to politicians started weakening the influence of voters because the politicians became increasingly dependent on the corporate interests that bankrolled their campaigns. The politicians use their ever-increasing corporate cash to saturate voters with deceptive political ads, and intimidate any competitors who have far less money, but may be far better representative of the public good.
To further shatter the principle of voter sovereignty, corporations have rewarded those politicians who construct restrictive political party rules, gerrymander electoral districts and obstruct third party candidate ballot access. By concentrating political power in fewer and fewer hands, corporate influence becomes more deeply entrenched in our democratic society. Politicians quickly learn that political favors will attract more corporate campaign cash and other goodies.
Institutions that are supposed to represent democratic values, such as Congress and state legislatures are meticulously gamed with the daily presence of corporate lawyers and lobbyists to shape the granular performance of these bodies and make sure little is done to defend civic values. These pitchmen are in the daily know about the inner workings of legislative bodies long before the general public. They often know who is going to be nominated for judicial and executive branch positions that interpret and administer the law and whether the nominee will do the bidding of the corporate bosses.
Then there is the press. Thomas Jefferson put great responsibility on the newspapers of his day to safeguard our democracy from excessive commercial power and their runaway political toadies. Certainly, our history has some great examples of the press fulfilling Jefferson’s wish. For the most part, however, any media that is heavily reliant on advertisements will clip its own wings or decide to go with light-hearted entertainment or fluff, rather than dig in the pits of corruption and wrongdoing.
What of the educational institutions that purport to convey facts, the lessons of history and not be beholden to special interests? The corporate state – the autocratic joining of business and government – exerts its influence all the way down to the state and local levels, not just in Washington. It works through boards of education and trustees of colleges and universities, drawing heavily from the business world and its professional servants in such disciplines as law, accounting and engineering.
Moreover, the most influential alumni, in terms of donations, endowments and engagements, come from the business community. They know the kind of alma mater they want to preserve. The law and business schools are of particular interest, if only because they are the recruiting grounds for their companies and firms.
Their subversion even extends to the sacrosanct notion of academic freedom – that these institutions must be independent centers of knowledge. For example, Monsanto, General Motors, Exxon and Eli Lilly are only a few of the companies that have pushed corporate, commercial science over academic, independent science through lucrative consultantships and partnerships with professors.
The unfortunate reality is that the wealthy and powerful are driven to spend the necessary time and energy to accomplish their raison d’etre, which are profits and the relentless pursuit of self-interest. Citizens, on the other hand, have so much else on their minds, just to get through the day and raise their families.
The path forward is to learn from history how citizens, when driven by injustice, organized, raised the banners of change and concentrated on the ways and means to victory. These initiatives require civic self-respect and an understanding that the status quo is demeaning and intolerable.
The requisite to such an awakening is the awareness that our two precious pillars of democracy – freedom of contract and freedom to use the courts – are being destroyed or seriously undermined by corporate influence. The contract servitude of fine-print contracts, signed or clicked on, is the basis of so many of the abuses and rip-offs that Americans are subjected to with such regularity. Add this modern peonage to the corporate campaign to obstruct the people’s full day in court and right of trial by jury guaranteed by our Constitution. The plutocrats have succeeded in gravely doing just that. Tight court budgets, the frequency of jury trials and the number of filed wrongful injury lawsuits keep going down to case levels well under five percent of what the needs for justice require.
Some fundamental questions are: Will we as citizens use our Constitutional authority to reclaim and redirect the power we’ve too broadly delegated to elected officials? Will we hold these officials accountable through a reformed campaign finance system that serves the people over the plutocrats? Will we realize that a better society starts with just a few people in each electoral district and never requires more than one percent of the voters, organized and reflecting public opinion, to make the corporations our servants, not our masters?
Honoré de Balzac had once opined that a crime lurked behind every great fortune. Muckraker tales would confirm his suspicion. America’s rich, “these devotees to the Faith of Greed,” muckraking author William Vickroy Marshall thundered in 1909, “are in the eyes of the moral law, if not in that of the criminal law, villains a hundredfold more perfidious and deserving of punishment than are the most bloodthirsty anarchists or howling bomb throwers.”29 That same year, Gustavus Myers, a journalist famed for his exposé of the New York Tammany Hall political ring, produced a massive three-volume industry-by-industry compendium of this moral and legal criminality, with mind-numbing detail that aimed to explain the “accelerated concentration of immense wealth” Americans now found pressing down so heavily upon them.30
But America’s immensely wealthy, other more subtle observers realized, hadn’t just broken the law. They had changed the law, rewritten the rules that govern how America’s capitalist economy operates—and, with that rewriting opened the door to a ferocious amassing of wealth that dwarfed the thievery of the post–Civil War robber-baron years. The businesses the robber barons created had typically operated as closely held corporations or partnerships. In effect, the founders of these companies owned the entire business, sometimes with family, friends, and close associates. If these companies needed money, notes financial historian Lawrence Mitchell, “they dipped into their earnings, went to the bank, or sold bonds.”31 Few of them sold stock in their enterprises to raise capital. New York’s stock market played a distinctly second-tier role in this “founder capitalism.” That would suddenly change in the 1890s. In a few short years, as Lawrence Mitchell observes, the stock market evolved from a “disruptive game, played by a few professionals and thrill-seeking amateurs that from time to time erupted into a major frenzy,” into American capitalism’s new “genetic material.”32
American corporations, as originally constituted in the decades after the Civil War, manufactured products and offered services. To prosper, they needed to sell more of what they made and brought to market. The new corporation that leaped onto the scene in the late 1890s existed, by contrast, to sell shares of stock, not products—stock, explains Mitchell, “that would make its promoters and financiers rich.”33 None of this would have been possible without changes in America’s economic rules.
