A Patriot's History of the Modern World (9 page)

Therefore, instead of dealing with a handful of inefficient trusts that struggled to control a portion of the market, the nation was handed by default a system that refined corporate power and turned sluggish, bloated companies into lean, mean enterprises that had to compete with one another. Almost immediately upon assuming office as president, Theodore Roosevelt recognized the power of the new firms, especially if they combined, leading him to sic his Justice Department on the Northern Securities Company for “restraint of trade.” Roosevelt, of course, had been searching for a vehicle to test his view of muscular regulation. Following the E. C. Knight sugar refining case of 1895, in which the Supreme Court said that regulation of a manufactured good was a state responsibility unless it crossed a state line, Roosevelt dispatched his attorney general, Philander C. Knox, to file a suit against the Northern Securities holding company that enfolded the Northern Pacific, Great Northern, and Chicago, Burlington, and Quincy railroads into a single umbrella company worth nearly half a billion dollars. Yet the holding company had not charged higher rates, and therefore no harms from this monopoly actually existed. Nevertheless, the Court ruled against the combination in light of possible future restriction of commerce, obliterating the concept of “innocent until proven guilty” when it came to the corporation.
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Business—how it ran, what motivated entrepreneurs, why profits were critical—escaped TR, becoming his most glaring weakness as president. Disagreeing with Roosevelt was easy, but disliking him was impossible. Harry Thurston Peck, a literary critic, once described him as “a stream of
fresh, pure, bracing air from the mountains, to clear the fetid atmosphere of the national capital.”
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William Allen White described him as having “a shoulder-shaking assertive, heel-clicking, straight-away gait, rather consciously rapid as one who is habitually about his master's business.”
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Wealthy, Roosevelt spent much of his presidency railing against combinations of industry; frail as a youth, he took up boxing and bulked up to two hundred pounds of muscle—one opponent described him as a “strong, tough man; hard to hurt and harder to stop.”
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A portrait in contradictions, TR reasoned that whatever he had overcome, others could as well, and whatever offended him surely must offend the public, too. No comments better encapsulated Roosevelt's view of life than the classic “Man in the Arena” speech:

Roosevelt's positive contribution to American history lay not in his flawed business policies but in his commitment to American strategic power and his support for American interests abroad. Above all, TR loved America—not as she might be when properly “reformed,” but as she was. He certainly intended to improve the United States (he was a Progressive after all), but Roosevelt lacked the self-loathing that afflicted so many post–World War II liberals and Progressives. If anything, Roosevelt went overboard from time to time, essentially arguing that America was great and she owed it to other peoples to insist that they be great, too.

Few Europeans shared his views, although for over a century the question of who the American was had been debated. Alexis de Tocqueville praised Americans' love of freedom and equality. British eugenicist Francis Galton, in the 1850s, had described Americans as “enterprising, defiant, and touchy; impatient of authority; furious [with] politicians; very tolerant of fraud and violence; possessing much high and generous spirit, and some true religious feeling, but strongly addicted to cant.”
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TR, possessing an
eye for the press and public relations, realized he governed a nation that had already become an international power, impossible to overlook or ignore, exactly as the irrepressible Roosevelt himself was to everyone.

Progressivism and Its Debilitations

At home, however, Roosevelt headed a movement that soon emerged as one of the most destructive forces since slavery, Progressivism. Infused with a liberal interpretation of Christianity that redirected the individual toward helping his fellow man with material blessings, rather than pointing him toward the salvation of Christ, the Progressives became far more dangerous to American liberty than any previous movement. While they shared the objective of redistributing wealth with the Populists, Progressives shifted their focus from controlling particular forms of economic endeavor (trains, grain elevators, factory owners) toward gaining power over broader swaths of American society, most notably the newly emerging middle class. This group became the Progressives' target because it had both wealth, which the government could tap as a source of revenue, and political power, which could allow Progressives to obtain control of the federal government without a revolution.

Although many Progressives emerged from the upper class and educational elites and saw the wealthy as having an obligation to help support the poor, not all believed they should be compelled to do so by government. But the temptation was great: here, in America, for the first time was a large collective entity (the federal government) with a potential for a bloodless revolution that redistributed wealth, and the perfect mechanism for that revolution was an income tax. Needless to say, the concept of an income tax so troubled the Founders that they had specifically prohibited a direct tax in the Constitution (Article 1, Section 9), thus forcing the Progressives to pass an amendment. That, in turn, required creating a national consensus that depended entirely on selling the concept to the large swath of middle-class voters. Political leaders began with a modest proposal, initially targeting the Northeast, where they expected the most opposition. Some of the wealthy already supported the tax out of fear that without it, more radical and painful alternatives might emerge. Few advocates championed the tax as a means to generate revenue: Democratic congressman Cordell Hull from Tennessee, the primary drafter of the 1913 and 1916 income tax bills, as well as the 1916 inheritance tax bill, was far less concerned about the revenue-producing capabilities of the tax than about advancing “economic
justice.”
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To that end, the form was simple (one page, in most cases), the rates were phenomenally low by today's standards (6 percent on the ultrawealthy, and half a percent on most of those who paid taxes at all), and the exemptions so numerous that only 2 percent of all Americans paid income taxes.
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This was good strategy for the pro-tax people, too, as the smaller the number of people who actually paid taxes, the easier it would be to raise them in the future. It was the classic case of the camel putting his nose in the tent—soon the entire camel would follow.

