stoller preface and 1

PREFACE

“Power always thinks it has a great Soul, and vast Views, beyond the Comprehension of the Weak, and that it is doing God’s Service, when it is violating all his Laws.”

—John Adams1



Mary Russell of The Washington Post called them the “Red Guard of the Revolution.”2
In January of 1975, a giant crop of angry and newly elected Democrats—nicknamed “Watergate Babies”—came to Washington, D.C. They were long-haired, young, aggressive, and progressive, determined to clean up government and stop the war in Vietnam and they flooded into Congress. The raw number of pickups understated the change to the Democratic Party itself. Due to retirements, there were seventy-five new Democrats in the House of Representatives alone, many young, eager, and disdainful of the party hierarchy. More than 40 percent of all Democrats in the House had served for less than six years.3 The white whale of liberals, Richard Nixon, had resigned a few months earlier, but these newcomers hadn’t just campaigned against the Republicans. They were after the Democratic establishment as well. “We were a conquering army,” said George Miller, the twenty-nine-year-old congressman from California. “We came here to take the Bastille.”4
One of the first people this group targeted was an old man from rural Texas, a former tenant cotton farmer named Wright Patman, the head of the House Banking and Currency Committee who had first been elected to Congress in 1928. Antiwar liberals saw that the key to power in the House was through committees, with the flow of legislation controlled by committee chairmen picked based on length of service. Old men—often southern reactionaries—had used this seniority system to do terrible things, such as bottle up civil rights legislation. So existing liberals in office, with votes from the new radicals, demanded that the full Democratic Caucus get a say on who ran what committee.
Ironically, Patman had a lot in common with the incoming class. He was, for instance, the very first Democrat to investigate Watergate. But he was vulnerable to the new liberals he had helped elect. They were young, he was old. They were vehemently opposed to the war in Vietnam, he had voted for it. They were a TV generation, and knew affluence and campus politics. He was rural, southern, without a college degree, and had gone through the crucible of the 1930s. By contrast, as Watergate Baby Paul Tsongas observed, “Our generation did not know the Depression.”
And yet, something else was going on. Liberals were the face of the coup, but bankers were quietly organizing the rebellion from behind the scenes. For forty-five years, Patman had fought concentrated financial power and monopolies, part of a politics that stretched back to the founding of the country. He was the living embodiment of an American tradition, the last populist. And it was a tradition the financiers sought to kill.
The Watergate Babies didn’t understand they were being manipulated. They were antiwar, not anti-bank. Some had even been bankers. “His economic ideas were not in pace with modern concepts,” said liberal congressman Pete Stark. Stark had been elected just two years before, becoming famous by putting a giant peace sign on his bank. Enemies of Patman told the newcomers that to be important, they had to make a mark. Nothing would do that like getting rid of the genial old man. Toby Moffett, another young congressman, bought into this. He called Patman “a terrific fighter,” but, he said, “it seemed time to move on.” Patman’s politics, which focused on financial and monopoly power, was irrelevant.
The Texas delegation rose up in defense of the old man. Barbara Jordan, the star of the impeachment against Nixon and one of the few black women in Congress, supported Patman. His defenders were led by powerful Texas Democrat Jim Wright, who pleaded with the new members not to “depose the one man who has been our most inveterate, most persistent, most consistent and most outspoken foe of monopoly, exorbitant interest rates, and special privileges of all sorts.” In what one young member called the greatest political speech he had ever heard, Wright asked, must we commit “patricide”?5
When it came time for the vote, Patman’s loss was a foregone conclusion. He was crushed. It was indeed, as The Washington Post put it, “a revolution.”
A short time later, Patman died of pneumonia. His body was flown back to Texarkana in a United States Air Force transport plane, and his body taken through the district, stopping at a catfish restaurant in the African American section of town he frequented when he returned to the district. As the hearse passed, his constituents, whom he had called the “plain people,” lined the streets several deep. More than a thousand people packed the church at his funeral.
Jim Wright, later Speaker of the House, eulogized Patman’s life. “He often comforted the afflicted and afflicted the comfortable,” talking of Patman’s fights against big business, banks, and the Klan. “Well done.”6
For two hundred years, Americans had fought concentrated power, relying on leaders like Patman. But now there was no one left to carry on the tradition. The new generation had, unwittingly, committed patricide.
Almost immediately, the liberal-led Congress was confronted with a mess of incomprehensible economic problems. The American economic engine was supposed to produce an endless surfeit of goods, services, and jobs, automatically. But now it was sputtering, with inflation, oil shocks, corporation bankruptcies, deep recession.
Without guidance, the new generation panicked. Rudderless and afraid, they turned to a group of scholars who promised them efficiency, progress, and freedom. All they had to do was undo the chains on concentrated power that men like Patman had spent their lives securing.
And so they did. They released the beast of monopoly upon the land. The revolution was here.
During the most recent financial crisis, in 2009–2010, I was a congressional staffer working for a member of Congress on the Financial Services Committee, what I would learn was Patman’s old stomping grounds. I kept getting calls from constituents in foreclosure, in crisis, and nothing that my government and my party offered could help them, or was designed to help them. In aggregate, from 2008 to 2012, during the crisis, the American middle class lost roughly $6 trillion. The assets of the powerful recovered value quickly, those of the middle class did not. Meanwhile, political leaders rewarded the so-called Too Big to Fail banks with bailout money, and bank executives, far from being punished, would be rewarded with large bonuses.7 All over the world, the story was pretty much the same. Bonuses for bankers, little for the rest of us.
It was in that period that I began to ask myself a question, a question that turned into this book. The question was as follows. Our leaders responded to a financial collapse caused by a concentration of wealth and power by pushing even more wealth and power into the hands of the same people that caused it. Why?
Answering that question—why did our leaders help confiscate the basis of American stability—was surprisingly difficult. Was it purely protecting the rich? That seemed unlikely; there were ways to make sure the rich did well while not undermining everyone else. Was it corruption? I didn’t think so. There were some payoffs, but from what I saw, bribery really did not drive policy. Was it poor strategy or partisanship? I doubted it. There were political fights and recriminations, but both parties came to agree on the need to seize the wealth of the middle class and protect a concentrated financial apparatus. Was it personal immorality? No. Many of our political leaders felt they had a moral obligation to do what they did, that it might be sad, but it was necessary and inevitable. The concentration of wealth and power that I saw, with terrible consequences, occurred largely due to the actions of well-meaning technocrats who did not understand what they were doing.
The more I thought about the question, the more difficult it became to answer. The policy choices around the financial crisis were odd because they were destabilizing. Making sure people owned homes has been a core way to stabilize our society since the 1930s. The original modern housing finance system was designed with political goals in mind. In the words of William Levitt, the founder of the first postwar suburb, “No man who owns his own house and lot can be a Communist. He has too much to do.”8 This was a literal statement. People with a stake in society—a bit of property—do not rebel. People with no stake have nothing to lose. It seemed clear to many of us during the bailouts that the public would turn vehemently against the political establishment for taking their property, their stake in America, and so it has.
After years of research, I came to believe that the answer to the question is ideology, and in particular, turning our back decades ago on an old populist way of organizing our culture. But in 2009, I didn’t know this older tradition had existed. The first hint it was there was when an economist, Jane D’Arista, told me how and why the financial system was blowing up, almost in real time. At the time, no one else, not the bankers or lobbyists or government officials, had any idea what the system they had constructed was doing. But she did, and pointed me to old papers she had written on why the system would blow up.
Her ability to see clearly when everyone else was panicking seemed a bit like magic, so I asked her how she knew all about these problems before anyone else did. D’Arista told me that she learned how the system worked when she was a staffer for a congressman named Wright Patman in the 1970s, a congressman who had helped structure parts of the New Deal. I had never heard of Patman, but D’Arista told me about how he had tried to impeach Andrew Mellon in 1932 and had in turn been overthrown in 1975. A few years later, I read a book by a journalist named Barry Lynn, the founder of what was becoming a new antimonopoly movement. In that book, Lynn wrote about the Robinson-Patman Act, a law written by Patman designed to constrain chain stores in the 1930s. Somehow, one man had been involved in dealing with the giant threats of his day, banks and chain stores, that paralleled the threats of our day, banks and Walmart. And I had no idea who he was. Patman’s role in the twentieth century was the key to answering the question.
To understand what was in the mind of policymakers from 2008 to 2010, I had to see how they learned to think about the world. There was an entirely different set of stories and traditions in the heads of policymakers before the 1970s than there was after the 1970s. And it was these differing approaches to power that explains why we took such dissimilar approaches during the New Deal and the Obama era.
Barack Obama and his generation had learned their politics from the Watergate Babies, a generation born in rebellion against Patman’s populism. Policymakers in 2009 didn’t understand this at the time; few of them had ever heard of Patman, and few were aware of the origins of their own intellectual traditions. They believed, proudly, that they were nonideological and pragmatic. But most of these officials had a visceral reaction toward populism. They wore the armor of Ivy League degrees, believing that being an economist or having some sort of widely respected credential offered them the divine right to rule. Voters might have formal mechanisms of democracy, but real decisions should be made by experts in opaque institutions like the Federal Reserve, the courts, the Congressional Budget Office, the Office of Information and Regulatory Affairs, and so forth.
Toward the end of the Obama administration, a left-wing type of criticism emerged, an argument that the financial crisis and the response to it was all just an inevitable unspooling of capitalism with booms and busts and rampant inequality, a simple fact of life under a free market system. This critique, though appearing to present a radical challenge to the status quo, actually bore the same logic of the officials in charge during the financial crisis. It had an elitism of its own, a naïveté similar to that of the Watergate Baby generation, an unwillingness to think hard about commerce and markets. Inevitabilism, whether oriented around the sin of capitalism or the glory of it, reflects a refusal to entertain free will.
For much of this time, I felt alone, frustrated, angry. The financial crisis of 2008 was not a technocratic problem that happened in the banking system. It was a political crisis that happened everywhere. It was not a result of a few bad actors, it was a broad sweeping restructuring of our culture, the result of forty years of political choices, the same misfiring of institutions that led to the second war in Iraq, and an endless series of gruesome social consequences. The men in suits told us Saddam Hussein had weapons of mass destruction, just as they told us taxpayer-funded bank bonuses were essential to the economy.
Even political leaders I respected did not seem to understand how to make democracy work. But still, I believed that we could have done better. Our political leaders, and we ourselves, can and do make choices. I was not naive, but I looked around and saw tremendous hard-earned wisdom, inculcated in our science, our arts and songs, our bridges, our technology, our medicines, our societies. We didn’t always organize our world around the ideas of highly educated technocrats with bad judgment. We once could do greatness in our politics. So where was a tradition I could honor?
And then I found Wright Patman, and I saw through his eyes.
Going through hearings, archives, letters, he helped teach me about the vitality, the energy, the love, the beauty, the fear of what it means to live in a democracy. I saw the coldness of Andrew Mellon, the vibrancy and error of the Watergate Baby class, the intensity of Citibank leader Walter Wriston, the tragedy and racism of Woodrow Wilson, the narcissism and violence of Teddy Roosevelt, the elitist cunning of Aaron Director, the genius and spirituality of Louis Brandeis. This was the tradition I had missed, a battle that took place over how our banks and corporations would be run, a battle over America and the world. This is the tradition that finally made sense. This is the tradition that, if we had known about it in 2008, would have helped us restore our democracy, or at least given us a shot to do so.
Once I learned of this ideological battle, one that Americans before the 1970s understood, my time in politics began to make sense. Toward the end of the Obama administration, the musical Hamilton, based on a book written by journalist Ron Chernow, offered a capstone to the era of the Watergate Baby generation. The musical celebrated a telling of history in which Alexander Hamilton, the founding father Democrats had traditionally associated with the banker-friendly Republican Party and a self-proclaimed elitist who created Wall Street and distrusted democracy, had somehow become an icon of progressive thinking and national greatness. He had become a left-wing political hero, instead of the traditional enemy of democracy that historians—and members of the Democratic Party—understood him as for two hundred years.
The musical provided something of an answer to my question. In the 1930s, Franklin Delano Roosevelt publicly blamed Wall Street and monopolies for ruining the economy, and used the political power he acquired with that criticism to decentralize and democratize the corporate sector in what became known as the New Deal. But in the Obama era, political party elites from both sides and cultural tastemakers engaged in a moral celebration of Wall Street. Barack Obama said that enjoying Hamilton was the only thing he and Republican Dick Cheney—the former vice president—agreed on. The musical reflected an ideological takeover, not left or right, but a joint attack on populism by the left and the right by people who, for their own reasons, distrusted the messiness and vibrancy of democracy. Those who organized our response to the financial crisis loved Hamilton because it celebrated their moral approval of rule by elite technocrats. And in this love, I saw, in its totality, the grand vision that had led to the crisis, and to the response. The bailouts from 2008 to 2010 were not intended to stop a depression, they were intended to stop a New Deal. And so they did.
Our world looks very different than it did in the mid-1970s, and not just because of technological advances. There’s a sameness to everything. In 1974, we often shopped at a local store. Today we live in a world dominated by chain stores, not just in the U.S., and in many cases with a sameness of experience in most major cities in the world.
Take a look around. You probably have a phone made by one of two companies. You likely bank at one of four giant banks, and fly on one of four big airlines. You connect with friends with either Facebook, WhatsApp, or Instagram, all of which are owned by one company. You get your internet through Comcast or AT&T. Data about your thoughts goes into a database owned by Google, what you buy into Amazon or Walmart, and what you owe into Experian or Equifax. You live in a world structured by concentrated corporate power.
This goes far beyond consumer brands. Our increasingly concentrated and corrupted medical system is literally killing us. As one analyst put it, “due to medical errors and other forms of harmful care, contact with the American health-care system is now the third leading cause of death in the United States.”9 That’s 10 percent of all U.S. deaths.10 This too can be traced, in part, to monopolization. Because of a wave of mergers, 40 percent of hospital stays occur in markets where one entity controls all hospitals, and these hospitals, like all monopolies, no longer have a strong incentive to deliver quality care at a reasonable price.11 Instead, they sometimes over-treat, and kill, their patients.