Traditional corporate law had prohibited one corporation from buying and holding stock in another. In 1889, New Jersey enacted legislation that invited corporations to buy and hold as much stock in other companies as they pleased. By 1896, companies could do even more: They could use their own stock to buy up other companies. These stock swaps, notes historian Mitchell, left “the matter of price entirely within the discretion of corporate directors,” a subtle and incredibly lucrative alteration. In earlier times, any enterprise issuing shares of stock had to take into account the actual hard value of the enterprise’s assets, in much the same way that borrowers have traditionally had to present collateral when they go after a bank loan. If a borrower wants $10,000, the traditional banker will want to see collateral worth that same $10,000 in case the borrower defaults on the loan. The new corporate order that New Jersey introduced severed this link between real assets and share value. Wheelers and dealers of companies could do their own asset valuing, and they had, as Mitchell points out, “almost irresistible incentives to put high values on the assets they were buying.” “The more they valued their assets, the higher the amount of capital they could justify and the more stock they could issue,” he explains. “The more stock they could issue, the more stock they could take for themselves. And the more they could take for themselves, the more they could sell on the market for cash.”34 464
Morgan “capitalized” the entire enterprise at $1.4 billion, over twice that amount. He created for investors, in effect, over $700 million out of thin air. For his own investment banking operation, Morgan took 1.3 million shares in US Steel as a fee for putting the giant steel combination together—and then unloaded those shares onto the stock market for a sweet $62.5 million, clearing the equivalent of about $1.65 billion in today’s dollars.38 509
Giant “trusts” like US Steel would soon be rising up all across America’s economic landscape. DuPont held over 70 percent of the chemical market, International Harvester the same mastery over farm machinery.39 The “trusts,” one 1905 report concluded, held a fifth of the nation’s wealth, with no more than sixty men, analysts estimated, controlling this entire vast block of power.40 Five years into the new century, the great merger wave had washed away over 2,200 independent companies.41 The same wave left behind a host of colossal individual fortunes. 513
“Few slaves on a southern plantation ever worked harder, or had less in the way of amusement or recreation in the course of the year, than we.” How many American families endured hardships this unrelenting in the early 1900s? One economist, Henry Laurens Call, endeavored to catalog the nation’s entire population by level of privilege in an American Association for the Advancement of Science paper he delivered just after Christmas in 1906. Only “the one-thousandth part of our population can be said to be enormously rich,” Call estimated, with those living in merely “comfortable circumstances” making up, overall, “perhaps the one-twentieth part” of the nation. America’s remaining 95 percent, Call told his Columbia College audience, “cannot be said to live other than a precarious existence; compelled to depend upon their day’s labor for life itself, and if the right to toil be denied them, brought face to face with actual want.”56 “A sad spectacle this, under any circumstances,” Call lamented. “Viewed in connection with our enormous wealth production, and the billionaire fortunes of the day, it is an infamous spectacle!” 581
The Associated Charities of Pittsburgh, Brandeis noted, had recently investigated “what it costs for a family consisting of husband, wife, and three children, not to live, but barely to subsist.” “If the common laborers in the steel industry were to work twelve hours a day for 365 days a year,” Brandeis told his audience, “they would be unable to earn even that minimum amount.”57 Another wealthy and troubled attorney, Amos Pinchot of New York, would later that year observe that the steel industry actually promenaded as “one of the more humane trusts.”58 How can we attach a label of humanity, Pinchot wondered, to an industry “of enormous profit making” that works its laborers seventy-two hours a week, eighteen more than the maximum allowed in England’s steel mills?
The most ambitious effort to chronicle America’s early-twentieth-century economic inhumanity would come from a federal panel known as the Commission on Industrial Relations. Two of the country’s most celebrated social workers, Chicago’s Jane Addams and New York’s Lillian Wald, had asked President William Howard Taft in 1911 to appoint an official federal commission that could “gauge the breakdown” of the nation’s industrial economy.59 Taft dithered. The panel would not take final shape until two years later, under President Woodrow Wilson, and the commission’s staffers would spend two more years conducting hearings in all the nation’s big cities. They took testimony from employers, trade union and civic leaders, clergy, doctors, efficiency engineers, economists, bankers, corporate directors, and ordinary “workingmen and working women.” In August 1915, commission research director Basil Manly presented the staff’s “findings of fact, conclusions, and recommendations.”60 This staff report related that “the very least that a family of five persons can live upon in anything approaching decency is $700.” America’s highest-paid wage-earners—railroad engineers and skilled craftsmen like glassblowers—could annually take home as much as $2,000, enough to bring “a fair living for a family of moderate size, education of the children through high school, a small insurance policy, a bit put by for a rainy day—and nothing more.”
But occupations that can bring a “fair living,” the commission staff added, amount to “but a handful compared to the mass of the workers.” Only one-tenth of male factory and mine workers eighteen years of age and older “earn more than $20 a week.” Two-thirds to three-fourths were making less than fifteen dollars—and as many as one-third were taking home less than ten dollars per week, or around $500 a year.
Women were making substantially less. Weekly wages in factories, stores, and laundries seldom inched over eight dollars. Nearly one-half of women workers labored for weekly paychecks less than six dollars. What does a wage this low, the commission report asked, mean to America’s young employed women? The report had an answer: To the girl it means that every penny must be counted, every normal desire stifled, and each basic necessity of life barely satisfied by the sacrifice of some other necessity. If more food must be had than is given with 15 cent dinners, it must be bought with what should go for clothes; if there is need for a new waist to replace the old one at which the forewoman has glanced reproachfully or at which the girls have giggled, there can be no lunches for a week and dinners must cost five cents less each day. Always too the room must be paid for, and back of it lies the certainty that with slack seasons will come lay-offs and discharges. And then came the children. Every American child, the commission report observed, ought to be receiving at least a grammar school education. Only one-third did. Only one-tenth finished high school. 593
“Those who leave are almost entirely the children of the workers, who, as soon as they reach working age,” the commission report continued, “are thrown, immature, ill-trained, and with no practical knowledge, into the complexities of industrial life.” By “working age,” the commission investigators meant the age a child could literally begin to perform useful labor. In some industries, that could be age ten, or even younger. The wages these children brought home may have been America’s cruelest joke. Indeed, the commission staff concluded, the dollars children earned did not matter in the end because “all experience has shown” that the wages fathers earn get “reduced by about the amount that the children earn.” In those industries “where women and children can be largely utilized,” the commission found, men’s wages run “extremely low.” Other blue-ribbon panels and commissions would deepen the portrait of poverty the Industrial Commission painted. The New York Factory Investigating Commission found 13,268 tenements “licensed for home manufacturing.” In each of these tenements, as many as fifty apartments would have entire families laboring on piecework of various sorts, with five or six people each working at least five hours daily. The average daily net proceeds from this labor: forty cents for an entire family.61 624
In Midwestern steel plants, a 1910 study disclosed, 15 percent of Slavic immigrants suffered a serious injury every year.66 In Pennsylvania’s Allegheny County, steel industry accidents claimed five hundred lives a year.67 The railroads would be a particularly dangerous place to work. Between 1890 and 1917, computes one recent historical accounting, “158,000 mechanics and laborers were killed in repair shops and roundhouses, another 72,000 workers on the tracks, and close to 2 million were injured.”68 One enterprising journalist dove into the railroad accident records to demonstrate that the bloody 1894 national railroad strike actually saved worker lives. Railroad accident casualties in the two years before the strike, the journalist showed, averaged three thousand per month. The strike idled a fifth of the nation’s railroads for half a month. If those railroads had operated that half-month, three hundred workers would have likely perished. The strike left only a hundred workers killed or wounded.69 Strike and die. Work and die. By the early 1900s, the deck seemed totally stacked against working people. And the turn-of-the-century merger wave only made matters worse. The Reverend Washington Gladden, a Congregational pastor who served on the city council in Columbus, Ohio, saw the “great consolidations of business” as a corporate move to keep labor forever tamed. Workers, Gladden noted in a 1905 lecture, had cause to “regard those huge combinations of capital with grave suspicion.”70 Giant merged corporations, he explained, could easily shut down “mills and furnaces” where workers struck for higher wages and shorter hours, and transfer their production to other mills and furnaces. 647
