Today's image of the Progressive Party — the "Bull Moose Party" — is that it was a spoilsport effort on the part of Theodore Roosevelt, intended as revenge on the Republican Party that had betrayed him and progressivism. Roosevelt's lust for power was presumably so great that he sacrificed the good of the country and split the Republican Party, handing victory to the Democrats. The fact that a number of contemporary political cartoons and speeches depicted Roosevelt as a bullying, power-mad, big-stick-swinging, imperialist oppressor of less developed nations only confirms the myth. The depiction of a lunatic who thought he was Theodore Roosevelt in the film Arsenic and Old Lace (1944) did nothing to correct what has become a popular misconception.
Contrary to popular myth, however, Roosevelt thought long and hard before accepting the nomination of the Progressive Party. It is true that he was the only viable progressive presidential candidate, and to all intents and purposes was the Progressive Party. This does nothing to alter the fact that Roosevelt did not found the Progressive Party, nor was it as easy as some today might believe to persuade him to run for president.
The Progressive Party had its roots not in a fit of pique by Roosevelt, but in the formation in 1906 of the American Party in Utah by Senator Thomas Kearns. Kearns broke from the Republican Party when he and his followers felt that the Church of Jesus Christ of Latter Day Saints (the Mormons) had too much influence in Utah politics. Purged of its anti-LDS elements, the remnants of the American Party became the core around which progressives and moderate populists coalesced to form the Progressive Party in 1912, virtually forcing the nomination on Roosevelt. As Herbert Knox Smith related,
"Some time in 1911 I called upon Colonel Roosevelt at the Outlook office, on leave from Washington. I told him I was going home for a few days. He pounced down on me instantly: 'H.K., don't you dare go back to Connecticut and do anything for my nomination for the Presidency in 1912!' Then he said: 'I've had eight years of the Presidency. I know all the honor and pleasure of it and all of its sorrows and dangers. I have nothing more to gain by being President again and I have a great deal to lose. I am not going to do it!' — then he went to the window and looked out on Fourth Avenue for some moments, and turned and added with great emphasis — 'unless I get a mandate from the American people.' I know much better now than I did then what was before his far-seeing eyes as he stood there looking out over the housetops — the fierce strife ahead, the menacing issues lying within it, the far-reverberating results that would follow, the sacrifice that would be required of him.
"That mandate came. It became desperately clear to all Progressives early in 1912 that their accomplished advance was in imminent peril of recession. The pressure came down on Colonel Roosevelt, culminating in the appeal of the seven Governors on February 10, 1912. He accepted the call of his friends, the challenge of his familiar foes." (Herbert Knox Smith, "The Great Progressive," introduction to Social Justice and Popular Rule, by Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xiii-xiv)
The campaign of 1912 was hard and bitterly fought. This is not, however, the place to recap it. Suffice it to say that, with many Americans still in sympathy with progressivism — however much both Republicans and Democrats attempted to paint it as tantamount to socialism — Roosevelt came in second to Woodrow Wilson, the Democratic candidate. This was the best showing of any third party in American history.
For nearly a century, Republicans have blamed Roosevelt for splitting the Republican Party and handing the victory to the Democrats. This is as unjust as it is untrue. The fact is that relatively few Republicans who remained in the party after the initial split came over to the new Progressive Party. The diehards who remained in the Republican Party after the progressives walked out were not likely to desert the Old Guard, and voted the party line.
Despite that, Taft was never a viable candidate. Progressive Republicans and all Democrats, as well as populists and socialists viewed him as a tool of the reactionary elements of the Republican Party, firmly in the pocket of Nelson Aldrich and the financial interests that had caused the Panic of 1907. The Old Guard Republicans had worked without cessation during Taft's administration to reverse everything Roosevelt had accomplished. Taft had only managed to become president in the first place on the strength of Roosevelt's endorsement, and Taft had lost that as a result of his betrayal of the progressive cause.
The bulk of the voters "stolen" by the progressives came from Populist Party members and Democrats either disillusioned or fearful of the turn the parties seemed to have taken under William Jennings Bryan and others of a more radical, and certainly less ethical bent. If anything, Roosevelt split the Democratic Party, not the GOP, and gave the Democrats a salutary fright that kept the radicals at bay long enough to enact necessary financial and fiscal reforms without giving in to socialist pressure. Wilson, in fact, had to paint Roosevelt as a socialist in all but name, forcing himself into taking the progressive instead of populist position on many issues to maintain credibility, at the same time excoriating the progressives.
The Progressive Party lasted barely a year, and Roosevelt-style progressivism only a while longer, but it was a year that neither the Republicans nor the Democrats have ever truly forgotten. To maintain some standing in the eyes of the public, the Old Guard Republicans had to modify their hard-line stance — for a time. At the same time, the radical Democrats had to ameliorate their drive to what was socialism in all but name — again, for a time.
In a paradox with which conservative Republicans have yet, after a century, to come to terms, the progressive split saved the Republican Party from becoming a political nullity, a historical dead letter. By offsetting the Party's reactionary trend, Roosevelt forced the GOP in later elections to adopt a more progressive stance in order to offer a viable alternative to the resurgent Democrats. Simply to survive, the Party had to abandon the Old Guard in practice (however much lip service it might pay to them in public) and bring itself into the 20th century, all the while adhering in theory to an outmoded laissez faire capitalism along individualistic lines.
The fact that the Progressive Party had the only truly viable political platform in 1912 forced the two major parties to adopt elements of the platform, at the same time they denied they were doing any such thing. Each party depicted the progressives as virtual enemies of freedom and justice. Consequently, progressivism, like populism before it, became redefined in the years following the 1912 campaign as little better — if not worse — than outright socialism. Progressivism is defined as such today, with most people seeing no difference between progressivism and populism. Nevertheless, although the Progressive Party went down in defeat, it gained two major victories: the Federal Reserve System and the income tax.
This seems like an astonishing claim to make, especially in light of the egregious misuse of both institutions almost from the beginning. The fact of the matter is, however, that the fiscal and monetary system of the United States had not had even the pretense of being adequate since Andrew Jackson had "won" his war against the Second Bank of the United States in the 1830s. The reforms implemented by Salmon P. Chase during the Civil War had imposed an inelastic banknote currency on the country, and oriented the backing of the currency toward government debt instead of the present value of private sector hard assets, both existing and future.
The inelastic banknote currency and the deflation imposed after the Civil War to restore parity of the paper currency with gold smothered small investment and capital development, and thus the ability of many people to consume at an adequate level. At the same time, the already wealthy could create money virtually at will by having their privately issued bills of exchange accepted in trade and at the National Banks. The failure of consumer demand to keep up with the enormous increase in the production of marketable goods and services was the primary cause of the financial panics that periodically ravaged the country. As Roosevelt pointed out,
"The people of the United States suffer from periodical financial panics to a degree substantially unknown among the other nations which approach us in financial strength. There is no reason why we should suffer what they escape. It is of profound importance that our financial system should be promptly investigated, and so thoroughly and effectively revised as to make it certain that hereafter our currency will no longer fail at critical times to meet our needs." (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule. New York: Charles Scribner's Sons, 1926, 14)
The Federal Reserve System was designed specifically to address the twin evils of an inelastic banknote currency and the concentration of control over money and credit. In this it succeeded. The fact that the Federal Reserve was only permitted to operate as designed for a brief period of time is not the fault of the institution, but of the politicians who discovered a way to circumvent the intended prohibition against monetizing government debt through the misuse of open market operations in government securities.
Like the Federal Reserve, the income tax is a profoundly misunderstood institution. Many people believe that an income tax is unconstitutional in the United States. As we saw in Part V of this series, this belief is unfounded. Others maintain, with more credibility, that, if the federal government can simply create all the money it needs by emitting bills of credit that are purchased on the open market by the Federal Reserve, why do we need to have taxes at all? As Harold Moulton summarized this position, popularized through the general acceptance of Keynesian economics and the belief that the size of the public debt is of no concern,
"The implications of the new philosophy of public debt from the point of view of taxation are engaging. If the growth of the public debt is of no moment, one might at first thought be inclined to ask — Why go to all the trouble and expense of collecting taxes? Why burden the public with ever-increasing levies? Indeed, if the purpose of fiscal policy is not to balance the budget but to obtain the largest possible 'net income-creating' expenditures — as measured by the size of the cash deficit — why not promote the desired end by canceling all taxes?" (Harold G. Moulton, The New Philosophy of Public Debt. Washington, DC: The Brookings Institution, 1943, 71.)
The reason why we presumably must have taxes, whether or not they are deemed necessary for revenue, is obvious, once we understand money and credit, and the plain fact that the issuer of whatever becomes money when accepted in commerce must own or have an enforceable claim on that which stands behind the bill. That is, a private drawer of a bill of exchange must own the present value of existing or future marketable goods and services on which the bill is drawn, while a government must reasonably expect to collect the future taxes that stand behind its "anticipation notes," the bills of credit it emits.
Taxes are not only a means of raising revenue for a government to defray legitimate expenses, they are also, by the fact that they are backed up by the State's power to coerce, a means of controlling people. "The power to tax is the power to destroy" (Justice John Marshall, McCulloch v. Maryland, 17 U.S. 316 (1819)) is an accepted legal and political maxim that any government with pretensions to ruling with the consent of the governed must keep in mind at all time.
Forgetting or ignoring this maxim, even Keynesians who insist that a deficit as large as twice GDP is nothing to worry about (ibid., 68) continue to insist on taxation as an important policy tool. This is not for fiscal purposes, however, but to restructure society to conform to Keynesian principles of how the economy ought to work . . . at least in the Keynesian analysis. The real reason for taxation shifts from revenue raising, to controlling people through redistribution and rewarding or punishing desired behavior. As Moulton explained,
"That a reorientation of thought with respect to tax policy would be necessary [given meeting all expenditure needs through deficit spending] is suggested in a statement already quoted: 'Once freed from the obsolete concept of the balanced budget, the larger uses of federal taxes can be creatively explored.' ("The Domestic Economy," Fortune magazine, December 1942, 16.) The suggested creative purposes are: (1) To regulate the distribution of income; and (2) to prevent inflation in periods of full employment. (Alvin H. Hansen, Fiscal Policy and Business Cycles. New York: W. W. Norton and Co., 1941, 175.)" (Moulton, op. cit., 72.)