There’s also the ghastly opioid crisis. In 2017, 130 people in America died every day of overdoses by heroin-like medicines, peddled by doctors paid by pharmaceutical companies based on how much they prescribe.12 The monopolization is grotesque; one of the billionaires who helped create the most important opioid, OxyContin, Richard Sackler, recently received a patent for addiction treatment.13 And the Sackler family name, as of 2019, graced facilities at Harvard and Yale. Even the drug used by police and EMTs to treat overdoses, naloxone, is monopolized by Amphastar Pharmaceuticals, tripling in price since 2012 and stretching the budgets of those tasked with saving the lives of overdose victims.14
Monopolization opens back doors for bad actors to undermine our democracies. Facebook, for instance, accidentally allowed Russian meddling in elections across the West. But that’s just the most high-profile problem. Three voting machine companies, down from eight in 2002—Election Systems & Software (ES&S), Dominion Voting Systems, and Hart InterCivic—control 92 percent of voting machines in the United States, and have a high global market share. Concentration in the industry leads to lower security standards and more easily hackable elections.15
Our chains of production are concentrated and globalized. Virtually all vitamin C production—a key food preservative—is controlled by a cartel in China. Most saline solution, a key medical supply, is made in hurricane-prone Puerto Rico. Hospitals are facing shortages of cancer drugs because of supply chain problems. After Hurricane Sandy, few noticed that the lean “just in time” food supply lines organized by corporate giants like Sysco nearly failed, with some warning New York City was “nine meals from anarchy.”16
We hear blips of this occasionally, tweets from an angry president, or a Democratic politician complaining about airlines. Occasionally someone will mention the financial crisis brought to us by Too Big to Fail banks.
But largely, we are a sullen people, frustrated at unseen forces we cannot describe, squabbling among ourselves. Those of us who demand some sense of control over our economic lives are marginalized as emotional, or racist, or ignorant, whatever stereotype is most useful.
In the meantime, old problems have returned. Wage stagnation and economic inequality is back with a vengeance, as is regional inequality, with a few gilded cities full of capital and opportunity, and vast swaths of impoverished rural areas beset with addiction and depression. Civic leaders, who used to run local stores, churches, small businesses, local law firms, and farms, have been washed away by a wave of Walmarts and Targets and Amazons. This is not just true in America, but globally.
In the commercial realm, more and more of us work for really big companies. Farmers must sell grain, buy seeds, potash, and chemicals, and sell chicken and beef through a small group of giant companies. Every small business is at the beck and call of a credit card and payments cartel. Concentrated power is in every nook and cranny of commerce. Peanut butter. Poultry. Supermarkets. Movie theaters. Vaccines. Drugstores. Advertising.
Increasingly, the systems on which we rely, such as airlines, seem to be falling apart. Software failures knock out thousands of flight schedules at once, and random fees frustrate passengers as much as bad scheduling software frustrates flight attendants and pilots. Prices for health care seem insane and unrelated to anything rational. A massive policy celebrated as bringing us universal health care exists side by side with untold Americans putting up GoFundMe accounts online to beg their fellow citizens for money to buy medicine.
Even the wonders of new technology, like the open internet, have been subverted to allow meddling in elections worldwide and induce ethnic conflict. Somehow, we took the greatest communication platform ever created and used it to manufacture a new generation of Nazis.
Then there’s politics, the specter of disillusionment and demagogues all over the world. It’s a regular part of discourse now to hear fears of autocratic forms of politics, and the potential end of democracy itself. Former secretary of state Madeleine Albright wrote a book titled Fascism: A Warning. Proto-fascist gangs appealing to disillusioned young men, with names like Proud Boys, organize across continents.
There are many arguments for what is at the root cause of our current social dysfunction. Various explanations include the prevalence of racism, automation, the rise of China, inadequate education or training, the spread of the internet, Donald Trump, the collapse of political norms, or globalization. Many of these explanations have merit.
But there’s another much simpler explanation of what is going on. Our systems are operating the way that they were designed to. In the 1970s, we decided as a society that it would be a good idea to allow private financiers and monopolists to organize our world. As a result, what is around us is a matrix of monopolies, controlling our lives and manipulating our communities and our politics. This is not just happenstance. It was created. The constructs shaping our world were formed as ideas, put into law, and now they are our economic and social reality. Our reality is formed not just of monopolized supply chains and brands, but an entire language that precludes us from even noticing, from discussing the concentrated power all around us.
The baby boom generation did not mean to build the world that they did. They wanted a world based on justice and equality, and responded to the problems they saw based on what they knew. They were simply never taught to understand corporate power. There was in essence something of a cultural transmission problem, where lessons going back hundreds of years—lessons Patman carried forward—just didn’t get passed down. In attempting to bring us liberation as they understood it, baby boom leaders accidentally forsook their own liberties.
In many ways, the baby boomers are still organizing our society, controlling much of the wealth and decision-making authority in our political and cultural institutions. Many of the Watergate Babies stayed in Congress for decades. Both the Affordable Care Act and the Dodd-Frank financial reform legislation—the main Democratic response to the bailouts—were written by congressional committees chaired by politicians elected in 1974. Three presidents, Bill Clinton, George W. Bush, and Donald Trump, are old baby boomers, and Barack Obama is a young boomer. But even as newer generations rise, the transmission problem won’t be fixed. Younger generations never learned our earlier tradition either.
And yet, as hopeless as this situation might sound, we have been here before. There have been periods in history fraught with petty tyrants in the commercial realm, regional inequality, slowing wages, and even hints of fascism, and ideological systems justifying all of it as natural law. Previous generations have been able to recover our republic.
We can learn from our forebears, going back hundreds of years, who knew something about concentrated corporate power and tensions with liberty. Learning from our forebears, however, is a strange and difficult undertaking. Just as those who sought racial tolerance in the 1970s accidentally invited the specter of monopoly into our midst, there have been slave owners or people considered paranoid cranks railing about bankers who nonetheless had useful things to say about the problem of liberty and monopoly.
A generation ago, there was a revolution. It was not a left-wing or right-wing revolution. It was a revolution of ideas. That revolution was so powerful and dominant that it stole from us not just our liberties but even the words that helped us describe our world. Words like “liberty” and “markets” and “competition” and “monopoly” and “citizen” have been perverted, taken by technocrats who hide the levers of power from most of us. Popular debates are stuck in the 1970s. We attack or praise capitalism, or socialism, or the free market. All of this misses the point. The fight has always been about whether monopolists run our world, or whether we the people do. That is the fight hidden from us by the revolution of the 1970s. This book is a story of this revolution, why it happened, and just what the revolutionaries were overthrowing.
This book will bring you back through these debates and show you the world as Wright Patman and millions of Americans like him saw it. It will teach you that language. It will help you see our world both in a new way and through the traditions that our ancestors learned through blood, sweat, and struggle. If we relearn the language of antimonopoly, then perhaps, together, we can regain our liberties.

It was August 31, 1910, and men were flocking into the town of Osawatomie from all over Kansas. The state had been drenched in rain, but still, farmers trudged miles through the mud, some riding as far as two hundred miles, all through the night. They were coming to be on time for the speech, to listen, or for those too far away, to get a peek at the energetic man with the squeaky voice and love of self-dramatization.2 Speaking was the figure who once again promised to transform decades of agitation and organizing into a new society, a society that would not be dominated by these new giant corporations, by corruption, by greed.
The speech was set out on soil rich with historical drama. Little more than a decade earlier, in this flat state, populism had flourished, a tradition of farmer politics based on a call for justice against eastern banks, monopolies, and railroads. Five decades before that, Kansas, and Osawatomie, had been the seat of ferment against slavery, the flash point of the Civil War. Attending this speech, for a Kansan, might be the political thrill of a lifetime.
Even Kansans who couldn’t go were excited. As the special train carrying their hero passed through the little towns on the flat Kansas prairies, contingents of men whooped cheers, standing in the downpour just to get “the chance to yell at the train as it flew by,” even as they knew they wouldn’t be able to see their idol. Wherever the train stopped, even as early as 6 a.m., howls went up, demands to see the person inside.
When their hero finally stepped out just to offer a wave to the crowd at the Osawatomie platform, great cheers broke out, jubilation.3 Teddy Roosevelt was, as Mark Twain put it, “the most popular human being that has ever existed in the United States.”4 He was a warrior, against greed and dishonor, and for an America bristling with industrial muscle.
By 1910, Roosevelt had had a deep relationship with the American people for a decade, having been president for nearly two terms. While president, he suppressed a rebellion against American military rule in the Philippines and became the first great conservationist. He formalized America as a key diplomatic power when he won the Nobel Peace Prize in 1906 for settling a war between Russia and Japan. He was the most controversial, bold, brilliant, and beloved man in American politics, a man whose lust for attention and publicity infused the office of the presidency with immense power.
But he did more than build a new model of national leadership. While president, he had done what no political leader in America had yet managed. He had taken on the great trusts, the corporations and railroads, the powerful plutocrat J. P. Morgan. And he had won. “Of all forms of tyranny,” Roosevelt argued, “the least attractive and the most vulgar is the tyranny of mere wealth, the tyranny of plutocracy.”5 The people loved him, and he in turn loved their adulation.
And yet, Teddy Roosevelt had a dark side. A lust for power. A belief in aristocracy, a distrust of, as he put it, “the mob,” and an understanding that the important skill of a leader in a democracy was that of “political manipulation.”6 He venerated war and violence; manhood meant proving oneself in combat. “A Quaker may be quite as undesirable a citizen as is a duelist,” he wrote.7 Roosevelt loathed one of the founders of the country, Thomas Jefferson, because he saw in Jefferson’s statement that his “passion is peace” were the words of an effete weakling pacifist. Above all, there was his need for attention. ”My father,” said Alice Roosevelt Longworth, “always wanted to be the corpse at every funeral, the bride at every wedding and the baby at every christening.”8 Now, Roosevelt would attempt to use his popularity in ways both novel and frightening.
There had always been a great conflict, coursing throughout American history, a fight between monopoly and democracy. The struggle over the control of trade was a political and philosophical debate in America, between two different political systems. There was the system, promoted by Alexander Hamilton, of concentrating power in the hands of an elite, in banks, in monopoly corporations, in a better, more educated sort. And there was the rival system of Thomas Jefferson, who sought to place power through elections in the hands of the farmer, the worker, the small businessman. Roosevelt, in this speech, was to openly take the side of monopoly.
Roosevelt saw himself as a great champion of the people, but he was also, like his hero Hamilton, America’s first treasury secretary and a powerful proponent of plutocracy and monopoly, a believer in the importance of the upper class. And, in spite of his reputation for fighting J. P. Morgan, Roosevelt also had a quiet, if tacit, alliance with the great banker and monopolist, a man these Kansas farmers feared and hated. Despite Roosevelt’s words against plutocracy, Roosevelt had as his main political financier for this 1912 presidential campaign Morgan partner George Perkins, the man who put together the great steel trust U.S. Steel. He was to come as close as any major American presidential candidate ever would to openly fusing the power of the state with the power of big business.9
At Osawatomie, the reason for the event was the dedication of a state park on land where pro-slavery raiders battled abolitionists, led by antislavery martyr John Brown, fifty-four years earlier. Brown had become a symbol for the Union, in its march against the Confederacy, and a world-renowned hero. In 1910, there were seats for five hundred at the new park, but thousands attended, even though the roads were nothing more than impassable tracks in deep black mud. It was “the greatest John Brown celebration this John Brown town ever saw.”10
And Roosevelt was the man leading America to address what he called its third great national crisis. A new force was extending across the land, the “special interests” known as corporations. While president from 1901 to 1909, Roosevelt had struck at these great private powers. But now he pledged to tame them, once and for all. This was a crusade. “We stand at Armageddon,” Roosevelt would later say, “and we battle for the Lord.”11
The time was ripe. A financial collapse, the “Bankers’ Panic of 1907,” induced, as one congressman observed, a “broad national awakening and widespread agitation for relief, especially monetary, economic, and social.”12 Two years later, 259 workers, including young boys, died in the Cherry Mine Disaster. In 1910, twenty-one people died when a bomb went off during a strike at the Los Angeles Times. The Triangle Shirtwaist Fire of 1911 killed hundreds, illustrating the lack of safety provisions and poor treatment of workers.13 Radicalism even invaded the middle class, as grisly train accidents produced hundreds of mangled bodies every year due to bad management of the rail lines.
The barons of industry were unapologetic, almost gleeful. “One human being is killed every hour and one injured every ten minutes,” said W. L. Park, general superintendent of the Union Pacific Railroad. “There is a steady grinding and crunching of human flesh and bone under the juggernaut of modern car wheels. It is the price we pay for progress, for the great industrial conquest of the country.”14 And there was endless corruption, corporate payoffs to politicians, newspapers, and academic experts, city bosses, everyone.
The result was political chaos. Union organizers, like “Big Bill” Haywood, led strikes, increasingly marked by violence. Just three weeks before Roosevelt’s Osawatomie speech, the mayor of New York was shot in the throat by a deranged former city employee.15 Milwaukee elected a socialist mayor in 1910, followed by cities in Montana, New York, and California.16
Ten years earlier, as one magazine writer put it, the attitude of most Americans was one of cynicism and apathy, a “let us alone” sentiment. But now, the country was electrified with excitement and radical ideas.17 In Kansas, Roosevelt was in the midst of a speaking tour, the beginnings of a presidential campaign, and he would carry his crusade into Missouri the following day. In his speeches, and in his coming campaign, Roosevelt would attack both corporations and what he called “mob rule.”
He was battling for control of the conservative Republican Party. And while the people loved Roosevelt, his foes, the “stand-patter” conservatives, did not. William Barnes, the Republican boss of Albany, New York, and the leader of the old guard, responded to the speech with warnings. Be wary of the “hysteria” running “riot throughout the country,” Barnes said. “All thoughtful men” should see a “frightful danger” in Roosevelt’s ascendancy.18
The stakes were high. If reform did not come at the ballot box, it might come, as it had less than fifty years earlier, through civil strife. The rise of industrial power challenged political systems all over the world. The telegraph and railroad broadened knowledge and sped people and goods across the land at breakneck speeds. But they also extended the reach of any financial or political leader, in ways that posed entirely new challenges to existing political institutions. Many countries failed to control this power. The result, in coming years, would be fascism if private actors took over the state, or communism, when groups used the state to take over the private sector. As Roosevelt himself predicted, Russia might soon “experience a red terror which will make the French Revolution pale.”19 Other nations would seek to adapt their democracies to control this power. In 1912, the contours of this world were still inchoate, born but not animate.
