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by Roger Pilon

June 2009

In 1776, America's Founders gathered in Philadelphia to draft the Declaration of Independence, which dissolved the political ties that had bound the American people to Great Britain. A new nation was thus born, free and independent, the United States of America. Eleven years later, in 1787, after American patriots had won independence on the battlefield, many of the men who had met earlier in Philadelphia, plus others, met there again to draft a plan for governing the new nation—the Constitution of the United States. In 1789, after the plan had been ratified, the new government was established. Together, the Declaration and the Constitution are America's founding documents.

As amended over the years, the Constitution is the supreme law of the land, the nation's fundamental law. But the broad language of the Constitution is illuminated by the principles set forth in the Declaration. To better understand and appreciate the form of government we have, therefore, it is important to look first to the Declaration, where the Founders outlined their moral vision and the government it implied.

Addressing "a candid World," the Founders’ immediate aim in the Declaration was to justify their decision to declare independence. Toward that end they set forth a theory of legitimate government, then demonstrated how far British rule had strayed from that ideal. But their argument served not simply to discredit British rule; in addition, it set the course for future American government. Indeed, for more than two centuries the ringing phrases of the Declaration have inspired countless millions around the world.

Appealing to all mankind, the Declaration's seminal passage opens with perhaps the most important line in the document: "We hold these Truths to be self-evident." Grounded in reason, "self-evident" truths invoke the long tradition of natural law, which holds that there is a "higher law" of right and wrong from which to derive human law and against which to criticize that law at any time. It is not political will, then, but moral reasoning, accessible to all, that is the foundation of our political system.

But if reason is the foundation of the Founders’ vision—the method by which we justify our political order—liberty is its aim. Thus, the cardinal moral truths are these:

that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness—That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed.

We are all created equal, as defined by our natural rights; thus, no one has rights superior to those of anyone else. Moreover, we are born with those rights, we do not get them from government—indeed, whatever rights or powers government has come from us, from "the Consent of the Governed." And our rights to life, liberty, and the pursuit of happiness imply the right to live our lives as we wish—to pursue happiness as we think best, by our own lights—provided only that we respect the equal rights of others to do the same. Drawing by implication upon the common law tradition of liberty, property, and contract—its principles rooted in "right reason"—the Founders thus outlined the moral foundations of a free society.

Only then did they turn to government. We institute government, the Declaration says, to secure our rights—our natural rights and the rights we create as we live our lives. But the powers government may need to do that must be derived from our consent if they are to be just. Government is thus twice limited: by its end, which any of us would have a right to pursue were there no government; and by its means, which require our consent.

When it came time to draft a new constitution, the Founders drew upon the principles they had outlined in the Declaration. Having recently overthrown oppressive British rule, they were not about to reimpose oppression on themselves. Accordingly, their basic task was to devise a government that would be strong enough to secure our rights against domestic and foreign oppression yet not so powerful or extensive as to be oppressive itself. Toward that end, the document they drafted, once ratified, authorized government and governmental powers, then checked and balanced those powers through a series of extraordinarily thoughtful measures.

The Preamble sets forth the basic principle of the document: "We the People," for the purposes listed, "do ordain and establish this Constitution." All power, in short, comes from the people. But as a reflection of the principles of the Declaration, the power the people give to government, to exercise on their behalf, is strictly limited. Indeed, the very first sentence of Article I, following the Preamble, implies as much: "All legislative Powers herein granted shall be vested in a Congress." That the people "herein granted" only limited legislative powers is made clear by the enumeration of those powers in Article I, section 8. And the point is reiterated, as if for emphasis, in the Tenth Amendment, the final member of the Bill of Rights that was drafted in 1789 and added, after ratification, in 1791:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

Plainly, only certain powers were delegated or granted by the people to the government. Those powers were then enumerated in the Constitution. The rest were reserved to the states—or to the people, never having been granted to either level of government.

To illustrate how enumeration limits power, consider the General Welfare Clause of Article I, section 8:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

This statement is followed by a detailed listing or enumeration of activities that Congress is allowed to engage in. Were this passage to be read simply as authorizing Congress to tax and spend for the general welfare, as many read it today, Congress would have been granted all but unlimited power and the enumeration of particular powers immediately thereafter would have been to no purpose. Thus, the passage must be read as permitting taxing only for those enumerated ends; and the clause restricts such funding to the general welfare only, not to the welfare of particular parties.

Similarly, the power given Congress in Article I, section 8 to "regulate Commerce . . . among the several States" could not have been a wide-ranging power to regulate anything that may affect commerce, which in principle is everything, for that too would have made pointless any limits imposed by enumeration. Rather, the Commerce Clause was meant primarily to restrain state power: to ensure the free flow of goods and services among the states, Congress was given the power to regulate such commerce—to make it "regular."

The limitations of Article I, section 8 are reinforced by the Necessary and Proper Clause. This clause limits the means available to Congress to those that are "necessary" for executing enumerated powers—without such means, the enumerated powers could not be executed—and "proper" for a government dedicated to liberty.

As their many writings make clear, the Founders intended the doctrine of enumerated powers to be our principal defense against overweening government: if there were no power to do something, the government could hardly abuse that power. But they provided other defenses as well. They divided power between the national and the state governments, and left most power with the states or the people. They also separated powers among the three branches of the national government—legislative, executive, and judicial—then devised a series of checks and balances to further restrain those powers. Within the bounds of its enumerated powers, for example, Congress may enact legislation; but the president has a power to veto such legislation, which Congress may then override only by a supermajority vote. Likewise, in deciding cases or controversies before them, the courts may exercise the judicial power by reviewing the actions of the other two branches to ensure that they do not exceed the limits imposed by the Constitution, a power that was extended to state actions as well after ratification of the Civil War Amendments; but the president and Congress determine who shall sit on the federal courts.

As noted above, the Bill of Rights was added in 1791, for greater caution. But because no such bill could list all of our rights, the Ninth Amendment states: "The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people." And as a final check on overweening government, the people retained the power to elect their political officials.

The Declaration and the Constitution, together, address mankind's most basic political questions. Resting on a firm moral foundation, they articulate the first principles of political organization. Thus, they were meant to serve not simply the 18th century but generations to come, which would face those same basic questions, whatever their particular circumstances and whatever their state of material progress. Because the principles the Founders articulated transcend both time and technology, they will serve us well as we move through the 21st century, if only we understand them correctly and apply them well.