The primary goal of the government within the Keynesian paradigm is to ensure that the economy runs smoothly for the benefit of everyone. The role of the central bank (the Federal Reserve) is, in the Keynesian framework, to finance government and to regulate the economy through manipulation of the currency — what Keynes described as the realization of Georg Friedrich Knapp's "chartalism," chartalism being a form of socialism developed in Weimar Germany.
In Keynesian economics (as well as Monetarist/Chicago and Austrian), all financing for new capital formation comes from existing accumulations of savings, that is, as a result of cutting consumption. With the government monopolizing the currency-issuing power of the central bank to inflate or deflate the currency to conform to policy demands, the tax system must be structured so as to encourage the rich to save to reinvest what they cannot consume.
Thus we have the paradox that the Federal Reserve, instituted to provide the country with a stable and elastic currency sufficient to meet the needs of private sector production and consumption by accepting private sector bills of exchange, is being used today to create money for non-productive government expenditures and politically motivated bailouts of failed companies by accepting government bills of credit. At the same time, the tax system, which was instituted to provide the government with sufficient revenue to meet legitimate expenditures, is being used to encourage private sector businesses to save for reinvestment.
Cutting consumption to finance new capital investment, however, reduces the feasibility of the new capital. In response, the government attempts to correct the fall in demand by further manipulating the currency and encouraging consumer indebtedness and non-productive speculation on the secondary securities market. This destabilizes the currency and makes productive activity even less attractive than before, encouraging hoarding of cash and low or negative rates of investment.
The functions of the central bank and the tax system have been exchanged, and the result is the utter chaos we see in today's global economy.
Abuse, however, does not invalidate use. Without an income tax, the chief source of income for the federal government was the tariff. (Land sales had ceased being a significant source of revenue in the 1850s.) Like a sales tax, however, a tariff is an "ad valorem" tax. An ad valorem — value added — tax gets passed through to the consumer and is thus heavily regressive.
All taxes are a disincentive to production to some degree. Value added taxes, however, are far more damaging in their effect than income taxes. An income tax lowers the reward to the producer, thereby taking away some of the incentive to produce if the residual to the producer after costs and taxes is deemed insufficient to compensate him or her for the time and effort expended.
A value added tax, however, directly attacks the ability of people to consume by raising prices, thereby decreasing demand. Since the demand for new capital — even replacement capital — is derived from consumer demand, a decrease in consumption removes the reason to produce at all, rather than simply making production less attractive.
To oversimplify, income taxes reduce the incentive to produce, where ad valorem taxes remove the incentive the produce. All things considered, an income tax is the lesser of two evils if the goal is to sustain healthy economic growth.
The new Democratic administration of Woodrow Wilson made fiscal and monetary reform a top priority. Principally this meant instituting the income tax and the Federal Reserve System. The income tax, of course, had been a socialist and populist demand for decades. Consequently it was relatively easy to get through Congress. It needed a constitutional amendment to make it possible to levy a direct tax without apportionment, but it was clearly in the interest of simple justice that the Constitution be amended for that purpose. It was hardly controversial, especially since a progressive income tax had been part of the Progressive, Populist, and Democratic Party platforms. The only holdouts were the admittedly powerful Old Guard Republicans, but even they could see the writing on the wall.
The Federal Reserve was another matter. The Old Guard Republicans had no problem with a central bank. The National Bank system had, in effect, served as a quasi-central bank since 1863, and they were perfectly satisfied with it — up to a point. The problem for the Old Guard was that the National Bank currency, albeit supplemented with the Treasury Notes of 1890, gold and silver certificates and gold and silver coin, was "inelastic," that is, issued in a fixed amount.
Further, although parity with gold had been restored, the National Bank Notes were backed with government debt. If the government got into financial trouble or needed funds on an emergency basis, the temptation might be too great for politicians to resist, and the country would again experience inflation as the government cranked up the printing presses.
Aldrich and his group were fully aware that the country needed an elastic and asset-backed banknote currency to ensure adequate liquidity in the system. The proposal that came out of the Jekyll Island meeting in 1910 would have provided that. It would also have put total control over the central bank in their hands, and removed virtually all government oversight or regulation of the currency.
The Federal Reserve System greatly improved on the Aldrich Plan, in the process becoming substantially different. Rather than simply centralize control over the National Bank system in the hands of New York's financial elite, headed by J. P. Morgan, the Federal Reserve retained the decentralized character of the National Bank system by establishing twelve regional Federal Reserve banks.
This was, in effect, a decentralized central bank, intended to issue twelve discrete regional currencies, the Federal Reserve Notes, but which necessarily passed at par with each other. The rediscount power of each regional Federal Reserve thus backed up each member bank, with open market operations taking care of the needs of non-member banks and businesses.
This meant that commercial banks, even individual businesses, were no longer dependent on retaining the goodwill of the House of Morgan if they wished to obtain banking accommodation. Morgan's refusal to accommodate the Knickerbocker Bank and Trust during a liquidity crunch (brought about by the president of the Knickerbocker using the bank's assets to speculate in copper) had caused the Panic of 1907. Morgan had taken the opportunity to drive the Knickerbocker into bankruptcy. The Federal Reserve ensured that this would no longer be possible.
The Federal Reserve was established largely through the efforts of Representative Carter Glass of Virginia, and Secretary of State William Jennings Bryan. Both realized that the Federal Reserve did not conform to the specific populist demand for free silver or an inflated paper currency backed with an increase in government debt — but it got them what they wanted, which was an adequate money supply to meet the needs of commerce to prevent financial panics and economic downturns.
The establishment of an elastic and stable currency was even an improvement over an inflationary currency. It did not satisfy the more radical populists and socialists, of course. Disregarding or rejecting the importance of private property, the radicals saw great advantage in an inflationary currency. Nevertheless, the removal of the problem of deflation was a major victory.
Thus, despite his defeat, Roosevelt did manage to stop the reactionaries from regaining lost ground. For a brief period, populism was modified by progressivism, getting through necessary reforms, especially the income tax and the Federal Reserve. The vision of America's Founding Fathers as articulated by Orestes Brownson and restored by Theodore Roosevelt seemed secure.
The restoration of the American Republic was, however, incomplete. It did not solve the growing problem of concentration of capital ownership. Even in its incomplete form the restoration would, as was the case with many things, not outlast the First World War.
The conflict between capitalism and socialism resurfaced almost immediately. The Great Depression of the 1930s and the Second World War accelerated the rise of the Welfare State, that ultimately unworkable combination of capitalism and socialism that, to all intents and purposes, is the institution of Hilaire Belloc's "Servile State," depicted, ironically, in The Servile State, published in 1912, just as the foundation to avoid the twin evils of capitalism and socialism seemed to have been solidly established in the United States.
In the late 1950s and early 1960s, the work of Louis Kelso and Mortimer Adler detailed a paradigm to reestablish the three principles of economic justice and the four pillars of an economically just society, solving the problem of how to finance widespread ownership of capital. In the early 21st century, Capital Homesteading gave a specific program to implement the vision of America's Founding Fathers.
The upcoming presidential campaign may very well determine whether the United States and the global economy will continue to dissolve into economic and social chaos, or whether the ideas of the Just Third Way will receive serious consideration.
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Thursday, December 8, 2011
Wednesday, December 7, 2011
Orestes Brownson and Socialism, VII: The New Nationalism
On August 31, 1910, in Osawatomie, Kansas, Theodore Roosevelt gave a speech titled, "The New Nationalism." To a greater degree than most of Roosevelt's speeches, although all had the theme to some degree, "The New Nationalism" detailed what he meant by progressivism. It was not, as the conservative Republicans feared or the radical Democrats hoped, a version of socialism. It was, instead, a third way based on justice between, even above the two extremes of capitalism and socialism.
Perhaps it was because he spoke with a fire fueled by Taft's betrayal. Maybe it was the realization that the conflict he had fought so hard to avoid appeared to be ready to break out again. Whatever his motivation, Roosevelt had had forced on him the realization that the danger to the country was again imminent. As Herbert Knox Smith summarized the issue,
"The original question, 'Shall the Government control business?' gave place to the ultimate question: 'Shall the citizen control his Government?'" (Herbert Knox Smith, "Introduction," Social Justice and Popular Rule, by Theodore Roosevelt, New York: Charles Scribner's Sons, 1926, xiii.)
This summarizes the essential difference between progressivism as Roosevelt understood it, and populism, even the non-socialist remnants of populism. Roosevelt viewed the State as the last resort for a people with no other recourse. Regulation and control of industry and commerce by the government was necessary only when the institutions of the common good could not do the job adequately, and the exercise of liberty and property by a few infringed on the exercise of those same rights by the many.
Even then, Roosevelt made it abundantly clear that even State control or regulation must be imposed only without prejudice to the underlying natural rights held by every human being. There must be no "tit-for-tat," where those whose rights were previously infringed upon imposed disabilities or denied the rights of their presumed former oppressors:
"[I]n the interest of the working man himself we need to set our faces like flint against mob-violence just as against corporate greed; against violence and injustice and lawlessness by wage-workers just as much as against lawless cunning and greed and selfish arrogance of employers. If I could ask but one thing of my fellow countrymen, my request would be that, whenever they go in for reform, they remember the two sides, and that they always exact justice from one side as much as from the other. (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule, op. cit. 18.)