Huge swatches of the American people could not vote. Women had no vote. Black men in the South largely had no vote thanks to new poll taxes, literacy tests, and residency rules that also struck substantial numbers of poor whites off the voting rolls. Overall turnout in Virginia dropped from 59.6 percent of potential voters in 1900 to 27.7 percent in 1904.72 Many immigrants had no vote either. In 1910, one of every seven adult males living in the United States rated as a non-naturalized immigrant and could not cast a ballot.73 671
Amazingly, despite all the campaign cash and election rigging, legislation that sought to even the economic playing field occasionally did become law. In these rare cases America’s rich could always count on their robed brethren. State and federal courts routinely ruled reform laws unconstitutional. Judges struck down legislation that forced employers to pay wages on a timely basis. They refused to allow regulations that defined the situations where employers could be held liable for workplace injuries. They allowed employers to blacklist union-friendly workers and deny them gainful employment.74 Other laws of the land would become, upon judicial review, reverse images of the original legislative intent. The Fourteenth Amendment, a measure intended to protect the rights of African Americans, evolved “into an outright prohibition on state regulation of the market to protect wage earners,” notes historian Alan Dawley.75 The 1890 Sherman Antitrust Act, never much more than a symbolic sop to angry farmers in the first place, would enable judges to routinely issue injunctions—court orders—to stop strikes and other acts of labor resistance.76 Unions and their allies, courts ruled, could not conduct consumer boycotts against intransigent employers. 675
In his first Senate year he secured an amendment to the 1890 census bill that required enumerators “to ascertain the distribution of wealth through an inquiry into farms, homes, and mortgages.” Later, in 1898, Pettigrew used data from that enumeration to charge that four thousand families, just 0.03 percent of the population, held 20 percent of the nation’s aggregate wealth.79 693
“The question as to what becomes of what the toilers of the land produce, whether it goes to them or is taken from them by special privileges, and accumulated in the hands of a very few people,” Pettigrew told his Senate colleagues, “is a very important one and reaches ultimately the question of the preservation of free institutions.”80 His colleagues, by and large, paid no attention. Meanwhile, other statisticians went scrounging for additional data. Dr. Charles B. Spahr used New York State surrogate court data on inheritances to estimate that America’s richest 1 percent owned just over half the nation’s wealth. His data covered the same basic timeframe as the 1890 census and seemed to roughly match up with Pettigrew’s figures.81 Henry Laurens Call, in his 1906 American Association for the Advancement of Science presentation, used Spahr’s research as a starting point. Given the enormous concentration of wealth since 1890, Call calculated that the nation’s richest 1 percent might at that moment be holding as much as 90 percent of the nation’s treasure.82 697
John Spargo, a British socialist writer who had moved to the United States in 1901, used occupational data from the 1900 census to argue that just under 1 percent of those gainfully employed held just over 70 percent of the nation’s total wealth.85 Will-ford King, a conservative University of Wisconsin statistician, had set out to rebut the claims coming from socialists like Spargo. But the numbers he found would give him pause. As of 1910, he concluded in a 1915 report, the nation’s richest 2 percent seemed to be holding as much as 60 percent of the nation’s wealth, the poorest 65 percent, only 5 percent.86 714
Industrial Relations Commission’s chairman, Missouri attorney Frank Walsh, would not be as restrained. In a supplemental statement to the staff report, Chairman Walsh passionately vented his anger. America’s great “inherited fortunes,” he charged, “automatically treble and multiply in volume” while average Americans toil up to twelve hours a day. “From childhood to the grave,” Walsh continued, average Americans “dwell in the shadow of a fear that their only resource—their opportunity to toil—will be taken from them, through accident, illness, the caprice of a foreman, or the fortunes of industry.” Average American families, he raged, find their babies “snuffed out by bad air,” their fathers and husbands “maimed in accidents.”87 Walsh’s rage surprised no one. By 1915, all sorts of Americans were giving voice to similar passion. Even a president of the United States. “We have been proud of our industrial achievements,” Woodrow Wilson proclaimed in his 1913 inaugural, “but we have hitherto not stopped thoughtfully enough to count the human cost, the cost of lives snuffed out, of energies overtaxed and broken, the fearful physical and spiritual cost to the men and women and children upon whom the dead weight and burden of it all has fallen pitilessly the years through.” “The great Government we loved has too often been made use of for private and selfish purposes,” intoned Wilson, “and those who used it had forgotten the people.”88
The selfish Americans Wilson condemned couldn’t care less about “the people.” At one hearing, Industrial Relations Commission chairman Frank Walsh had asked the great J. Pierpont Morgan “to what extent are the directors of corporations responsible for the labor conditions existing in the industries in which they are the directing power?” “Not at all I should say,” Morgan replied.89 724
Employers, magazine editor Norman Hapgood would later recall, “used to tell me that higher wages and shorter hours would merely be spent in drink.” And if lawmakers were to hold corporations liable for industrial accidents, employers warned Hapgood, employees would go and have “their legs cut off on purpose.”91 James J. Hill, the chairman of the Great Northern Railway, took every opportunity to blast the foolishness that would upset the genius of the nation’s “natural” economic order. He saw “waste, idleness, and rising wages all interrelated to one another, now as cause and now as effect,” and considered “the modern theory that you can safely tax the wealthy” as “just as obnoxious as the medieval theory that you can safely oppress or kill the poor.”92 In a 1909 newspaper interview, Hill, then worth over $2 billion in today’s dollars, blamed the high cost of living on the extravagance of the American people. “He was asked,” the newspaper story related, “how the American people as a whole could be very extravagant on an average wage of $437 a year, which is the wage that the census of 1900 revealed.” Extravagance, Hill harrumphed, clearly constituted a “relative” phenomenon. America’s workers, like everyone else, should practice “thrift and economy.” At the time Hill lived in a five-floor Minnesota mansion that featured thirteen bathrooms, twenty-two fireplaces, sixteen crystal chandeliers, and a hundred-foot-long reception hall. 745
They saw their democracy sliding away, sinking down the ever-deeper crevice that separated America’s plutocrats from everyone else. These Americans would challenge the plutocracy that ruled them. They would fight to end it. Some even thought they might succeed. 765
A ruling rich, in whatever era they may rule, need more than sheer might and money to get their way. They need those below them to trust in them. By 1912, few Americans trusted the rich and powerful. The claims that the nation’s plutocratic elite had so long advanced—the notion, most notably, that grand fortunes represent grand victories for the human race, a “survival of the fittest” that all Americans ought to welcome and celebrate—had come to ring preposterously hollow, even among some of the rich and powerful themselves. Most Americans, a decade into the new century, did not see a social order poised for progress or even survival. They saw a nation rotting at the core, and they saw at that core massive concentrations of private wealth that someday, if left unchecked, might even destroy the nation. “The distribution of the accumulated earnings of the great working masses,” as US Senator Albert Cummins from Iowa would posit, “is the burning issue of the day—the great question which overshadows every other problem in America.”3 This “problem of distribution,” the Republican Cummins believed, “will wreck the American republic, if the republic ever is wrecked.” And that wrecking, in the early 1900s, seemed a real possibility. “Comparatively few men,” Cummins lamented, “now virtually control the necessities of life.” And history taught what such narrow control inevitably brings. “Ancient Persia died when 2 percent of the people owned all the land and kept most of its products,” a New York Times writer reminded readers in 1909 after interviewing railroad mogul James J. Hill. “Rome went down when 1,800 men owned what was then all of the known world.”4 786
Politically, the young and successful Brandeis remained conventional. He opposed William Jennings Bryan in 1896. McKinley and the men around him, Brandeis believed, had the nation’s best interests at heart. Brandeis certainly shared their underlying attitudes. The nation, he noted in one lecture series, didn’t need laws protecting workers from long hours or substandard wages. Anyone who wanted to work long hours ought to have the freedom to do so. Long hours of work, Brandeis opined, probably pose no more danger to worker health “than the eating of mince pies by people with weak digestion.”7 Ruling elites, whatever their epoch, need people like this young, respected—and clueless—Louis Brandeis. They can reign secure so long as these respectables remain content. But woe to these elites when respectables like Louis Brandeis start doubting the prevailing wisdom of their time.