In the end, however, no constitution can be self-enforcing. Government officials must respect their oaths to uphold the Constitution; and we the people must be vigilant in seeing that they do so. The Founders drafted an extraordinarily thoughtful plan of government, but it is up to us, to each generation, to preserve and protect it for ourselves and for future generations. For the Constitution will live only if it is alive in the hearts and minds of the American people. That, perhaps, is the most enduring lesson of our experiment in ordered liberty.

The Tenth Amendment and Enumerated Powers

The Tenth Amendment states, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people." By its terms, the amendment tells us nothing about which powers are delegated to the federal government, which are prohibited to the states, or which are reserved to the states or to the people. To determine that, we have to look to the centerpiece of the Constitution, the doctrine of enumerated powers.

That doctrine is discussed at length in the Federalist Papers. But it is explicit as well in the very first sentence of article 1, section 1, of the Constitution ("All legislative Powers herein granted...") and in the Tenth Amendment's reference to powers "not delegated," "prohibited," and "reserved."

Plainly, power resides in the first instance in the people, who then grant or delegate their power, reserve it, or prohibit its exercise, not immediately through periodic elections but rather institutionally--through the Constitution. The importance of that starting point cannot be overstated, for it is the foundation of whatever legitimacy our system of government can claim. What the Tenth Amendment says, in a nutshell, is this: if a power has not been delegated to the federal government, that government simply does not have it. In that case, as Justice Thomas correctly said in his trenchant dissent in U.S. Term Limits v. Thornton (1995), it becomes a question of state law whether the power is held by a state or, failing that, by the people, having never been granted to either government.

At bottom, then, the Tenth Amendment is not about federal vs. state, much less about federal-state "partnerships," block grants, "swapping," "turnbacks," or any of the other modern concepts of intergovernmental rule. It is about legitimacy. As the final member of the Bill of Rights, and the culmination of the founding period, the Tenth Amendment recapitulates the philosophy of government first set forth in the Declaration of Independence, that governments are instituted to secure our rights, that they derive their just powers from the consent of the governed. Without that consent, as manifested through constitutional ratification, power is simply illegitimate.

It is the doctrine of enumerated powers, then, that gives content to the Tenth Amendment, informs its theory of legitimacy, and limits the federal government. Power is granted in the Constitution, and thus limited by virtue of that delegation and enumeration. The Framers could hardly have enumerated all of our rights--a problem the Ninth Amendment was meant to address. ("The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.") They could enumerate the federal government's powers, which they did--not simply to empower but to restrain that government. The doctrine of enumerated powers was meant to be the principal line of defense against overweening government. The Bill of Rights, added two years after the Constitution was ratified, was meant as a secondary defense.

Yet today the federal government exercises powers not remotely found in the Constitution, which leads lawyers and laymen alike to say, increasingly, that those powers are illegitimate. How then did we get to this point, where the federalism debate is increasingly a debate about the very foundations of our system of government? I have discussed that question at length in The Cato Handbook for Congress and elsewhere. Let me simply summarize the answer here, then turn to an issue that seems to concern the subcommittee, and not without reason--the connection, historically and prospectively, between federalism and "states' rights."

The Demise of the Doctrine of Enumerated Powers

Our modern regulatory and redistributive state--the state the Framers sought explicitly to prohibit--has arisen largely since 1937, and primarily through just two clauses in the Constitution, the commerce clause and the general welfare clause, respectively. It is striking that this is so, for if the Framers had meant for Congress to be able to do virtually anything it wanted through those two simple clauses, why would they have bothered to enumerate Congress's other powers, much less defend the doctrine of enumerated powers throughout the Federalist Papers? That is the question that cries out for explanation.

The explanation, of course, is that the Framers intended no such thing. The modern state arose through judicial legerdemain, following Franklin Roosevelt's notorious 1937 Court-packing scheme.

Simply put, the commerce clause, which gives Congress the power to regulate commerce among the states, arose out of concern that the free flow of such commerce might break down if states, as they did under the Articles of Confederation, had the power to erect protectionist measures on behalf of indigenous enterprises. Thus, the principal aim of the commerce clause was to ensure the free flow of commerce by giving Congress the power to make such commerce regular, the power, essentially, to strike down such state barriers as might arise. Not remotely did the Framers intend that the clause be converted from a shield against state abuse--its use in the first great commerce clause case, Gibbons v. Ogden (1824)--into a sword enabling Congress, through regulation, to try to bring about all manner of social and economic ends. Yet for nearly 60 years now, following the Supreme Court's reversal in 1937 (NLRB v. Jones & Laughlin Steel Corp.), that is just what has happened as Congress has claimed power to regulate anything that even "affects" interstate commerce, which in principle is everything.

The general welfare clause of article 1, section 8, was also intended as a shield, to ensure that Congress, in the exercise of any of its enumerated powers, would act for the general rather than for any particular welfare. Here, however, Hamilton stood opposite Madison, Jefferson, and others in thinking that the clause amounted to an independent, enumerated power--albeit limited to serving the general welfare. But as Congressman William Drayton noted in 1828, if Hamilton were right, then whatever Congress is barred from doing because there is no power with which to do it, it could accomplish by simply appropriating the money with which to do it. That, of course, is precisely what happened, and what the Court sanctioned when it came down on Hamilton's side in 1936 (United States v. Butler), then a year later went Hamilton one better by saying that although the distinction between general and particular welfare must be maintained, the Court would not itself police that distinction (Helvering v. Davis). Congress, the very branch that was redistributing with ever-greater particularity, would be left to police itself.

With the Court's evisceration of the doctrine of enumerated powers, the modern regulatory and redistributive state poured through the opening. One result of the subsequent explosion of federal power, of course, was the contraction of state power where the two conflicted--and the attendant federalism dilemmas. At the same time, individual liberty contracted as well--the preservation of which was supposed to be the very purpose of government. Yet questions about constitutional legitimacy never did go away. As government grew, the idea that a constitution designed for limited government had authorized that growth of power became increasingly difficult to sustain.

Federalism and "States' Rights"

But what about the sorry history of "states' rights" as a doctrine that southern states invoked to defend slavery and then, after the Civil War, the reign of Jim Crow? Does this not give weight to the question, "Why doesn't Washington trust the states?" Indeed it does, but here too there has been substantial misunderstanding over the years, with a seminal Supreme Court case at its core.

