American Experiment (220 page)

The President took the latter stand. “The control of the system of banking and of issue which our new laws are to set up,” he said in his second appearance before Congress, “must be public, not private, must be vested in the Government itself, so that the banks may be the instruments, not the masters, of business and of individual enterprise and initiative.” But how master Glass? Wilson won him over to a creative compromise through sheer patience and persuasiveness, while fending off Wall Street pressure for a central bank, European style. The compromise blossomed in the Owen-Glass Act, passed in December 1913, which combined centralization
and
decentralization, governmental
and
private control. A Federal Reserve Board in Washington, composed of public officials, had authority to raise or lower the rediscount rate, thus wielding direct control over the credit supply. Federal Reserve regions were established; in each
a Federal Reserve bank, six of whose nine directors would be appointed by the Federal Reserve Board, served as depositories for the cash reserves of the national banks—which were required to join the system—and of state banks. But the regional reserve banks would remain in the ownership of private bankers, and hence in their control too—to the extent that La Follette and Representative Charles A. Lindbergh of Minnesota charged that the act legalized the “Money Trust.” The act, in Arthur Link’s view, was the greatest single piece of constructive legislation of the Wilson era.

Once again Wilson had demonstrated his uncommon ability both to lead and to follow, to stand firm and to give way. This was the hallmark of his early years in the White House, in the teeth of expectations that he would be professorially rigid and dogmatic. He made a point of treating legislators with respect, as partners in a common cause. And he learned from them. When, shortly after his inauguration, he piously told his Postmaster General and chief patronage dispenser, Albert S. Burleson, that on appointments “I am not going to advise with reactionary or standpat Senators or Representatives,” Burleson reacted like the seasoned old party pro that he was.

“Mr. President,” he exclaimed, “if you pursue this policy, it means that your administration is going to be a failure…. It doesn’t amount to a damn who is postmaster at Paducah, Kentucky. But these little offices mean a great deal to the Senators and Representatives in Congress.” He knew these congressmen and senators. “If they are turned down, they will hate you and will not vote for anything you want. It is human nature….” Wilson gave way.

The President also gave way on a far more vital question of strategy. He had not only wanted to lead the Democratic party; he had planned to transform it into a more progressive party—indeed, to reconstruct the Democracy and align it with liberal-minded independents and Republicans. Patronage for progressives in Congress was to be only one element of this strategy; he planned to reconstruct the New York and other state and local political parties by granting or withholding White House recognition. He quickly encountered the powerful defenses of political gridlock. When McAdoo and others, with Wilson’s blessing, sought to revamp the New York Democracy, its man in the Senate, James A. O’Gorman, warned that he would invoke his personal privilege as a senator to hold up appointments of anti-Tammany Democrats and independents. Wilson backed off. He discovered, though, that if he traded with the regulars, they supported him more dependably than many progressive lawmakers.

“What you told me about the old standpatters is true,” he told Burleson. “They will at least stand by the party and the administration.”

The President’s flexibility helped him immeasurably in getting his big bills through Congress. But this was short-run politics against longer-run, pragmatic politics against principled. In the long run, he might need a more progressive vehicle than the boss-ridden, disorganized, rurally oriented, fractionated Democracy; he might need liberal-minded Democrats, independents, and internationalist Republicans. In the short run, he was pushing his bills through Congress. But there would be a price to pay for pragmatism.

The commanding intellectual issue in Woodrow Wilson’s first term was not the tariff or even banking and currency. It was the issue of economic monopoly in a representative democracy. For almost a century Jeffersonians, Jacksonians, farmers’ and workers’ parties, Locofocos, Grangers, Populists, and reformist Democrats and Republicans had been calling for the curbing, in various ways, of the monopolistic tendencies of big business. For half a century—ever since the Civil War—trusts had come more and more to dominate the economic landscape. In the eyes of antimonopolists, nothing seemed to stop these behemoths. The Sherman Antitrust law had been fitfully enforced and judicially eroded. At century’s turn, ten years after the act was passed, business underwent “a burst of merger activity never exceeded in importance in our history.” Left holding the economic high ground were the new giants: U.S. Steel—the first billion-dollar company—American Tobacco, International Harvester, Du Pont, American Smelting & Refining, and scores of others.