In the United States that doubt started gaining momentum after plutocracy’s grand triumph in 1896. By the early 1900s appreciable numbers of professionals as distinguished as Louis Brandeis had come to believe that an unequal America was not working out—and never could. “The rising resentment at plutocratic action will make itself severely felt,” Brandeis would write his brother. “After all, we are living in a Democracy, and some way or other, the people will get back at power unduly concentrated, and there will be plenty of injustice in the process.”8 Why did Brandeis and so many of his fellow professionals start doubting in the years after McKinley’s 1896 triumph? The motivations—the pressures—varied. For Brandeis himself, a deep sensation of disgust likely played a role. The increasing inefficiency and corruption he encountered in his professional life and public service endeavors left him appalled. Brandeis believed in honesty and fair play, and many men of property, he discovered, simply didn’t. 817
Brandeis would soon find himself investigating and litigating cases that involved his state’s most powerful business interests. By the late 1890s, notes historian Melvin Urofsky, Brandeis was formulating “a coherent philosophy about the nature of American society, the relation of an industrial economy to political democracy, and the need to restrain bigness.” Modern industrial America, Brandeis had come to believe, needed a distinctly more level playing field. Men of great property and influence could no longer be allowed to set their own rules and place the public in jeopardy.10 Only by daring to challenge great wealth could that public be protected, and his profession, Brandeis acknowledged, had largely failed in that task. America’s lawyers, “instead of holding a position of independence between the wealthy and the people,” have “allowed themselves to become an adjunct of the great corporations.” They have, Brandeis concluded, “neglected their obligation to use their powers for the protection of the people.”11 Other successful lawyers would follow Brandeis into confrontation with plutocracy. Samuel Untermyer, a wealthy New York corporate attorney, would become a tireless voice for regulating the stock market. He served as counsel to the congressional panel, the Pujo Committee, that went after the “money trust” in 1912 and 1913.12 In Georgia, attorney John Reed began contemplating “the American situation” after writing a legal textbook. With that contemplation, he would later relate, “plutocracy began to startle and alarm him.” Reed would eventually develop a political hierarchy of plutocratic corruption. Streetcar, lighting, heat, power, telephone, and other local utility companies run America’s cities, he concluded. Steam railroads, telegraph, oil, liquor, and banking corporations dominate the states, and national banks and trusts—maintained by “unjust favors to a few”—govern the country. “This supremacy of private corporations,” Reed charged, “has degraded America from the proudest and highest place ever attained by democracy far below any other civilized nation in the depths of corrupt government.”13 835
Gladden wrote five years later. “If capital deserves to prosper, capital must help labor to be prosperous: the contrary policy is not merely bad, it is stupid.”14 Ever greater rewards for capital, plutocrats had assured the nation, would give America’s captains of industry an incentive to forge ever more efficient industrial processes, and that efficiency would mean progress for society overall. But the rush after great wealth, skeptics began understanding, wasn’t generating industrial progress. The rich weren’t getting richer producing ever more efficiently. They were getting richer playing games with Wall Street securities, and America’s industrial know-how—the only real guarantor of national progress—was lagging significantly behind other industrial nations. The US Steel trust that emerged in 1901, as Louis Brandeis noted, inherited “the most efficient steel makers in the world.” But the US Steel monopoly let this advantage go by the boards. Just ten years after the massive merging that created the steel giant, America’s premier engineering journal declared the United States “five years behind Germany in iron and steel metallurgy.”15 Still other reformers began to distrust the enormous wealth of America’s upper class as they went about easing the suffering of America’s poor. These reformers contended that a culture that celebrated the rich as society’s “fittest” would inevitably dismiss the poor as unfit losers. No sane society, they argued, could afford to dismiss anyone. No one made this case more powerfully than Jane Addams, the nation’s most famous advocate for society’s “wretched refuse.” Addams had pioneered the “settlement house” movement, an effort that had middle-class people “settle” in poverty-ravaged slums to share their skills and culture. The greater the gap between rich and poor, her settlement house experiences led Addams to realize, the greater the peril for prosperous and poor alike. 857
“In the long run,” as by then former president Theodore Roosevelt observed at an April 1912 appearance in Philadelphia, “this country will not be a good place for any of us to live unless it is a reasonably good place for all of us to live in.”18 A deeply unequal America, reformers had become convinced, could never be that “reasonably good place.” The chase after grand fortunes made grand miseries—“the evils of surplus wealth,” as Columbia University philosopher Felix Adler dubbed them—inevitable. Adler then rated as one of America’s most honored moral voices. He had founded the Society for Ethical Culture and chaired the National Child Labor Committee, the pioneering social justice campaign that worked to unshackle young children from workplace exploitation. We have child labor, Adler told a 1907 Carnegie Hall audience, because employers can get rich employing it. That this labor must always pervert children’s “physical, mental, and moral growth” meant nothing to these employers “as long as they got labor cheap.” Elsewhere in the economy, Adler saw the same story. What could be more “utterly mean and contemptible,” he would ask, than the corporate giants who fill their customers “with worthless stuffs and poisons in the adulteration of food products and drugs.” And yet, he continued, “many fortunes had been built up upon such methods.” 881
Baptist minister Walter Rauschenbusch, an early Social Gospel movement leader, consistently deplored “the concentration of wealth in a few hands,” notes one contemporary Baptist commentary on his legacy. Wealth meant to nations, Rauschenbusch would preach, what manure meant to farms. Spread evenly over the soil, manure enriches the whole. With manure concentrated in heaps, the land becomes “impoverished and nothing will grow.”20 A Minnesota farmboy, John Ryan, would lead Catholics in the same Social Gospel direction. Ryan had grown up reading Henry George, the Gilded Age’s most tireless crusader against inequality, and as a St. Paul seminary student in 1892 had voted for the Populist Party’s first candidate for president. The Populist ticket that year held a personal attraction for Ryan: His fellow Minnesota Irish Catholic, Ignatius Donnelly, had written the preamble to that first Populist platform. “The fruits of the toil of millions are badly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind,” Donnelly had written. “From the same prolific womb of governmental injustice we breed the two great classes—tramps and millionaires.”21 The year before that platform appeared, Pope Leo XIII’s landmark “labor encyclical,” Rerum Novarum, had signaled church support for strategies that “give workers a stake in the appreciating wealth of industry.”22 Ryan, once ordained in 1898, would begin advocating for those strategies. His first major book, A Living Wage in 1906, would spurn “overly acquisitive and unregulated free market capitalism as economically unhealthy and morally bankrupt.”23 But moral outrage at inequality only partially explains the intense hostility that so many reformers ultimately came to feel about the plutocracy that engulfed them. Many of these respected pillars of their communities most certainly—and sincerely—did despise the suffering they saw. But they also feared what might happen if those suffering ever erupted in rage. In 1871, within living memory, a revolutionary upheaval in France had left blood gushing through the streets of Paris. Bloody confrontations between labor and capital had also broken out all across the United States in the decades after the Civil War. Reformers knew this history. Could violent revolution now rend America’s social fabric? Was the nation, as historian Paul Buhle has put it, “perched over a proletarian volcano”?24 Could that volcano blow at any moment? Everywhere reformers looked they seemed to see that eruption coming. A radical working class was once again rumbling. In 1905, a “Continental Congress” of this working class in Chicago gave birth to a fiery and uncompromising new union, the Industrial Workers of the World. Almost all of America’s already established unions organized workers by trade and craft. The IWW called instead for “one big union.” The “Wobblies,” as they would be dubbed, believed in “direct action,” not contracts. They would strike whenever justice demanded. If bosses came at them with thugs, they would not turn the other cheek. If need be, the Wobblies declared, they would fight back with sabotage. 896