The tragic compromise that led the Framers to accept slavery in their midst is well known. It took a civil war to abolish that institution, and the Civil War Amendments to secure the legal rights of the freed slaves. Unfortunately, no sooner had those amendments been ratified than the principal vehicle for insuring substantive rights against state action, the privileges and immunities clause of the Fourteenth Amendment, was eviscerated by a deeply divided Court in the Slaughter-House cases (1872). The clause has never been successfully revived.

In Blackstone's view, "privileges and immunities" referred to our "natural liberties." More immediately, the debates that surrounded the ratification of the Fourteenth Amendment, as well as the passage of the Civil Rights Act of 1866, which Congress reenacted in 1870, just after the Fourteenth Amendment was ratified, made it clear that the privileges and immunities clause was meant to protect the very rights Jim Crow denied.

The demise, then, of the privileges and immunities clause had nothing to do really with the Tenth Amendment or the doctrine of enumerated powers. It was a blatant case of judicial abdication that eviscerated the clause, thereby leaving the freed slaves in the South to the mercies of state legislatures.

There is nothing in current efforts to revive the Tenth Amendment and the doctrine of enumerated powers that should give pause--provided only that we are clear, and the judiciary is clear, that the Fourteenth Amendment gives the courts, through section 1, and the Congress, through section 5, the power to negate state actions that deny citizens the privileges and immunities of citizens of the United States. Were Congress to move to do that, the promise of the Civil War Amendments would at last be realized, not in opposition to federalism but in harmony with it as perfected through those amendments.

This article originally appeared in the November/December 1995 edition of Cato Policy Report.

Although written in 1944, this book not only stands the test of time, it renders time irrelevant. It is, in fact, alarmingly evocative of contemporary experience.

Powerful political parties and pressure groups are fervently asking for public control of all economic activities, for thorough government planning, and for the nationalization of business. They aim at full government control of education and at the socialization of the medical profession. There is no sphere of human activity that they would not be prepared to subordinate to regimentation by the authorities. In their eyes, state control is the panacea for all ills. …

The champions of totalitarianism call themselves "progressives." … Because of these "progressive" policies, new offices and government agencies thrive like mushrooms. The bureaucrats multiply and are anxious to restrict, step by step, the individual citizen's freedom to act.

The bureaucrats, much as they may be despised, are not the root of the evil, but only its symptom. "Congress made the laws and appropriated the money." The progressives, Mises reminds us, were voted into office.

He describes how Congress surrendered the legislative function to agencies and commissions and appropriated huge sums for them to spend, thus surrendering budgetary as well as legislative control. Of course, in 1944, Mises was describing the New Deal and how it breached constitutional limits. Any resemblance to contemporary events resides in readers' ability to draw their own conclusions.

The thesis of the book is that there are only two ways society can be organized: on the basis of private ownership, capitalism, and freedom; or on the basis of government control, socialism, and eventual totalitarianism. He compares both systems of social organization, and investigates the nature of bureaucracies to reveal why socialism results "not only in impoverishment but also in the disintegration of social cooperation — in chaos."

He explains that bureaucracies, although suited to the orderly conduct of government functions, are ruinous when applied to the economic sector. Bureaucracies operate on the basis of rules and regulations issued by hierarchies located far from the realities they seek to supervise. Because resources don't belong to them, and there is no reward for efficiency, bureaucratic managers lack incentives to be prudent or to expeditiously serve the public. Progress and innovations are discouraged because they threaten the status quo, and because there is no provision for them in the rules and regulations. By definition, bureaucracies are unable to conduct economic affairs in a rational manner.

Socialism, that is, full government control of all economic activities, is impracticable because a socialist community would lack the indispensable intellectual instrument of economic planning and designing: economic calculation. The very idea of central planning by the state is self-contradictory. A socialist central board of production management will be helpless in the face of the problems to be solved. It will never know whether the projects considered are advantageous or whether their performance would not bring about a waste of the means available.

Mises explains why government-controlled enterprises in a mostly free-market economy suffer the same deficiencies: profit does not guide the operation, government resources are limitless, and consumer preferences are immaterial. Other values — not necessarily shared by the public — dominate.

The New York Times provides a current example: an electric hybrid car described by one reviewer as an overpriced underperformer.

Quantifying just how much taxpayer money will have been wasted on the hastily developed Volt is no easy feat. Start with the $50 billion bailout (without which none of this would have been necessary), add $240 million in Energy Department grants doled out to GM last summer, $150 million in federal money to the Volt's Korean battery supplier, up to $1.5 billion in tax breaks for purchasers and other consumer incentives, and some significant portion of the $14 billion loan GM got in 2008 for "retooling" its plants, and you've got some idea of how much taxpayer cash is built into every Volt.

Under a market system, by contrast, the people are sovereign in their capacities both as consumers and as producers, because they are subject to the law of the market. Private business is constrained by the need to produce what fellow citizens will buy at a price they will pay. Being unprofitable means that a business has failed to satisfy consumer demand, and failure is not subsidized.

Mises elaborates:

We do not assert that the market prices are to be considered as expressive of any perennial and absolute value. … Judgments of value are the outcome of human arbitrariness. They reflect all the shortcomings and weaknesses of their authors. However, the only alternative to the determination of market prices by the choices of all consumers is the determination of values by the judgment of some small groups of men, no less liable to error and frustration than the majority.

One by one, Mises discusses and dispatches the pillars of progressive dogma: government spending can create jobs for the unemployed; the service motive is better than the profit motive; government choices are superior to individual choices; the Constitution is an unnecessary impediment to the welfare state.

Mises draws on then-recent events to chart the development of government omnipotence in Europe. He points out that prior to the collapse of democratic constitutions, the state was the source of income for large segments of the electorate and concludes, "Representative democracy cannot subsist if a great part of the voters are on the government payroll."

He also remarks that totalitarianism could have been "nipped in the bud" if its proponents had not succeeded in indoctrinating the youth. He observes that European totalitarianism was the result of Marxist and other proponents of government control dominating education. "The universities paved the way for the dictators," he writes and later adds, "The most enthusiastic supporters of Marxism, Nazism, and Fascism were the intellectuals, not the boors."

In the second-to-last chapter, Mises concludes, "Mankind is manifestly moving toward totalitarianism." He frames the struggle between freedom and an ever-encroaching government as a war of ideas. "Public opinion will determine victory and defeat," he says. And he urges every lover of liberty to join the battle.

He points out that earlier struggles for freedom were easier to understand because they were between the tyrants and the people: "Who should rule? … The despot or the aristocracy or the people?"

Today, the issue is obfuscated by proponents of state control who propagandize that the war is between the good, embodied in the "great god state," and the bad, the "rugged individualism" of selfish men.