In Kansas, Roosevelt gave his philosophy a name: the New Nationalism. This was a call for courage in a great and violent drama. Americans must face the need for reform, even risk “temporary disaster,” he told the farmers, rather than give in to those with swollen fortunes pushing America toward a “sordid and selfish materialism.”20
Celebrating antislavery hero John Brown while discussing the rise of corporations, great wealth, and radicalism made sense to the farmers in the crowd. There were Civil War veterans in the audience, the greatest generation of the era. But alluding to history was more than just a sop to the veterans. Debates over the founding, and the Civil War, regularly framed discussions of justice and corporate power.
“There have been two great crises in our country’s history,” Roosevelt told the crowd. The first was the American Revolution, which was not just a break with the British, but with a whole system of aristocracy, and the construction of a new nation. The resolution of that first crisis sowed the seeds for the second, which came from the rising political power of slaveowners. The founders had constructed a solid national body, with slavery as its deeply immoral flaw.21
The people at Osawatomie knew that the Civil War was not just a war against slavery, but also against a plutocracy of planters, in some ways similar to the men who controlled the great corporations they now faced. By the time of that war, cotton planters had concentrated ownership of land and slaves. In 1860, an oligarchy of eight thousand men ruled over millions of enslaved blacks, and poor whites, in the South.22 The wealthiest men in the country were cotton kings; half the millionaires in 1850 lived in one town in Mississippi.23 Slave cotton was at the center of a global financial and trading system, one stretching from Mississippi to Wall Street to the looms in Manchester across the sea. The greed of the planters at the heart of the system, their need to expand and dominate, caused a political crisis kicked off in Kansas, in which, as Roosevelt put it, “the special interests of cotton and slavery threatened our political integrity.” 24
Roosevelt quoted Abraham Lincoln, noting Lincoln argued that “labor is the superior of capital, and deserves much the higher consideration.” These farmers knew that Lincoln went further than defeating the Slave Power. He passed the National Banking Act, to regulate banks and the money supply; the Homestead Act, to distribute land; and the Morrill Act to found universities in every state.25 His party passed the Telegraph Act of 1866, which encouraged competition in the telegraph industry. The Civil War, to Roosevelt, and to Kansans, was a second American Revolution, not just abolishing slavery, but striking at plutocracy as well.
Now the third crisis, of corporate power, was upon the land. This crisis was, to Roosevelt, “exactly” like the crisis of slavery, only instead of cotton barons this time, he noted it was that “great special business interests too often control and corrupt the men and methods of government for their own profit.” 26
Like slavery, this third crisis was a long time coming. It had its roots in commerce, in progress, in science. The steamship, the telegraph, and the railroad were nothing short of astonishing. No technology had ever allowed humans to move over land faster than a horse, or communicate instantly at a distance. These technologies were matched with equally important legal innovations. Railroad managers created the modern multidivisional corporation and new accounting methods. They even standardized time itself, creating time zones to synchronize scheduling.27
The new railroad corporations expanded radically during the war, eventually settling the West and eliminating all Native American control in the continent. In 1862, Congress passed the Pacific Railway Act to authorize the first transcontinental railroad. From the 1860s onward, the federal government subsidized the growth of railroads with money, land, and military support. The federal land grant to just one railroad, the Union Pacific, was about the size of New Hampshire and New Jersey combined, much of which was occupied by Native Americans. As historian, railroad regulator, and railroad executive Charles Francis Adams put it, “the Pacific railroads have settled the Indian question.”28 Railroads were followed by new giant industrial corporations of the 1880s and 1890s, steel and oil, as well as chartered public utility corporations for telegraph, telephone, gas, water, and electric networks. Behind all of these lay Wall Street, where bankers and lawyers arranged the legal forms and credit arrangements that governed it all.
Industrial barons were a new group of would-be aristocrats, and they innovated many ways of concentrating power and wealth. Key to this concentration of wealth was political corruption. Perhaps the most famous example was the Union Pacific–Crédit Mobilier railroad scandal of the late 1860s. The Speaker of the House, the treasury secretary, the vice president, and a future president were all on the payroll of the railroad. This was what Mark Twain called the Gilded Age.29
In 1860, the Republican Party of Abraham Lincoln had as its ideological grounding a phrase coined by his Treasury Secretary Salmon Chase, “Free Soil, Free Labor, Free Men,” an ode to Jefferson’s argument in favor of “yeoman farmers.” But by the 1890s, the leading Republican Party boss, Mark Hanna, raised, at modern prices, $3 billion for William McKinley’s 1896 presidential campaign, saying, “There are two things that are important in politics. The first is money, and I can’t remember the second.”30
In 1877, mass unrest erupted in Maryland, Pennsylvania, Illinois, and Missouri in response to a series of railroad wage cuts. Striking workers from multiple industries, as well as business owners tired of being under the thumb of railroads, protested as revolutionaries had done years before. Railroad barons put down the protesters. The head of the Pennsylvania Railroad said that strikers should get “a rifle diet for a few days and see how they like that kind of bread.” In Pittsburgh, riots destroyed 39 buildings, 104 locomotives, and 1,245 freight and passenger cars. Dozens were killed.31
Until the 1880s, vast new industrial power was regulated at a state level through restrictive corporate chartering. For instance, state corporate charters did not allow one corporation to buy stock in another. But in 1882, an oil refiner named John D. Rockefeller helped invent a centralizing legal tool to capture industries across state borders. He placed all stock from various oil properties into one legal structure called a “trust.” Known as the Standard Oil Trust, Rockefeller’s oil companies might look independent legally, but the trust’s board of directors set policy for the combined group. With this new legal tool, Rockefeller built the largest and most powerful monopoly of the era.32 In 1887, the whiskey and the sugar trusts formed, with many more on the horizon.
A trust became a legal mechanism to enable and accelerate the concentration of financial power that started with the railroad. Endemic corruption in the industry induced a backlash from working people and businessmen. Distrust of railroads and associated network industries like oil went beyond workers. Virtually the entire commercial order of late-nineteenth-century America was oriented around small and midsized proprietorships, from independent farmers to drugmakers, pharmacists, printers, stationers, booksellers, manufacturers, specialty producers of brand-name foodstuffs, grocers, and distillers. All distrusted railroads. Journalists took the lead in formulating an antimonopoly critique. In 1884, Henry Demarest Lloyd, a leading antimonopolist journalist, wrote, “Monopoly and anti-monopoly, odious as these words have become to the literary ear, represent the two great tendencies of our time: monopoly, the tendency to combination; anti-monopoly, the demand for social control of it.”33
It was not size they feared; the post office was a vast organization, but as it was an open-access network run by a democratic government, it did not pose the same odious threat as private monopolistic institutions. They also did not seek untrammeled competition. Unregulated competition in networked industries like railroads, which had high fixed costs, could be catastrophic. To win business from rival roads, railroad executives might slash prices below what they could reasonably afford, and begin to bleed cash. They would then cut wages and defer maintenance. This so-called “ruinous competition” caused horrific accidents, bankruptcies, and violent strikes. If enough railroads raised too much capital and built too many tracks, price wars would eventually bankrupt railroads en masse and ensure widespread bond defaults. In 1873 and 1893, widespread defaults turned into financial crises and then economic depressions.
The people organized for their rights against these new private centralizing corporations and an unstable political economy. Small business owners and farmers organized cooperatives and professional associations to create standardized production and pricing policies to retain their independence in the midst of centralizing forces.34 Farmers and merchants organized the Granger, Greenback, and other populist movements to demand state regulation over railroads and associated technologies, like grain elevators. In John Brown country, farmers had been angry at corporate power for decades.
By 1887, Congress had established the Interstate Commerce Commission (ICC), the first federal regulatory commission, to oversee the railroads. In 1890, Congress passed the Sherman Antitrust Act, to rein in industrial trusts such as Standard Oil. This law prohibited “monopolization” and “restraints of trade.” Senator John Sherman had intended the law to destroy the trusts, but how to do so was a new and difficult problem for the government. Congress cut much of his original language, and the Sherman Act ended up largely as a statement of principles, with courts and conservative judges able to interpret the meaning of the terms.35
The attempts at reform weren’t enough. The ICC was supposed to bar price discrimination and secret rebates by railroads, but it was defanged by the Supreme Court. And throughout the 1890s, courts used an interpretation of the Sherman Act to rule that price-fixing among competitors tended to be illegal, but mergers were not.36 This inverted the meaning of the antitrust laws and ended up encouraging mergers. This made it illegal for competitors to fix prices as separate entities, but if competitors combined and fixed prices as a single giant corporation, the law offered sanction. This inversion created a central tension in antitrust law that remains to this day. Cartels were often illegal, but monopolies or trusts—including those achieved through massive combination—might not be.
In 1892, another event, the Homestead strike, further highlighted the danger of industrial power. This conflict took place near Pittsburgh, in the rough-and-tumble world of rail, steel, and oil that grew out of the rich coal lands of western Pennsylvania. Strikers, like their rebel forebears, targeted Carnegie Steel, the high-tech corporation of the 1890s.
The strike pitted emerging tycoons against iron and steelworkers. The tycoons were led by a slender, ruthless, Hamilton-admiring coal baron named Henry Clay Frick, who was running Carnegie Steel at the time. Frick hired mercenaries known as the Pinkerton detectives and built walls around the Homestead mill with apertures for guns. In a ferocious battle between guards and strikers, sixteen people died. Frick had more than a hundred strikers arrested, some for murder, and the union ran out of money. Carnegie Steel, with tens of millions of dollars of capitalization, held out until the union was destroyed.37
The next year, one of Frick’s allies, a banker named J. P. Morgan, began consolidating control over the American industrial commons. Morgan had been attempting to solve the problem of “ruinous competition” in the railroad industry for years. In 1885, on his yacht, the Corsair, Morgan settled a price war between two major railroads, the aristocratic Pennsylvania Railroad and the New York Central. The railroad men agreed to stop competing, at least temporarily, and respect their separate spheres of influence.38 Morgan was attempting to settle the same problem that Congress sought to address through public regulation with the ICC in 1887. But voluntary agreements could only go so far.
Morgan, along with a few financial titans, was finally able to seize control of the railroads after the Panic of 1893, a financial crash caused in part by railroad overbuilding. A third of American railroads went bankrupt, fifteen thousand commercial firms failed, and labor violence erupted across the country.39 In the wreckage of the downturn, with railroad and industrial assets lying fallow in bankruptcy, the railroads would be regulated at last. But this regulation would come in the boardroom, not through public agencies. Wall Street never liked competition, but its preference was for bankers to set the rules and govern, rather than the public.
In the downturn, J. P. Morgan, the trusted agent of British investors, stepped forward as the leader of the American political economy.40 When a Morgan banker took control of a bankrupt line, he would “Morganize” it, firing (often corrupt) management, restructuring the debt, buying competitors to eliminate rate wars, and creating a monopoly that could service the new credit arrangements. Morgan became so powerful and so wealthy that—during the Panic of 1907—the government turned to him to organize a mass bailout to stop the run on the financial system.
As Morgan centralized power, farmers continued to suffer at the hands of the railroads and the bankers. These farmers swept from the South and the West into a new political party, the People’s Party, to translate their desire for liberty in an industrial age into a political program. They called themselves populists, and drew upon the ideas of Alexander Hamilton’s great foe Thomas Jefferson, who had disdained “aristocratic corporations.” They sought an active federal government as a means to discipline the centralizing power of national corporations. In 1896, a young Nebraska politician-cum-preacher, William Jennings Bryan, took this program into the Democratic Party as its nominee that year.
Bryan, known as the “Great Commoner,” faced the candidate of J. P. Morgan and the plutocrats, William McKinley. Bryan saw the election as a “struggle between the idle holders of idle capital and the struggling masses who produce the wealth and pay the taxes of the country.” Bryan referenced the founder of the Democratic Party, Thomas Jefferson, and attacked the moneyed aristocracy Jefferson had fought. “The banks,” said Bryan, “should go out of the governing business.”41
Bankers poured money into the McKinley campaign, because McKinley pledged to “preserve the financial honor of the government.” Bryan lost. Bryan tried again in 1900, when the Democratic platform called the giant corporations known as trusts “the most efficient means yet devised for appropriating the fruits of industry to the benefit of the few at the expense of the many, and unless their insatiate greed is checked, all wealth will be aggregated in a few hands and the Republic destroyed.”42 But McKinley triumphed again, this time with a young vice president on the ticket, a former governor of New York. This was Teddy Roosevelt’s entrance into national office.
Morgan continued with his great centralizing project. In a merger wave that ran from 1894 to 1904, Morgan centralized business into modern corporate America, structuring companies such as General Electric and International Harvester. Consolidation followed consolidation. American Tobacco rolled up 250 firms into one. At least seventy-two consolidations led to a situation in which one entity controlled at least 40 percent of an industry, and forty-two consolidations created situations where one entity controlled upward of 70 percent of an industry.43 Many newspapers cheered Morgan, lauding him as a heroic commander of the economy.
In 1901, Morgan had his greatest triumph of financial engineering, the creation of U.S. Steel, which was a final combination of two hundred companies in 127 cities. A Morgan partner noted, upon signing the last paper necessary for the merger, this “signature is the last one necessary to put the Steel industry, on a large scale, into the hands of men who do not know anything about it.”44
In the industrial era, these centralizing forces had escaped control of democracy. The people tried to fight the plutocrats but they had lost. But on September 6, 1901, an assassin named Leon Czolgosz shot President William McKinley on the grounds of the Pan-American Exposition at the Temple of Music in Buffalo, New York. And this brought Teddy Roosevelt to power.
Roosevelt grew up a wealthy, sickly aristocrat at a time when old-money Republicans did not make a career out of politics. Roosevelt broke the mold. In the 1880s, he won election to the New York Assembly in a safe silk stocking Republican seat, and attacked corruption so theatrically that he got the nickname the “cyclone Assemblyman.” His animus toward corruption was paired with disdain for farmer populists, who he felt threatened the natural ruling order.