Half the population of Lawrence over age fourteen, more than forty thousand workers in all, toiled in the city’s enormous wool and cotton mills. The millworkers typically earned less than ten dollars a week and routinely put over half their meager incomes into rent for their firetrap tenements. The workers subsisted, relates historian Joyce Kornbluh, on “bread, molasses, and beans.” Over a third of them, one local doctor calculated, were dying before they reached twenty-five years of age.31 952
Everyone under that big tent agreed that workers needed to change the rules that ran the economy. That meant, above all else, attacking the vast accumulations of wealth and power that had made those rules a hammer that pounded working people. “Democracy and Plutocracy cannot continue to exist together in the State,” Debs had expounded in 1900. “Democracy must be given new life or cease to be.”36 Socialists would continually emphasize the peril in tolerating towering accumulations of private property. Before the Civil War, Socialist writer Reginald Wright Kauffman noted, the nation’s “richest private estate” totaled no more than $7 million. The new century’s richest individual, John D. Rockefeller, had an estate worth “nearly one hundred times as much.” In their “mad race for profits,” Kauffman would charge, Rockefeller and his fellow capitalists were sacrificing workers’ “physical, moral, and mental welfare” to their “own insatiable greed.”37 “The wealth of the country was produced by labor,” Massachusetts Socialist James Carey echoed. “Capital itself produces nothing. Why should those who produce everything have nothing, while those who produce nothing have everything?”38 In the new “cooperative commonwealth” ahead, Socialists preached, workers would finally stand tall as economic equals. They would receive, Gene Debs forecast, “the full produce” of their labor.39 “I look into the future,” he would write, “with absolute confidence.” That confidence did not seem at all misplaced. Socialist parties in Europe were already making a significant impact. 1005
Croly’s Promise of American Life called on reformers to strike out at the “roots” of this “existing concentration” and would become a veritable political guidebook for Theodore Roosevelt and his circle. America, Croly implored, needed to subordinate the “peculiar freedom” to become fabulously wealthy to a new “constructive national purpose.” A new “nationalism” could defeat “socialism” if the government of the United States went about “making itself responsible for a morally and socially desirable distribution of wealth.”60 Religious leaders worried about socialism’s secular bent shared Croly’s sense of urgency. 1090
Exploitation, reformers believed, created plutocratic wealth. Plutocratic wealth gave the wealthy the political power they needed to frustrate reform. The reform project, so long as America remained plutocratic, would forever be frustrated. “We can have democracy in this country,” as Louis Brandeis would put it, “or we can have great wealth concentrated in the hands of a few, but we can’t have both.”65 Just how to end that concentration would be a matter of continuing debate in the years that led up to World War I. As president, Theodore Roosevelt had initiated a widely publicized series of antitrust prosecutions against oil, tobacco, and agricultural machinery manufacturers before he left office in 1909. But the great “trustbuster” never did much, outside these showcase confrontations, to undo the great merger wave that had “trustified” America over the turn of the century. His administration’s entire antitrust staff consisted of five attorneys and four stenographers.66 By 1910, an out-of-office Roosevelt would no longer pay lip service to busting bigness. He had come to see “combinations in industry” as an economic inevitability that “cannot be repealed by political legislation.”67 “The effort at prohibiting all combination has substantially failed,” Roosevelt pronounced. “The way out lies not in attempting to prevent such combinations, but in completely controlling them in the interest of the public welfare.”68 Reformers in the Brandeis circle disagreed. Big, they held, could never be beautiful. Beyond a certain size, businesses become inefficient and abusive—and too powerful to reign in with the sorts of regulation that Roosevelt’s camp considered appropriate. The federal government, in this perspective, needed to concentrate on preventing concentrations of marketplace power. Government had to establish and enforce rules that kept the marketplace freely competitive. “No regulated private monopoly of the capitalists,” Brandeis confided to his wife Alice. “Either competition or State Socialism. Regulate competition, not monopoly, is my slogan.”69 1111
collectively with employees, instituted profit sharing, and put in place a then novel assortment of fringe benefits for workers. He would go on to found the modern American credit union movement and help launch the US Chamber of Commerce, an effort Filene undertook to encourage community-mindedness among business leaders. 1149
In 1915, the federal Commission on Industrial Relations concluded in its final report that America needed a national “readjustment” that would “reduce the swollen, unearned fortunes of those who have a superfluity” and “raise the underpaid masses to a level of decent and comfortable living.”82 This enormous task—the leveling down of the rich, the leveling up of the poor—would require action, reformers agreed, on a broad variety of fronts. Some progressives campaigned to have municipalities run their own street railways and gas and electric light companies. Placing these “natural monopolies” under public control, they argued, would result in savings for local consumers—and deny plutocrats an easy path to excessive riches and power. In this report, the commission would call for public control on an even broader scale. The Commission recommended abolition of “private ownership of coal mines” and a complete federal buyout of the private American Telephone and Telegraph Company.83 These calls for “socializing” private enterprises met with widespread approval within respectable reform circles, even among those skeptical about socialism. By 1915, most reformers had come to consider public ownership of selected industries a reasonable policy alternative. Social Gospel leader Washington Gladden even expected to see, in the not too distant future, public “collective industry existing side by side with private industries, and no hard and fast line dividing them.”84 Other progressive campaigns concentrated on limiting the impact of plutocratic political power. Reformers pushed for bans on corporate contributions to political campaigns and new election rules that would enable voters to run detours around lawmakers beholden to plutocrats. Voters, progressives argued, needed the right to “recall” corrupted elected officials and vote down, in referendum balloting, any corrupt laws these lawmakers might pass. Voters also needed to be able to initiate their own laws. Finally, and perhaps most fundamentally, voters deserved the right to directly elect the members of the United States Senate. State legislators had up until then always chosen US senators, as constitutionally mandated. The nation’s wealthiest deeply appreciated this arrangement. A state legislative majority, after all, cost a good deal less to buy than a majority vote in a general election. And plutocrats bought with abandon, none more so than William Andrews Clark, the Montana copper mining mogul Mark Twain would later label “as rotten a human being as can be found anywhere under the flag.”85 In 1899, the Democrat Clark bribed enough Republican state legislators to get himself selected to the Senate, then bribed the grand jury convened to investigate the original bribery. In early 1900 the Senate would refuse to seat him. But later that year Clark would bankroll enough candidacies in state legislative races to get himself selected to the Senate once again, this time without having to bribe anyone.86 1185
“Those who succeed us,” Senator Clark would declare in the debate over creating a national forest system, “can well take care of themselves.” 1211