The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent upon abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but one a subordinate clerk in a bureau.

The publisher's note to the 1983 edition of Bureaucracy states, "Truth lives whether or not we like it and welcome it." So it is that this little book has the power to illuminate both past and present. The conflict between individualism and collectivism described by Mises over 60 years ago, not only still rages, it may be in its final and conclusive engagement. www.mises.org

The History of Big Business Is the History of Big Government

As the federal government has progressively become larger over the decades, every significant introduction of government regulation, taxation, and spending has been to the benefit of some big business. Start with perhaps the most misunderstood period of government intervention, the Progressive Era from the late 19th century until the beginning of World War I.

President Theodore Roosevelt is usually depicted as the hero of this episode in American history, and his "trust busting" as the central action of the plot. The history books teach that Teddy empowered the federal government and the White House in a crusade to curb the big business excesses of the "Gilded Age."

A close study of Roosevelt's legacy and that of Progressive legislation and regulation, however, yields a far different understanding and shows that the experience with meat—big business calling in big government for protection—was a recurring theme. Roosevelt expanded Washington's power often with the aim and the effect of helping the fattest of the fat cats.

Today's history books credit muckraking novelist Upton Sinclair with the reforms in meatpacking. Sinclair, however, deflected the praise. "The Federal inspection of meat was, historically, established at the packers' request," he wrote in a 1906 magazine article. "It is maintained and paid for by the people of the United States for the benefit of the packers."

Gabriel Kolko, historian of the era, concurs. "The reality of the matter, of course, is that the big packers were warm friends of regulation, especially when it primarily affected their innumerable small competitors." Sure enough, Thomas E. Wilson, speaking for the same big packers Sinclair had targeted, testified to a congressional committee that summer, "We are now and have always been in favor of the extension of the inspection, also of the adoption of the sanitary regulations that will insure the very best possible conditions." Small packers, it turned out, would feel the regulatory burden more than large packers would.

Consider the story of one of the most famous "trusts" in American folklore: U.S. Steel.

In the 1880s and 1890s, rapid steel mergers created the mammoth U.S. Steel out of what had been 138 steel companies. In the early years of the new century, however, U.S. Steel saw its profits falling. That insecurity brought about a momentous meeting.

On November 21, 1907, in New York's posh Waldorf-Astoria, 49 chiefs of the leading steel companies met for dinner. The host was U.S. Steel chairman Judge Elbert Gary. The gathering, the first of the "Gary Dinners," hoped to yield "gentlemen's agreements" against cutting steel prices. At the second meeting, a few weeks later, "every manufacturer present gave the opinion that no necessity or reason exists for the reduction of prices at the present time," Gary reported.

The big guys were meeting openly— with Teddy Roosevelt's Justice Department officials present, in fact—to set prices.

But it did not work. "By May, 1908," Kolko writes, "breaks again began appearing in the united steel front." Some manufacturers were undercutting the agreement by dropping prices. "After June, 1908, the Gary agreement was nominal rather than real. Smaller steel companies began cutting prices." U.S. Steel lost market share during this time, which Kolko blames on "its technological conservatism and its lack of flexible leadership." In fact, according to Kolko, "U.S. Steel never had any particular technological advantage, as was often true of the largest firm in other industries."

In this way, the free market acts as an equalizer. While economies of scale allow corporate giants more flexible financing and can drive down costs, massive size usually also creates inertia and inflexibility. U.S. Steel saw itself as a vulnerable giant threatened by the boisterous free market, and Gary's failed efforts at rationalizing the industry left only one line of defense. "Having failed in the realm of economics," Kolko writes, "the efforts of the United States Steel group were to be shifted to politics."

Sure enough, on February 15, 1909, steel magnate Andrew Carnegie wrote a letter to the New York Times favoring "government control" of the steel industry. Two years later, Gary echoed this sentiment before a congressional committee: "I believe we must come to enforced publicity and governmental control . . . even as to prices."

When it came to railroad regulation by the Interstate Commerce Commission, the railroads themselves were among the leading advocates. The editors of the Wall Street Journal wondered at this development and editorialized on December 28, 1904:

Nothing is more noteworthy than the fact that President Roosevelt's recommendation recommendation in favor of government regulation of railroad rates and[Corporation] Commissioner [James R.] Garfield's recommendation in favor of federal control of interstate companies have met with so much favor among managers of railroad and industrial companies.

Once again, big business favored government curbs on business, and once again, journalists were surprised.

To cast it in the analogy of Baptists and Bootleggers, the muckrakers such as Sinclair were the "Baptists," holding up altruistic moral reasons for government control, and the big meatpackers, railroads, and steel companies were the "Bootleggers," trying to get rich from government restrictions on their business. Roosevelt was allied to the "bootleggers," the big meatpackers in this case. To get federal regulation, he found Sinclair a handy temporary ally. Roosevelt had little good to say about Sinclair and his ilk; he called Sinclair a "crackpot."

This preponderance of evidence drove Kolko, no knee-jerk opponent of government intervention, to conclude, "The dominant fact of American political life at the beginning of [the 20th] century was that big business led the struggle for the federal regulation of the economy." With World War I around the corner, this "dominant fact" was not about to change.

The men who gathered at the Department of War on December 6, 1916, struck a startling contrast. Labor leader Samuel Gompers sat at the table with President Woodrow Wilson and five members of his cabinet.

Joining Gompers and those Democratic politicians were Daniel Willard, president of the Baltimore and Ohio Railroad; Howard Coffin, president of Hudson Motor Corporation; Wall Street financier Bernard Baruch; Julius Rosenwald, president of Sears, Roebuck; and a few others. This extraordinary gathering was the first meeting of the Council of National Defense, formed by Congress and President Wilson as a means for organizing "the whole industrial mechanism . . . in the most effective way."

The businessmen at this 1916 meeting had dreams for the CND that went far beyond America's imminent involvement in the Great War, both in breadth and in duration. "It is our hope," Coffin had written in a letter to the DuPonts days before the meeting, "that we may lay the foundation for that closely knit structure, industrial, civil, and military, which every thinking American has come to realize is vital to the future life of this country, in peace and in commerce, no less than in possible war."

The CND, after beginning the project of government control over industry, handed much of its responsibility to the new War Industries Board (WIB) by July of 1917. That coalition of industry and government leaders increasingly took control of all aspects of the economy. War Industries Board member and historian Grosvenor Clarkson stated that the WIB strived for "concentration of commerce, industry, and all the powers of government." Clarkson exulted that "the War Industries Board extended its antennae into the innermost recesses of industry. . . . Never was there such an approach to omniscience in the business affairs of a continent."