Now at last it seemed that the monsters could be tamed. Not only had business concentration been a dramatic and central issue in the 1912 campaigns; not only had all the four leading presidential candidates taken some kind of position “agin the trusts”; they had divided so contentiously over proposed solutions as to offer at least a rough guide to the voters’ minds and the new Administration’s mandate. During 1914, his second year in office, Wilson won from Congress the Federal Trade Commission Act as part of his trust regulation program. A new bipartisan commission was empowered to investigate and police corporations in order to prevent unfair business practices such as adulteration of goods, combinations for maintaining resale prices, and mislabeling. Congress also passed the Clayton Antitrust Act, which prohibited price-cutting that aimed at the destruction of competition, interlocking directorates in industrial entities capitalized at $1 million or more, and stock purchases by corporations of other corporations when these tended to lessen competition.

The passage of these acts, however, seemed less to satisfy concern over monopoly than to intensify it. This apparent paradox was due in part to widespread doubt that any legislation, federal or state, could actually master private economic power. Even more, the skepticism stemmed from the view that the problem was a much broader one than mere monopoly, that the great popular and progressive mandates of 1904 and 1912 were in jeopardy, that American democracy itself was at stake.

Fear of economic—and political—power in a few hands lay deep in the American psyche. During the progressive era, Hofstadter noted, the entire structure of business “became the object of a widespread hostility” as a result of belief that business was becoming “a closed system of authoritative action.” Wilson had touched the people’s nerve in 1912. He was engaged, he proclaimed in Denver at the height of the 1912 campaign, in a “crusade against powers that have governed us—that have limited our development—that have determined our lives—that have set us in a strait-jacket to do as they please.” Raising the stakes, he went on to call the fight a “second struggle for emancipation.”

Yet Americans seemed to be as ambivalent about the “second emancipation” as they had been about the first one. For one thing, defenders of big business were putting up powerful arguments. Consolidation, they claimed, lowered prices. “We think our American petroleum” is “very cheap,” said John D. Rockefeller smoothly. “It is our pleasure to make it so.” Big business, the argument continued, was more efficient and economical because it could buy and sell in large quantities, hire the ablest people, experiment and innovate without undue risk, use the latest labor-saving machinery. Nor was big business undemocratic, because it was controlled by shareholders with voting power. Critics of business disputed all these points, especially the last. It was already becoming clear to perceptive observers that stockholders, if they had ever really had control, were yielding it to managers, executives, and insiders.

People argued the case in terms also of their basic values, but values were not clear guides to action. Almost everyone believed in Individualism, Democracy, and of course Liberty or Freedom, but how did these terms translate into economic or governmental policy? Individualism was a case in point. It was in the name of Individualism or individual liberty that the businessmen of the late nineteenth century had fought off governmental interference and apotheosized the Horatio Alger man who rose to the top through the untrammeled exercise of ambition, competition, and talent. Then Wilson, La Follette, et al. had turned Algerism upside down by proclaiming that monopolies had blighted individual liberty, opportunity, competition.

Or consider democracy. Economic? Political? Social? In both the private and public sphere? Exercised through the majority will? Stockholders’ meetings? Party politics? Coalitions of minorities? Or through a scramble for power and pelf, open to all on an equal basis, favoring none? For most Americans, for most of their leaders, these questions were still open.

Then, the thorniest question of all: If economic concentration did indeed threaten American democracy, what should be done about it? Those who favored some kind of governmental action had divided most clearly in 1912 between Wilson’s promise to break up economic bigness and Roosevelt’s proposal to regulate it. It turned out, though, that these differences were not as polar—or as profound—as the two sides believed. In practice, policy crept out of these narrow categories and found its own crisscrossing paths. Then too, Wilson showed considerable flexibility in carrying out his programs. Thus, after having flayed Roosevelt’s proposal to regulate big business through a strong Federal Trade Commission, Wilson himself moved around to this position.