This appeared to be Roosevelt's chief quarrel with populism. Populism viewed the State as the only effective means for controlling big business, big finance — big anything . . . conveniently forgetting that the specialized tool of the State, when permitted to grow beyond its legitimate sphere, inevitably becomes bigger and more powerful — and less susceptible to control — than even the biggest corporation or trust.
Worse, populism tended to dismiss natural rights such as liberty and property if their exercise interfered with a desired goal. The tendency to see only one side of the issue, and to "throw the baby out with the bath" was anathema to a man who sought to return America to its true roots and ensure that the efforts of Abraham Lincoln were not in vain: "I have small use for the public servant who can always see and denounce the corruption of the capitalist, but who cannot persuade himself, especially before election, to say a word about lawless mob-violence." (Ibid.)
Not that Roosevelt ever forgot that concentrated wealth was itself a danger: "I have equally small use for the man, be he a judge on the bench, or editor of a great paper, or wealthy and influential private citizen, who can see clearly enough and denounce the lawlessness of mob-violence, but whose eyes are closed so that he is blind when the question is one of corruption in business on a gigantic scale." (Ibid.)
The populists tended to put the State before all individual rights in their quest for justice. Roosevelt knew that, unless the people somehow controlled the State, State control of anything was dangerous. The problem was that, without an effective means to control the State, there could be no real resolution of the conflict between capitalism and socialism.
As Roosevelt made clear, however (and which was confirmed in a series of articles by Judge Grosscup), the only effective check on State power is widespread direct ownership of capital. The abolition of private property in capital as the socialists and, increasingly, the populists advocated, would do nothing other than make everyone a permanent dependent on the State. The problem was that there was no effective means whereby ordinary people without sufficient existing savings to purchase capital could afford the increasingly expensive new capital instruments.
This left Roosevelt, in a sense, hanging out to dry. He had the right principles, but no effective way to implement them. In contrast, the individualist/capitalists and the collectivist/socialists had what they believed to be the answer, and the weight of experience and common sense behind them.
As far as the individualists and collectivists knew, it was impossible to finance new capital formation without first cutting consumption and accumulating money savings. For both camps, this meant that only a small elite (the wealthy for the former, the State for the latter) could control capital. This was believed to be essential, for only by concentrating ownership of capital would there be sufficient savings to finance new capital.
This premise would be proved completely false within a generation by Harold G. Moulton, president of the Brookings Institution, in his book, The Formation of Capital (1935). That did not help Roosevelt, however. The capitalists believed that only by maintaining absolute exercise of property could the world advance, or even maintain its position — a position with which the socialists, paradoxically, agreed . . . except that they wanted control in the hands of a State that had become their creature, not a management elite at the beck and call of the upper one percent.
The supreme irony in both the capitalist and the socialist position is that in both cases the instrument by means of which the capitalist or "the people" were to control capital — the management elite of capitalism, the State of socialism — has become itself the master. Property in everyday life, as Louis Kelso pointed out, is control.
Regardless who has legal title, whether capitalist or "the people," it's whoever controls the wealth who can truly be said to "own." Since "power naturally and necessarily follows property," as Daniel Webster reminded us, concentrated control is the same as concentrated ownership, "property" being not the thing owned, but the rights and powers over the thing, as well as the natural right to be an owner. As Roosevelt insisted,
"The true friend of property, the true conservative, is he who insists that property shall be the servant and not the master of the commonwealth; who insists that the creature of man's making shall be the servant and not the master of the man who made it. The citizens of the United States must effectively control the might commercial forces which they have themselves called into being." (Ibid., 11.)
A superficial understanding of this principle gave the socialists their greatest weapon and most persuasive argument. As the socialists argue, if the earth was made for everyone, what right do a few have to monopolize its goods? Yes, control of capital must be concentrated — or there wouldn't be any capital! — but it must be administered so as to benefit everyone. This means State control or outright ownership. This is because private owners, impelled by their own self-interest, cannot be trusted to administer their wealth for the benefit of all. Private property has to be abolished for the good of humanity.
Thus, by being partly right, both the capitalists and the socialists managed to be completely wrong. Roosevelt, at least, by his insistence on maintaining individual natural rights as far as possible as well as what would later be described as the universal destination of the world's goods, managed to be wholly, but (unfortunately) incompletely right. What Roosevelt lacked was some means whereby ordinary people without savings or the ability to cut consumption could become owners of capital.
That being said, however, Roosevelt's principles were sound, and appear to have been fully consistent with the Just Third Way. We see this in the correlation in his speech on the New Nationalism with the three principles of economic justice as well as the four pillars of an economically just society.
The three principles of economic justice are participation, distribution, and harmony. The four pillars of an economically just society are, 1) A limited economic role of the State. 2) Free and open markets as the best means of determining just wages, just prices, and just profits. 3) Restoration of the rights of private property, especially in corporate equity. 4) Widespread direct ownership of capital.
Participation
In a phrase that has become a virtual trademark of Roosevelt's program, he declared, "I stand for the square deal. But when I say that I am for the square deal, I mean not merely that I stand for fair play under the present rules of the game, but that I stand for having those rules changed so as to work for a more substantial equality of opportunity and of reward for equally good service." (Ibid., 10.)
Distribution
Roosevelt was fully aware that full participation in the economy requires ownership of both labor and capital. In a technologically advanced economy, widespread and direct ownership of capital is essential if each individual's economic welfare is to be adequately maintained. Admittedly, Roosevelt had no effective means to recommend whereby people could own capital as well as labor, but that did not stop him from stating the truth without equivocation:
"I believe in shaping the ends of government to protect property as well as human welfare. Normally, and in the long run, the ends are the same; but whenever the alternative must be faced, I am for men and not for property, as you were in the Civil War. [Roosevelt gave "The New Nationalism" speech before the "GAR," the "Grand Army of the Republic," an organization of Union war veterans.] I am far from underestimating the importance of dividends; but I rank dividends below human character. Again, I do not have any sympathy with the reformer who says he does not care for dividends. Of course, economic welfare is necessary, for a man must pull his own weight and be able to support his family." (Ibid., 20.)
Harmony
The principle of "harmony" is that, when flaws are found in our institutions, the proper response is not to destroy the institutions or, worse, people in or who use the institutions. Rather, we are to exercise "social charity," that is, to love our institutions as we love ourselves. This requires that we learn the true nature of our institutions, identify the flaws, and organize and work to correct the flaws.
Theodore Roosevelt appeared to be fully in agreement with this third principle of economic justice. Since the object of our concern is our institutional environment — the common good — we can also call the principle of harmony, "social justice." Institutions must be reformed so that they perform their functions adequately and serve the needs of everyone. As Roosevelt explained,
"National efficiency has many factors. It is a necessary result of the principle of conservation widely applied. In the end it will determine our failure or success as a nation. National efficiency has to do, not only with natural resources and with men, but it is equally concerned with institutions. The State must be made efficient for the work which concerns only the people of the State; and the nation for that which concerns all the people." (Ibid., 18-19.)
A Limited Economic Role for the State
Roosevelt walked a path, a third way, that outraged extremists at both ends of the political spectrum. Both the Old Guard Republicans and the populist Democrats sought to use the State to control others and secure their own positions. While Roosevelt, lacking a feasible program of empowering ordinary people with capital ownership, turned to the State to a degree that we believe to be unjustifiable, he stood firm on his principle that the State should be the servant, not the master. No where was this more true than in his struggle against those who, as is the case today, used the coercive power of the State to secure their own special privileges and wealth. As Roosevelt explained his position,
"One of the fundamental necessities in a representative government such as ours is to make certain that the men to whom the people delegate their power shall serve the people by whom they are elected, and not the special interests. I believe that every national officer, elected or appointed, should be forbidden to perform any service or receive any compensation, directly or indirectly, from interstate corporations; and a similar provision could not fail to be useful within the States." (Ibid., 21.)
Needless to say, Roosevelt was opposed to any and all campaign contributions from corporations: "It is necessary that laws should be passed to prohibit the use of corporate funds directly or indirectly for political purposes; it is still more necessary that such laws should be thoroughly enforced. Corporate expenditures for political purposes, and especially such expenditures by public-service corporations, have supplied one of the principal sources of corruption in our political affairs." (Ibid., 11.)
Free and Open Markets
The conservatives tried to paint Roosevelt as the enemy of property and free enterprise. Nothing could be further from the truth:
"The absence of effective State, and, especially, national restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power. The prime need is to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise. We grudge no man a fortune which represents his own power and sagacity, when exercised with entire regard to the welfare of his fellows." (Ibid., 13.)
Restoration of Private Property
Then as now, conservatives insist that the rights of property must be regarded as sacred. There is nothing new in that claim. It is a claim made in justice, as political commentators and religious leaders through the ages have insisted.
The problem is that, within the current flawed social order we inhabit, ownership of capital — the "property" in question — is extremely concentrated, even more so than in Roosevelt's day. It's not a question of maintaining the rights of private property for the few, but of ensuring equal access to the means of acquiring and possessing private property for the many:
"[O]ur government, National and State, must be freed from the sinister influence or control of special interests. Exactly as the special interests of cotton and slavery threatened our political integrity before the Civil War, so now the great special business interests too often control and corrupt the men and methods of government for their own profit. We must drive the special interests out of politics. That is one of our tasks to-day. Every special interest is entitled to justice — full, fair, and complete — and, now, mind you, if there were any attempt by mob-violence to plunder and work harm to the special interest, whatever it may be, that I most dislike, and the wealthy man, whomsoever he may be, for whom I have the greatest contempt, I would fight for him, and you would if you were worth your salt. He should have justice. For every special interest is entitled to justice, but not one is entitled to a vote in Congress, to a voice on the bench, or to representation in any public office. The Constitution guarantees protection to property, and we must make that promise good. But it does not give the right of suffrage to any corporation." (Ibid., 10-11.)