Roosevelt desired to build a great American empire through combat. “The clamor of the peace faction,” he said in the 1890s before the American war with Spain, “has convinced me that this country needs a war.”45 During that conflict, he led a group of volunteer cowboys, nicknamed the “Rough Riders,” to battle in Cuba. The publicity-seeking worked, and his popularity helped him into the governor’s mansion in New York. Republican bosses then gave him the vice presidency, a symbolic but powerless position.
At first, even after the assassin had pumped two bullets into McKinley’s stomach, it didn’t look like Roosevelt would become president. Doctors told the nation, and Roosevelt, that McKinley was recovering. But he wasn’t. Gangrene had set in, and within a week the nation grieved McKinley’s death. Now, “that madman,” as one Republican Party boss called Roosevelt, was in charge. Roosevelt pledged to maintain “absolutely unbroken, the policy of President McKinley for the peace and prosperity and the honor of our beloved country.”46
His presidency began with an aggressive settlement of a coal strike. For decades, the only authority any American president had seemed to show in addressing labor conflict was to use troops to put down strikers. Roosevelt broke with precedent. Faced with a massive dispute in the mines, Roosevelt publicly mediated a dispute between coal miners and the mine owners. Roosevelt continued his attempt to hold business aristocrats to a code of honor, establishing the Bureau of Corporations to investigate and publicize corporate practices.
Most importantly, he took on J. P. Morgan.
In 1902, Roosevelt filed a lawsuit under the Sherman Antitrust Act, designed to break up Morgan’s Northern Securities railroad company, which had formed the previous year. This company was no mere railroad. The great oligarchs in America, the oilmen and the steel men, the bankers and the railroad barons, had had a bitter fight over control of the northwestern rail territory. The resolution was Northern Securities, a collective agreement to build a giant transportation system of steamships and railroads wrapping from Japan to Chicago, a $400 million empire.47
The oligarchs behind Northern Securities had never had to pay attention to the vagaries of politicians. William Vanderbilt, son of the first tycoon, once explained the attitude of the great centralizers with the unofficial slogan of the railroads, when he said “the public be damned.” But Roosevelt was a different kind of politician. Roosevelt told Morgan no, and he meant it. In 1904, the Supreme Court validated Roosevelt, and broke up the railroad holding company, earning Roosevelt the title “trustbuster.”
But in truth, while Roosevelt did invest the antitrust laws with real power, he generally did not want to break up monopolies. Roosevelt’s hunger for authority, his desire to centralize commercial and political authority, his aristocratic bearing, were inconsistent with decentralizing power. Roosevelt respected Morgan as a fellow aristocrat, more so than rabble farmers. His view was that Morgan had erred, not in the merger, but in presuming to act as the nation’s boss. That job was for the president—Roosevelt. Roosevelt needed a stick to make that clear, and, in this instance, the Sherman Act was that stick.
After the Northern Securities suit, Roosevelt and Morgan reached a secret alliance. Roosevelt came to a “gentleman’s agreement” with Morgan’s U.S. Steel. The company’s president, Elbert Gary, cooperated with Roosevelt’s newly founded agency, the Bureau of Corporations, in return for an acceptance of Gary’s role as the head of the steel industry. Gary hosted what became known as “Gary dinners,” where steel company heads shared pricing information with each other. From then on, Roosevelt would file suits against large corporations, but not those belonging to Morgan.
In 1904, Morgan bundled $150,000 for Roosevelt’s reelection campaign.48 Their alliance tightened. When Roosevelt’s attorney general moved to sue another Morgan enterprise, International Harvester, Roosevelt ordered him to cease. In 1907, during a financial panic, Roosevelt’s administration gave J. P. Morgan tens of millions in government deposits, allowing the financier to choose who would get loans. Roosevelt also secretly promised Morgan that he would not use the Sherman Act to stop U.S. Steel from buying a rival, Tennessee Coal and Iron. In 1906, Roosevelt forced Congress to pass the Hepburn Act, allowing the ICC to finally regulate the railroads at a federal level. The Bureau of Corporations, the Gary dinners, and Roosevelt’s deal with Morgan were part of a broader institutional reshaping of the federal government, an attempt to turn it increasingly into a partner of big business.
After two terms as president, Roosevelt left politics for a year-long safari in Africa, his trip financed by a steel baron. It had seemed to the public that Roosevelt had addressed the problem of the trusts, when in fact Roosevelt had done more to secretly enhance the power of Morgan. But Roosevelt’s successor, conservative William Howard Taft, began antitrust proceedings against Morgan enterprises. Roosevelt’s deal with U.S. Steel was exposed.
The crisis of monopoly, contained under Roosevelt, worsened under Taft. In 1911, the Supreme Court broke up Rockefeller’s Standard Oil into thirty-five separate companies, but in a pyrrhic victory for antimonopolists, the court simultaneously gutted antitrust law. The Sherman Act prohibited all restraints of trade, but the court ruled that the federal government could only halt “unreasonable” restraints of trade.
In the case of Standard Oil, the court ruled that the company’s behavior was “unreasonable,” and the bonds between the various subsidiaries of Standard Oil were dissolved. But judges, the court asserted, would now organize antitrust law. To challenge a monopoly, the government would now have to prove not only that there was a restraint of trade involved, but also that such a restraint was unreasonable. Judges elevated themselves above Congress and the executive branch, deciding what constituted a reasonable versus an unreasonable restraint.
In addition, the court also allowed John D. Rockefeller to keep his stakes garnered from the monopolistic practices. He had gotten away with what Democrats thought was a billion-dollar crime.
William Jennings Bryan cried out, “The Trusts have won.”49
THE ELECTION OF 1912: WILSON VERSUS ROOSEVELT
By 1910, new rhetoric had exploded into American politics. A series of left-wing pro-monopoly thinkers—Herbert Croly, Thorstein Veblen, Walter Lippmann, and Walter Weyl—put together theories on how to address the trusts. These men imported German scholarship of the nineteenth century, which emphasized an inevitability to the progress of events, known as “scientific history.”50
These thinkers viewed the issue in much the same way Roosevelt did during his Kansas speech. Croly, who became Teddy Roosevelt’s key advisor, was also an ardent admirer of Alexander Hamilton, and saw this moment as another founding, a moment of radicalism. Through Roosevelt’s candidacy, Croly would seek to mimic Hamilton and attempt not to break this corporate power, but to co-opt it. Roosevelt wanted to place control of all large corporations in his own hands, and run them on behalf of the muddy Kansas farmers shouting his name. As one prominent academic of the time characterized it, the goal of the centralizer progressives was “concentration, cooperation, and control.”51
Roosevelt and Hamilton were in many ways similar. They both had biases toward aristocracy, toward rule by a better sort. Roosevelt saw the power of the trusts, and sought to centralize their power in public hands, rather than to decentralize it. Similarly, Hamilton believed the American Revolution was the chance not to break from the British empire, but to emulate it.
Hamilton prioritized cooperation between military and financial elites so that the vulnerable colonies would not be easy prey to the Spanish or French empires, or to internal corruption. Roosevelt felt if America mistreated its monopolies, foreign competitors would win, preventing the creation of an American empire. In an era when none but aristocratic societies had ever existed, Hamilton feared self-government. To Hamilton, and many of his allies, democracy was a “disease.”52
Roosevelt excused Hamilton’s disdain for democracy. After all, this was not uncommon for the founding generation who men like Roosevelt revered. Children in colonial America understood the difference between gentlemen and commoners before they learned the difference between right and left.53 If Roosevelt saw a failure in Hamilton, it was not from disrespecting the moral right of the people to rule, but that Hamilton’s party, in spite of containing nearly every man of “talent” and “good sense” in the country, had failed to develop the “ability for political manipulation” to govern in a democracy.54
Roosevelt and Hamilton shared an admiration for centralized corporate power. Corporations existed in Hamilton’s era. Chartered corporations, like the British East India Company, were monopolies licensed by the king to organize trade, such as the tea trade that fomented the Boston Tea Party that kicked off the Revolution.
Hamilton’s goal was to protect the new nation by ensuring that it had the necessary strength to defend itself from external foes and internal insurrection. To do this, he sought to place domestic lords in charge of commerce in the new American state, so that they could mass the necessary men and capital to build a strong industrial base and a powerful military. This idea was similar, though less developed, to what industrial barons of the late nineteenth century believed. Men might vote, but they would be the better sort, ensconced in government-chartered private banks and corporations, who would do the governing. Hamilton even led an attack on a rebellion against the forebears of the farmers at Osawatomie, the rebels in the so-called “Whiskey Rebellion,” who opposed Hamilton’s schemes to concentrate power over farming and industry.55
Hamilton’s centralizing ideas were ultimately defeated by the founder of the Democratic Party, Thomas Jefferson, a man Teddy Roosevelt loathed as weak and incompetent. Jefferson opposed corporate power, seeing in moneyed corporations the return of aristocratic privilege. Jefferson’s writing framed much of the democratic language in use in the election of 1912. Even the name of this new party, then called the Democratic-Republican Party, was an attack on aristocracy. Thomas Jefferson became president, in what he called the “revolution of 1800,” the first peaceful transition of power in America from one elected political party to another. “Sometimes it is said that man cannot be trusted with the government of himself,” Jefferson said in his first inaugural. “Can he then be trusted with the government of others? Or have we found angels, in the form of kings, to govern him?”56
Just over one hundred years later, Croly updated Hamilton’s theories, with scientific experts replacing wealthy merchants as the arbiters of the public good. He argued “huge corporations” induced efficiency and cooperation, and “all civilized societies” should seek such values when possible.57 Roosevelt was to be the Alexander Hamilton of the corporate era, and bring his centralizing theory into the election of 1912.
As a Hamiltonian, Roosevelt believed the problem with the trusts was that they just had to recognize who was boss. Roosevelt needed “complete power to regulate and control all the great industrial concerns engaged in interstate business,” power he would vest in scientific experts, appointed by him. His proposal was to nullify the antitrust laws for monopolies that agreed to obey government orders.58 He attacked the judiciary, which stood athwart his crusade. Unlike Hamilton, Roosevelt loved elections, loved the practice of political manipulation, but like Hamilton, his goal was to place power among the responsible upper class, men who adhered to a moral code of imperial greatness. Roosevelt’s vision terrified his opponents. President William Howard Taft called Roosevelt a “dictator who, once he received a third term, would cling like a leech to the White House and never leave it until death removed him.”59
Roosevelt had used his self-righteous drive to become the youngest president in history. But soon, Roosevelt would face a real opponent as brilliant as he, a man named Woodrow Wilson, who was the Democratic Party nominee. Wilson, unlike anyone Roosevelt had ever had to defeat, saw through the crowd-friendly politician, the attention seeking, to the would-be demagogue underneath. Wilson would block Roosevelt’s great, and frightening, plan, to combine the forces of all corporate monopolies under the control of a powerful, imperial president.
There were two other major presidential candidates running for president in 1912. William Howard Taft carried the mantle of the conservative Republicans. Taft was a “stand-patter” who largely wanted to continue the status quo of corporate dominance, but without embracing monopoly. Eugene Debs, a socialist who saw monopoly as inevitable and efficient, sought not to break up trusts, but to nationalize them.60 But the contest was really between Roosevelt, campaigning under the aegis of the Progressive Party (aka the “Bull Moose” Party), and Wilson, with two very different visions of reform.
Like Roosevelt, Wilson was an intellectual, and a progressive reformer. Though proposing big ideas, he was no hothead, being a former head of Princeton University, and an acquaintance of the titans of business and finance—John D. Rockefeller, Andrew Carnegie, J.P. Morgan—from whom he had once solicited funds as college president. At Princeton, Wilson had been a Democrat, but had criticized both Bryan and Roosevelt as excessively radical.
Wilson had illustrated strong anticorruption progressive instincts, as well as the toxic racism of the Jim Crow era. He had fought a high-profile battle against the exclusive, fraternity-style eating clubs that dominated the campus, and transformed Princeton from a provincial college for the wealthy into a world-class university, while still ensuring that it would remain an all-white institution. Then, as governor, Wilson had proved he was no puppet for big money. He got his start through the political machine, but once in office, Wilson enthralled progressives. He pushed election reform, the direct election of New Jersey senators, and a public utilities commission that could effectively prevent monopolists from getting around pricing rules. Yet Wilson, like Roosevelt, did not intend the American promise to extend to African Americans.61
By 1912, Wilson was thinking big. “All the people are radical,” he said. They wanted “proper control of their own affairs.”62 But Wilson didn’t want government control of monopoly; he feared Roosevelt’s vision, the union of centralized political power married to centralized government power. Wilson sought political liberty for citizens, against the trusts. Just twenty years earlier, Wilson noted, men used to work for themselves. Now, great corporations had become “our masters.” But breaking up monopolies was dangerous. Unregulated competition, as railroads experienced in the 1870s, was disastrous. The great practical question was, what to do? If there was not to be a public master in the form of government control, or a private master in the form of monopoly control, then… what?
Wilson received an answer in a three-hour conversation the August before the election. Louis Brandeis, nicknamed “the people’s lawyer” because of his longtime battles with “corporation lawyers,” had come to the governor’s seaside cottage to discuss what progress, as he put it, was being made “toward industrial freedom.”63 Brandeis had been thinking, for decades, about how to update traditional Jeffersonian democracy for the industrial age. He would show Wilson a practical way to break monopolies, to decentralize power the way Jefferson had. Brandeis had a program, which Wilson would call “The New Freedom.” Brandeis would formalize the populist social sentiment of the late nineteenth century into a rigorous set of legally actionable ideas, becoming a founding figure of twentieth-century Constitutional thinking. America, well into the twentieth century, would be a nation of entrepreneurs because of Brandeis.
Born in the late 1850s like Roosevelt and Wilson, Brandeis had seen the conflict between the old and new worlds throughout his career. He had started as a brilliant corporate lawyer out of Harvard Law, but from the 1890s onward, he led a famous fight against J. P. Morgan’s railroad consolidation, which framed his vision of political economy.
