5. The inflationary effect of the war had geared American business to a new price level; even the collapse of 1920–21 did not bring prices down to anywhere near the level of 1914.
6. American agriculture was very sick, with little prospect of recovery. Its booming export business had gone, never to return on a large scale; for other countries were resuming production of wheat and other staples, and there was new competition from South America. The drop in farm prices had undermined permanently the values of farm property and farm mortgages, and thus had reduced a part of the country to comparative poverty.
7. American finance, however, was doing very well. New York had become the most powerful financial capital in the world. The Federal Reserve System had come through the war with flying colors; and its mobile reserves had been so effective in preventing a serious money crisis in 1921 that bankers began to believe that the System offered an automatic guaranty against another panic. This confidence in the System, coupled with a confidence born of America’s new financial pre-eminence in the world, was tending to relax that eternal financial vigilance which is the price of security: to make men think that a good System of reserves could atone for loose and inadequate banking standards.
8. The Liberty Loan campaigns had done much to form among Americans the habit of investing. The big war-time profits of many corporations and the stock market booms of 1915–16 and 1919–20 had played a supporting part in developing this habit. The result was a remarkable increase in the number of stockholders of American corporations: the total number of book stockholders in thirty-one large corporations more than doubled between 1913 and 1923; and according to the estimates of H. T. Warshow, the total number of book stockholders in all corporations must have almost doubled. The Liberty Loan campaigns had also taught business men that you could accomplish almost anything through a publicity campaign. Both facts were to prove important: the first, in pulling hundreds of thousands of people into the stock market and preparing the way for new methods of corporate control and aggrandizement; the second, in preparing the way for public-relations counsel and other masters of the art of whitewashing.
9. And finally—the war and its aftermath had left the American people in a state of spiritual exhaustion. The reform impulse was at last moribund. The fear of the trusts, and especially of a money trust, was almost forgotten—it seemed like last year’s nightmare. The frenzy of war-time was gone; the millennial hopes of war-time had turned to dust and ashes. Trying to improve things seemed a wearisome and futile occupation. Let us go back to business and get rich and forget all that, said the American people in effect.
They repudiated Wilson and all the ideas for which he had stood, and in 1920 they elected Warren Gamaliel Harding, an amiable and second-rate man who could, they thought, be trusted not to cause business any trouble. Harding wore a McKinley carnation in his buttonhole; and business men, recalling vaguely the dear dead days of McKinley—when the promoters were making millions, and Mark Hanna kept the government at Washington in its place, and the reformers had not begun their impertinent attacks upon American prosperity—felt that the “normalcy” which Harding promised was all that their hearts could desire.
Normalcy. Back to the good old days. Hands off business. Those were the mottoes which appealed to the tired business men of the post-war years.
But it was impossible to go back to the good old days. The world had changed. The industrial order had changed. The financiers and corporation lawyers had been developing new devices to perpetuate and extend their sphere of power. Now that the brakes were removed, the process of concentration was to proceed in strange new ways and to unforeseen ends—as we shall see.
Chapter Eight
THE SEVEN FAT YEARS
BETWEEN the autumn of 1922, when the ascent of American business out of the canyon of the postwar depression became swift and convincing, and the autumn of 1929, when it turned abruptly downward into the great abyss, lay a period of approximately seven years. When this period began, the amiable and indulgent Warren Harding was occupying the White House and the Ohio gang were collecting their dubious tribute from the public coffers. When it ended, Harding was long dead, Calvin Coolidge had spent his five-and-a-half unobtrusive years in the Presidency and had slipped away to Northampton, and Herbert Hoover was in his eighth month of authority. Times had changed: of all the men who had sat at the Cabinet table in 1922, only one still occupied the same chair in 1929, though Republican rule had been uninterrupted.
