The chapter begins in November 1918 with the end of WWI. According to Schlesinger, the world was optimistic and ripe for change following the destruction of the war years. And a team of young, idealistic advisers was preparing the terms of the Treaty of Versailles. Fired up by the democratic values enshrined in Wilson's Fourteen Points, they sought a resolution to the war that addressed historic inequities and embraced Bolshevik Russia. One of the idealists, Bill Bullitt, even travelled to Russia and obtained generous concessions from Lenin's government. Yet, all were disappointed by the eventual form of the Treaty of Versailles. A number of the young men even resigned from their government posts, including John Maynard Keynes, who later wrote a treatise condemning the economic consequences of the treaty. Bullitt later condemned President Woodrow Wilson and Prime Minster Lloyd George before the US Senate as traitors to the cause for peace. But the writing was on the wall - the hopes for peace had faded and the 20th century was doomed to be bloody.
As an aside, it's interesting to note that there was a real sense that America's entry into WWI needed to be justified as a war that would promote peace in the world. This need to justify war as not simply a brutal, belligerent act but an action required to ameliorate the human condition was unique to the USA in the context of WWI. Still, it is sad to note that the promised democratic ideals of Wilson's Fourteen Points failed to be lived up to even in 1919. The Treaty of Versailles was, as the history of the 20th century proved abundantly, an unmitigated disaster. And I suppose that it should come as no surprise, given that pedigree, that even today purported justifications of war based on democracy and peace, or as the case may be to prevent the use of Weapons of Mass Destruction (WMD), continue to be charades.
Nevertheless, Schlesinger continues to insist in the rest of the chapter that despite the demise of democracy at Versailles, the democratic spirit was thriving in the U.S.A. It had its roots in the Populist revolution against business rule that originated in the 1890s and that demanded a rudimentary farm-price support system, a graduated income tax, the secret ballot, the direct election of senators, the initiative and referendum and the government ownership of railroads, telephone and telegraph. According to Schlesinger, Progressivism took root when populism inspired a middle class distrust of the nouveau riche. The press exposed corruption in business and politics and politicians rose to the challenge seeking to restore honesty to government. The greatest proponent of this Progressive movement was Theodore Roosevelt (T.R.) who shared the populist distrust of the business classes.
The rest of the chapter is devoted to Schlesinger's description of the ideological and political divide between the Democrats and the Progressivists between the years 1912 and 1920. He describes the cause of New Nationalism (embraced by the Progressivists) and its clash with New Freedom (espoused by the Democrats). Schlesinger paints the conflict of T.R. vs. Wilson; Hamiltonian aristocratic-leaning democracy vs. Jeffersonian agrarian democracy; socialism vs. individual freedom; and democracy of concentration/cooperation vs. democracy of small business.
At the head of the Progressivists, T.R. sought to create a powerful federal government that could bring progress and social betterment nationally and administer power politics internationally. Such a move would have been a break from the traditional Jeffersonian ideal of small government. It was also a break from the government's past policy on competition. During his Presidency, Theodore Roosevelt had fought the trusts and combines. Now, though he still distrusted the business classes, he did not believe that the Sherman Act could successfully combat the excesses of business greed.
Some Progressivists now argued that the American idealism embodied in the Sherman Act - that believed individual freedom alone could lead the US to prosperity - was flawed. Instead, a New Nationalism was required that would allow the state to take responsibility for economic and social conditions. The logic was that unfettered competition led to evil working conditions, low wages and unemployment and was, as such, destructive competition that could only be thwarted through cooperation. The New Nationalists called for licensing and federal standards with respect to capitalization, trade practices, prices and labor policy. Corporations must recognize their obligations to labor and the public, as well as to stockholders. Profit sharing, social insurance and old age pensions were the new order for the day.