unconstitutional an income tax enacted in 1894. In the wake of that Supreme Court ruling, advocacy for taxing the incomes of rich people shifted to the state level. In Wisconsin, “Fighting Bob” La Follette would become governor in 1900 running on a platform that decried “the encroachment of the powerful few upon the rights of the many.” The Republican La Follette, notes historian Nancy Unger, considered the income tax “the only effective way to reach the invisible wealth of powerful parasites.” A decade of local struggle later, Wisconsin and four other states would have income tax laws on the books.93 1237
were moving in the opposite direction. In December 1906, five years into his presidency, the unpredictable TR would deliver a presidential address that totally startled his party’s Brahmins and vindicated one wag’s claim that the “two most extraordinary things in America” had to be “Niagara Falls and Theodore Roosevelt.”95 “The National Government has long derived its chief revenue from a tariff on imports and from an internal or excise tax,” the president noted. “In addition to these there is every reason why, when next our system of taxation is revised, the National Government should impose a graduated inheritance tax, and, if possible, a graduated income tax.96 No president had ever so explicitly endorsed the principle of progressive taxation. Roosevelt even advanced a philosophic rationale for his new tax-the-rich stance: “The man of great wealth owes a peculiar obligation to the State because he derives special advantages from the mere existence of government.” We need, the president continued, “to distribute the burden of supporting the Government more equitably than at present.” And the nation could do that distributing by placing “a constantly increasing burden on the inheritance of those swollen fortunes which it is certainly of no benefit to this country to perpetuate.” A half century later, Franklin Roosevelt’s tax adviser Randolph Paul would look back at Theodore Roosevelt’s 1906 tax speech and marvel. Teddy, Paul noted, was most certainly “airing unorthodox views about leveling off the inequalities of fortune prevailing in the country.” Unorthodox, that is, for Washington, DC. Elsewhere in America, beyond Pennsylvania Avenue, tax-the-rich sentiment united radicals and respectable reformers more than any other cause. Many of these reformers followed Roosevelt and emphasized the inheritance tax as a means to “mitigate” existing inequalities. “The preservation intact of a fortune over a certain amount,” Herbert Croly asserted in his 1909 Promise of American Life, “is not desirable either in the public or individual interest.”97 The rich man, Croly explained, “cannot possibly spend his income save by a recourse to wild and demoralizing extravagance.” And philanthropic good works, Croly added, in no way obviate the need for taxing grand fortune. “If wealth, particularly when accumulated in large amounts, has a public function, and if its possession imposes a public duty,” he noted, “a society is foolish to leave such a duty to the accidental good intentions of individuals.” 1248
In Britain, Chancellor of the Exchequer David Lloyd George introduced a revolutionary “People’s Budget” in 1909 that upped the already existing British inheritance tax and turned Britain’s modest income tax into a graduated income levy that taxed income in the highest bracket at triple the rate on income in the lowest. Britain, Lloyd George pronounced, needed to place its tax “burdens on the broadest shoulders.” “There are many in the country blessed by providence with great wealth,” he added, “and if there are amongst them men who grudge out of their riches a fair contribution towards the less fortunate of their fellow-countrymen, they are very 1270
By word and deed, he now seemed to speak to the nation’s reforming spirit. By the end of 1911, reform-minded Democratic Party insiders had come to view Wilson as prime presidential timber. He seemed a winner—and the upcoming 1912 election, top Democrats agreed, could be won. Republicans had run the White House ever since the Civil War, except for two brief interludes under the conservative Democrat Grover Cleveland. Now they had split. The party establishment stood behind Theodore Roosevelt’s handpicked successor, William Howard Taft. Wall Street had found President Taft a dependable figure. The party’s progressive insurgents, by contrast, considered him little more than a plutocratic pawn. This 1319
The “surging throng,” chronicles historian Robert La Forte, “continually cheered” for the next hour and a half. Roosevelt’s address would outline a progressive vision for the 1912 Republican Party platform. TR covered all the progressive bases: Our national resources, he pronounced, must not be “monopolized for the benefit of the few.” We must “prohibit the use of corporate funds directly or indirectly for political purposes” and hold corporate officials “personally responsible when any corporation breaks the law.” Again and again, Roosevelt urged his cheering listeners to demand state and national “restraint upon unfair money-getting.” The absence of that restraint, he noted, “has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power.” We should permit fortunes “to be gained,” Roosevelt continued, “only so long as the gaining represents benefit to the community.” And even those fortunes, Roosevelt added, needed to be checked because the “really big fortune, the swollen fortune, by the mere fact of its size acquires qualities” that “differentiate it in kind as well as in degree from what is possessed by men of relatively small means,” qualities that help ensure the “political domination of money.” To check the growth and limit the power of these fortunes, Roosevelt called for a progressive income tax and an “inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the sizes of the estate.” We need, Roosevelt roared, to “destroy privilege.” Ruin for our democracy will be “inevitable if our national life brings us nothing better than swollen fortunes for the few.” The assembled Kansans roared back their approval. Back East, apologists for grand fortune would be aghast. Editorial writers labeled the speech “frankly socialistic.” A later historian, George Mowry, would call TR’s talk, soon to be known as his “New Nationalism” address, “the most radical speech ever given by an ex-President.”113 Republican progressives would be jubilant, as well they should have been. One of their own, Gifford Pinchot, had written the speech. 1344
That bid would soon become an energetic candidacy against plutocracy. Americans, TR would tell a Carnegie Hall audience late in March 1912, “are today suffering from tyranny.” A small minority “is grabbing our coal deposits,” lurking “behind monopolistic trusts,” and “battening in the sale of adulterated drugs.”115 Roosevelt, Taft retorted before the Massachusetts GOP primary, was making “adroit appeals to discontent and class hatred.”116 Republican voters, to the party leadership’s chagrin, found these appeals attractive. Roosevelt topped Taft handily in primary voting. But only a few states in 1912 were selecting convention delegates via primaries. State party machines would choose the bulk of the delegates to the Chicago 1912 GOP convention, and those state parties supported Taft. That June, in Chicago, the Republican Party would give Taft his renomination. The Roosevelt forces immediately bolted and announced a new Progressive Party. 1374
“Our aim,” TR promised, “is to promote prosperity and then see to its proper division.”118 With the new Progressive Party up and running, the stage would now be set for plutocracy’s political humiliation. Four substantial candidates would vie for the White House in the 1912 presidential election. Three of them—Roosevelt for the Progressive Party, Woodrow Wilson for the Democrats, and Eugene Debs for the Socialist Party—would make plutocracy, in one guise or another, their prime target. Amos Pinchot, the new Progressive Party’s chief communicator, would position Roosevelt’s race at every opportunity as a campaign against plutocratic privilege. The American people, Pinchot would write in one broadside, had allowed “an uncontrolled industrial oligarchy to assume, and use for its own purposes, a tremendous and arrogant power.” This plutocracy had the “power to rob the people by great tariffs” and the “power to drive little children to mines, factories, and sweat shops,” the “power to dominate two great political parties,” and the “power to monopolize the vast natural resources that are the source of our nation’s wealth.”119 1385
triumphs. In 1915, North Dakota socialist activists broke away from the Socialist Party and formed a new “Nonpartisan League” that would battle inside the Republican Party to advance socialist demands. By the following April this new Nonpartisan League would have forty thousand North Dakotan members. Six months later, in the November 1916 elections, Nonpartisan League candidates would sweep to victory in statewide races, including the North Dakota gubernatorial contest, on a platform that called for a graduated income tax, a state-owned bank, and state ownership of flourmills and other industries that directly served farmers.139 1498