In this fight, Brandeis faced a $200 million Morgan-controlled corporation called the New Haven Railroad, which sought to monopolize all transportation in New England, including railroads, trolleys, steamships, and inner-urban rail lines. It was an ugly fight, with the Morgan men bribing politicians, journalists, and academics to allow the company to buy up its competitors. The company spent lavishly, according to regulators, “in ‘educating public opinion’ ” and in “payoffs to newspaper writers.”64 Roosevelt, as part of his deal with Morgan, had refused to use antitrust law against the company.65
Brandeis beat the Morgan syndicate by proving that the company had been lying about its financial condition. At first, his allegations that this railroad was losing money subjected Brandeis to scorn and ridicule; the company paid a reliable dividend, and legends like William Rockefeller and J. P. Morgan were on the board. How could a simple lawyer question great men with names like that?
But Brandeis was right. The New Haven was grossly mismanaged. It invested little in safety equipment, and its board of directors comprised financiers so busy they paid no attention to the company. Soon, grisly accidents led to dozens of deaths on a regular basis. After one particularly deadly accident in Wallingford, Connecticut, “a disastrous wreck even in the history of that disastrous road,” a reporter tried to ask J. P. Morgan’s son, who inherited the firm from his famous father, what could be done. “Mr. Morgan cannot see you,” said his butler. “He says he can do nothing about it and does not care to be annoyed.”66 By 1912, the press had turned on Morgan and the New Haven. The railroad was, as the Interstate Commerce Commission later called it, “one of the most glaring instances of maladministration revealed in all the history of American railroading.”67
With his exposure of the corruption of the New Haven Railroad, Brandeis fully earned the title “the people’s lawyer.” But this did not make him antibusiness. Brandeis respected business, and saw how market structures that supported farmers and workers, as well as corporate structures like cooperatives, could develop citizens.68 Like Jefferson, Brandeis loved science and gadgets. He helped found the American Fair Trade League, a business association that included specialty producers and retailers in medicine, brand-name foods, printing, electronics, machine tools, and tobacco companies.
Brandeis’s goal was to achieve what he called “industrial liberty.” Trusts, he felt, took away the ability of Americans to have control over their commerce. Economic and financial combinations had become so big that they could not be controlled. Regulation of giants was often futile; even trusts couldn’t control what was happening inside themselves. “Man’s works have outgrown man. Man has remained the same,” Brandeis said.69 He contrasted American politics, where men were free to vote, and American commerce, where they were under the thumb of petty tyrants. These two systems were in conflict, a contrast “between our political liberty and industrial absolutism.”70
Before meeting Brandeis, Wilson had believed that the way to address trusts was to punish the guilty individuals behind them. Brandeis argued that it was the system itself and the legal context, not any specific individual, that created a commercial system oriented toward cheating and monopolization. The solution was not to regulate monopoly or just punish wrongdoers. The government should both break up concentrations of power, and then regulate markets so monopolies didn’t return. He envisioned a system of regulated competition.71
On Labor Day of 1912, Wilson used Brandeis’s framework to attack Roosevelt. “Once the government regulates the monopoly,” Wilson told a rally in Buffalo, “then monopoly will see to it that it regulates the government.”72 Wilson pledged to break up monopolies, and attacked Roosevelt’s plan of putting together a board of experts to govern monopolies. “What I fear,” said the Princeton professor, “is a government of experts.”73
Four days later, in North Dakota, Roosevelt struck back. Antitrust, he argued, had failed, as would Wilson’s “vague, puzzled, and hopeless purpose feebly to continue the present policy.”74 Wilson was a fraud, pretending to attack monopoly while actually just supporting the status quo. One could not undo the trusts, or, as J. P. Morgan put it, “unscramble the eggs in an omelet.” Attempting to do so was nostalgic and foolhardy.
For most of the month of September, the two men offered two different visions to American voters over the shape of corporate America. It was Jefferson versus Hamilton over the nature of liberty, only this time in the industrial era. Two schools battled, both of whom saw themselves as progressive. There were Wilsonian progressives, influenced by rural populists, who thought breaking up concentrations of power would bring forth liberty. And there were those who stood with Teddy Roosevelt, seeking not to smash concentrations of power, but to have progressive experts use the power of trusts and monopolies to deliver a better world. This philosophical split would remain, cascading through the next century.
Wilson won the election, and would work to smash Morgan’s power. Finally, the industrial age would become democratic. Intellectuals, businessmen, politicians, and social reformers rallied to the cause of the new president. The chairman of the Banking and Currency Committee, Arsène Paulin Pujo of Louisiana, began a large-scale investigation of the “money trust,” with a focus on J. P. Morgan, National City Bank, Kuhn Loeb, Kidder Peabody, and First National Bank. Over the next year, Pujo showed how a small group of financiers in New York had come to dominate many of the “great industrial and railroad corporations of the country,” and wielded “despotic” power over the business and commerce of the nation.75
To break the industrial corporations, Wilson would invigorate antitrust. The Wilson Justice Department restructured the New Haven Railroad conglomerate, with the former president of the railroad indicted criminally for monopolization.76 He reorganized America’s communications system by breaking up the “telephone trust,” or AT&T. The phone and telegraph giant spun off its Western Union telegraph subsidiary, and was required to allow independent phone companies to interconnect with its system so all Americans could have access to reasonable phone service.77
To take on the banks and the money trust, Wilson created the Federal Reserve system, a central bank designed to move power over the economy from Wall Street to the people. He passed the first federal aid to farmers, the income tax, the first federal child labor law, the first law mandating an eight-hour workday for industrial workers, and a major tariff revision.78 He would create the Federal Trade Commission, a regulatory body set up both to help structure fair trade rules for small and medium-size businesses and end monopolization. He passed the Clayton Act, to protect labor, stop big mergers, and end the practice of price discrimination.
The goal of Wilson’s New Freedom was to change how Americans saw the world, by equipping them with a public set of institutions to reduce the power of the private government. Private banks would become less important because the Federal Reserve system would now govern the financial system. The ability of trusts to set the terms of trade would now be challenged by the Federal Trade Commission, a public body that would structure markets for the people. The Clayton Act set rules to protect workers and stop predatory pricing by trusts, and lower tariffs that limited the ability of manufacturing monopolies to ward off competition from abroad. This structure would be undergirded by a political coalition of farmers and labor unions, who would form the backbone of the Democratic Party. The ideological revolution of the New Freedom lived inside these new public institutions, and a revamped party of the people.
The elder J. P. Morgan died in March of 1913, just as the new rules he hated were enacted. In January of 1914, Morgan partners resigned from the boards of thirty powerful corporations and a dozen railroads.79 The money trust was being broken apart.
In 1916, Wilson nominated Brandeis to the Supreme Court. Wilson was proposing that the Supreme Court, the most sacred temple of business probity, now have as a member a radical, an activist, an attorney who had dared call into question the structure of the giant corporation. “When Brandeis’s nomination came in,” a Washington correspondent wrote, “the Senate simply gasped.” This maneuver, too, was a fight. Seven former presidents of the American Bar Association, including William Howard Taft, called Brandeis “unfit” for the court. But Wilson’s mastery of the political process conquered the emerging network of big law firms and Wall Street. After a brutal confirmation process, Brandeis took his seat. “I can never live up to my Brandeis appointment,” Wilson said. “There is nobody else who represents the greatest technical ability and professional success with complete devotion to the people’s interest.”80
In 1910, Roosevelt had put forth the idea that America was confronting its third great Constitutional crisis. Wilson agreed with the diagnosis, but not the cure. Wilson would smash monopoly power, not co-opt it. And now, the democratization of industry that Brandeis and so many reformers since the advent of big business had envisioned seemed to be here. The corporation could once again become a means for citizens to cooperate in industry and self-government, using techniques like arbitration boards, credit unions, cooperatives, and worker ownership.
But a new kind of war in Europe interrupted Wilson’s great experiment. In World War I, Americans watched as sclerotic aristocratic political leaders used their industrial power to send millions of people to their graves with poison gas, machine guns, and artillery. Yet the war, though horrific, forced a global debate over liberty, imperialism, and trade. Far from stopping Wilson’s great crusade, perhaps it might be possible to use the war’s ghastliness to stop tyranny everywhere.
With the Great War, the question became, could Wilson match the moment?
Indeed, when Wilson finally took America into the war, he didn’t retract his grand promises, but instead elevated them. He no longer sought to remake America, but the world. The idealism of 1912, the democratic rebellion from the 1890s onward, soared around the globe. In May 1919, from peace talks in France, Wilson cabled Congress and called for a “genuine democratization of industry.”81
America would not just sign a peace treaty, but create a new form of global society, a League of Nations, a global government, to make war itself illegal. Wilson would bring peace and justice, everlasting, everywhere. By 1919, after the crusades of Teddy Roosevelt, the election of Wilson, the battles of Brandeis, and a horrific world war, the stage was set to eject the moneychangers from the temple, not just in America, but in the Old World as well. The people seemed to demand nothing less.

nauguration day, March 4, 1921, was cold and clear. A new president, Warren Harding, stood outside the Capitol in a velvet collar and a dark coat, flanked by approving wealthy men in silk hats. This was their president, their guy. Finally. After twenty years of absurd reform and fights over “progressivism,” first from the odious egomaniac Teddy Roosevelt, and then the catastrophic Woodrow Wilson, the people had come to their senses and returned power to society’s natural rulers.
The theme of the campaign Harding had run to devastating effect was “a return to normalcy,” which he conveyed in his very persona. Harding was not particularly competent, and he knew it. He once described himself as “a man of limited talents from a small town.”2 For his inaugural address, the new president gave a stilted speech illustrative of his commitment to mediocrity. His ruddy complexion was the picture of health, in contrast to the broken man he succeeded.
Eight years earlier, Woodrow Wilson had carried the hopes of a nation. Now he lay prostrate, a figure no longer of dignity but, as one reporter put it, “a living ghost.” A year and a half before his second term ended, Wilson had suffered a stroke, rendering him partially paralyzed and largely bedridden. His voice was reduced to an almost robotic gurgle. He was “a broken, ruined old man, shuffling along, his left arm inert, the fingers drawn up like a claw, the left side of his face sagging frightfully.”3
Harding helped Wilson into an open-topped car for the ceremonial drive to the inauguration at the Capitol. This was the first time Wilson had been in public since his stroke, and the people lined up on Pennsylvania Avenue to watch the now “pathetic picture,” and his successor. Upon arrival, Harding helped Wilson out of the car, and then bounded up the stairs.
Before Edward D. White, the conservative chief justice of the Supreme Court, Harding put his hand on the Bible used in George Washington’s inaugural and swore an oath to protect the Constitution. Later that day, Harding presented his new cabinet to the Senate. The real power of Harding’s administration would lie here. Andrew Mellon, the heir to J. P. Morgan as the ruler of American finance, would take his oath as the secretary of the treasury in the office of Philander Knox, the Pennsylvania senator and former lawyer to the most powerful members of the money trust.
Wilson was put in a wheelchair and wheeled away.4
WILSON’S DOWNFALL
The election of 1912 had held such promise, with Wilson’s pledge to bring forth what he called a New Freedom to liberate Americans from the railroads and the trusts. His White House was, according to Brandeis, “the only time in recent American history when rich men had not had an undue influence with an administration.”5 In his first eighteen months, Wilson passed more legislation than any president in the industrial era. He settled long-standing political questions, like the century-long dispute over whether the United States would have a central bank. America almost had a peaceful economic revolution.
How did it all go so wrong?
It was true that not all parts of Wilson’s New Freedom had gone smoothly. The Federal Reserve, designed to break the money trust, had no clear center of authority, with both its public federal headquarters and its banker-dominated regional branches vying for control. The Federal Trade Commission, with its broad mandate, was hamstrung by bad appointments, men with, according to Brandeis, “no grasp of the real problem.”6 But Wilson’s new institutions would eventually serve as the foundation for what Democrats would later achieve in the 1930s. And on the immediate question—the money trust—they were having a huge effect. In mid-July 1914, the ICC recommended criminal prosecution of the board of directors of the New Haven Railroad. The Morgan men were reeling.
But just two weeks after the ICC’s report on the Morgan-Rockefeller control of the New Haven, war broke out in Europe. Everything but the war became irrelevant. Because when the guns of August 1914 boomed, panic struck. Foreigners dumped American stock to raise money for the war, and the stock market crashed. Bankers huddled at the offices of banker J. P. Morgan; the governors of the New York Stock Exchange shut the stock market down for six months. One hundred thousand Americans were stuck in a now-warring Europe.
And yet the war, while awful for the millions who died, would become a boon for the United States economy. American businesses and farmers profited. The U.S. shipped weapons, food, and raw materials to England and France, and American banks extended credit to their governments. America, at least at first, had commercial, not military, objectives.
But such a delicate attempt to profit off war could only last so long. The German government, unable to buy much from America due to an effective British blockade, saw the U.S. profiting in supplying Germany’s enemies as a significant strategic problem. In response, the Germans engaged in submarine warfare, often against neutral shipping.
Wilson was caught, trying to balance a commitment to neutrality with the profit afforded American farmers and manufacturers by selling war supplies to the Allies. By 1917, unrestricted German submarine warfare drew American ire. A little over a month after the British revealed that Germany had secretly proposed a military alliance with Mexico against the United States, Wilson finally took the country to war.
Wilson understood the stakes. He feared that entering the conflict might cause the loss of every reform he had implemented. War would require cooperation with big business, which might again rule the government. Wilson entered into the morass anyway, ruing to a cabinet member that “neither you nor I will live to see government returned to the people. More than that—Free Speech and the other rights will be endangered. War is autocratic.”7 He was right.
World War I transformed the global order. “It was in World War I,” wrote John Kenneth Galbraith, “that the age-old certainties were lost. Until then aristocrats and capitalists felt secure in their position, and even socialists felt certain in their faith. It was never to be so again.”8 A new utopian communist experiment in Russia drew admirers all over the world, terrifying the old order.
One result was to transform America into an economic and military superpower. American businesses were no longer dependent on European investors for capital. Prior to the war, it was American corporations who borrowed from the Europeans. They were the ones who financed the American railroad system. But during the war, this financial relationship was reversed. France and England bought billions in American supplies, and went deeply into debt. Europeans were now the economic vassals. Culturally, too, America led, in everything from armaments production and high technology to the film industry.