Widespread Capital Ownership
Roosevelt's stand on widespread ownership, while limited to landed capital (for he saw no feasible way to spread out ownership of commercial, industrial and financial capital without violating private property), nevertheless earned him accusations of being a socialist. This is difficult to understand, for socialism, properly defined, is the abolition of private property in capital, not its broad diffusion among the people. As Roosevelt related, in a clear reference to Abraham Lincoln's 1862 Homestead Act,
"I believe that the natural resources must be used for the benefit of all our people, and not monopolized for the benefit of the few, and here again is another case in which I am accused of taking a revolutionary attitude. People forget now that one hundred years ago there were public men of good character who advocated the nation selling its public lands in great quantities, so that the nation could get the most money out of it, and giving it to the men who could cultivate it for their own uses. We took the proper democratic ground that the land should be granted in small sections to the men who were actually to till it and live on it." (Ibid., 15-16.)
In light of his adherence to the three principles of economic justice and the four pillars of an economically just society, it should come as no surprise that, faced with a resurgence of the twin evils of capitalism and socialism, Roosevelt concluded that the country was once again in serious danger — and he was right. The American Republic was again threatened with a deep split along ideological lines, with the supreme irony being that neither camp, the capitalists nor the socialists, were in conformity with the founding principles of the United States. As Herbert Knox Smith related,
"The underlying motive of the man — so deep that it was rather an instinct than a formulated position — was this unity of America, the fabric of the commonwealth. He dealt with a unity, not superficial but profound — not merely between geographic sections, but a unity of spirit and the bases of life. Statesmanlike, he knew that there can be real unity in a democracy only if there is equality of opportunity, easy passage across all class boundaries, no accepted dividing line drawn on inequality of privilege, or any dividing line other than those self-contained in each man's own character and intellect.
"He saw that only such essential unity can be enduring. All the details of his action, the specific policies that he stated, arise from this underlying purpose for the Union. The supremacy of law and government; the destruction of unfair industrial advantage; the conservation of forest, mine, and water power for the common use, were all factors of equality of opportunity, and he established them." (Smith, op. cit., xvii-xviii).
The battle had been joined.
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Perhaps it was because he spoke with a fire fueled by Taft's betrayal. Maybe it was the realization that the conflict he had fought so hard to avoid appeared to be ready to break out again. Whatever his motivation, Roosevelt had had forced on him the realization that the danger to the country was again imminent. As Herbert Knox Smith summarized the issue,
"The original question, 'Shall the Government control business?' gave place to the ultimate question: 'Shall the citizen control his Government?'" (Herbert Knox Smith, "Introduction," Social Justice and Popular Rule, by Theodore Roosevelt, New York: Charles Scribner's Sons, 1926, xiii.)
This summarizes the essential difference between progressivism as Roosevelt understood it, and populism, even the non-socialist remnants of populism. Roosevelt viewed the State as the last resort for a people with no other recourse. Regulation and control of industry and commerce by the government was necessary only when the institutions of the common good could not do the job adequately, and the exercise of liberty and property by a few infringed on the exercise of those same rights by the many.
Even then, Roosevelt made it abundantly clear that even State control or regulation must be imposed only without prejudice to the underlying natural rights held by every human being. There must be no "tit-for-tat," where those whose rights were previously infringed upon imposed disabilities or denied the rights of their presumed former oppressors:
"[I]n the interest of the working man himself we need to set our faces like flint against mob-violence just as against corporate greed; against violence and injustice and lawlessness by wage-workers just as much as against lawless cunning and greed and selfish arrogance of employers. If I could ask but one thing of my fellow countrymen, my request would be that, whenever they go in for reform, they remember the two sides, and that they always exact justice from one side as much as from the other. (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule, op. cit. 18.)
This appeared to be Roosevelt's chief quarrel with populism. Populism viewed the State as the only effective means for controlling big business, big finance — big anything . . . conveniently forgetting that the specialized tool of the State, when permitted to grow beyond its legitimate sphere, inevitably becomes bigger and more powerful — and less susceptible to control — than even the biggest corporation or trust.
Worse, populism tended to dismiss natural rights such as liberty and property if their exercise interfered with a desired goal. The tendency to see only one side of the issue, and to "throw the baby out with the bath" was anathema to a man who sought to return America to its true roots and ensure that the efforts of Abraham Lincoln were not in vain: "I have small use for the public servant who can always see and denounce the corruption of the capitalist, but who cannot persuade himself, especially before election, to say a word about lawless mob-violence." (Ibid.)
Not that Roosevelt ever forgot that concentrated wealth was itself a danger: "I have equally small use for the man, be he a judge on the bench, or editor of a great paper, or wealthy and influential private citizen, who can see clearly enough and denounce the lawlessness of mob-violence, but whose eyes are closed so that he is blind when the question is one of corruption in business on a gigantic scale." (Ibid.)
The populists tended to put the State before all individual rights in their quest for justice. Roosevelt knew that, unless the people somehow controlled the State, State control of anything was dangerous. The problem was that, without an effective means to control the State, there could be no real resolution of the conflict between capitalism and socialism.
As Roosevelt made clear, however (and which was confirmed in a series of articles by Judge Grosscup), the only effective check on State power is widespread direct ownership of capital. The abolition of private property in capital as the socialists and, increasingly, the populists advocated, would do nothing other than make everyone a permanent dependent on the State. The problem was that there was no effective means whereby ordinary people without sufficient existing savings to purchase capital could afford the increasingly expensive new capital instruments.
This left Roosevelt, in a sense, hanging out to dry. He had the right principles, but no effective way to implement them. In contrast, the individualist/capitalists and the collectivist/socialists had what they believed to be the answer, and the weight of experience and common sense behind them.
As far as the individualists and collectivists knew, it was impossible to finance new capital formation without first cutting consumption and accumulating money savings. For both camps, this meant that only a small elite (the wealthy for the former, the State for the latter) could control capital. This was believed to be essential, for only by concentrating ownership of capital would there be sufficient savings to finance new capital.
This premise would be proved completely false within a generation by Harold G. Moulton, president of the Brookings Institution, in his book, The Formation of Capital (1935). That did not help Roosevelt, however. The capitalists believed that only by maintaining absolute exercise of property could the world advance, or even maintain its position — a position with which the socialists, paradoxically, agreed . . . except that they wanted control in the hands of a State that had become their creature, not a management elite at the beck and call of the upper one percent.
The supreme irony in both the capitalist and the socialist position is that in both cases the instrument by means of which the capitalist or "the people" were to control capital — the management elite of capitalism, the State of socialism — has become itself the master. Property in everyday life, as Louis Kelso pointed out, is control.
Regardless who has legal title, whether capitalist or "the people," it's whoever controls the wealth who can truly be said to "own." Since "power naturally and necessarily follows property," as Daniel Webster reminded us, concentrated control is the same as concentrated ownership, "property" being not the thing owned, but the rights and powers over the thing, as well as the natural right to be an owner. As Roosevelt insisted,
"The true friend of property, the true conservative, is he who insists that property shall be the servant and not the master of the commonwealth; who insists that the creature of man's making shall be the servant and not the master of the man who made it. The citizens of the United States must effectively control the might commercial forces which they have themselves called into being." (Ibid., 11.)
A superficial understanding of this principle gave the socialists their greatest weapon and most persuasive argument. As the socialists argue, if the earth was made for everyone, what right do a few have to monopolize its goods? Yes, control of capital must be concentrated — or there wouldn't be any capital! — but it must be administered so as to benefit everyone. This means State control or outright ownership. This is because private owners, impelled by their own self-interest, cannot be trusted to administer their wealth for the benefit of all. Private property has to be abolished for the good of humanity.
Thus, by being partly right, both the capitalists and the socialists managed to be completely wrong. Roosevelt, at least, by his insistence on maintaining individual natural rights as far as possible as well as what would later be described as the universal destination of the world's goods, managed to be wholly, but (unfortunately) incompletely right. What Roosevelt lacked was some means whereby ordinary people without savings or the ability to cut consumption could become owners of capital.
That being said, however, Roosevelt's principles were sound, and appear to have been fully consistent with the Just Third Way. We see this in the correlation in his speech on the New Nationalism with the three principles of economic justice as well as the four pillars of an economically just society.
The three principles of economic justice are participation, distribution, and harmony. The four pillars of an economically just society are, 1) A limited economic role of the State. 2) Free and open markets as the best means of determining just wages, just prices, and just profits. 3) Restoration of the rights of private property, especially in corporate equity. 4) Widespread direct ownership of capital.
Participation
In a phrase that has become a virtual trademark of Roosevelt's program, he declared, "I stand for the square deal. But when I say that I am for the square deal, I mean not merely that I stand for fair play under the present rules of the game, but that I stand for having those rules changed so as to work for a more substantial equality of opportunity and of reward for equally good service." (Ibid., 10.)
Distribution
Roosevelt was fully aware that full participation in the economy requires ownership of both labor and capital. In a technologically advanced economy, widespread and direct ownership of capital is essential if each individual's economic welfare is to be adequately maintained. Admittedly, Roosevelt had no effective means to recommend whereby people could own capital as well as labor, but that did not stop him from stating the truth without equivocation:
"I believe in shaping the ends of government to protect property as well as human welfare. Normally, and in the long run, the ends are the same; but whenever the alternative must be faced, I am for men and not for property, as you were in the Civil War. [Roosevelt gave "The New Nationalism" speech before the "GAR," the "Grand Army of the Republic," an organization of Union war veterans.] I am far from underestimating the importance of dividends; but I rank dividends below human character. Again, I do not have any sympathy with the reformer who says he does not care for dividends. Of course, economic welfare is necessary, for a man must pull his own weight and be able to support his family." (Ibid., 20.)
