Penguin History of the United States of America (87 page)

Yet, even if we concede that his goal was the right one, it cannot be said that he really attained it. By comparison with the past, even the recent past, his achievements were impressive; measured against what needed to be done, they were almost trivial. The story of the Federal Reserve Act illustrates the point to admiration.

The panic of 1907 may in retrospect be seen as the turning-point of the Age of Gold. For a week in October a team of New York bankers, led by Pierpont Morgan, struggled heroically against a crisis which threatened to bring down the whole American financial and economic structure; and they prevailed. But it had been a close-run thing, and victory would probably have eluded them had it not been for Morgan’s unique personal authority (at one moment he locked a couple of dozen of America’s richest men into his library on Madison Avenue and then forced them to pledge their millions to the salvation of Wall Street). As he himself remarked later, it was not healthy that economic security should rely so much on one man. But the panic also demonstrated, to those with eyes to see, three even more important points.

First, it had been brought on by an all-too-familiar combination of speculative greed and dishonest or incompetent financial management. In other words, the conditions which had led to panics in the past – in 1837, for instance, or 1873 – were not correcting themselves as American capitalism matured: they were getting worse.

Second, the general economic effect of panics and crashes was getting greater all the time. Even though the 1907 panic was quickly brought under control and then halted in its course, it plunged America into depression for the next year, and the smooth and rapid growth of the years since 1897 was not renewed, even after confidence was restored. Prosperity was at best patchy and uncertain until the outbreak of the First World War.

Finally, it was apparent that the only agency big enough to control events in future was the federal government. The Secretary of the Treasury had come to Morgan’s aid in 1907 with deposits of thirty-five million dollars from the federal surplus, which was fortunately just then a healthy one; on another occasion a much larger operation might be necessary, since the government’s obligation to protect American prosperity was now acknowledged. Clearly it would be better if another crisis could be prevented by a steady application of government policy;
ad hoc
contrivances like those adopted in 1907 were not enough; in short, a federal law was necessary – perhaps more than one.

This was the reason for the Federal Reserve Act. It was the first episode
in the process by which Washington has since become the determining factor in the US economy; but it was a very modest first step. The problem which the business world saw as a result of 1907 was the unsatisfactory state of the currency. Even allowing for the increased production of gold and the fantastic profitability of the American economy, there was simply not enough money available to the national banks for use in emergency – such an emergency as that in 1907 when the failure of two leading finance houses, for lack of ready cash, nearly brought the whole structure of finance capitalism tumbling. New forms of credit would have to be devised, and they would have to be backed by the federal government, precisely as Alexander Hamilton had argued when he founded the First Bank of the United States.

Popular hostility to Wall Street was so deep, and the dissensions among the bankers themselves were so sharp, that it proved impossible to get a new bank law through Congress under either Roosevelt or Taft; but it soon became one of the Wilson administration’s chief projects, and was duly achieved in the autumn of 1913. The Bank of the United States was not revived: the ghost of Andrew Jackson was still powerful enough to prevent it; but an effective substitute was devised, acceptable both to Wall Street and to the present leaders of Jackson’s party – Woodrow Wilson and William Jennings Bryan (now Wilson’s Secretary of State). The reserve system reflected political and geographical realities by being a federation of twelve districts or regions, the two most important being those centred on New York and Chicago; but it was directed from Washington by a Federal Reserve Board, consisting of the Secretary of the Treasury, the Comptroller of the Currency and five other members, all appointed by the President. (This arrangement was not particularly welcome to the bankers, who would rather have appointed the board themselves; but Wilson saw no reason for allowing the poachers to elect the gamekeepers.) The Board was and is substantially independent of the President, but by placing its headquarters in Washington and by controlling appointments to it the authors of the Act (Congressman Carter Glass of Virginia chief among them) made sure that it would be a national body, with a strong sense of its political obligations as well as its commercial ones. In return for conceding this measure of political interference the capitalists got a flexible and dependable currency administered by the equivalent of a central bank. The conditions of 1907 therefore ought not to recur.

Nor did they. But no two financial crises have exactly the same occasions: the Federal Reserve Act of 1913 tackled only one sort of weakness and left the United States vulnerable to a dozen others. Nothing was done to bring the stock exchanges under control or to regulate the flow of funds in and out of the country. No one (except the handful of American Socialists) saw the necessity of regulating wages and profits so that consumer spending power could grow with the economy and wealth be dispersed widely, instead of concentrating in the hands of a comparatively small group of irresponsible
millionaires. Above all, nobody saw that even as a banking reform the Act did not go far enough. It was, after all, the New York bankers who had so grossly over-capitalized so many enterprises that even the gigantic earnings of American industrialism might prove to be insufficient to pay the interest due to all the savers who had bought stocks and bonds. Nothing was done to strengthen the tens of thousands of small state banks, where a large part of the nation’s capital was deposited. These conditions were signs of trouble for the future. And the Reserve Board, even though appointed by the President, soon fell under the dominance of Wall Street and remained thus enthralled until 1929. The gamekeepers surrendered to the poachers. Greed, dishonesty and folly had as large a scope for their operations as ever.

Reservations of this kind apply to most of Wilson’s other reforms. The Underwood tariff (1913), for instance, was a serious move in the direction of free trade, but the sudden outbreak of the First World War made it nugatory almost as soon as it came into operation. In twenty years’ time Franklin Roosevelt would have to reform the tariff all over again.