Another result was to unleash ideological chaos, and challenge both aristocracy and democracy. A world of European empires run by monarchs gave way to a world where communism and nascent fascism existed alongside democracies and de-colonizers. The British empire was wracked with independence movements. Within just three years, Portugal, Spain, Italy, Greece, Turkey, Russia, Poland, Czechoslovakia, and Belgium “endured” dictators. A little more than a decade after the war, Austria, Hungary, Germany, and Yugoslavia became dictatorships as well.9
Domestically, a sustained popular and scholarly attack challenged the idea of democracy in America. To organize the war effort, the Wilson administration had centralized power to an astonishing degree, implementing a military draft, a censorship regime, and an unparalleled propaganda effort. The ability to control large swaths of the public through hyper-nationalistic messaging and censorship shook progressives hard. In 1922, Walter Lippmann, who had advised Wilson before the Treaty of Versailles, expressed despair in his book Public Opinion, noting that man was easily manipulated by symbols; in 1925, he published The Phantom Public, concluding democracy was unworkable. This became a common view in magazines and in popular novels. A 1928 U.S. Army Training Manual even concluded that democracy resulted in “demogogism, license, agitation, discontent, anarchy.”10
The loss of faith in democracy penetrated academic institutions. Out of the war came standardized testing, which had been used to screen soldiers, and professionalized public relations, perfected by Wilson’s censorship board, the Committee on Public Information. These helped structure the new field of “political science,” which professionalized within a rapidly growing university system. The social sciences, focusing on knowledge, efficiency, and an aesthetic of scientific objectivity, replaced prewar reform movements oriented around popular democracy. Scholars began focusing on propaganda and the inherent irrational motivations of human beings, as well as emphasizing the racial pseudoscience of eugenics. Antidemocratic and racist ideas were popularized by writers like H. L Mencken, but they represented an increasing consensus of the intelligentsia.11
The postwar decade was, for those who believed in democracy, an era of despair. The autocrats were not only winning, but perhaps, better at governing than the progressives had been. As a Christian Century editorial put it, “The hope of democracy will revive when it learns how to do the things that need to be done as efficiently as autocracy does them.”12
A final result of the war was to unleash monopolists at home, much the way the Civil War had done fifty years earlier. Despite significant government efforts to avoid it, financial and industrial power concentrated once again.13 The war induced so much demand for steel, coal, oil, explosives, aluminum, and credit that big business came out stronger at the end than the beginning. Explosives maker DuPont earned $82 million in profits in 1916, ten times its average earnings before the war. The company paid out large dividends and salaries, and had enough left over to buy 25 percent of General Motors. U.S. Steel earned $272 million in 1916, twelve times its profit from two years earlier. J. P. Morgan earned $30 million in fees and leverage over the economy as the purchasing agent for America’s allies.14
After the war, Wilson went to Paris for months to negotiate the Treaty of Versailles. Wilson aimed to rebuild the European economies, promote stable democracies, and construct a global order based on equality of trade among nations, what would be called the League of Nations. Wilson sought a commitment that all countries, including the United States, would be willing to protect each other from aggression, with differences resolved peacefully. Wilson was committing American power and wealth to stabilizing a world order. Without a means to ensure collective security, he believed, there would be another world war, with weapons that made those of the first Great War seem like toys.
Domestically, two unseen forces were at work undermining Wilson’s peace plan. The first was concentrated capital. In 1919, Andrew Mellon and Henry Clay Frick provided funds for a group of opponents to the treaty known as “irreconcilables,” including a barnstorming tour across the country by isolationist senators. Frick and Mellon believed that America should use its power solely to enhance American financial interests, not to engage in some scheme for world peace.
The two men saw opposition to the treaty as a way to discredit the Democrats and drive them from power. After the Senate voted against the treaty, Wilson decided to go over their heads, to the voters, on a grand national speaking tour of his own in favor of ratification. He would force the Senate to do his bidding. Just a few years later, it might have worked. Brandeis observed, “If Wilson had had the radio, so that he could have reached a larger part of the population, he might have won.”15 But radio would only become popular in the 1920s.
The second unseen force was Wilson’s health.
This created a power vacuum, one made worse by the Federal Reserve, Wilson’s great creation. The Fed badly mishandled the financing of the war and the period of demobilization. The war transformed the Fed and the government into the key global actors in the world of finance. To finance the guns and supplies for the fight, federal debt increased tenfold to $25 billion after the war.16
The war destabilized the American economy. During the war and immediate postwar era, America experienced, according to the Fed, the “greatest expansion of business ever known,” what the central bank called “a period of intense business activity, expansion, speculation, and extravagance, the like of which has never before been seen in this country or in the world.”17 The problem, at first, was inflation, as too much money chased too few goods. In a very complex series of maneuvers, regional Federal Reserve branches essentially engineered a massive inflation to protect commercial bank profits. Demobilization, including the end of credit restrictions, accelerated the boom as people rushed to buy consumer goods.
Inflation created political chaos, which Wilson ignored. “The citizens of the United States want you home to help reduce the high cost of living, which we consider far more important than the League of Nations,” wrote one group of Massachusetts Democrats to Wilson while he was in Europe.18 One of the largest strike waves in history ensued, with five million workers in 3,600 separate actions. In late 1919 and early 1920, inflation was running at 25 percent annually. Companies like GE and U.S. Steel seized this moment to go on the offensive. In the most significant episode, U.S. Steel’s Elbert Gary refused to recognize a labor union, and 365,000 workers went on strike. To contain them, the company used 25,000 private security guards in Pennsylvania alone, with martial law in the steel town of Gary, Indiana. Twenty people died in the strike.19
Coal miners walked off the job, calling for the nationalization of the mines, while businessmen supported the brutal crushing of strikes launched by “long-haired Slavs and unwashed East-Side Jews.”20 In early 1920, despite the White House pleading with the company, U.S. Steel prevailed totally, and talk of industrial democracy in the steel industry ended forever. Race riots, as whites attacked blacks—especially soldiers returning from war—took place across dozens of cities.
Finally, in a dramatic reversal, the Fed stepped in to cut the speculation, radically increasing the cost of borrowing money. In eight months starting in November 1919, the New York Fed raised its discount rate from 4 percent to 7 percent. Said one Treasury official, “If a panic in New York should break out, he would be glad of it.” The economy cracked. In May 1920, commodities prices across the board dropped spectacularly as general prices fell at the fastest rate ever measured. Unemployment went from 4 percent in 1920 to 12 percent in 1921, industrial production dropped by nearly a quarter, and over five hundred banks failed.21 Hyperinflation of the first half of 1920 turned to deflation, as prices in the second half of the year dropped by a severe rate of 15 percent.22 This savaged the Farm Belt in particular; cotton prices fell by 93 percent, as the agricultural producers of Europe were coming back online after the war.23
In this “trying emergency,” as the Fed put it, the central bank’s engineered decline went out of control into a full crash. The banking system, which it had sought to protect, nearly collapsed, with the number of bank failures larger than in any year since 1893.24 Because America had become the key financial actor in the global economy, the period of inflation and deflation, organized by the Fed, went worldwide. So did social instability. Fascism rose in Italy, communism in Russia. In Germany would come Hitler’s attempted coup at a beer hall.
The Republicans used this episode they called “the crime of 1920” to bludgeon the Democrats in the 1920 elections. The boom and bust shattered the electoral coalition of farmers and workers that Wilson had sought to organize as the Democratic Party coalition.25
The agrarian crisis led to a revival of the Ku Klux Klan, as a Wilson official alleged that low commodity prices were due to Wall Street conspiracies. The Klan was reborn in 1916 with a few hundred members. But by the early 1920s, the Klan had four million members, and this time it wasn’t centered in the South but stretched across the country: the mayor of Portland, Oregon, and the mayor of Portland, Maine, were both Klansmen. Texas, Alabama, and Indiana sent Klansmen to the Senate in 1923.
With war had come fears of subversion and a wave of xenophobia. These did not disappear when the troops came home; on the contrary, they often grew worse. Congress passed racist immigration policies. “The dregs of Europe” and elsewhere, cried one politician, had “Orientalized, Europeanized, Africanized, and mongrelized” America.26
Wilson, so energetic at the beginning of his term, could do nothing by the end of his tenure except lie in bed as his administration jailed thousands of innocents, and as the plutocrats swiftly subverted the new order he had imposed just a few years earlier. Wilson’s presidency became, as one observer put it in a best-selling book ten years later, “an era of lawless and disorderly defense of law and order, of unconstitutional defense of the Constitution, of suspicion and civil conflict—in a very literal sense, a reign of terror.”27 So much for the New Freedom.
The Democratic Party’s pro-monopoly conservative wing also returned in force. In 1924, the party nominated as its presidential candidate a powerful corporate lawyer named John W. Davis. By 1928, the party was being run by a DuPont executive, John Jakob Raskob, who in 1929 was peddling a high-risk get-rich-quick scheme for small investors under the slogan “Everybody Ought to Be Rich.” The Democrats fought over the prohibition of alcohol and the KKK, the social issues of the decade, but shied from finance and monopoly.
The people “are docile, and they will not recover from being so for many years,” observed leading progressive Hiram Johnson.28 The country had been aroused by idealism, but now, even Democratic Party leaders had given up on the New Freedom. In this decade, one of cynicism and fear, people turned to those who promised them distraction, or anger, or get-rich-quick prosperity and nothing more.
THREE PRESIDENTS AND THEIR BOSS ANDREW MELLON
The new president was a plodding, corrupt mediocrity picked by rich party bosses. Harding had no use for phrases such as Brandeis’s “industrial liberty,” Wilson’s New Freedom, or Roosevelt’s New Nationalism, or anything with the word “new” in it. The promises in his inaugural address were packaged in ugly, clunky phrases. “Lightened tax burdens.” “The omission of unnecessary interference of Government with business.” “An end to Government experiment.” And above all, “normalcy.” Experimentation and reform were over.29
But at his inauguration, the wealthy backers of the new president clapped at his financier-friendly phrases as if it were poetry. Harding was their dream, a candidate whose very lack of talent had appealed to a nation looking for calm.
The triumph over progressives was total. Harding had restored the old coalition of 1896, winning sixteen million votes to the Democratic nominee’s nine million, 60.3 percent to 34.1 percent. The GOP even penetrated the Confederate South, taking Tennessee, and safe Democratic states such as Arizona and Oklahoma. Not a single Democrat won a Senate or governor seat anywhere outside the South. In 1912, Wilson had started with House and Senate majorities; now the Republicans would have a super-majority of 303–121 in the House, and 70–26 in the Senate.
After his inaugural speech, Harding introduced the man who was to run the Treasury Department, a man who would become far more important than the president who hired him. Andrew Mellon had a quiet demeanor, rail-thin bearing, and beautifully manicured hands. His habit of taking long vacations, his age, his manners, and his soft-spoken shyness might have been mistaken for weakness and frailty in someone else. Mellon may have been born rich, but he was not soft. He was a hard man, a banker, an emperor of money, an owner of several companies later included in the Fortune 500. He would help lead the restoration of rule by private financiers.
President Warren G. Harding formally appointed Mellon under the pretense that a plutocrat like Mellon was so rich he couldn’t be bought.30 The real reason was that a Mellon Bank had lent $1.5 million to Harding’s campaign in 1920. Mellon had become bored with being a mere tycoon. As one of his enemies put it, “Mellon needed a change, and the Grand Old Party needed the cash.”31
Mellon’s appointment was probably illegal. A statute from 1789 prohibits the treasury secretary from engaging in commerce or trade, an absurd expectation for a man with such industrial power.32 The founders had also written a law blocking the treasury secretary from holding bank stocks, another absurdity. Mellon overcame these legal restrictions by pretending to sell his assets to his brother. The rules existed for good reason: a man clothed in public power should not use that power for private ends, though Mellon did exactly that throughout the 1920s. Mellon explained the need to raise tariffs to protect domestic industrial monopolies to Harding even before the election. Harding dutifully mentioned tariffs in his inaugural address.
Mellon left even the other millionaire politicians shocked at the scale of his reach. In one cabinet meeting, the discussion turned to whether the government should shut down a government war plant, or refurbish it with additional investment. Mellon observed he owned a similar plant, which cost $12 million, roughly the same value as the one the government was considering closing. He had the same dilemma, to spend money maintaining an unprofitable but valuable plant. “I scrapped mine,” he said.
In another, someone brought up the Chinese Eastern Railway. The president whispered to his attorney general, “Now we’ve got him. Surely he wasn’t in on this.” Harding asked if Mellon had any interest in the railroad. “Oh yes,” came the casual answer. “We had a million or a million and a half of the bonds.”
“He’s the ubiquitous financier of the universe,” marveled Harding.33
Harding, so healthy at his inauguration, became consumed by corruption scandals, and ended up dying within three years of taking office. Mellon, by contrast, would remain treasury secretary for eleven years, under three presidents. Or, as progressive senator George Norris put it in a common joke of the era, “three presidents served under him.”34 The decade might have started with Warren Harding’s presidential victory, but the political economy of the 1920s would be structured by Andrew Mellon.
MELLON’S MILLIONS
When Harding hired Mellon, he was installing the most powerful private banker in the country into the most powerful public office in the country.
Mellon was the perfect symbol of an administration hoping to return to the pre-1900 era. Mellon’s life and career bridged the conservative robber baron politics of the nineteenth century with increasingly large federal government structures of the twentieth. He was born just before the Civil War to a wealthy, austere father, Thomas Mellon, a judge and real estate developer. His gloomy Pittsburgh mansion was in the tony East End of Pittsburgh, a town so smoggy from pollution that someone described it as “Hell with the lid off.”
Judge Mellon was deeply suspicious of democratic politics and lower classes asserting power. During the Civil War, he held no strong views on slavery, but the imposition of high taxes on the wealthy during the war enraged him. Public schools drew his ire; he believed children would study harder if they had to pay. Labor unrest among lower classes, he believed, needed to be met with violence, and may even “require blood to purify.”35
Judge Mellon imparted this ideology to his son. In the Mellon household, “the air was heavy with the imperative to acquire.” According to one in-law, “they had absolutely no fun.… It was work, work, all the time. The one thing they understood, the end of all their efforts, was money.”36 Judge Mellon insisted that his children learn accounting, at a private school he had set up for them. Judge Mellon also helped launch his son in his career. Judge Mellon was the first lender to a young man on the make, Henry Clay Frick. Frick in turn became a best friend and mentor to Andrew.