Yet this man typified in striking degree the unifying principle of those seven years. For he was Andrew Mellon, Secretary of the Treasury: banker, super-capitalist, multi-millionaire, suave and gracious exponent of the economic and political philosophy of Wall Street and of the great industrialists of the country. Throughout the seven fat years, business—and especially financial business—was king. The overwhelming majority of the American people believed with increasing certainty that business men knew better than anybody else what was good for the country, and that the government had better keep its hands off their affairs and thus permit economic nature to take its course.
This belief was not, of course, unanimous. There was a prolonged outcry in the farm belt for measures which might alter the course of nature to the extent of rescuing agriculture from the slough of despond, and in 1924 the LaFollette campaign, which to a considerable degree represented hopes for a new economic deal, won nearly five million votes—mostly from the farmers and from labor—out of a total of twenty-nine million.
Nor were all of the defenders of the principle of “hands off business” consistent in their views and actions. Most of them looked with complete equanimity upon government intervention in business affairs when this took the form of tariffs, subsidies, and other favors of the traditional American sort. Besides, even the ruggedest individualist would leap eagerly upon the train for Washington or for his state capital to support a bill which might increase his profits by restricting his competitors: witness, for example, the attempts of the independent grocers to defeat by law the advance of the chain stores. Washington and the state capitals were thick with lobbies; to a greater extent than ever before in American history, the process of legislation became a tug-of-war of lobbies, each pulling for special advantages for its own group and special disadvantages for other groups; and even though a hundred lobbyists may agree in devotion to the principle of laissez-faire, if each of them proposes an exception to the principle—just one exception—their combined impact upon Congress or upon a state legislature is likely to result in more laws rather than in less. One of the choicest ironies of this period was that many, if not most, of the new measures which interfered with business freedom were passed under the heavy pressure of groups of business men who professed to hate interference.
It must be admitted, furthermore, that the costs of government did not decrease as one might have expected under the circumstances. To be sure, the federal budget shrank, partly as a result of the liquidation of some of the indebtedness incurred during the war; but so rapidly did state and local budgets swell, that by 1929 the combined expenditures of federal, state, and local governments had grown to the vast total of nearly eleven and a half billion dollars, as against a little over three and a third billions in 1915—a very large growth even if one makes due allowance for the decline in the purchasing power of the dollar. The lessons of this growth were clear. A country cannot undergo the relentless processes of urbanization and of large-scale economic organization without increasing its need for public services and for public institutions for the defective and the helpless, even if most of its voters prefer, in principle, to keep governmental activity to a minimum. And a people possessed with a lust for ostentatious growth, a boom spirit such as pervaded most of the United States in the nineteen-twenties, cannot resist the temptation to appropriate public funds for magnificent brick school-buildings and four-lane concrete highways. Keeping up with the Joneses meant keeping up the public expenditures and the public debt.
Yet the “hands off business” sentiment had a very real effect upon the relation between government and private enterprise. Not only did some of the new laws which were passed—such as the amendments to the Delaware incorporation laws, for example—give new kinds of freedom to the masters of capital, but there was a subtle change in the spirit in which the old laws were interpreted and administered. Although most of the regulatory legislation of the two preceding decades remained on the books, the public zeal for enforcement had weakened. The officials responsible for enforcement were naturally not always selected for their vigilance. More often they were selected for their party regularity or their pliability. Some were exasperatingly ignorant of the industries which they were supposed to supervise; others, in the process of learning about them, had become so inoculated with the ideas of the men who ran them that they could hardly see the need for any supervision at all. And even truly vigilant officials found that the odds were heavily against the sort of administration which had been hoped for in the early Wilsonian days.
There is no lonelier man than a government official who finds himself confronting, month in and month out, year in and year out, plausible arguments for easy interpretation or lax administration of a statute—to say nothing of temptations to close his eyes for a price—and who hears from a forgetful and indifferent public no word of admonition or support. What was taking place was a very familiar phenomenon: St. George attacks the dragon valiantly and is furiously applauded; but there comes a time when St. George is dead, when the audience has dispersed, and when St. George’s successor finds the dragon a very persuasive fellow and begins to wonder why such a to-do was ever made over dragon-slaying, whether times haven’t changed, and whether there is any need for subjecting the dragon to anything more than the mildest restraint.