Harmony
The principle of "harmony" is that, when flaws are found in our institutions, the proper response is not to destroy the institutions or, worse, people in or who use the institutions. Rather, we are to exercise "social charity," that is, to love our institutions as we love ourselves. This requires that we learn the true nature of our institutions, identify the flaws, and organize and work to correct the flaws.
Theodore Roosevelt appeared to be fully in agreement with this third principle of economic justice. Since the object of our concern is our institutional environment — the common good — we can also call the principle of harmony, "social justice." Institutions must be reformed so that they perform their functions adequately and serve the needs of everyone. As Roosevelt explained,
"National efficiency has many factors. It is a necessary result of the principle of conservation widely applied. In the end it will determine our failure or success as a nation. National efficiency has to do, not only with natural resources and with men, but it is equally concerned with institutions. The State must be made efficient for the work which concerns only the people of the State; and the nation for that which concerns all the people." (Ibid., 18-19.)
A Limited Economic Role for the State
Roosevelt walked a path, a third way, that outraged extremists at both ends of the political spectrum. Both the Old Guard Republicans and the populist Democrats sought to use the State to control others and secure their own positions. While Roosevelt, lacking a feasible program of empowering ordinary people with capital ownership, turned to the State to a degree that we believe to be unjustifiable, he stood firm on his principle that the State should be the servant, not the master. No where was this more true than in his struggle against those who, as is the case today, used the coercive power of the State to secure their own special privileges and wealth. As Roosevelt explained his position,
"One of the fundamental necessities in a representative government such as ours is to make certain that the men to whom the people delegate their power shall serve the people by whom they are elected, and not the special interests. I believe that every national officer, elected or appointed, should be forbidden to perform any service or receive any compensation, directly or indirectly, from interstate corporations; and a similar provision could not fail to be useful within the States." (Ibid., 21.)
Needless to say, Roosevelt was opposed to any and all campaign contributions from corporations: "It is necessary that laws should be passed to prohibit the use of corporate funds directly or indirectly for political purposes; it is still more necessary that such laws should be thoroughly enforced. Corporate expenditures for political purposes, and especially such expenditures by public-service corporations, have supplied one of the principal sources of corruption in our political affairs." (Ibid., 11.)
Free and Open Markets
The conservatives tried to paint Roosevelt as the enemy of property and free enterprise. Nothing could be further from the truth:
"The absence of effective State, and, especially, national restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power. The prime need is to change the conditions which enable these men to accumulate power which it is not for the general welfare that they should hold or exercise. We grudge no man a fortune which represents his own power and sagacity, when exercised with entire regard to the welfare of his fellows." (Ibid., 13.)
Restoration of Private Property
Then as now, conservatives insist that the rights of property must be regarded as sacred. There is nothing new in that claim. It is a claim made in justice, as political commentators and religious leaders through the ages have insisted.
The problem is that, within the current flawed social order we inhabit, ownership of capital — the "property" in question — is extremely concentrated, even more so than in Roosevelt's day. It's not a question of maintaining the rights of private property for the few, but of ensuring equal access to the means of acquiring and possessing private property for the many:
"[O]ur government, National and State, must be freed from the sinister influence or control of special interests. Exactly as the special interests of cotton and slavery threatened our political integrity before the Civil War, so now the great special business interests too often control and corrupt the men and methods of government for their own profit. We must drive the special interests out of politics. That is one of our tasks to-day. Every special interest is entitled to justice — full, fair, and complete — and, now, mind you, if there were any attempt by mob-violence to plunder and work harm to the special interest, whatever it may be, that I most dislike, and the wealthy man, whomsoever he may be, for whom I have the greatest contempt, I would fight for him, and you would if you were worth your salt. He should have justice. For every special interest is entitled to justice, but not one is entitled to a vote in Congress, to a voice on the bench, or to representation in any public office. The Constitution guarantees protection to property, and we must make that promise good. But it does not give the right of suffrage to any corporation." (Ibid., 10-11.)
Widespread Capital Ownership
Roosevelt's stand on widespread ownership, while limited to landed capital (for he saw no feasible way to spread out ownership of commercial, industrial and financial capital without violating private property), nevertheless earned him accusations of being a socialist. This is difficult to understand, for socialism, properly defined, is the abolition of private property in capital, not its broad diffusion among the people. As Roosevelt related, in a clear reference to Abraham Lincoln's 1862 Homestead Act,
"I believe that the natural resources must be used for the benefit of all our people, and not monopolized for the benefit of the few, and here again is another case in which I am accused of taking a revolutionary attitude. People forget now that one hundred years ago there were public men of good character who advocated the nation selling its public lands in great quantities, so that the nation could get the most money out of it, and giving it to the men who could cultivate it for their own uses. We took the proper democratic ground that the land should be granted in small sections to the men who were actually to till it and live on it." (Ibid., 15-16.)
In light of his adherence to the three principles of economic justice and the four pillars of an economically just society, it should come as no surprise that, faced with a resurgence of the twin evils of capitalism and socialism, Roosevelt concluded that the country was once again in serious danger — and he was right. The American Republic was again threatened with a deep split along ideological lines, with the supreme irony being that neither camp, the capitalists nor the socialists, were in conformity with the founding principles of the United States. As Herbert Knox Smith related,
"The underlying motive of the man — so deep that it was rather an instinct than a formulated position — was this unity of America, the fabric of the commonwealth. He dealt with a unity, not superficial but profound — not merely between geographic sections, but a unity of spirit and the bases of life. Statesmanlike, he knew that there can be real unity in a democracy only if there is equality of opportunity, easy passage across all class boundaries, no accepted dividing line drawn on inequality of privilege, or any dividing line other than those self-contained in each man's own character and intellect.
"He saw that only such essential unity can be enduring. All the details of his action, the specific policies that he stated, arise from this underlying purpose for the Union. The supremacy of law and government; the destruction of unfair industrial advantage; the conservation of forest, mine, and water power for the common use, were all factors of equality of opportunity, and he established them." (Smith, op. cit., xvii-xviii).
The battle had been joined.
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Tuesday, December 6, 2011
Orestes Brownson and Socialism, VI: Betrayal
In 1908, Theodore Roosevelt's last full year as president, Orestes Brownson's vision of the direction that America could take in conformity with the universal moral values and political principles embodied in the United States Constitution seemed well on its way to realization. There were, of course, still serious problems, notably the rapid decline in small ownership and the lack of an adequate currency for the day-to-day consumer and business transactions of the economy. Under Roosevelt's leadership, however, the country exhibited every sign that these problems would somehow soon be solved — the efforts of Judge Peter S. Grosscup being notable in this regard.
Consequently, Roosevelt felt it was safe to retire to private life and forgo a third term as president. Matters were well in hand, and a possible second Civil War had been averted. Such was his personal prestige and popularity that Roosevelt was able to hand pick his successor, someone able to carry through the progressive agenda for which he had labored for eight years laying the groundwork.
The choice was between the governor of New York, Charles Evans Hughes, and William Howard Taft. Roosevelt did not give serious consideration to Charles Warren Fairbanks, his vice president. Hughes was a strong reformer, brilliant, and without obligations to the "Old Guard" of the Republican Party that had stymied much of the legislation Roosevelt needed for his program. William Howard Taft was a close political ally whom Roosevelt had been grooming for the position. Roosevelt went with Taft, who seemed to have the right spirit, making possibly the worst political decision of his career.
Taft seemed ideal. Personally honest, of great integrity, progressive in spirit, he also appeared to have a large measure of the good humor that Roosevelt radiated in public. Taft, however, lacked the steel behind Roosevelt's seemingly effortless joviality and camaraderie. Roosevelt used his personality as a natural assist to bring people around to his point of view. This was an ability that later superficial commentators and historians have denigrated, implying that taking advantage of it was somehow sly or dishonest, or that it was a phony act that Roosevelt assumed when it suited him. It was not, nor was it an act Roosevelt put on to impress people. It just happened to be the way he was — however useful it proved to be for him politically.
Taft, on the other hand, was a man who liked to be liked. Where Roosevelt used his natural personality to get others to accept him, Taft used his personality to get himself accepted by others. Taft thus tended to sublimate his better self in an effort to placate the Old Guard Republicans who (as might have been expected after eight years of Roosevelt's soft speaking with a big stick behind it) were intent upon regaining lost ground and purging the Republican Party — and the American Republic — of progressive elements.
This is not to say that the members of the Old Guard were being dishonest, any more than Taft was. Many of them truly saw no difference between Republican progressivism and Democratic populism — and no difference between populism and socialism. Stuck in a paradigm in which they firmly believed that all new capital could only be financed out of existing accumulations of savings, they saw only two alternatives: capitalism or socialism, whatever label might be put on either system.
The conservative Republicans honestly believed that there was no rational alternative to their brand of mercantilist capitalism. If private property were to remain protected as a sacred and natural right, that necessarily included (in their limited understanding) absolute exercise of property as well, with adequate government protections installed to maintain the status quo. Any limits on the exercise of property were thus, in their eyes, limits on the natural right to be an owner itself, and was tantamount to socialism.
With this understanding of private property, the Old Guard could not distinguish between Roosevelt's progressivism which, in the ancient tradition of the west, demanded limitations on the exercise of property in order to secure the right to be an owner to all, and Bryan's populism which, with its undermining of private property through manipulation of the currency, truly was a form of socialism. Consequently, with Roosevelt seemingly safely out of the way, the conservatives moved in as fast as they dared to overturn what they regarded — or professed to regard — as Roosevelt's dangerous socialist innovations.
Taft was tested almost immediately upon taking office. The progressive Republicans made an effort to unseat Joseph G. Cannon, the conservative Speaker of the House of Representatives. Taft, possibly in an effort to secure the powerful backing of Senator Nelson Aldrich, sided with Cannon against the progressives. Aldrich was powerful financially, being linked with J. P. Morgan and the Rockefellers. Taft might have believed (erroneously) that Aldrich's support was essential to secure the necessary reforms of the credit system after the serious weaknesses were exposed by the Panics of 1893 and 1907.