Andrew, the smartest of the boys, inherited his father’s empire in his twenties. For most of his life, he had a solitary routine. Rising early, he took the train to work, spent the day at the bank, lunched at a private club, and then brought documents home at night for study, “after a silent supper with his parents.” He read little, enjoyed little music or plays, and did no sports.37 Mellon grew to become neurotic, secretive, and soft-spoken, suspicious of taxes and the press.
Judge Mellon was just a banker, but Andrew Mellon became a mini–J. P. Morgan, from whom he learned investment banking. He would take stakes in promising companies, lend to them, and fit them into the “Mellon system” as buyers or suppliers. He had a cadre of loyal associates to move about his various enterprises, as management consultants would a hundred years later. “Mellon men” were tough, loyal, and competent. Most were Scotch-Irish Presbyterians (no blacks, Jews, or Catholics allowed), and would, if they met Mellon’s standards, become wealthy too. If not, they would be marginalized (“cut their throat” is one description).38 “When I send for a man,” Mellon would say, “I want him to come.”39
Unlike other tycoons, he did not specialize in one area. At one point, five Fortune 500 companies owed their lineage directly to Mellon: Alcoa, Gulf Oil, Mellon Bank, Carborundum, and Koppers. He controlled a network of ninety-nine banks. He had interests in coal, steel, chemicals, oil, sleeping cars, railroads, building construction, utilities, magnesium, and airplanes.
Mellon even commandeered the use of an entire element of earth—aluminum—through his control of the monopoly aluminum producer Alcoa. This power gave him control not just over aluminum, but over sectors of the economy that depended on it, such as the increasingly vital aerospace industry. The technology to create aluminum emerged too late for the first generation of financiers, but Mellon, who learned from the earlier generation, used all their tricks, and then some. No one firm had ever dominated a metal industry as Alcoa had aluminum for so long a period, from the 1890s until the 1940s.40
Beyond commercial control of an element of the earth, and all that went with it, Mellon’s empire was unavoidable for ordinary Americans in myriad other ways. The Mellon system was a set of industrial and financial enterprises that aided each other and had interlocking boards of directors and even personnel. Coal unearthed on Mellon lands would find its way into Mellon steel mills, which would help build Mellon ships to carry Mellon oil, all financed by Mellon banks. Being a part of the Mellon system meant customers, credit, financing, and prosperity, but also control. Being outside of it meant a constant battle with the Mellon interests.
If you lived in Pittsburgh, Milwaukee, or Minnesota, you bought Mellon coal; in Philadelphia or New England, you purchased Mellon coke; in Boston or Brooklyn it was Mellon natural gas. Mellon’s Union Trust bank financed utilities all over the country; his Koppers company with its expertise in gas and coke ovens helped organize them. The combination of Koppers and Alcoa gave Mellon a strategic advantage in controlling much of the private electric utility industry. Koppers and Alcoa, together, dominated utilities in Texas, Kansas, Iowa, Nebraska, Missouri, Illinois, Indiana, Ohio, West Virginia, Wisconsin, Oklahoma, and throughout New England.41
The South was the most exploited region. The “richest deposits of the iron, coal, and limestone that form the basis for the steel industry” in the South were organized by Mellon and his business colleagues. As a result, Birmingham was subordinated to Pittsburgh based on an artificial mechanism for pricing steel. Rich deposits of bauxite, the critical ingredient for aluminum, were concentrated in the South, and they became owned or controlled by Alcoa.42 With Mellon interests came the Frick model of labor relations, which used ethnic divisions to strip workers of power. One of the worst race riots in American history, in East St. Louis in 1917, started outside an aluminum facility, as white workers on strike faced 470 black strikebreakers recruited from the South. The local authorities stood aside as white mobs murdered over two hundred African Americans.43
Mellon held stakes in steel, plate, glass, paint, and iron ore. Mellon men sat directly on the boards of railway lines such as the Northwestern, the Omaha, the Norfolk and Western, and the Pittsburgh & Lake Erie. American Locomotive and Standard Steel Car, which both made cars for railroads, were Mellon companies. Air brakes made by Westinghouse, owned partly by Mellon, stopped these trains. Timber for railroad ties, bridges, and canal locks were built by Mellon-controlled McClintic-Marshall, fired by coal from Mellon’s Pittsburgh Coal Company. Mellon’s industrial empire sold inputs to the automobile industry, from aluminum to nonshatter glass through Pittsburgh Plate Glass.
Mellon was also an important player in the oil industry. To enter it, Mellon had battled the wealthiest man alive, John D. Rockefeller. Oil brought Mellon interests deep into the heart of Texas, and eventually Mexico and Colombia. Mellon became a proprietor of Gulf Oil, the largest oil company outside of Standard Oil.
World War I generated massive demand for not only aluminum and oil, but chemicals to use in warfare—which were made by Mellon companies. Toluol, naphtha, benzoyl, and ammonia, as well as ships made by the Mellons’ New York Shipbuilding Company, and armor made by Bethlehem Steel, sent rivers of cash back to the Mellon empire. By the end of the war, Andrew Mellon was an officer or director of more than sixty companies.
Mellon was also the “financial angel” of the Pennsylvania Republican Party, so powerful that when his ill-considered marriage fell apart in a scandalous split, he had the state legislature pass a law giving judges the right to deny women a trial by jury in divorce cases.44 Local newspapers, afraid or in thrall to the Mellon family, reported little on the matter.
Fifty years of industrial politics, dominated by men of finance, coincided exactly with Andrew Mellon’s adult life. Mellon had known most of the great robber barons. He played a regular card game with Frick, the Carnegie brothers, and George Westinghouse. He sold oil interests to the Rockefellers. And his home base, Pittsburgh, was a center of American industry.
By 1921, the early generation of robber barons—Frick, Carnegie, Westinghouse, Henry Heinz, and Morgan—had died (though Morgan’s son, Jack, was still alive). Mellon had inherited the mantle, the leader of American finance.
KING ANDREW
Mellon never had as much control over the private financial system and industry as the elder Morgan did. However, after his appointment as treasury secretary, Mellon did have one source of power Morgan did not: a large administrative state, and in that difference lay his power. Mellon, more than Morgan, would fuse government and business to make the world safe for monopolists. Throughout the 1920s, Mellon ran the Treasury Department, set tax and government debt policy, and sat as the chairman of the Federal Reserve.
Many of Woodrow Wilson’s achievements offended Mellon, but Wilson’s most rank achievement was the income tax on the wealthy. For the eleven years he was at the Treasury, Mellon sought to reduce that tax any way he could. He pestered Congress to lower the top individual rates, to lower rates for corporations, and to end that most odious of taxes, the one on inheritances. That tax would have blocked Mellon’s father from bequeathing Andrew the beginnings of an empire. Mellon won substantial reductions in the Republican Congress, but a combination of progressive Republicans and southern Democrats blocked him from a full victory.
When he couldn’t win through Congress, he could win through administration, and through his control of the Bureau of Internal Revenue, the forerunner of the Internal Revenue Service. Under Mellon, the Bureau of Internal Revenue changed the way it calculated tax liabilities incurred during World War I. As a result, billions of dollars of refunds, some to Mellon companies, flowed back to corporate America. The bureau was especially malleable in these years, because it had just started collecting income and corporate taxes. In 1916, Americans filed roughly 450,000 income tax returns. By 1921 the number had jumped to eight million. This surge allowed Mellon to decide a host of policy questions around accounting, as corporations demobilized factories and a suite of nationalized industries returned to private ownership. He would even set up a special tax court to interpret and make tax law.45
Virtually every large corporation in the country received large rebates, including forty Mellon-affiliated companies or people. Mellon personally received a $400,000 tax refund, the largest awarded to a single individual. Gulf Oil got $3 million. Mellon even had men from the bureau preparing his own returns. These refunds achieved more than just cash in Mellon’s pocket. William Randolph Hearst, whose newspapers had decried Morgan’s spiderlike control years earlier, received $1.7 million of tax refunds. The Hearst papers were so grateful for Mellon’s financial wizardry that they talked up Mellon for the 1928 Republican nomination.46
Mellon was a savvy bureaucratic infighter. In perhaps his most bitter feud of the era, with Republican senator James Couzens, the wealthiest member of the Senate, Mellon had the Bureau of Internal Revenue investigate Couzens and leak information about his tax returns. Few Democratic senators dared support Couzens because of the structure of the developing system for taxing corporate and personal income. Senators often had to ask the Bureau of Internal Revenue for decisions on technical questions, on behalf of constituents or corporations. As reporter Frank Kent put it, “not one of them knows when he will be forced to go there and ask for more. Almost any question can be decided by the bureau in three or four different ways—all legal. One of these ways saves a man or a firm a lot of money, and the other doesn’t.” Couzens later said, “Give me the control of the Internal Revenue Bureau and I will run the whole darned country.… The Commissioner of the Bureau has the power to perpetuate a political party in power indefinitely.… It is a power that no man should be allowed to exercise in secret.” And yet, Mellon did. There was, Kent wrote, no longer a Democratic or Republican Party, but instead, “a Mellon party and a small non-Mellon party.”47
Mellon could also see to it that his industrial empire flourished in the era through other mechanisms. He blocked antitrust action against Alcoa. The FTC didn’t bother to look into Gulf Oil, or any of Mellon’s other vast holdings. Mellon didn’t just ward off attacks, but negotiated with foreign leaders for oil concessions for his own oil company, both in Colombia and in Kuwait.48 And the great tax reductions he pushed through Congress, which slashed his own tax bill, ended up slashing into the stock market, pushing up the value of the stocks he held.
Mellon could even hold up the entire political system to serve his own interests. In 1930, Democrats attacked the merits of the high protective tariff on aluminum imports, attempting to reduce the duty from five cents to two cents a pound on crude aluminum. The bill narrowly passed the Senate. Suddenly, New York Democratic senator Royal Copeland made a plea to reverse course and go back to the five cents a pound rate; the jobs of ten thousand workers in New York were at stake. If the tariff dropped to two cents a pound, Alcoa would move production to Canada.
Progressive senator George Norris noted that Copeland “frankly admits that it is on account of fear of the power of this corporation to bring distress, poverty, and unemployment to the American toiling masses” that he supported the Mellon monopoly tariff. Copeland replied that the “people of this country are at the mercy of this monster monopoly, no matter what we do.” The higher tariff held.49
This might be unfair, but fairness didn’t matter. Treasury Secretary Mellon told voters that there were immutable economic laws that could not be evaded. “Just as labor cannot be forced to work against its will, so it can be taken for granted that capital will not work unless the return is worth while.”50 Great wealth not only shouldn’t be curtailed through government policy, in fact it couldn’t be.
Mellon promoted his philosophy in a 1924 best-selling book called Taxation: The People’s Business. Anything that taxed the wealthy was full of “menace for the future,” threatening the very stability of society. He went further. “Our civilization,” he wrote, “is based on accumulated capital, and that capital is no less vital to our prosperity than is the extraordinary energy which has built up in this country the greatest material civilization the world has ever seen.”51
The question during the election of 1912 was how to fit industrialization into the democratic system. Wilson, and Brandeis, had argued that the failure to constrain the power of trusts would mean monopolies and financiers would be our “masters.” In the 1920s, this was becoming a reality, as Mellon helped create a new political order, not quite a democracy, not quite corporatism, but a mix.
THE ROARING TWENTIES
In 1925, President Calvin Coolidge coined the slogan of the 1920s, telling assembled newspaper editors that the “business of the American people is business.” The rich were now heroic. “Men with large resources,” he said, “use their power to serve, not themselves and their own families, but the public.”52 The New Republic stamped Coolidge’s theory on Mellon, arguing sarcastically in 1926 “a fortune of that size raises its owner out of the class of private citizens and stamps him willy-nilly as a human public utility.”53
In this decade, Mellon, DuPont, and Morgan were names that meant more than wealth, they referred to an informal system of governance. Inventors and scientists were bringing an unending stream of inventions and improvements to daily life. But it was the financiers, not the inventors, who governed this system, choosing how these inventions were unleashed and ensuring that it would be centralized powerful corporations that controlled them.
Placing power in the hands of business seemed to work. After a brutal recession of the early 1920s, economic growth soared. The unemployment rate for 1925 dropped to 4 percent, on its way to a peacetime century low of 1.9 percent in 1926.54 A giant financial bubble was undergirding economic growth, but it was easy to overlook that in the haze of prosperity and the continued spread of next-generation industrialization technologies.
New technologies made even the old ones prosperous. The automobile industry boomed, energizing basic sectors of the economy—steel, machine tools, petroleum, rubber, roads, and chemicals.55 By 1930, 68 percent of households had electricity, and more than 70 percent of industry was electrified. In 1928, a Ford Model T rolled off the assembly line every ten seconds. In 1920, Americans bought radios for the first time, and Hollywood professionalized into studios.56
Validation for financial leaders embedded itself in the culture, a national pride in great fortunes, the faith in the new nation-spanning sinews of transportation and energy. “Our industrial and financial growth has broken all records in the history of progress,” said one official. America had just twenty-five years prior been looked at with “supercilious disdain,” but was now “the mightiest, strongest, and richest nation of the globe—the balance wheel of the world.” It produced more coal than the entire world had just a quarter century before, twice as much pig iron, and three times as much steel. The combined resources of the banks of Europe and Japan were just one half of the national banks in the United States.57
At first little known, the Republican-dominated press gradually gave Mellon more and more credit for the boom times, especially after the horrific economic experience of 1919–1920. Millions of Americans soon revered him. He was commonly known as the best secretary of the treasury “since Alexander Hamilton.”58 Indeed, it was Mellon who placed Hamilton, America’s original proponent of monopoly, on the $10 bill.
“Never before, here or anywhere else,” wrote The Wall Street Journal, “has a government been so completely fused with business.”59 The Federal Trade Commission, created by Wilson, was in the Mellon years led by W. E. Humphrey, a man who proudly announced it would no longer serve as a “publicity bureau to spread socialist propaganda.”