To New Nationalists, above all, concentration and cooperation between competitors in industry was inevitable. As such, it had to be tolerated and, more importantly, regulated by government. Roosevelt now thought trust busting was madness. The destruction of trusts only resulted in the elimination of cooperation, which in turn led to a return to destructive competition that eventually led to low wages and unemployment. Instead, a democratic government's duty was to regulate business in the interest of public welfare.
At the time the ideals of New Nationalism were being formulated, there was also a great movement of social work arising in the country. The movement was associated with Christianity and recognized that Christians had a duty toward their fellow man. It was a mostly middle class movement, whose goal was to go forth and assist the working poor. They sought to eradicate social ills, such as child labour, sweatshops, slums, low wages. Women were at the forefront of the movement, following their emancipation. Women lobbied, for example, for minimum wage laws and against excessive hours. More generally, the movement sought to join the power of labour with the state to offset the greed of business and Christianize the new social order. And Theodore Roosevelt responded to this social work movement most enthusiastically.
Opposed to the Progressives, both politically and ideologically, in the 1912 election was the Democratic party led by Woodrow Wilson. In 1906, in accordance with the Jeffersonian conception of government, Wilson rejected the paternalistic state and rejected public intervention into the economy. He campaigned against concentrated wealth advocating for equal rights for all and special privileges for none.
However, by 1912 Wilson had come to the realization that special privileges could only be eradicated through governmental interference. Wilson met with Brandeis and was so impressed he asked Brandeis to create a program. Brandeis, unlike the New Nationalists, thought that concentration was not an inevitable consequence of the new economic conditions. In his opinion, concentration arose out of the manipulations of bankers eager to float new securities and stocks. In this way, concentration eliminated individual freedom. Centralization of industry corrupted and choked off innovation by drawing talent from the community into the centre. Competition had to be regulated, not monopolies. Private industry should be regulated to maintain their competitiveness. Where monopolies were necessary, they should belong to the people and not to capitalists. Government regulation of monopoly did not work and industries should either be broken up or nationalized.
Nevertheless, Schlesinger notes that the difference between T.R.'s views and Wilson's were not as great as the candidates made them out to be. Roosevelt did not want to make a universal monopoly and Wilson certainly did not wish to break up every corporation. In fact, they both wanted to regulate monopoly or competition by expanding the power of government.
In fact, Wilson accepted the need for government intervention when he shifted from his do-nothing position of 1906 to activism in 1912. Wilson was pushed to bridge the gap between New Nationalism and New Freedom in part by Southern Democrats, some of whom advocated for a positive obligation to the poor. They sought and won legislation that balanced Republican favoritism for big business by granting concessions to small businesses and farmers in a way that Wilson would have classified as class legislation. Furthermore, in 1914 Wilson enshrined government supervision of corporations by creating the Federal Trade Commission and giving it regulatory powers. In fact, coming up to the election of 1916, Wilson had more or less accepted the main positions of the Progressivist platform (that lobbied for strong government, for administrative regulation, and for intervention on behalf of the farmer and the worker - i.e. an affirmative federal action aimed at producing equality of opportunity).
In the face of the appropriation of their platform and their electoral loss in 1916, the Progressivist party was expiring. Many of the party's objectives had already been fulfilled by Wilson's New Freedom. Furthermore, T.R. became increasingly involved in European foreign policy at this time. The cause was not helped by T.R.'s passing in 1919.
In the meanwhile, war in Europe pushed Wilson to a more complete adoption of the New Nationalist platform than could otherwise have been imagined. War necessitated the central direction of the economy and the government had never been so completely involved in the operation and conduct of business. The War Industries Board and War Food Administration centrally organized industry as well as food production and consumption. The Capital Issues Committee regulated private investment. The War Finance Corporation directed and financed industrial expansion (e.g. railroads, telephone, telegraphs). Furthermore, Wilson, to T.R.'s delight, suspended the Sherman Act, thereby legalizing cooperation between competitors in an industry. T.R. stated that if the prohibition of cooperation could hurt production and efficacy in war, it also hurt business in peace.