Over the previous three years, ever since the European war’s outbreak in August 1914, he had watched the slaughter slow the American reform movement’s forward momentum. Instead of fighting plutocracy, progressives were battling among themselves over “preparedness.” Theodore Roosevelt, reform’s most celebrated champion, had returned to his “big stick” jingo roots. By not preparing for war, the old warrior roared in 1915, America was following “a policy of supine inaction.”2 We were letting other nations push us around, sink our ships, bludgeon our friends. By 1916, Roosevelt had totally abandoned reform. In that year’s presidential race, he refused to run on the Progressive Party ticket and supported instead the conventional Republican nominee, Charles Evans Hughes. 1539
The biggest names in American finance and industry—Morgan, Rockefeller, Carnegie, Du Pont, Vanderbilt— had a definite self-interest in the European conflict. They had all been junior partners with British bankers for decades, enmeshed together in lucrative investment syndicates that chased windfalls from the Middle East to Latin America.4 At the war’s outbreak in 1914, Britain’s movers and shakers had turned to their US business partners for financial support, and Wall Street had promptly invested $2 billion in the British war effort.5 For America’s privileged, a British defeat would certainly be an unpleasant turn of events. 1550
The detailed version of the committee’s tax plan called for a 2 percent “normal” tax on income over $3,000 for couples, with a series of steeply graduated surtax charges above that, ending with a 98 percent levy on all income over $150,000. The bottom line: No one, after taxes, would have a residual income above $100,000, a bit over $1.75 million in today’s dollars. 1650
“If the government has a right to confiscate one man’s life for public purposes,” he pronounced soon after the group’s entry onto the national political stage, “it certainly ought to have the right to confiscate another man’s wealth for the same purposes.” 1656
the 1917 Revenue Act “a graduated tax on all business profits above a ‘normal’ rate of return.” The new excess profit tax would rise to 60 percent on profits above a 33 percent rate of return. 1756
historian Robert McElvaine, the federal government would manage the US economy “in a completely unprecedented fashion.” Some industries—the nation’s railroad lines and telegraph operations—would come totally under federal control. Others remained under private management, but followed directives from the federal government’s new War Industries Board. A separate National War Labor Board would keep the “labor peace” by actively encouraging collective bargaining. At every turn, a “planned economy,” with workers an acknowledged if junior partner, seemed to be emerging. Some progressive reformers figured this national economic planning would continue to evolve and even blossom in postwar America. The conflict, mused philosopher John Dewey in 1918, had definite “social possibilities.”45 The Wilson administration’s assistant secretary of labor, a veteran progressive stalwart with roots in the Henry George “single tax” movement, would enthusiastically hail the social justice potential of what he called “war patriotism.” “Since this war began, humanity has made long strides,” Assistant Secretary Louis Post would write in the Public. “Many an erstwhile plutocrat to whom ‘labor,’ except for an individual workingman acquaintance here and there, had meant nothing more human than ‘labor-cost’ in corporation ledgers, is beginning to realize that ‘labor’ in the mass is as human as any individual worker they happen to know and like.”46 1817
“The dollar should not be more sacred than man.” The Revenue Act of 1918 brought the nation closer to this conscripting spirit. The legislation lowered the threshold for the top federal income tax bracket in the 1918 tax year from $2 million to $1 million and raised the top-bracket tax rate from 67 to 77 percent. For 1919 and 1920, the act set the top rate at 73 percent, still over ten times the top rate in 1915. This top rate would only apply to a relative handful of taxpayers, those super rich making over what today, after inflation, would equal about $15 million. For America’s somewhat more pedestrian rich—those taxpayers making between $100,000 and $150,000 in 1918, a take-home that would range between about $1.5 and $2.25 million today—the 1918 Act still constituted a sizeable “conscription of wealth” advance. The tax rate for this millionaire tax bracket jumped from the underwhelming 31 percent in the tepid 1917 Revenue Act to 64 percent in the much more progressively ambitious 1918 legislation.49 These new higher tax rates on America’s richest took at least some of the regressive sting off the Wilson administration’s heavy wartime borrowing. Administration officials and celebrities had spent two years barnstorming the nation on behalf of “liberty bonds,” and these campaigns had convinced millions of Americans of means, large and small, to loan money for the war effort. 1843
And a reinvigorated labor movement also seemed at war’s end poised to keep that promise. Union membership doubled during the war, to over five million right after the armistice.51 Unions entered the postwar world more entrenched, economically and politically, than they had ever been before. The Catholic Church hierarchy would soon give America’s rapidly growing labor movement still another positive jolt. On Lincoln’s birthday, February 2, 1919, the church released a Bishops’ Program for Social Reconstruction—a reform guidebook authored by Monsignor John Ryan, the long-time progressive champion—that endorsed labor’s right to organize, called for a host of government programs ranging from public housing for workers to social insurance for health and old age, and envisioned a major worker role in managing America’s enterprises.52 The Bishops’ Program blasted the “insufficient incomes for the great majority of wage-earners and unnecessarily large incomes for a small minority of privileged capitalists” and urged “heavy taxation of incomes, excess profits, and inheritances” to narrow that gap.53 This new statement, the boldest political statement America’s Catholic Church hierarchy had ever released, jazzed an overall postwar atmosphere already “electric with radical ideas,” as historian Alan Dawley puts it.54 Average Americans now had both motive and opportunity, as never before, for committing significant social change. Motive had grown out of the war. The conflict had raised worker expectations. “The workers of the Allied world have been told that they were engaged in a war for democracy,” explained Basil Manly, the staff director of the prewar Industrial Relations Commission and the last chairman of the War Labor Board. “They are asking now, ‘Where is that democracy for which we fought?’”55 More motive came from worker anger at spiraling inflation. Few workers felt they had shared adequately in the wartime prosperity. Rising prices had been eating away their wages nearly ever since the war began in Europe back in 1914. Opportunity, in the meantime, was coming from the nation’s changing demographics. Right after the war, industrial workers would make up over 40 percent of the nation’s workforce.56 Blue-collar workers overall accounted for 59.7 percent. America, observes Alan Dawley, had “more miners, railway workers, and cotton textile workers than ever before or since.”57 Blue-collar “social weight” had never been heavier. In early 1919, this social weight would begin to make itself felt in a broad worker economic and political offensive that extended from sea to shining sea. Some leadership for this offensive came from America’s most established unions. The railroad brotherhoods launched a campaign to nationalize the railroad industry, plutocracy’s most important power base over the previous fifty years. Railroad executives were demanding the exact opposite, an immediate postwar return of all railroad lines to their “rightful” owners. The railroad union alternative—what became known as the “Plumb Plan” after Glenn Plumb, the Chicago labor lawyer who designed it—envisioned a federal takeover that would place America’s railroads under the “democratic control” of tripartite boards representing workers, the public, and management. To run the campaign for this Plumb Plan, the railroad unions hired Edward Keating, the former Colorado congressman who had actively advocated for a “conscription of wealth” income limit. Keating started a weekly newspaper to promote the Plumb Plan, and the paper would soon evolve into Labor, a national trade union paper with eight hundred thousand paid subscribers.58 1857