Business's aims in the WIB were much higher than government contracts, and certainly business did not lobby for laissez faire. As Clarkson puts it, "Business willed its own domination, forged its bonds, and policed its own subjection." Business, in effect, shouted to Washington, "Regulate me!" Business called on government to control workers' hours and wages as well as the details of production.

A decade later Herbert Hoover practiced more of the same. Hoover's record was one not of leaving big business alone but of making government an active member of the team. As commerce secretary in the 1920s, he helped form cartels in many U.S. industries, including coffee and rubber. In the name of conservation, Hoover "worked in collaboration with a growing majority of the oil industry in behalf of restrictions on oil production," according to economic historian Murray Rothbard.

In the White House (where history books portray him as a callous and clueless practitioner of laissez faire), Hoover reacted to the onset of the Great Depression by pressuring big business to lead the way on a wage freeze, preventing the drop in pay that earlier depressions had brought about. Henry Ford, Pierre DuPont, Julius Rosenwald, General Motors president Alfred Sloan, Standard Oil president Walter Teagle, and General Electric president Owen D. Young all embraced the policy of keeping wages high as the economy went south.

Hoover praised their cooperation as an "advance in the whole conception of the relationship of business to public welfare . . . a far cry from the arbitrary and dog-eat-dog attitude of . . . the business world of some thirty or forty years ago."

Before FDR, Hoover got the ball rolling for the New Deal with his Reconstruction Finance Corporation. The RFC extended government loans to banks and railroads. The RFC's chairman was Eugene Meyer, also chairman of the Federal Reserve. Meyer's brother-in-law was George Blumenthal, an officer of J.P. Morgan & Co., which had heavy railroad holdings.

The New Deal and Beyond

After the groundwork laid by the Progressives, Wilson, and Hoover, the alliance of big business and big government continued throughout the 20th century.

• Franklin D. Roosevelt implemented the same sort of government controls on the economy during World War II that Wilson had put in place during World War I, complete with rationing and price controls. Big business profited from the controlled economy in much the same ways that it had under Wilson.
• President Harry Truman wanted his secretary of state's June 5, 1947, speech to Harvard's commencement to be a quiet one about the rebuilding of Europe. He didn't get his wish. The New York Times and the Washington Post both reported the story on the front pages. Within a day, the whole world knew about the Marshall Plan. But very few knew that a clique of mostly business leaders, called "The President's Committee on Foreign Aid," drafted the idea. Secretary of Commerce W. Averell Harriman, son of railroad magnate E. H. Harriman and former chairman of both Union Pacific Railroad and Illinois Central Railroad, ran the committee. Nine other businessmen joined him. "Throughout, business members—particularly Harriman— set the agenda and the tone for the group's work," historian Kim McQuaid writes. "Without the corporate politicians, Truman's effort would have failed. Men like [cotton baron Will] Clayton and Harriman arrayed foreign aid in procapitalist, anticommunist attire."
• On Sunday night, August 15, 1971, millions of Americans watched President Richard Nixon lay out his New Economic Policy. Nixon had a reputation as a staunch conservative, but his New Economic Policy (a phrase borrowed, bizarrely, from Vladimir Lenin) showed Nixon to be a changed man. The federal government would prohibit any increase in wages, prices, or rents for 90 days. After that a "wage and price council" would dictate to businesses when and how much they could increase wages, salaries, and prices. The next day W. P. Gullander, president of the National Association of Manufacturers, declared that "the bold move taken by the President to strengthen the American economy deserves the support and cooperation of all groups." That reaction was typical among big businesspeople. The New York Times reported on August 17, 1971, "Business leaders applauded yesterday, with varying degrees of enthusiasm, the sweeping proposals announced by President Nixon Sunday night."
• George W. Bush, in the name of "compassionate conservatism," has handed big business big favors in the form of a prescription drug benefit from Medicare, an energy bill full of brand new special tax credits and subsidies to energy companies, and a record loan guarantee to facilitate business with known nuclear proliferators in China. A report by the directors of the Health Reform Program at Boston University's School of Public Health found, "An estimated 61.1 percent of the Medicare dollars that will be spent to buy more prescriptions will remain in the hands of drug makers as added profits. This windfall means an estimated $139 billion in increased profits over eight years for the world's most profitable industry."

"The greatest trick the devil ever pulled," said Kaiser Soze in the film The Usual Suspects, "was convincing the world he didn't exist." In a similar way, big business and big government prosper from the perception that they are rivals instead of partners (in plunder). The history of big business is one of cooperation with big government. Most noteworthy expansions of government power are to the liking of, and at the request of, big business.

If this sounds like an attack on big business, it is not intended to be. It is an attack on certain practices of big business. When business plays by the crooked rules of politics, average citizens get ripped off. The blame lies with those who wrote the rules. In the parlance of hip-hop, "don't hate the player, hate the game."

This article originally appeared in the July/August 2006 edition of Cato Policy Report

The Progressive Era, Part 1:
The Myth and the Reality
by William L. Anderson, Posted June 9, 2006

One of the most enduring set of myths from U.S. history comes from the political and social developments in what is called the “Progressive Era,” a period lasting from the late 1800s to the end of World War I. (Of course, one could argue, convincingly, that the Progressive Era never has ended.) The prevailing story told in textbooks, the editorial pages of the New York Times, and the typical classroom holds that this was the time when people began to use the mechanism of government to create the conditions for a better life for all and to begin the arduous process of reining in the excesses of capitalism.

According to the pundits, by the late 1800s many businesses in the United States had grown to gigantic proportions, monopolizing much of the economy. In response to this growing emergency, the government adopted new and “progressive” policies of regulatory agencies and antitrust laws.

Besides regulating business activity, Progressives, through coalitions of intellectuals, political figures, and activists, saw to it that government also began the process of regulating the extraction of natural resources through executive action. (Progressives considered the legislative procedure to be a waste of time that needed to be replaced with a mechanism that permitted the executive branch of government to seek “needed” shortcuts around the give-and-take that accompanied the legislature at work.)

Through Progressive prodding, Congress passed the Pure Food and Drug Act of 1906, which created the Food and Drug Administration and expanded government regulation of food and the workplace. Progressives also secured the right of women to vote and ended the state legislatures’ stranglehold on the national electoral process by mandating the direct election of U.S. senators (which until 1913 were chosen by state legislatures).