Soon afterwards, progressives in the Senate attempted to nullify the Aldrich amendments to the Payne tariff bill. Taft initially sided with the progressives, and then threw his support to Aldrich. After that, the president went on a speaking tour during which he sent such equivocal messages that the progressives became convinced that he had completely abandoned their cause. A contemporary political cartoon shows Taft supplicating a frowning Aldrich with folded hands and a whining, "Please, Mr. Aldrich!", while Roosevelt's portrait glares down, and the past president's "big stick" gathers cobwebs.
The "Ballinger Affair" (the "Pinchot-Ballinger Controversy") appeared to signal a definite change of heart on the part of Taft. Conservation of the country's natural resources and the national park system had been a primary concern of Roosevelt. Within weeks of taking office, Richard A. Ballinger, Taft's Secretary of the Interior, alienated three million acres of land set aside for conservation, returning them to private use. Taft had appointed Ballinger to replace Roosevelt's appointment, James Rudolph Garfield, son of James Garfield, the murdered president, soon after his inauguration. Conservationists took Garfield's removal as a clear sign that Taft was abandoning Roosevelt's policies.
Convinced that Ballinger intended to bring a halt to the conservation effort, Gifford Pinchot, chief of the United States Forest Service (a McKinley appointee), and other conservationists began efforts to have Ballinger removed from office. Earlier, Louis Glavis, Chief of the Portland, Oregon Field Division of the General Land Office, had accused Ballinger of improper interest in coal claim purchases in Alaska while Ballinger was Commissioner of the General Land Office, and claimed that Ballinger had interfered with investigations of coal claim purchases in Idaho.
While still Commissioner, Ballinger rejected Glavis's claims and removed Glavis from the investigation of possible anti-trust violations that implicated Ballinger. Pinchot arranged for Glavis to meet with Taft. Glavis detailed his findings in a fifty-page report to the president. Taft issued a letter exonerating Ballinger and authorizing Glavis's termination on the grounds of insubordination. At the same time, Taft tried to reassure Pinchot that his administration was fully committed to the cause of conservation.
Glavis went public, publishing an article, "The Whitewashing of Ballinger: Are the Guggenheims in Charge of the Department of the Interior?" (Colliers Weekly, November 1909.) In January of the following year Pinchot sent an open letter to Senator Jonathan P. Dolliver of Iowa, which was read into the Congressional Record. Pinchot, a personal friend of Roosevelt, praised Glavis's patriotism, rebuked Taft, called for an investigation — and was promptly fired.
Taft's final break with the progressives came in the Spring of 1910. A large number of progressive Republicans were coming up for reelection in the Midwest. The conservatives, headed by Aldrich, Cannon and Taft, mounted a well-funded campaign to prevent their re-nomination. The effort failed, and talk began among the progressives of forming a third party to challenge the Old Guard permanently.
In November of 1910 a secret meeting to discuss financial reform took place on Jekyll Island, Georgia. The meeting has entered conspiracy lore as the source of the proposal that led to the Federal Reserve System. The fact that the meeting was secret has assumed an importance far beyond its actual import. The reason for secrecy was to hide deliberations from the progressive Republicans.
Aldrich was by this time persuaded that he had Taft right where he wanted him — but had to step carefully as Taft (and Aldrich) still needed the support of the progressives to maintain power. Due to Taft's fumbling of the Ballinger Affair and the subsequent speaking tour, however, the progressives were hardly likely to be taken in. They were already on the warpath and were seeking more evidence (as if they needed any) of Taft's and the conservative's betrayal of Roosevelt's legacy.
And a betrayal it was. Fortunately, the "Aldrich Plan" that came out of the Jekyll Island meeting was never adopted. It had certain superficial similarities to the Federal Reserve Act, but there were a number of critical differences. The Aldrich Plan would have kept the money power centralized in the hands of a tiny elite in New York City. As Harold Moulton explained the relationship between the Aldrich proposal that came out of the meeting and the Federal Reserve Act of 1913,
"The task of framing a currency law was conceived as one of modifying the Aldrich bill in such a way as to meet the fundamental objections that had been raised to that measure and to perfect a banking organization that would provide the necessary centralization of power without vesting too much control in the hands of the "financial interests"; it was felt that a democratic spirit should pervade the organization and that it should be developed in accordance with the "genius of our institutions." The Democratic party thus reaped the fruits of the investigations that had been conducted by the National Monetary Commission and by other students of banking reform, as well as the advantage of the criticisms that had been made of the Aldrich bill; and especially it profited by the nation-wide discussion of the fundamental principles involved in banking reform. Great credit must, however, be given to the Democratic leaders for the efficient way in which the problem was handled and for the speed with which the bill was enacted into law." (Moulton, The Financial Organization of Society. Washington, DC: The Brookings Institution, 1930, 530-531.)
True, the Federal Reserve System enacted three years later conformed to the broad outlines of the Aldrich Plan, and several of the participants in the meeting took credit for being the guiding spirits of the central bank of the United States, but that was clearly an example of wishful thinking and self-glorification. As Moulton stated, "The Federal Reserve Act is an outgrowth of the Aldrich plan, though modified in numerous details and in some very important respects." As Moulton explained the Aldrich plan as the precursor to the Federal Reserve Act,
"The Aldrich plan, which was presented to Congress early in 1911, was discussed the country over perhaps more thoroughly than any other measure ever before Congress. The bill is generally conceded to have had many excellent provisions; many of them, indeed, subsequently became embodied in the Federal Reserve Act. But the prevalent distrust of Mr. Aldrich in consequence of his unsavory reputation on tariff matters, together with the fact that his proposal was undoubtedly a very strongly centralizing measure, made its enactment into law a political impossibility, especially after the coming of the Democrats to power in 1912." (Moulton, Principles of Money and Banking. Chicago, Illinois: The University of Chicago Press, 1916, II.261.)
The plan of the Federal Reserve System was based on the Reichsbank and the banks of the constituent states of the German Empire. This came from information gathered during Senator Aldrich's investigative trip to Europe in 1908, not anything that was developed at Jekyll Island. At most, all that the Jekyll Island meeting participants could in honesty claim credit for was the decision to use the Imperial German system as the model for the new central bank of the United States. As Moulton noted,
"The Federal Reserve Act is a substantial improvement over the Aldrich plan. It should be chronicled here that the Federal Reserve Act is not a mere plagiarism of the Aldrich plan. In certain fundamental respects the new law is markedly different from and markedly superior to the Aldrich plan . . . . Subject to a great deal of hostile comment by the financial and business press during the period of its discussion before Congress, after passage the law very quickly became recognized at its true worth as the most constructive piece of legislation that had ever been placed upon the American statute-books. For once, at least, a vitally important, though technical, question had been resolved into its fundamental issues through public discussion, and in this instance a measure emerging into law did represent the best constructive thinking of the nation." (Moulton, The Financial Organization of Society, op. cit., 531-532.)
That was to come, however. In the meantime, Taft and his new guides and mentors in the conservative faction of the Republican Party had to face the ire of Theodore Roosevelt, newly returned from Africa and Europe.
#30#
Consequently, Roosevelt felt it was safe to retire to private life and forgo a third term as president. Matters were well in hand, and a possible second Civil War had been averted. Such was his personal prestige and popularity that Roosevelt was able to hand pick his successor, someone able to carry through the progressive agenda for which he had labored for eight years laying the groundwork.
The choice was between the governor of New York, Charles Evans Hughes, and William Howard Taft. Roosevelt did not give serious consideration to Charles Warren Fairbanks, his vice president. Hughes was a strong reformer, brilliant, and without obligations to the "Old Guard" of the Republican Party that had stymied much of the legislation Roosevelt needed for his program. William Howard Taft was a close political ally whom Roosevelt had been grooming for the position. Roosevelt went with Taft, who seemed to have the right spirit, making possibly the worst political decision of his career.
Taft seemed ideal. Personally honest, of great integrity, progressive in spirit, he also appeared to have a large measure of the good humor that Roosevelt radiated in public. Taft, however, lacked the steel behind Roosevelt's seemingly effortless joviality and camaraderie. Roosevelt used his personality as a natural assist to bring people around to his point of view. This was an ability that later superficial commentators and historians have denigrated, implying that taking advantage of it was somehow sly or dishonest, or that it was a phony act that Roosevelt assumed when it suited him. It was not, nor was it an act Roosevelt put on to impress people. It just happened to be the way he was — however useful it proved to be for him politically.
Taft, on the other hand, was a man who liked to be liked. Where Roosevelt used his natural personality to get others to accept him, Taft used his personality to get himself accepted by others. Taft thus tended to sublimate his better self in an effort to placate the Old Guard Republicans who (as might have been expected after eight years of Roosevelt's soft speaking with a big stick behind it) were intent upon regaining lost ground and purging the Republican Party — and the American Republic — of progressive elements.
This is not to say that the members of the Old Guard were being dishonest, any more than Taft was. Many of them truly saw no difference between Republican progressivism and Democratic populism — and no difference between populism and socialism. Stuck in a paradigm in which they firmly believed that all new capital could only be financed out of existing accumulations of savings, they saw only two alternatives: capitalism or socialism, whatever label might be put on either system.
The conservative Republicans honestly believed that there was no rational alternative to their brand of mercantilist capitalism. If private property were to remain protected as a sacred and natural right, that necessarily included (in their limited understanding) absolute exercise of property as well, with adequate government protections installed to maintain the status quo. Any limits on the exercise of property were thus, in their eyes, limits on the natural right to be an owner itself, and was tantamount to socialism.