And then there was the tariff, which required constant revision of “schedules” (rates). Most congressmen never examined a single schedule other than as applied to outside goods produced in their own district. A Louisiana congressman might, for example, have some interest in the sugar rates, but none in the iron rates; a Pennsylvanian might care about iron, but not tar. Republican House leaders, then, were entrusted by their parties with organizing the messy schedules into a vote that passed easily and with almost no dissension within the party.
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Merely the potential of haggling over hundreds of rates for everything from rope to cheese to timber led Congress to see the income tax as a replacement for the cumbersome tariff structure, even when it was not generating a large percentage of the nation's revenue.

These concerns over tariff revisions, “economic justice,” and the Progressive desire to start federalizing more money culminated in the income tax amendment of 1913. There was no withholding: all taxes were paid on April 15, a date seemingly deliberately chosen for its remoteness from the November elections. With the passage of income tax withholding from wages during the New Deal, the noticeable and immediate burdens of the tax system were further diluted, making it easier than ever to raise taxes incrementally. Opposition arose only when the burden of taxes reached a tipping point, as occurred in the late 1970s.

The First, Failed Canal

By the time the income tax passed, Roosevelt's light had dimmed. He had lost the 1912 presidential race, splitting the ticket with fellow Progressive William Howard Taft and allowing the Democratic Progressive, Woodrow Wilson, to gain the White House. But his legacy endured, and the most fantastic project of the early twentieth century was created in large part due to Roosevelt's support and vision. The Panama Canal “bore stark witness to the enormity of American industrial might and the ability of Americans to
project that power overseas.”
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It represented one more example of how Americans seemed to accomplish what other nations could not.

Springing from the futuristic dream of Ferdinand de Lesseps, a French lawyer-turned-engineer, the ambitious Panama Canal project was deemed possible namely due to de Lesseps's success at constructing the Suez Canal (opened in 1869). In many ways, de Lesseps was France's first nonmilitary celebrity technocrat, surpassing Gustave Eiffel (whom de Lesseps later dragged into the Panama Canal muck, eventually sending the hapless builder of the Eiffel Tower to jail for his role in the exorbitant expenditure of funds and for his complicity in fleecing the French public).
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De Lessups had no real connections, no official capacity, no background in finance, no particular engineering skill. He did have an education at the École Polytechnique—but so did thousands of others with more talent. Like today's celebrities, who feed off one another by appearing together, so too did Jules Verne and Victor Hugo associate with de Lesseps and he with them to further the image of a powerful cadre of revolutionary thinkers. Hugo encouraged de Lesseps, that he might “astonish the world by the great deeds that can be won without a war!”
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Nor was de Lesseps without good sense—he had stayed out of the French effort to build a railway across the Sahara Desert from Algeria to Timbuktu, which ended in a disaster both for its promoters and for the French forces sent to survey the route in 1881. Historian David McCullough labeled de Lesseps “the
entrepreneur extraordinaire
; contemporaries called him the ‘the first promoter of the age.' ”
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English prime minister Lord Palmerston had a different view, labeling him a “swindler and a fool.”

In fact, de Lesseps had virtually no building experience in any project anywhere comparable to the Suez—yet he pulled it off thanks to new, large French digging machines. The success at Suez embedded in de Lesseps an inflated opinion of the capabilities of technology to solve any problem.

Essentially nominating himself to lead the Panama project, de Lesseps summoned a congress of financiers, engineers, and politicians, and sought both to boost stock sales in the enterprise and to forge a consensus on the route he (and France) had already chosen, one running alongside the Panama Canal Railroad. Money was raised, and digging commenced, but no one had a clue how to deal with the Chagres River, which would have to be redirected or somehow incorporated into a canal. More important still, no one had come to grips with the deadly disease of yellow fever. Malaria had a preventative (quinine), but was still extremely common. De Lesseps remained
unmoved, possessing a “jaunty disregard of technical problems, the inability to heed, to
trust
the views of recognized authorities if those views conflicted with his own, the faith that the future would take care of itself, that necessity would give rise to invention in required proportions and at the proper moment, the unshakable faith in his own infallibility [emphasis in original].”
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Needless to say, Panama was vastly different in geography and cultural attitudes from Cairo: Panama at both ends (Panama City and Colón) was among the most despicable places on earth. Unequaled in “swindling and villainy,” as one English historian put it, nowhere else was there

Dead cats and horses were not uncommon sights in the streets of mid-century American cities, but this combined with the garbage piled high only exacerbated the filth and disease. So much liquor flowed in Panama that the bottle dumps at Colón rose as tall as a house and the streets were literally paved with wine bottles turned upside down.

Upside down also aptly described the digging situation under de Lesseps's supervision, where the contractors found that the more they dug, the more rainfall washed mud into the cuts. The lock system that would be required proved far beyond de Lesseps's abilities and financial whim-whammery. He finally declared the Compagnie Universelle du Canal Interocéanique de Panama closed and bankrupt in February 1889.

America Picks Up the Shovel

With France's exit from Panama, two paths to building a canal still remained for the United States to consider: the failed Panama route (which most engineers still preferred) or a route through independent Nicaragua, for which many prominent senators lobbied. Two events coalesced to shift sentiment to Panama. First, in April 1902, a volcano erupted on the Caribbean island of Martinique, annihilating the city of St. Pierre and obliterating nearly 30,000 people. Suddenly the assessments of Nicaragua as a state riddled with volcanoes looked more sobering. Second, in June 1902, Senator
Mark Hanna—McKinley's onetime right-hand man and campaign manager—delivered a highly organized address to the Senate, in which he laid out nine key advantages of the Panama route. The speech swayed several votes and led some to refer to the project as the “Hannama Canal.” Less than two weeks later, newspapers reported that Roosevelt had settled on the Panama route, and warned Colombia to agree to a treaty quickly or face unnamed threats from the U.S. government.