Socially, the Progressives were humanitarians who sought to better the lives of ordinary people, with their greatest “triumph” being passage of the Eighteenth Amendment, which ushered in the era of Prohibition. (Most modern Progressives are not particularly proud of this “achievement” by their forbears, but the prohibitionist spirit is much more alive than they would like to admit. Today, Progressive lawyers have been busy suing tobacco companies and the liquor industry and attempting to ban products such as silicon breast implants that feminists and other modern Progressives think are not proper things for people to have.)

Last, the Progressive Era trumpeted science and the “enlightened” Social Gospel, which became the religion of choice for religious skeptics who questioned the core doctrines of the Christian faith. From the implementation of “scientific” principles to govern politics, business, and social relationships, Progressivism helped to create a rational basis for modern society. From the creation of the Federal Reserve System to the Sixteenth Amendment that brought about the national income tax, Progressives were able to do away with the impediments created by the U.S. Constitution, which according to them stood in the way of progress.

If there was a downside to the Progressive Era, its modern supporters say, it was that Progressives were not able to do enough before “reactionary” post–World War I forces set in. “Reforms” such as the banning of child labor, minimum wages, the welfare state, further regulation of business, and a completion of the process of transferring legislative power from the Congress to the executive branch would have to wait until the Great Depression, when the nation had supposedly had its fill of laissez faire. Also, in spite of the best efforts of the Progressives, segregation laws institutionalized racism, which worsened strife between whites and blacks.

While Progressivism has captured the hearts and minds of modern intellectuals and others, there is another story to tell about this era, a much darker tale than what generally is told. In fact, it is not an exaggeration to say that Progressivism helped to destroy, not preserve, the constitutional order. Far from ushering in the social peace, justice, and prosperity that Progressives promised, Progressivism helped to create the conditions for the Great Depression and helped plunge the country into one war after another. Perhaps the only positive thing we can say about the Progressive Era was that it did not do all of the damage that it could have done.

In taking this look at the Progressive Era, I will be examining a number of social and economic initiatives that took place during that time. I begin with the social policies and laws that came about during that era and dissect Progressivism’s long and sorry legacy.

Early U.S. Progressives

Progressives had their forbears in the Unitarians of early- and mid-19th-century New England. The Unitarians were what we would call the theological “liberals” of that era, and they had come to believe that it was their duty to establish a sort of “kingdom of God” on earth (as opposed to the Christianity that stressed the temporal nature of life and the prospect of Heaven for those who were followers of Christ).

According to Samuel Blumenfeld (“Why the Schools Went Public”; Reason Magazine, March 1979), the public-school movement that swept Boston during the 1840s was led by Unitarians such as Horace Mann. While Mann and his followers pushed government education at the expense of private schools, they were able to form coalitions with Calvinists and the Christian Protestant pietists, who saw public schools as a way to “train” the children of Catholic immigrants who were pouring into the country from Ireland and southern Europe. Moreover, Unitarians and the pietists promoted laws to prohibit the making and sale of alcoholic beverages, again a coalition that was promoted, in part, as a wedge against Catholic immigrants, who came from cultures where alcohol consumption was a normal part of life.

When war broke out between North and South in 1861, the Unitarians were among the most forceful in calling for the complete destruction of the South, and while their influence on the actual fields of battle was negligible, they were highly influential on the political home front. (For example, Julia Ward Howe, who wrote “The Battle Hymn of the Republic,” was a Unitarian.)

While the Unitarians and many of their fellow travelers were small in number, they were very influential because of their high levels of education and literacy, and were the forerunners of what one might call the “liberal elite” of modern society. Their rise to power is notable and important because the mentality of the intellectuals of the mid and late 19th century differed substantially from that of the group of intellectuals who fashioned the early documents of the United States. Unlike the early American intellectuals who saw liberty as a polestar and tried to limit the growth and power of the state, the later intellectuals saw the state as a vehicle for their own political and social agendas. While the original American intellectuals championed the federal system with its balance of powers between the states and central government, the later intellectuals placed their faith squarely in the power of the centralized state.

Darwin, intellectuals, and the state

Charles Darwin’s On the Origin of Species by Means of Natural Selection; or the Preservation of Favoured Races in the Struggle for Life (1859) had an enormous effect on how intellectuals viewed the world. First, it seemed to vindicate the liberal elite who saw the religion of their day as mere superstition. Darwin’s theories permitted the reformers to expound on their own beliefs that they could “reform” society through the miracles of science. Second, it gave impetus to those who believed that government power could be used “wisely” to fashion a new society.

Many Progressives reasoned that if human evolution depended on “survival of the fittest,” then humans could help that process along through eugenics, which also meant “breeding” humans in a way that would advance the “superior” races and vanquish those races that were “inferior.” (Progressives supported eugenics until Hitler’s embrace of it gave it a bad name.)

For example, most people know Margaret Sanger as the founder of Planned Parenthood, but she also was a strong advocate of eugenics. In a 1939 letter, she wrote the following:

We should hire three or four colored ministers, preferably with social-service backgrounds, and with engaging personalities. The most successful educational approach to the Negro is through a religious appeal. We don’t want the word to go out that we want to exterminate the Negro population, and the minister is the man who can straighten out that idea if it ever occurs to any of their more rebellious members.

In 1921, she had written,

As an advocate of birth control I wish ... to point out that the unbalance between the birth rate of the “unfit” and the “fit,” admittedly the greatest present menace to civilization, can never be rectified by the inauguration of a cradle competition between these two classes. In this matter, the example of the inferior classes, the fertility of the feebleminded, the mentally defective, the poverty-stricken classes, should not be held up for emulation. (“The Eugenic Value of Birth Control Propaganda”; Birth Control Review, October 1921; page 5.)

Another influential Progressive was Herbert Croly, the founder of The New Republic. Libertarian writer Virginia Postrel said of Croly,

Crolyism overturned the ideal of limited government in favor of a combination of elite power — commissions to regulate and plan — and mass democracy.... Frustrated with constitutional limits, Croly wrote, “It remains ... true ... that every popular government should in the end, and after a necessarily prolonged deliberation, possess the power of taking any action, which, in the opinion of a decisive majority of the people, is demanded by the public welfare.” This statement, while extreme, pretty much sums up today’s governing philosophy.

While Croly is not a household word today, he was an important social theorist who influenced Theodore Roosevelt and Woodrow Wilson. Both of them used the White House to centralize government in Washington. They also helped to bring about two sets of social policies: Prohibition and segregation.