Five times that many workers, an incredible four million in all, would walk out on strike in 1919, nearly one in five industrial workers nationwide.59 But these huge numbers only tell part of this nation-shaking story. The United States had never before seen a strike wave so broad. A national steel strike united workers from a range of ethnic groups. A walkout by Chicago packinghouse workers linked white and black workers. In Boston, police officers struck. And in Seattle workers staged the nation’s first-ever citywide general strike. Seattle shipyard workers, thirty-five thousand strong, had walked out in January 1919, demanding the right to bargain. Employers quickly vowed to replace them permanently if they didn’t return to work. In response, the rest of the Seattle labor movement rushed in to offer support and solidarity. On February 6, Seattle unions shut the city down. Business as usual came to a total standstill. No public transportation, no schools, no shopping in the city’s great emporiums. Workers, relates labor journalist Dick Meister, kept essential services going. They delivered milk and cooked meals in dozens of locations around the city. For six days, hardly anything else moved.60 1888
Respectable reformers, Hapgood believed, had a responsibility to keep politics centered on the only goals that mattered to economic progress. First, “to produce primarily things that are needed.” Second, “to produce them uninterruptedly.” Third, “to distribute them equitably.”84 Respectable reformers, just a year after the Great War, were failing in that responsibility. On the American political scene, equity no longer seemed to matter. The 1994
Utility giants soon figured out how to game the new state regulatory arrangements. The more they could claim they had “invested,” the more they could charge consumers. The key would be how the utility commissions defined investment. The utility companies would cite “book value”—their net worth in the marketplace—as the appropriate definition, for obvious reason. The difference between this book value and the dollars companies had actually invested to provide power to customers could be enormous. The Carolina Light and Power Company, for instance, had a “book value” five times greater than its actual investment in providing customers electricity.26 The new state regulatory agencies could have and should have called the private utility giants to account on this bogus bookkeeping. But in state after state these agencies had fallen under power company domination. Where state regulators did stick to their guns, the utilities simply went to the courts and had friendly judges overrule state regulatory determinations. State regulation, angry progressives groused, amounted to no regulation at all. Industry insiders, among themselves, agreed. “I know of no other manufacturing industry,” Frederick Sackett, a former power utility president and a future US senator from Kentucky, gloated to a power industry conference, “where the sale price of the product is fifteen times the actual cost of production of the article sold.”27 In 1920, Woodrow Wilson’s last year in office, progressives would slip through a victory they hoped would undercut the utility industry’s plutocratic power. The legislation they managed to enact created a Federal Power Commission and gave the new commission the authority to determine how much power utilities were actually investing in their operations. Federal regulators suddenly had the ability to pop inflated rate bases—and deflate utility superprofits. But the new federal power agency would do no popping in the early presidential years of Woodrow Wilson’s successor, the exceedingly business-friendly Warren Harding. On the Harding administration’s much-less-than-vigilant watch, the power industry conducted rate-gouging business as usual. Then, all of a sudden, catastrophe struck. A series of Harding administration corruption scandals around public lands and energy policy outraged the public and reenergized reformers. They began once again demanding public ownership of America’s energy resources.28 Amid the tumult, the utilities feared, the new Federal Power Commission might actually wake to its responsibility to the public interest. The utilities responded with a massive public relations campaign to vilify federal regulation as an “unsound experiment,” a threat to the “self-government” that Americans so prized. Their most prominent campaigner would be Herbert Hoover, the US secretary of commerce. Hoover would “author” articles and speeches that the power industry reprinted and widely circulated—five hundred thousand copies of Hoover’s October 1924 tract on the dangers of “Government Ownership,” seventy-five thousand copies more of his October 1925 offering on “Why the Public Interest Requires State Rather than Federal Regulation of Electric Public Utilities.”29 Hoover’s Commerce Department and the power industry would work ever closer as the 1920s unfolded. In 1927, the top two federal power “regulators” in Commerce would even shift over to the chief power industry lobby group. One would become the group’s top executive, the other would run the group’s public relations apparatus. Hoover himself would carry his crusade against government “interference” into his 1928 presidential campaign. “I do not favor,” candidate Hoover reflected at an early October campaign rally in Tennessee, “any general extension of the federal government into the operation of business in competition with its citizens.”30 Hoover’s election a month later sent the share price of power utility stocks skyrocketing. That stock market surge, the trade journal… 2146
In 1929, the nation had just one car for every five people, one radio for every three homes.66 And many Americans who did gain car keys and radio boxes during the decade had to go deep into debt to get them. In the pre–credit card days of the 1920s, debt meant paying for cars and appliances via the installment plan. “Enjoy while you pay,” went the advertising slogans. And Americans did pay—in monthly outlays for principal and interest. Between 1925 and 1929, the volume of this installment credit more than doubled.67 Without installment-plan credit, Americans simply could not afford the goods they were producing. And they could not afford these goods because they were not sharing in the rewards the newly bountiful American economy was creating. Rising worker productivity could have easily translated into rising worker wages. But where wages did increase, they nudged up at a snail’s pace. Output per worker hour in the cutting-edge electric light and power industry rose 39 percent between 1923 and 1929. Average worker hourly earnings over those six years increased only 6 percent.68 2360
Just over a fifth of America’s families that same year earned less than $1,000, according to a Brookings Institution study.72 Four in ten families were making less than $1,500, seven in ten less than $2,500. In the cities, an income that size in 1929 essentially meant “a cold-water apartment and subsistence diet.”73 The nation’s most affluent 1 percent in 1929, calculates University of California economist Emmanuel Saez, took home on average thirty-eight times more income than the average of America’s bottom 90 percent of income earners. The nation’s top tenth of 1 percent outpaced this bottom 90 percent average by 184 times.74 The residences of these ultrawealthy lined Manhattan’s Park Avenue. A three-mile stretch of that byway early in 1929 hosted five thousand families worth a combined $3 billion. The world had never seen such a geographic concentration of wealth. Park Avenue hosted four times more millionaires than Britain, “more millionaires per square block,” marvels wealth historian Larry Samuel, “than per square mile anywhere else.”75 2375
Chester Bowles, a young Yale grad and a successful Madison Avenue advertising executive when the crash hit, would later mull over that failure. The decade of the 1920s had demonstrated, he would write, “that prosperity cannot continue unless enough income is being distributed to all of us—farmers and workers as well as businessmen.”95 The plutocrats had had their opportunity, and they had blown it. America had given them everything they desired. The freedom to do whatever they wanted. The power to bend others to their will. And ever-grander fortunes as both incentive and reward. America choked on those fortunes. A maldistribution of income and wealth that severe the American economy simply could not swallow. “Even with the most business-minded administration in our history, even with falling taxes and a government surplus, even with everything that businessmen thought they needed to insure continued prosperity,” Bowles reflected, “we could not duck that basic issue for more than a few tinsel-decorated years.” 2476
And other former New Era allies of property had become restive as well, even the Catholic Church hierarchy. A new 1931 encyclical from Pius XI informed the faithful that government had an obligation “to adjust ownership to meet the needs of the public good.” America, a conservative Catholic magazine, chose to take the pope’s words seriously. The editors called for more government control over the economy and deemed capitalism as Americans have 2556