Let us see for a moment what became of some of the reform legislation passed in the days of the Counter-Offensive, now that the temper of the country had changed.
The Sherman Act—that venerable relic of the year 1890—stood fast; in fact, during the eight years of the Harding and Coolidge administrations no less than prosecutions were undertaken by the Department of Justice for alleged infractions of it. But the Federal Trade Commission Act and the Clayton Act—the two chief instruments with which the Wilson administration, at the high tide of the reform era, had hoped to police industry and business and to forestall monopoly—fared somewhat differently. The orders issued by the Federal Trade Commission diminished in number. The Commission devoted most of its energies to the enforcement of that section of the Act which forbade unfair methods of competition: in other words, to acting as umpire in the struggle for commercial advantage. Against the sort of concentration of economic power which had so alarmed the Pujo Committee a few years earlier it played a much less active part. It issued no orders at all against interlocking directorates, it permitted the issue of non-voting stock, and it generally permitted the expansion of financial sovereignties through mergers and through the use of holding companies.
For a time the Federal Trade Commission even permitted, in specific orders, so-called “codes of practice” drawn up by the trade associations in various industries (when these had been approved by the Department of Justice, as over forty of them were). These “codes of practice” were agreements to eliminate objectionable methods of doing business. They were not, of course, approved by the government officials if they contained any clauses which seemed to look toward the fixing of prices or the elimination of competitors. Doubtless many of them were in fact quite innocent of any such intention. But just as the passage of the Webb-Pomerene Act, some years before, by allowing business men to agree on prices to be maintained in their foreign business, had made it easier for them to agree—secretly, this time—on prices to be maintained in their domestic business, just so the approval of the codes of practice facilitated the secret extension of these codes into what were really monopolistic agreements on prices or on the division of markets. And thus, despite the continued existence of the Sherman Act, the way was partly opened for what became a common though well-concealed practice in industry after industry: the fixing of prices by agreement among the most powerful concerns.
Still another example of the way in which the attitude of the government toward big business became relaxed was the gradual whittling down of the reform legislation on the statute books by the United States Supreme Court and other judicial tribunals. In a long series of decisions the Supreme Court gradually restored to business a good deal of the freedom which in the days of the Counter-Offensive had been taken away from it by popular mandate, and simultaneously took away from labor a good deal of the freedom which had been given to it by popular mandate.
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But these changes in the relation between business and government were a wholly inadequate measure of the change in the public attitude toward business. Legal institutions, legal interpretations, move slowly; ideas sometimes move very rapidly. There had been a striking turn in the intellectual weather.
The economic reformers who a decade or two earlier had fought so hotly for the principle of government regulation were tired, uncertain, disillusioned. The young intellectuals, who in other days might have been exercised over economic issues, were indifferent to them; they were debating about Freud, Jung, Watson, Proust, Hemingway, and Cézanne. They retreated in large numbers to Montparnasse to get away from George F. Babbitt’s moral intolerance, his zeal for standardization of the private lives of Americans, or his crudity in matters intellectual and aesthetic; but they seldom bothered to question his financial practices or his labor policies. If anybody had told them that young men and women much like themselves would in another ten years be turning communist and becoming enamored of the proletariat, they would have been astonished and dismayed: economics and politics were such a bore and the proletariat were such morons!
No longer was organized labor militant and defiant. The American Federation of Labor was becoming an elderly organization, broad-waisted, slow-moving, set in its ways. Its membership declined. Strikes decreased in number. Some labor leaders were now working hand in hand with employers to increase efficiency, some were conducting themselves essentially as conservative bureaucrats or as politicians bargaining for commercial advantages for their constituents, others were managing their unions virtually as profitable rackets—in collusion, sometimes, with gangsters and gunmen. The heart was going out of the radical movement, both within the ranks of labor and without it.