Prohibition was the shotgun wedding of the secular Progressives and the Christian fundamentalists, both of whom wanted to ban intoxicating beverages, but for different reasons. Progressives saw it as a way to promote what Rexford G. Tugwell called “social virtues,” while fundamentalists thought that alcohol consumption was sinful, which was reason enough for the central government to ban it.

(At least the Progressives realized that the U.S. Constitution did not permit Congress to outlaw the manufacture or sale of alcoholic beverages without the authority of a constitutional amendment. Today’s “war on drugs,” however, is carried on without such constitutional niceties.)

While Prohibition today is painted as the triumph of fundamentalist bluenoses, most Progressive groups supported it, from the feminists to those who believed that entry into World War I was necessary to spread democracy throughout the world. (For more on this subject, see Murray N. Rothbard’s “World War I as Fulfillment: Power and the Intellectuals,” Journal of Libertarian Studies, winter 1989.)

Woodrow Wilson brought segregationist policies to the federal government. Many states and localities already had implemented those laws in their respective areas but with Wilson’s presidency, which began in 1913, the federal government became a leading force in discriminating against blacks in federal hiring practices. Notes Charles Paul Freund,

Wilson’s historical reputation is that of a far-sighted progressive. That role has been assigned to him by historians based on his battle for the League of Nations, and the opposition he faced from isolationist Republicans. Indeed, the adjective “Wilsonian,” still in use, implies a positive if hopelessly idealistic vision for the extension of justice and democratic values throughout the world. Domestically, however, Wilson was a retrograde racist, one who attempted to engineer the diminution of both justice and democracy for American blacks — who were enjoying little of either to begin with. (In fact, Wilson reportedly struck a racial equality clause from the League of Nations charter as well.)

While some have tried to claim that Wilson’s racism was due to his Southern upbringing, he simply was acting as a leading Progressive. Progressives reasoned that blacks were not as far “evolved” as whites and, thus, should not be given the same rights and responsibilities. When one combines Wilson’s acts of segregation with racist eugenics practices (through birth control and outright sterilization), it is not hard to understand why the Progressive Era was anything but “progressive” when it came to the rights of African-Americans.

The Progressive Era, contrary to popular belief, was not a time when the U.S. government began to adopt “wise” and “far-sighted” policies that matched the political, economic, and social “needs” of that time. Instead, it was a period during which many of the constitutional limits on government were either “reinterpreted” or simply eviscerated.

Progressives believed that they were bringing in an age of knowledge, enlightenment, and security. Instead, they brought social turmoil, injustice, and war.

William L. Anderson teaches economics at Frostburg State University in Maryland. Send him email.

Part 1 | Part 2

The Progressive Era, Part 2:
Progressives and the Economy
by William L. Anderson, Posted June 12, 2006

Part 1 | Part 2

The last quarter of the 19th century and the first decade or so of the 20th century saw the rise of the large corporation in the United States. Those of us who are used to mega-multi-national firms cannot appreciate the sea change that occurred in the United States, as business enterprises, from manufacturing to retail, were transformed from the small, mom-and-pop operations to something akin to what we see today.

Naturally, many Americans mistrusted this development, especially since many of these new “captains of industry” also worked closely with whoever was in political power, from the local mayor to the president of the United States. Given this background, it is not surprising that a number of myths have endured regarding business and the development of the central regulatory state during the Progressive Era. In fact, whenever someone attempts to challenge the current regulatory apparatus, invariably someone else will bring up the “bad old days” of “untrammeled free enterprise” before the state reeled in business enterprises to make them (as the story goes) more “responsive” to the “needs of the public.”

Thus, if we are to rebuff the claims of Progressives that the “reforms” of the Progressive Era signaled positive change, we have to begin with the myths created about the various economic enterprises that seemed to define life in the United States around the turn of the century. The place to begin is with the historians themselves.

As historian David M. Kennedy has written, “Most American academic historians have thought of themselves as the political heirs of the Progressive tradition.” Indeed, it is not just the historians who crave the Progressive mantle but also mainstream journalists, who long have promoted growth of the regulatory and welfare state, not to mention most politicians. While they no doubt are writing and speaking from a perspective they believe to be true, when one examines the historical record one finds that the Progressives are leaving out some important information, and it is precisely that information that I wish to share with readers.

For the most part, historians, academicians, and mainstream journalists have held that the late 19th and early 20th centuries were periods dominated by rapacious, greedy businessmen who were corrupting government through bribery and bilking the public. The prevailing view is that these enterprises actually were impoverishing most Americans and that, as they grew, they became gluttonous monopolies that used their market power to force up prices and produce inferior goods.

Indeed, some of the so-called robber barons of that age were little more than con men and crooks. They were what the economic historian Robert Higgs calls the “political entrepreneurs,” men who demanded and received large subsidies from governments and ran inefficient, costly enterprises. For example, the famed transcontinental railway that still is portrayed as a great achievement in U.S. history with the driving of the “golden spike” at Promontory Point, Utah, in 1869 actually was little more than an exercise in fraud.

As Burton W. Folsom Jr. points out in his book The Myth of the Robber Barons, the Union Pacific and Central Pacific railroads received lavish government subsidies to complete the link between Omaha, Nebraska, and Sacramento, California, which meant crossing the physically imposing territories of the Sierra Nevada, the Great Basin, and the Rocky Mountains when there was no economic reason to do so at that time. The vast subsidies given to the two railroad companies created the incentives for shoddy workmanship and inferior rails and crossties, and hurried construction techniques that emphasized length over efficiency. (The railroads were paid by the mile, and they bilked the taxpayers out of every penny they could.)

The near-criminal exploits of the UP and CP are placed in stark contrast to the building of the Great Northern line by James J. Hill, who constructed his transcontinental railway across the northern states using private funds. Furthermore, Hill built as the market dictated, not according to what was politically feasible, and he encouraged the development of agriculture and other businesses that could be served by his railroad. In other words, the Great Northern’s transcontinental railroad was not politically driven but instead served an economic purpose.

The marvelous accomplishments of the Great Northern were, however, swallowed by the shenanigans of many railroad owners. While competition was fierce and the various attempts at forming cartels to hold rates high failed, railroads often were unpopular among the intellectuals as well as the populist farmers and others who were becoming increasingly involved in the political process. The agitation resulted in the formation of the Interstate Commerce Commission in 1887, the first of many commissions and agencies that ultimately were to make Congress the “regulator” of interstate commerce.