With this understanding of private property, the Old Guard could not distinguish between Roosevelt's progressivism which, in the ancient tradition of the west, demanded limitations on the exercise of property in order to secure the right to be an owner to all, and Bryan's populism which, with its undermining of private property through manipulation of the currency, truly was a form of socialism. Consequently, with Roosevelt seemingly safely out of the way, the conservatives moved in as fast as they dared to overturn what they regarded — or professed to regard — as Roosevelt's dangerous socialist innovations.
Taft was tested almost immediately upon taking office. The progressive Republicans made an effort to unseat Joseph G. Cannon, the conservative Speaker of the House of Representatives. Taft, possibly in an effort to secure the powerful backing of Senator Nelson Aldrich, sided with Cannon against the progressives. Aldrich was powerful financially, being linked with J. P. Morgan and the Rockefellers. Taft might have believed (erroneously) that Aldrich's support was essential to secure the necessary reforms of the credit system after the serious weaknesses were exposed by the Panics of 1893 and 1907.
Soon afterwards, progressives in the Senate attempted to nullify the Aldrich amendments to the Payne tariff bill. Taft initially sided with the progressives, and then threw his support to Aldrich. After that, the president went on a speaking tour during which he sent such equivocal messages that the progressives became convinced that he had completely abandoned their cause. A contemporary political cartoon shows Taft supplicating a frowning Aldrich with folded hands and a whining, "Please, Mr. Aldrich!", while Roosevelt's portrait glares down, and the past president's "big stick" gathers cobwebs.
The "Ballinger Affair" (the "Pinchot-Ballinger Controversy") appeared to signal a definite change of heart on the part of Taft. Conservation of the country's natural resources and the national park system had been a primary concern of Roosevelt. Within weeks of taking office, Richard A. Ballinger, Taft's Secretary of the Interior, alienated three million acres of land set aside for conservation, returning them to private use. Taft had appointed Ballinger to replace Roosevelt's appointment, James Rudolph Garfield, son of James Garfield, the murdered president, soon after his inauguration. Conservationists took Garfield's removal as a clear sign that Taft was abandoning Roosevelt's policies.
Convinced that Ballinger intended to bring a halt to the conservation effort, Gifford Pinchot, chief of the United States Forest Service (a McKinley appointee), and other conservationists began efforts to have Ballinger removed from office. Earlier, Louis Glavis, Chief of the Portland, Oregon Field Division of the General Land Office, had accused Ballinger of improper interest in coal claim purchases in Alaska while Ballinger was Commissioner of the General Land Office, and claimed that Ballinger had interfered with investigations of coal claim purchases in Idaho.
While still Commissioner, Ballinger rejected Glavis's claims and removed Glavis from the investigation of possible anti-trust violations that implicated Ballinger. Pinchot arranged for Glavis to meet with Taft. Glavis detailed his findings in a fifty-page report to the president. Taft issued a letter exonerating Ballinger and authorizing Glavis's termination on the grounds of insubordination. At the same time, Taft tried to reassure Pinchot that his administration was fully committed to the cause of conservation.
Glavis went public, publishing an article, "The Whitewashing of Ballinger: Are the Guggenheims in Charge of the Department of the Interior?" (Colliers Weekly, November 1909.) In January of the following year Pinchot sent an open letter to Senator Jonathan P. Dolliver of Iowa, which was read into the Congressional Record. Pinchot, a personal friend of Roosevelt, praised Glavis's patriotism, rebuked Taft, called for an investigation — and was promptly fired.
Taft's final break with the progressives came in the Spring of 1910. A large number of progressive Republicans were coming up for reelection in the Midwest. The conservatives, headed by Aldrich, Cannon and Taft, mounted a well-funded campaign to prevent their re-nomination. The effort failed, and talk began among the progressives of forming a third party to challenge the Old Guard permanently.
In November of 1910 a secret meeting to discuss financial reform took place on Jekyll Island, Georgia. The meeting has entered conspiracy lore as the source of the proposal that led to the Federal Reserve System. The fact that the meeting was secret has assumed an importance far beyond its actual import. The reason for secrecy was to hide deliberations from the progressive Republicans.
Aldrich was by this time persuaded that he had Taft right where he wanted him — but had to step carefully as Taft (and Aldrich) still needed the support of the progressives to maintain power. Due to Taft's fumbling of the Ballinger Affair and the subsequent speaking tour, however, the progressives were hardly likely to be taken in. They were already on the warpath and were seeking more evidence (as if they needed any) of Taft's and the conservative's betrayal of Roosevelt's legacy.
And a betrayal it was. Fortunately, the "Aldrich Plan" that came out of the Jekyll Island meeting was never adopted. It had certain superficial similarities to the Federal Reserve Act, but there were a number of critical differences. The Aldrich Plan would have kept the money power centralized in the hands of a tiny elite in New York City. As Harold Moulton explained the relationship between the Aldrich proposal that came out of the meeting and the Federal Reserve Act of 1913,
"The task of framing a currency law was conceived as one of modifying the Aldrich bill in such a way as to meet the fundamental objections that had been raised to that measure and to perfect a banking organization that would provide the necessary centralization of power without vesting too much control in the hands of the "financial interests"; it was felt that a democratic spirit should pervade the organization and that it should be developed in accordance with the "genius of our institutions." The Democratic party thus reaped the fruits of the investigations that had been conducted by the National Monetary Commission and by other students of banking reform, as well as the advantage of the criticisms that had been made of the Aldrich bill; and especially it profited by the nation-wide discussion of the fundamental principles involved in banking reform. Great credit must, however, be given to the Democratic leaders for the efficient way in which the problem was handled and for the speed with which the bill was enacted into law." (Moulton, The Financial Organization of Society. Washington, DC: The Brookings Institution, 1930, 530-531.)
True, the Federal Reserve System enacted three years later conformed to the broad outlines of the Aldrich Plan, and several of the participants in the meeting took credit for being the guiding spirits of the central bank of the United States, but that was clearly an example of wishful thinking and self-glorification. As Moulton stated, "The Federal Reserve Act is an outgrowth of the Aldrich plan, though modified in numerous details and in some very important respects." As Moulton explained the Aldrich plan as the precursor to the Federal Reserve Act,
"The Aldrich plan, which was presented to Congress early in 1911, was discussed the country over perhaps more thoroughly than any other measure ever before Congress. The bill is generally conceded to have had many excellent provisions; many of them, indeed, subsequently became embodied in the Federal Reserve Act. But the prevalent distrust of Mr. Aldrich in consequence of his unsavory reputation on tariff matters, together with the fact that his proposal was undoubtedly a very strongly centralizing measure, made its enactment into law a political impossibility, especially after the coming of the Democrats to power in 1912." (Moulton, Principles of Money and Banking. Chicago, Illinois: The University of Chicago Press, 1916, II.261.)
The plan of the Federal Reserve System was based on the Reichsbank and the banks of the constituent states of the German Empire. This came from information gathered during Senator Aldrich's investigative trip to Europe in 1908, not anything that was developed at Jekyll Island. At most, all that the Jekyll Island meeting participants could in honesty claim credit for was the decision to use the Imperial German system as the model for the new central bank of the United States. As Moulton noted,
"The Federal Reserve Act is a substantial improvement over the Aldrich plan. It should be chronicled here that the Federal Reserve Act is not a mere plagiarism of the Aldrich plan. In certain fundamental respects the new law is markedly different from and markedly superior to the Aldrich plan . . . . Subject to a great deal of hostile comment by the financial and business press during the period of its discussion before Congress, after passage the law very quickly became recognized at its true worth as the most constructive piece of legislation that had ever been placed upon the American statute-books. For once, at least, a vitally important, though technical, question had been resolved into its fundamental issues through public discussion, and in this instance a measure emerging into law did represent the best constructive thinking of the nation." (Moulton, The Financial Organization of Society, op. cit., 531-532.)
That was to come, however. In the meantime, Taft and his new guides and mentors in the conservative faction of the Republican Party had to face the ire of Theodore Roosevelt, newly returned from Africa and Europe.
#30#
Monday, December 5, 2011
Orestes Brownson and Socialism, V: Progressivism, Continued
The Panic of 1893 and the ensuing Great Depression of 1893-1898 revealed serious flaws in the American financial system, flaws that caused the system to operate to the detriment of the non-rich. The National Bank system Salmon P. Chase established during the American Civil War had imposed an inelastic banknote currency on the country. This forced farmers and small businessmen into dependence on existing accumulations of savings to finance capital acquisition and development. This shut the great mass of people out of the phenomenal expansion of commercial, industrial and financial capital that characterized the latter half of the 19th century in the United States.
Only the Homestead Act of 1862 made capital available to the non-rich, and then only in the form of land. Further, developing the relatively small freeholds (a quarter section — 160 acres — in most cases) still relied almost exclusively on past savings for financing — and there was a serious problem. During this period accumulated savings were rapidly depleted. Cash money instead of credit instruments assumed an increasing role in the everyday consumer economy as production for market instead of subsistence farming became the norm. Cash was also required to repay loans taken out during the war when the currency was inflated and prices high. Prices were now falling in response to the elimination of war demand and the boom in production.
To make matters worse, the federal government pursued a policy of deflation of the paper currency. This was to reestablish parity with gold and restore the full faith and credit of the United States after the financial chaos of the Civil War. Chase was in large measure responsible for this, due to his decision to finance the Union war effort by emitting bills of credit (mortgaging future tax collections) instead of raising taxes immediately. Chase wanted to be president, and thus tried to avoid raising taxes until he could no longer avoid it. Money for the average consumer and small producer (usually the same people) was thus becoming increasingly scarce.
At the same time, the rich were able freely to finance the rapid growth of commercial, industrial and financial capital. The rich financed new capital principally by drawing bills of exchange, that is, creating money upon acceptance of their bills. These bills could either be used directly as money through acceptance in the channels of trade and commerce ("merchant's" or "trade" acceptances), or discounted and rediscounted at commercial banks ("banker's" acceptances).