In 1926, the Supreme Court limited the FTC’s authority to block mergers.60 This decision may not have mattered in any case, as the FTC in the 1920s largely confined itself to bringing businessmen together to set informal codes over their industries. As business consultant Charles Stevenson later told the National Association of Cost Accountants, “practically, under the Harding, Coolidge, and Hoover administrations, industry enjoyed, to all intents and purposes, a moratorium from the Sherman Act, and, through the more or less effective trade associations which were developed in most of our industries, competition was, to a very considerable extent, controlled.”61 The 1920s saw an antitrust regime based on public relations, not enforcement of the law.62
Lax antitrust enforcement induced a giant merger wave. Bethlehem Steel and Republic Steel merged, and Allied Chemical and Dye formed out of five separate chemical companies. Auto giants bought up parts suppliers, with DuPont’s General Motors introducing large-scale consumer credit to foster car buying.
These changes went far beyond heavy industry. Food giants such as National Dairy Products, Standard Brands, and General Foods came to rule the food industry.63 A 1911 Supreme Court decision allowed stores to sell below cost and drive their competitors out of business.64 Retailers with access to capital, known as chain stores, could now destroy those who didn’t. This legal change, plus the spread of the automobile, which let Americans shop around more easily, began replacing local retailers with chains. Chain stores exploded, led by the Great Atlantic & Pacific Tea Company, known as the A&P. In 1914, A&P had $31 million in revenue and fewer than five hundred stores. Ten years later, it had $440 million and fourteen thousand stores.65
Chain stores became part of the increasingly consumer-oriented American experience, growing their share of the grocery market from 4 percent to 19.2 percent from 1921 to 1929.66 The A&P was the largest retailer in the world at that time, a billion-dollar seller by 1930. Safeway, Kroger, Walgreens, and A&P expanded rapidly, both through internal investment and by buying out rivals.
Legal devices for centralizing power multiplied. Holding companies permeated the utility and transportation fields. Banks such as Goldman Sachs and J. P. Morgan began setting up financial holding companies to let financiers borrow money and control enormous utility empires with very little of their own money at risk. The government had allowed banks and investment companies to merge in 1911.67 The big got bigger.
It seemed like an endless sea of prosperity. Just not for everyone.
MELLONISM
“I have just returned from a visit ‘Hell-in-Pennsylvania,’ ” wrote New York Daily News reporter Lowell Limpus, about a strike in coal country. “I have seen horrible things there; things which I almost hesitate to enumerate and describe.” It was a far cry from anything he had ever witnessed. “We saw thousands of women and children literally starving to death. We found hundreds of destitute families living in crudely constructed bare-board shacks. They had been evicted from their homes by the coal companies.”
This was not just a story of desperation, a story of political absolutism within a supposedly free country. “We unearthed a system of despotic tyranny reminiscent of Czar-ridden Siberia at its worst. We found police brutality and industrial slavery.” And referring to the odd set of judicial decisions against unions, such as those banning singing of hymns by miners, he wrote, “We discovered the weirdest flock of injunctions that ever emanated from American temples of justice.”68
In the Roaring Twenties, steelworkers and coal miners in Appalachia faced “coal and iron” police who wielded the power of the state but who were paid by private interests. “Workers born in Tsarist Russia were not surprised to see mounted troopers riding into their very homes,” wrote one observer. “The state troopers were dubbed ‘Cossacks’ by strikers who had felt the impact of mace on skull.” As a Labor Department official later described the coal mines of the 1920s, there was “an order in that industry which is not without its resemblance to the Fascist order.”69
In 1921, a New York Post reporter said it simply: “West Virginia is today in a state of civil war.”70 The war was over the right of miners to form a union. While the financiers could organize together, the miners could not. As one lawyer put it, a miner makes an “individual contract with the agent of the United States Steel Corporation, or with the agent of the Norfolk and Western Railway Company, controlled by the Pennsylvania Railroad Company—in short, he makes this contract with the associated financiers of the Nation.”71
Local mine owners were no more independent of the great financiers than the miners they employed. Large buyers of coal, such as the DuPont-controlled General Motors, threatened to stop buying coal from mine owners who wouldn’t crush unions. Railroads controlled by Morgan or Mellon interests would refuse to ship coal from mine owners who didn’t cooperate. Banks threatened to call in loans. The “Mellon banking interests,” said one mine owner, would “ruin me” if he recognized the union.72 Mellon didn’t just provide symbolism for the era, but was one of the key leaders who could control thousands of companies, and millions of lives. When Wilson and Brandeis and their allies talked of “autocracy” in business, this is what they meant.73
This autocratic machinery, vast and laden with capital, was connected to the White House itself. It was even connected with actual weaponry. In 1928, Mellon’s brother Richard had let slip in a congressional hearing that his management model required machine guns. “You could not run a mine without them,” he said.74
Life in the mines was only the most brutal manifestation of the other market of the Mellon decade, with inequality driven by low wages among workers and farmers. Crop prices were low throughout the decade, and Mellon and the Republicans blocked relief and farm supports. “Farmers have never made money,” said Calvin Coolidge to the Farm Loan Board. “I don’t believe there is much we can do about it.”75 A series of court decisions weakened the ability of workers to strike, and employers across the country sought to eliminate unions. The American Federation of Labor fell from 5 million to 3.6 million members from 1920 to 1923 and continued falling through the decade. Productivity jumped by 30 percent, but wages were up by just 8 percent in the decade. As one foreign visitor to the United States remarked in 1928, “America is an employer’s paradise.”76
There was also stark regional inequality. Most assets, such as 90 percent of money-producing patents and over 90 percent of all dividends and interest payments, were held in the North, starving the South and the West of capital. Of the top 200 corporations, 9 were in the South, 11 in the West, and 180 in the North. Chain stores, insurance companies, banks, railroads, oil companies, industrial outfits—all owned and used the resources and markets of the South and West, and then shipped the profits north.
No region suffered more than the South. Since the end of the Civil War, the South was commonly known as the nation’s chief economic problem. The richest state in the South ranked lower in per capita income than the poorest state outside the region. Farmers, half of whom were tenant farmers, had the smallest farms in the nation. They couldn’t afford crop rotation, so the land eroded. Sixty-one percent of all the land damaged by erosion was in the South, with 22 million acres of fertile soil in South Carolina alone washed away.
The South put its tax burden on the poorest through the sales tax, and “the vigorous opposition of interests outside the region which control much of the South’s wealth” beat back efforts to oppose it.77 Outsiders exploited the natural resources of the region, leaving little for the people themselves. Mellon’s empire extended into the region. He built Gulf Oil off the profits of the legendary Spindletop oil strike in Texas that created the term “gusher.”
Roughly 10 percent of the children in the South worked, accounting for three fourths of all child labor in the entire country. The most productive workers of the region simply left the region. By 1928, 30 percent of households in the South were headed by women past middle age. Fifteen percent of South Carolinians were illiterate, and 1,500 school centers in Mississippi lacked school buildings.78
There was also a perpetual health crisis. Two million people a year were infected by malaria, which cut industrial output by a third; railroads throughout the region listed malaria as a business challenge, and utility companies “had full-time mosquito-fighting crews at work during the year.”79 That same study noted that 1,467 coal miners and 1,232 ore miners died every year from tuberculosis. Prosperity, marbled with poverty.
MELLON AND MUSSOLINI
Far from an anomaly, Mellonism was not just the way of the mining economy. It was increasingly the way of the world. The 1920s began with a sharp turn to reaction and radicalism, with fascist leader Benito Mussolini defeating socialists in Italy, the Soviet Union consolidating power in Russia, and weak democracies retaining power in England and France. In the early 1920s in Germany, the postwar republic withstood a failed coup attempt by young war veteran Adolf Hitler. Hitler was jailed, but even so, the German Weimar Republic allowed a wave of mergers and the re-creation of a corporatist state with centralized commercial power. Within ten years after being jailed, Hitler led the Nazi Party to control of this centralized corporatized state.
In the 1920s, many American business leaders appreciated how Mussolini imposed law and order, seemingly balanced the budget, paid off war debts, and restored the gold standard and Italian credit. They admired his alliance with employers through industrial councils. Most importantly, they liked how he beat back the Bolshevism that seemed to threaten a worldwide revolution after World War I. Mussolini spoke their language, presenting his proposals on borrowing American money as a business proposal. “I am just as much an American in that respect,” he told the U.S. ambassador.80
U.S. Steel chairman Judge Elbert Gary encouraged Americans to “learn something by the movement which has taken place in Italy.” Investment banker Otto Kahn lauded the “courageous, wise, and skillful financial statesmanship” of Mussolini. The president of the U.S. Chamber of Commerce Julian Barnes called the rise of Mussolini “the beginning of a new era in Italy.”81 And the American Legion, a conservative association of war veterans, compared themselves to Italian gangs who had helped defeat socialists in Italy, gangs known as “fascisti.”82 Corporatist progressives, such as Herbert Croly, argued that “the Fascist route has its significant and even promising aspects,” substituting “movement for stagnation, purposive behavior for drifting and visions of a great future for collective pettiness and discouragement.”83
In the late 1920s fascism was not yet, as it later became, defined by the Holocaust, or the other extreme outrages of the Nazi regime. Fascism was centered in Italy, where Mussolini ran an anticommunist government with big business support. Mussolini was happy to take American investments and participate in loan syndications floated by American investment banks. Some of Mussolini’s ideas, like industrial councils where business leaders could exercise direct political power in their own realms, were not that different from the 1920s trade association movement in the U.S. known as “Associationalism,” and had some resemblance to Teddy Roosevelt’s New Nationalism. It was what Brandeis feared when he observed “industrial absolutism,” mastery over people in the commercial sector, tipping into the political realm and fusing business and government. In the 1920s, this fusion of business and government was a worldwide intellectual and political trend. Italy’s version was simply the most extreme.
Pro-Mussolini sentiment came from the top. In a 1924 campaign speech, Mellon lauded Mussolini as an exemplar of laissez-faire economics and a key bulwark against Bolshevism, attacking socialists in Italy. Mellon’s admiration fortified Mussolini in American financial circles.84 Mellon continued the praise. “We have watched, “ said Mellon, “Italy emerge from the chaos of war, straighten out her industrial troubles, cut her expenditures, and put her budget in equilibrium, all under the direction of one strong man with sound ideas and the force to make those ideas effective.” He continued, “We in America appreciate constructive action.”85 Mellon pushed for substantial American aid in rebuilding Italy, noting that the “sound policies under the forceful direction [of] Premier Mussolini have radically reduced governmental expenditures.” Mellon offered fascist Italy the best postwar financial terms available to any nation in Europe.86
In 1926, Mellon even visited Mussolini during Mellon’s summer vacation, traveling through Europe to buy art for his collection. After the meeting, the newspapers ran a photo: Mellon, standing prominently beside Count Volpi, Italy’s finance minister, and Mussolini himself. Next to the thin, lonely, wraithlike symbol of American financial supremacy, Mussolini seemed to smile and strut.
A week later, Mellon gave an interview. He had “gained much information as a result of informal talks” with Mussolini and Volpi. And what did he think of the dictator? “He is one of the most remarkable of men, and his grasp of world affairs is most comprehensive. If he carries out his program, in which the whole world is vitally interested, he will have accomplished a miracle and ensure himself a conspicuous place in history.” Mussolini responded by saying that “I am happy to have earned the flattering commendation of this great American.”87
Mellon found it useful to promote a certain image of Mussolini, and Mussolini needed American capital. But the affinity made sense. Great industrial establishments built under Mussolini in Italy reminded Mellon of America’s own mighty industrial factories, run out of Pittsburgh and New York by similar, harsh men. “Modern capitalists are great captains of industry, great organizers of men, who must have in high degree a sense of their civic, economic responsibility,” said Mussolini in a speech that Mellon kept in his files. They were “men on whom depend the salaries, well-being, and fate of scores of workers.” Mellon was particularly happy with Mussolini’s decision to relax the Italian inheritance tax, but Mellon appreciated Mussolini’s industrial structures as well.88
The two differed in their political rhetoric. Mussolini didn’t have any use for the vote, and Mellon was willing to ask for the support of his countrymen. Mussolini used murder as an instrument of politics, and Mellon did not. But they agreed that assets in a moral society should remain in the hands of a worthy few, those men best equipped to manage them. Mellon believed Mussolini was bringing an economic renaissance to his country, just as Mellon was presiding over prosperity in America.
Mellon even used the fascist example on the campaign trail in 1928 to elect Republicans. In the final week of the election, Mellon gave a radio address to promote Herbert Hoover, the GOP nominee. “Russia is an example of what happens when credit values are destroyed,” he said, attacking the new communist state and linking it with the policy ideas of the Democrats. In the Soviet Union, the standard of living had collapsed, and “large corporations” had “ceased to operate.” By contrast, he said, in Italy “the Bolshevik menace was met and vanquished.” Mussolini had not only rescued “Italy from any possible danger of economic and social collapse,” but had “improved the well-being of the people of the country.” The Italian government, unlike the Soviet one, “operated in accordance with established economic laws.”89
For misery, voters could elect Democrats. For prosperity, they should place their faith in big business leadership. In the boom times of the 1920s, many Americans had become docile, placid, increasingly tolerant of living under big business masters, less and less interested in high ideals.
An insidious form of corporatism was gaining power over not only America’s industrial sinews but the heart of the people. Many leaders attacked the corruption, the machine guns in the mines, the poverty in the South, the links to fascism both implicit and overt, Prohibition, deals with fascists, and the monopolization of essential goods and industries. But many other Americans, intellectuals weaned on the centralization of the war and its aftermath, were losing faith in traditional democratic balances. Nearly a generation had passed since the heyday of populism, and millions of Americans had known only centralized control, by the state during the world war, and by the monopolists since. After decades of antimonopoly crusading by aggressive politicians, pledging to stand up to big money, and failing spectacularly, this was the aftermath. The monopolists were in control.
The last presidential election of the decade was similar to the first one, ending with a smashing Republican victory. Republican nominee Herbert Hoover took forty states, in a third straight GOP landslide. Two days after the election, a reporter asked Mellon if prosperity would continue. “There is no reason why,” he said, “a steady improvement in our standard of living… should not continue indefinitely,” if, he continued, “conservative and well-tried economic principles continue to be followed.”90
Wilson’s ambitions had been great, and almost had matched the moment, as gargantuan as the Great War had been. Almost. But not quite. The Roaring Twenties, a dangerous, desperate time, under the thin sheen of prosperity, was the price of Wilson’s failure.