In other respects too the times were less propitious for great achievement at the federal level than they seemed. It is anyway arguable that the energy of the progressive middle class was most effectively expended at state and city level, where, for example, able young women like Frances Perkins – horrified at the Triangle fire of 1911, when 146 young women died in a New York sweatshop disaster – could make themselves felt by lobbying successfully for a state law to prevent such a thing happening again. In city after city, state after state, the revolt against the corrupt and by now intolerably inefficient old machines swept reform administrations into power (such as those of ‘Golden Rule’ Jones in Toledo, Ohio, or E. H. Crump, later to be a notorious boss himself, in Memphis, Tennessee). Some good was achieved. But Washington lacked the money, the expertise and the authority to be of much help in these local efforts. It did not even do much to advance such a cause as women’s suffrage: the breakthrough came in the West, where between 1910 and 1914 nine states gave the vote to women. This proved a significant lever: the suffragists organized against the Democrats in those states in the 1914 election, since the majority party had not endorsed the Anthony Amendment to the US Constitution;
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fewer Democrats than had been expected were returned to Congress, which frightened the party leaders so much that they instantly converted to support of the Amendment. In the 1916 election both main parties said they were in favour of women’s suffrage, disagreeing only about the means to achieve it; in 1917 New York state gave women the vote, after an effective campaign
by the leading suffragist, Carrie Cart. It was clearly only a matter of time before the Anthony Amendment was passed, and in fact (helped by the patriotic contribution women made to victory in the world war) it became part of the Constitution in 1920, in good time for the elections of that year. It was one of the most triumphant and characteristic victories of the progressive years, being a cause behind which East and West, working and middle classes, town and country, had eventually been able to unite; and perhaps most of all in that it was a reform brought about from below. The national politicians, including the President, had been little more than the playthings of a great tide.

Two other issues illustrate the same point, and a further one, that although adjustment to a new age was necessary, many Americans were most unwilling to adjust. This was especially so in the rural areas of the West and South. There, even as the triumph of progressivism vindicated the Populists, much of whose programme the new movement realized, the energies that had inspired Populism turned sour. Progressivism owed its success to the combined forces of half a dozen groups; but that did not redeem the new cities in the eyes of the farmers. They remembered the words of Bryan; they remembered his defeats; they could hardly take Roosevelt and Wilson to themselves in the same way, and they felt America slipping out of their hands. The country must be redeemed and purified. At the very least the wicked lure of alcohol must be rooted out. This Bible Belt zeal received reinforcement from two unlikely sources. First, many urban progressives had been born on farms in the Mid-West and shared rural intolerance and provincialisms: when they discovered that the working classes in the cities were untrustworthy, frequently wanting more than the middle classes were prepared to concede, they too fell back on proposals which might restore order. Secondly, many businessmen and social workers were well aware that drunkenness was a real problem, entailing, among other things, much loss of working time and much violence in the home. They lent their support to temperance proposals, overlooking the point that temperance could often be the stalking horse for prohibition. By 1914 the anti-drink crusade was much nearer to victory than anyone suspected, though it would take a war to carry it to its goal. Even had they known as much the progressives might not have worried. They were still naive in a great many respects, and found it possible to dream that prohibitionists might be right and that a teetotal America might be possible and desirable; a clean bright place giving an example of sober virtue to the human race.

Similar tensions lurked behind the rising tide of anti-immigrant feeling. Nativism had a long history behind it; and it ebbed as often as it flowed. But each time the tide turned, it turned from a higher point on the beach. Anti-Catholicism, racism and anti-radicalism were its three main expressions; but the fact that they were invariably stimulated by trouble shows that what really underlay nativism was anxiety about the future and the need to find a scapegoat. Thus there was an upsurge of nativism in
1914, when a recession began; and in the troubled years after 1918 the golden door was to be slammed shut, in an attempt to assuage anxiety.

But what is most noticeable, if the campaign for women’s suffrage, that for prohibition and that for immigrant restriction are compared, is that all three could pose as reform movements and at the same time make use of conservative arguments: for example, that women would purify the soul of America and recall her to better things. In this way they were able to win a strikingly wide range of support; and they resembled all the other great progressive causes. Was the progressive mission one to redeem America, and make her once more the small-town, small-farm, just, Protestant and republican Utopia she had surely been, if not in your own childhood, then in your grandparents’ time? Or was it a mission to bring in the golden age of the future, when everyone would vote in pristine equality and machinery would solve all ills? No one could say; yet it was a crucial choice, and the failure to make it perhaps best explains what was eventually to go wrong. Of what use was it for business to propose, Presidents to dispose and Congress to legislate, if the wishes and opinions of those who were to administer the results were to fluctuate wildly from decade to decade, almost at times from year to year? Neither reform nor reaction could be sure of durable achievements, and, caught between past and future, too many men of goodwill would find their aspirations destroyed. The progressive mission eventually petered out because the pretence could no longer be sustained that all necessary reforms could be supported by everybody. Woodrow Wilson himself was eventually to discover, the hard way, that ideals divide as well as unite. In retrospect progressivism seems little more than a rehearsal, during which, in sunny times, the Americans learned the techniques they would need in the stormy age to come.

It would be the irony of fate if my administration had to deal chiefly with foreign affairs.

Woodrow Wilson, 1913

The headlong development described in the last three chapters had one result which the American people expected and, in their boastings, anticipated, but which they were not really prepared for and certainly did not understand: it turned the United States into a great power; indeed set it fairly on the road to becoming the greatest power in the world. At the same time the rise of modern industrialism meant that many other nations were also expanding. Sooner or later their ambitions were certain to collide, and that, in a world not yet sobered by experience, made war very likely. Willy-nilly, America would be part of this painful process, and the history of the world would eventually turn on how she responded to it. Yet it would be a long time before she understood and accepted her destiny – if she ever entirely has.