Indeed, so great was the change of temper which these few years wrought that by 1928 the discontent represented by the big LaFollette vote of 1924 seemed to have melted away like snow in April. The sheer figures of the 1928 election are illuminating. The Socialist vote for President sank to a meagre 267,000 (compared with 897,000 in 1912, when the electorate had been less than half as large!) The Communist candidate had less than 50,000 votes to his credit. Hoover’s only formidable opponent in that election of 1928, Governor Al Smith of New York, took care to suggest in various ways that if he were elected to the Presidency, business would be almost as untrammeled as if Coolidge and Mellon were in power; and even Al Smith was overwhelmed by the landslide of more than twenty-one million votes for Herbert Hoover. Big business and big business men basked in the sunshine of unprecedented public approval.
To some extent this sunshine of approval was an artificial product. In part it was due to the diligent work of publicity men—or, as they were styled in the exalted language of the new era, public relations counsel—who flooded the newspaper city-desks with ingeniously devised news-stories designed to present their clients and their clients’ opinions in a favorable light; who prepared “ghost-written” interviews and magazine articles and brochures and books in which they set forth virtuous principles over these clients’ signatures; and who on occasion directly or indirectly subsidized lecturers, textbook writers, and professors. To cite but a single example of newspaper publicity work, one organization in Oregon prepared “c
anned” editorials on the iniquity of public ownership of utilities and on similar topics, distributed them to local newspapers all over the country, got thousands of them published, ostensibly as spontaneous expressions of editorial opinion—and for this service was paid $84,000 in four years by interested corporations. It was a frequent experience for magazine editors to be offered an article on some economic topic with a choice of two or three alternative signatures of big industrialists or utility magnates (“Just tell me which man you’d rather have sign it.”) Sometimes supposedly independent writers collected two payments for their work—one from the newspaper or magazine to which they contributed, and another from the company or trade association whose interests they were quietly furthering. The total amount of subsidized reading-matter which was consumed by the American public with hardly a suspicion that it was subsidized was undoubtedly enormous.
The chorus of acclaim for business was also due in part to a form of subsidization much less deliberate and direct but equally efficacious. The profit-seeking newspaper or magazine publisher whose fortunes were dependent upon advertising knew very well that a friendly attitude toward business executives and financiers and their policies would help in the sale of advertising space, and that a critical or skeptical attitude might have the opposite effect. It was good business, for example, to describe Samuel Insull as having got the utilities “out of politics and speculation and into the realm of service.” It was good business to say that “captains of industry are strong, hard-working, modest, square men, who have the qualities common to all of us, but in just a little greater degree.” It was good business to print success stories telling how these hard-working, modest men had risen from the ranks, or to set forth observations on the American economic system written for their signatures by still more hard-working and modest ghostwriters. It was such distinctly bad business to offend utility companies, Florida real-estate promoters, and investment banking houses, and thus to run the risk of losing highly remunerative advertising, that there was hardly any critical examination of, let us say, the Insull holding-company pyramid in the days when it was being built to the skies; there was hardly a voice raised against the excesses of the Florida real-estate boom in 1925 or of the stock-market boom in 1928 and 1929—until after they had crashed. So effective, in fact, was this subtle and unformulated censorship of the press and so numerous and loud were the paeans sung in praise of the business man and all his works, that the disinterested publisher or writer was likely, by contrast with the general tone of comment which appeared, to seem by contrast a caustic muck-raker, a destructive and radical fellow. I do not mean to imply that in most respects the press was not quite free, or that outright intimidation of the press by advertisers was common, or even that most publishers did not believe themselves to be independent of business pressure. I mean simply that publishers wanted to make money and found it easier to make money by publishing the sort of thing which their advertisers would like. Mutual back-scratching was the order of the day.
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