As Milton Friedman notes in Free to Choose, the results of the ICC were much different than what the “reformers” had anticipated. Instead of independently “regulating” the railroads, the ICC, which was staffed by people with ties to rail companies, worked hand in glove with the entities it was supposed to be overseeing. Thus, the first “revolving door” between industry and the entities that regulate it was established.

One of the great myths arising from the Progressive Era was that the “captains of industry” were promoters of economic laissez faire; the reality is quite different. For example, American historians widely assume that the Sherman Antitrust Act of 1890 was passed to correct abuse caused by “monopolies” and “price fixing.” The assumption was that business was becoming increasingly monopolized and that companies were conspiring with one another to produce inferior products at high prices.

The record is quite different. From John D. Rockefeller’s Standard Oil Company to the various producers of capital and consumer goods, the trend was for prices to fall and for the quality and availability of goods to increase. When Rockefeller entered the oil business in the mid 1860s, the price of a gallon of kerosene (the main refined fuel of choice in that day) was about 60 cents. By the turn of the century, Rockefeller’s efforts at eliminating waste and improving production methods brought the price of kerosene to less than 6 cents per gallon, and his story was typical of that era.

Although the free-enterprise system had resulted in the creation of vast amounts of wealth and an increasing standard of living for most Americans, the intellectuals and journalists of the day became infatuated with collectivist ideology. Many business leaders also bought into collectivist ideology, and, as Murray Rothbard points out, there was no one left to resist the clarion call to government regulation and cartelization.

The collectivist mindset

Influential writers such as Walter Lippman insisted on calling corporations themselves entities of collectivism, and others also bought into that error. He could not have been more mistaken, as the supposed power enjoyed by even the largest businesses depended entirely on how well they served their customers and on making correct predictions about the direction their particular industries would be going. Businesses that must serve customers, unlike governments, do not exist as a result of force.

For example, Rockefeller’s Standard Oil Company enjoyed almost a 90 percent market share at the turn of the century, but by the time his company lost a landmark antitrust decision at the hands of the U.S. Supreme Court in 1911, its share had fallen to about 65 percent and was falling quickly, as competitors moved into the newly discovered oil fields in Texas and Oklahoma. Whatever influence Rockefeller might have had with politicians was no match for competitors who could equal or better his prices.

Collectivism had been gaining force since the late 19th century, but the unhappy marriage of socialism and the business enterprise was spurred by the U.S. entry into World War I in 1917. Rothbard writes,

More than any other single period, World War I was the critical watershed for the American business system. It was a “war collectivism,” a totally planned economy run largely by big-business interests through the instrumentality of the central government, which served as the model, the precedent, and the inspiration for state corporate capitalism for the remainder of the twentieth century.

The development of “war socialism” for the purpose of waging “total war” was approved by both political parties, Progressives, business leaders, and religious leaders. Furthermore, the practitioners saw this as a new horizon, an onward-and-upward step in the development of the United States. Rothbard writes,

Apart from the role of big business in pushing America down the road to war, business was equally enthusiastic about the extensive planning and economic mobilization that the war would clearly entail. Thus, an early enthusiast for war mobilization was the U.S. Chamber of Commerce, which had been a leading champion of industrial cartelization under the aegis of the federal government since its formation in 1912. The Chamber’s monthly, The Nation’s Business, foresaw in mid 1916 that a mobilized economy would bring about a sharing of power and responsibility between government and business. And the chairman of the U.S. Chamber’s Executive Committee on National Defense wrote to the du Ponts, at the end of 1916, of his expectation that “this munitions question would seem to be the greatest opportunity to foster the new spirit” of cooperation between government and industry.

As I pointed out in part 1 of this series, many of the nation’s intellectuals were won over to collectivism in the first half of the 19th century, and that trend accelerated, especially after the Northern victory in the Civil War. Nor were American intellectuals alone in their endorsement of socialism; the ideology, after all, had come from Europe. Great Britain and states such as Germany, in order to hold off the more radical calls for communism, already had implemented some “progressive” policies such as the establishment of government “old-age pensions” and some small forms of socialistic medical care.

The desire for intellectual “respectability” carried over to those involved in business, as intellectuals often displayed scorn for those involved in the “trades.” (This was hardly a new phenomenon, as the antipathy toward work and those engaged in trade existed in antiquity, and still is part of the intellectual mindset today.) But as many people began to pile up large fortunes, they also found they could afford to enter a world that previously had been closed to them.

In a recent conversation I had with the economic historian Robert Higgs, he said that he believed that the desire for “respectability” was one of the driving forces of the Progressive Era. This certainly would have been true for many of the so-called captains of industry. Embracing collectivism and an ordered system of government regulation placed them in much more “respectable” company than would have been the case had they insisted on the “unscientific” and “unsophisticated” regime of laissez faire, with all of its “dog-eat-dog” implications of unfettered competition. Notes Rothbard,

The new dispensation cloaked the new form of rule in the guise of promotion of the overall national interest, of the welfare of the workers through the new representation for labor, and of the common good of all citizens. Hence the importance, for providing a much-needed popular legitimacy and support, of the new ideology of twentieth-century liberalism, which sanctioned and glorified the new order. In contrast to the older laissez-faire liberalism of the previous century, the new liberalism gained popular sanction for the new system by proclaiming that it differed radically from the old, exploitative mercantilism in its advancement of the welfare of the whole society. And in return for this ideological buttressing by the new “corporate” liberals, the new system furnished the liberals the prestige, the income, and the power that came with posts for the concrete, detailed planning of the system as well as for ideological propaganda on its behalf.

Yet, as Rothbard also points out, the end result was the return of mercantilist policies that benefited the politically connected firms at the expense of those who were lacking political ties. In the final irony, in the name of preserving competition and promoting the “public welfare,” the Progressives ultimately created a system that stifled competition and created entrenched interest groups and the ubiquitous “revolving door” between regulated businesses and the agencies that regulate them.

The “dog-eat-dog” system that Progressives and their business allies created was supposedly put into place to combat a previous regime of monopolistic and anti-consumer big businesses. In reality, the old system, as reviled as it was, did more to raise the standards of living in the United States and to create opportunities for people who once would have been relegated permanently to poverty, sickness, and early death than anything that came out of the Progressive Era. Indeed, if we are to be honest, the true name for Progressivism should be Regressivism.

Part 1 | Part 2

William L. Anderson teaches economics at Frostburg State University in Maryland. Send him email.