However much he might have altered course, President Wilson’s forceful leadership stimulated and catalyzed thought throughout the ranks of progressive thinkers. Out of the clash of ideas during the Roosevelt and Taft years arose an intellectual leadership that was centrally concerned over the sharpening conflict between the ideological defense of big business and the claims of democratic progressives. Four men took the lead in rethinking the role of democracy in the booming American workshop, the whole question of “industrial democracy.”

By far the most influential of these—measured both by access to power and by influence on policy—was Louis Brandeis. Unperturbed by Wilson’s failure to offer the “people’s lawyer” a major post in the face of conservative opposition, the Boston attorney continued to advise the President on major economic policy. “Brandeis and Wilson initially used Wilson’s presidency, and the potential power it gave him, to teach the nation about the ideals of Brandeis and the progressives and to enact some of them into law,” according to Philippa Strum. Brandeis successfully backed James McReynolds for Attorney General; met often with Cabinet and other Administration officials; worked with Secretary of State Bryan to influence Wilson against allowing the “money trust” too much control over the new Federal Reserve system; and, changing his own mind, helped change Wilson’s mind as to the desirability of a regulatory, rather than merely investigative, Federal Trade Commission. Though disappointed by Wilson’s conservative appointments to both the
commission and the Federal Reserve Board, Brandeis remained on cordial terms with the President.

Still, Brandeis from the start took a stronger line against big business, the trusts, and especially the money trust than Wilson did. The theme that “never varied in Louis Brandeis’s thought,” according to Melvin Urofsky, was that “too great a concentration of economic power constituted a social, economic and political menace to a free society; a business could be efficient only up to a certain size beyond which bigness caused inefficiency; trusts could never stand up to smaller units in a freely and truly competitive market place; proper rules regulating competition could insure such conditions; competition is the atmosphere which a free society breathes.”

For Brandeis the paramount issue was not efficiency but democracy—industrial, political, governmental democracy. In “striving for democracy,” he told the Commission on Industrial Relations in 1915, “we are striving for the development of men.” Industrial democracy would not come by gift; it “has got to be by those who desire it.” Brandeis’s great hope was that industrial workers would want it, for they had the most to gain from it. Individual employees had no effective voice or vote, but collectively workers should exercise more control through their unions, just as stockholders should be held responsible for decisions made by their companies. Brandeis pointed to the garment industry, where an agreement had created a system of government for both employers and unions, including even “administrative officers, courts, and a legislature always ready to take up questions arising in the trade.” The smaller the business, Brandeis suggested, the more likely such industrial democracy could grow.

Second only to Brandeis in influence over presidential leadership was Herbert Croly, friend of Theodore Roosevelt. Raised by activist parents—his father the editor of the crusading New York
Daily Graphic,
his mother a journalist and pioneering feminist—Croly left for Harvard in 1886 imbued with his family’s Comtean positivism and dedicated to the welfare of mankind, and after intermittent years of study under James and Santayana, and as editor of the
Architectural Record,
he became even more dedicated to the welfare of mankind. He produced in 1909 his masterwork,
The Promise of American Life,
a 468-page tome as relevant and powerful as it was long and prolix. It was Roosevelt’s reading of this book, shortly after his return from Africa, that mightily strengthened the radical thrust of the former President’s progressivism and brought the two men together.

Two progressives could hardly have been more philosophically divided than Croly and Brandeis. Brandeis looked back nostalgically to Jeffersonian ideas of local democracy, individual liberty, rural culture, and small-scale economic competition. Croly called for a strong national
government, under vigorous executive leadership, prepared to carry out progressive and humane policies at home and pursue nationalistic policies abroad. To him, individual liberty was important, but no less was liberty of the whole people to shape their own destiny. Only the centralized power of the people could deal with the centralized power of big business. Croly, it was said, would use Hamiltonian means to achieve Jeffersonian ends, though he complained that Hamilton perverted the “national idea” with his upper-class bias almost as much as Jefferson perverted the democratic idea with his extreme individualism and egalitarianism.