Many, in addition to T.R., advocated the continuation of government regulation of industry in peacetime. John Dewey, the putative philosopher of American liberalism, was impressed by the "social possibilities of war" and advocated the use of technology for communal purposes. According to him production should not be for profit but for use and private property was no sacred cow. It's no wonder that in 1917-18, J.P. Morgan worried that the country was approaching the economic circumstances of Russia.
For a time, it did seem like the government would continue its intervention in supervising industry. Wilson supported the continued organization of industry in 1919, calling it the democratization of industry and arguing that it was the right of workers to share in business decisions that affected their welfare. Similarly, his Secretary of the Treasury, McAdoo, argued that the nationalization of the railroads (completed in 1917) should be extended on a trial basis in peacetime until 1924. Others argued for the nationalization of international radio, for federal old-age pensions, and for the nationalization of natural resources (e.g. oil, water, power, forests, mines). They also lobbied for the retention of wartime price controls, the creation of a minimum wage, and the guarantee full employment. The unions supported the demand for nationalization and massive strikes occurred, while the spark of revolution was in the air everywhere.
However, according to Schlesinger, with peace returned selfishness - government regulation of industry for the public good could not last. For instance, the Industrial Board, set up in February 1919 to extend the War Industries Board controls through the transition period, lacked enforcement powers and began to break up. Furthermore, Wilson soon announced the return of the railroads to private ownership. The only important wartime agency to survive, with difficulty, was the War Finance Corporation.
The government, however, did retain its controls over freedom of thought and expression. For fear of an illusory revolution, many radical centers/workers were arrested: 6000 were arrested but only 3 revolvers were found and no dynamite. Though unsuccesful in finding agitators, these raids did succed in spreading fear throughout society. For example, in Hartford, CT, visitors at jails who inquired after people caught in the raids were also arrested because their concern was prima facie evidence of Bolshevik affiliation. As such, some argued that war slew liberalism/progressivism. Ironically, the liberals were being persecuted by the state they loved so dearly because of a war that promised democracy to all the world. The consequence was that many reformers soon became disillusioned with the state.
Finally, the death knell of the Progressive party was sounded when Hiram Johnson (the Republican Progressive candidate for 1920) was passed over as the Republican presidential candidate in favour of Warren G. Harding. The Progressive Party met once more after the convention, but only to decide that the Bull Moose crusade was over.
At the same time, an era was also ending for the Democrats. Sensing that there was a deep revulsion against Wilson throughout the country, the Democrats nominated James M. Cox (reform governor of Ohio) as their presidential candidate, instead of Wilson, and F.D.R. as their vice-presidential candidate. But, Harding and Coolidge won the 1920 election.
Thus, Schlesinger ended his chapter. The thing that most fascinated me about his account was the massive difference between the ideological discussions surrounding political economy in the 1910s compared to today. These days, there would never be any consideration of government regulation of industries in the U.S. Even as banks are nationalized in this great financial crisis and even as billians are loaned to the Big Three car makers, the government's demands about how these companies should be run are closer to stockholder requests than the demands a government might impose in order to run these companies according to a greater national purpose. The current U.S. government is avoiding at all costs the appearance of any sort of nationalization - whatever the actual truth of the matter may be.
Perhaps, the discussion in the 1910s does not resemble ours today because there was little governmental regulation at all at the time. The New Nationalists could advocate for the extremes of government intervention and organization of industry because they did not know its consequences, in terms of decreased efficiency for instance. For the same reason, the Bush government could push for the Jefforsonian ideal of small government to its most logical extreme - the minimalization of government at all costs (even if that led to the financial sector running amok with greed) because it had been decades since any American had witnessed the consequences of completely unregulated competition. Only in China and other less developed countries is such a thing to be seen: low wages, no workers' rights, child labour, etc... And no one can remember the old trusts (i.e. cartels) that siphoned off vast amounts of wealth from the working poor.
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