The National Bank system made large scale discounting and rediscounting through the banking system a much safer alternative than in the "wildcat banking" days before the war. This is because the National Banks functioned as commercial banks for the rich as well as banks of deposit for the non-rich and banks of circulation for the federal government. By accepting bills of credit as backing for the National Bank Notes, the federal government circumvented its lack of a specific enumerated power under the Constitution to monetize its debt. (The provision allowing the federal government to emit bills of credit — the "constitutional" or government version of private sector bills of exchange — had been removed from the first draft of the Constitution over this very issue.) The federal and state governments also fostered rapid capital expansion by the rich with land grants, subsidies, and favorable tax treatment.
There was thus the supreme irony — due almost exclusively to the flawed financial system and reliance on existing accumulations to finance new capital formation for small owners — of there being a virtually unlimited supply of money and credit to finance immense production for a few. At the same time, the small producer — the consumer — was faced with a rapidly decreasing supply of money and credit. The result was an enormous increase in production just as the capacity to absorb that production was evaporating due to the decrease in capital ownership among the general population.
As the "free" land available under the Homestead Act ran out, increasing numbers of people were forced into wage system jobs. This was both for their subsistence and for the cash income required to keep the new economy running. Unlike today when consumers can delay the day of reckoning for consumer cash expenditures out of an inadequate wage income, sometimes for years at a time, by creating money by means of the expansion of consumer credit, and through access to State welfare, the propertyless worker of the 1890s had nothing other than wages to generate cash. When forced into unemployment, immediate homelessness and starvation were often only staved off by reliance on private charity, or by simply disappearing to escape debt — creating the popular image in American folklore of the "haunted house" from which the inhabitants had mysteriously vanished.
The response from the populist movement to the Panic of 1893 and the Great Depression was to demand that the government engage in a massive public works program to create jobs. "Coxey's Army" was the first popular demonstration on a national scale that demanded action by the federal government to create jobs and control commerce and industry. After a cross-country march, with some elements coming from as far away as California, remnants of the "army" camped out for months around Washington, DC, living off of charity until finally evicted by the police after accomplishing nothing.
Demands of Coxey's Army and others were similar to those of today, and would have been just as ineffective. Job creation would (allegedly) be financed either by inflating the National Bank Note currency (issuing more federal debt to back the new issues), or permitting "free coinage" of silver. This latter came to be called "silver socialism," as it would undermine private property by shifting purchasing power from creditors to debtors by basing the currency on cheap silver rather than expensive gold, lowering the value of the dollar and making it easier to settle debts.
A strong push was also made for an income tax to equalize the tax burden, the intent being to shift from the heavily regressive ad valorem ("value added") tariffs, sales and property taxes on producers passed through to consumers. An income tax was passed under the Wilson-Gorman Tariff Act of 1894 (ch. 349, §73, 28 Stat. 570) to make up for the anticipated fall in revenue from reducing the tariff, but was declared unconstitutional in 1895 (Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 158 U.S. 601).
Contrary to popular myth, the Supreme Court did not declare an income tax unconstitutional per se. The issue was whether an income tax is a "direct" or "indirect" tax. The Constitution did not allow any direct tax to be imposed unless apportioned among the states on the basis of population. This would be manifestly unjust, for a poor state with many inhabitants would pay more in taxes than a rich state with fewer inhabitants.
The 16th Amendment did not make the income tax constitutional. An income tax is, and always has been constitutional (Penn Mutual Indemnity Co. v. Commissioner, 32 T.C. 653 at 659 (1959)). What the 16th Amendment did was make it possible for Congress to impose a direct tax without apportionment among the states on the basis of population, thereby removing, not imposing, an injustice.
Largely through the efforts of William Jennings Bryan, the presidential campaign of 1896 was diverted from the need for a fundamental reform of the financial system to a focus on the currency. This was a fatal distraction at a critical time. Coin and banknotes (including the Treasury Notes of 1890 and gold and silver certificates) accounted for only 25% or less of the national money supply.
The bulk of the money supply in the 1890s was, as always, in the form of private sector bills of exchange. Acrimony over "the silver question" ensured that deeper problems were ignored. The problem seemed to have solved itself as the Great Depression ended with nothing other than superficial legislative action on the part of the federal government. This was only whitewashing the problem, however, for the acrimony remained, creating deep divisions in the country. As Dr. Harold G. Moulton related,
"With the return of great business prosperity the need of reforming the banking system appeared less pressing to our legislators, who at best perceived none too clearly the fundamental weaknesses inherent in the system. The return of the Republicans to power, coupled with the establishment of a gold standard, undoubtedly satisfied most congressmen that henceforth financial difficulties would be unknown." (Harold G. Moulton, Financial Organization and the Economic System. New York: McGraw-Hill Book Company, Inc., 1938, 343.)
Failure to reform the system led directly to the Panic of 1907. The Congressional committee formed in 1912-1913 under the leadership of Congressman Arsène Pujo of Louisiana to investigate the causes of the Panic determined that it had been caused by concentrated control over money and credit. Ironically, the Panic occurred at a time when Theodore Roosevelt, the acknowledged leader of the progressive movement who was in the middle of his second term, seemed unstoppable, and followed hard on the heels of legislation that, as noted, had been thought to make future panics and depressions impossible.
Appearances were deceiving. Roosevelt worked long and hard to lay the groundwork for sustainable reforms of the system that avoided the anti-property orientation of the now-decayed populist movement. The Old Guard Republicans who tended to view any limitation on their exercise of property as socialist were still extraordinarily powerful, however, and in control of Congress. At the same time, the remnants of the populist movement could still count on the hearts of many Americans, having been captured by the brilliant oratory and sterling personal character of William Jennings Bryan — at this time more powerful as a private citizen than many elected officials.
It is probably not an overstatement to say that only Theodore Roosevelt could have kept the vision of Orestes Brownson and America's Founding Fathers alive at this time. Bryan had the personal integrity and charisma to do the job, but his principles, while held with deep conviction, were not adequate. Bryan focused — apparently unconsciously — on undermining the natural rights of private property and freedom of association. This was through manipulation of the currency and a State-created money supply to guarantee results. This was, in effect, a sort of monetary Fabian socialism, justifying the label "silver socialist" applied to Bryan.
Roosevelt, just as charismatic and with fully as much integrity, managed to steer a middle course — a just third way — between the logical (if completely erroneous) insistence of the conservative Republicans that their exercise of property and liberty were absolute, and the emotional humanitarian insistence of the populist wing of the Democrats that liberty (freedom of association/contract) and private property must in all cases be subordinated to the demands of the majority.
Roosevelt's genius gave him an enormous power base among moderate Republicans and Democrats. Roosevelt's just third way, unfortunately, alienated him from the entrenched power centers. These were the radical Democrats who had a virtual monopoly on socialist rhetoric — the most vocal and emotional form of "people power" — and the conservative Republicans who monopolized the capitalist money power.
The conservative Republicans and the radical Democrats were both wrong, but in a way that made their errors particularly attractive to many people even today. Both camps lost sight of the fact that the right to be an owner is inherent — absolute — in each and every human being, but that the exercise of property is necessarily limited by the rights of other individuals and groups, and the common good as a whole. Similarly, the natural right of liberty is constrained by the requirement that no one can legitimately use his or her liberty to harm even him- or herself, other individuals or groups, or the common good as a whole. As Roosevelt would later summarize his position,
"Nothing is more true than that excess of every kind is followed by reaction; a fact which should be pondered by reformer and reactionary alike. We are face to face with new conceptions of the relations of property to human welfare, chiefly because certain advocates of the rights of property as against the rights of men have been pushing their claims too far. The man who wrongly holds that every human right is secondary to his profit must now give way to the advocate of human welfare, who rightly maintains that every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it." (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule. New York: Charles Scribner's Sons, 1926, 17.)
As Pius XI declared twenty years later,
"[T]win rocks of shipwreck must be carefully avoided. For, as one is wrecked upon, or comes close to, what is known as "individualism" by denying or minimizing the social and public character of the right of property, so by rejecting or minimizing the private and individual character of this same right, one inevitably runs into "collectivism" or at least closely approaches its tenets. Unless this is kept in mind, one is swept from his course upon the shoals of that moral, juridical, and social modernism which We denounced in the Encyclical issued at the beginning of Our Pontificate." (Pius XI, Quadragesimo Anno ("On the Restructuring of the Social Order"), 1931, § 46.)
As Roosevelt's second term came to a close, it appeared that matters were well in hand. Thanks to prompt emergency measures, the country stabilized after the Panic of 1907, and there was increasing agitation for lasting financial reform. The groundwork had been laid for a restoration of the natural law as understood by the Founding Fathers and embodied in the Constitution. Roosevelt's intelligent assessment of the hardening of the conflict between individualism/capitalism and collectivism/socialism and his energetic action (combined with the inherent decency of Bryan who refused to countenance violence and who gave Roosevelt credit when he felt it was due) had, to all appearances, saved the country from a second Civil War, this time between capitalism and socialism instead of two forms of capitalism.
The battle, however, was just beginning.
#30#
Only the Homestead Act of 1862 made capital available to the non-rich, and then only in the form of land. Further, developing the relatively small freeholds (a quarter section — 160 acres — in most cases) still relied almost exclusively on past savings for financing — and there was a serious problem. During this period accumulated savings were rapidly depleted. Cash money instead of credit instruments assumed an increasing role in the everyday consumer economy as production for market instead of subsistence farming became the norm. Cash was also required to repay loans taken out during the war when the currency was inflated and prices high. Prices were now falling in response to the elimination of war demand and the boom in production.
To make matters worse, the federal government pursued a policy of deflation of the paper currency. This was to reestablish parity with gold and restore the full faith and credit of the United States after the financial chaos of the Civil War. Chase was in large measure responsible for this, due to his decision to finance the Union war effort by emitting bills of credit (mortgaging future tax collections) instead of raising taxes immediately. Chase wanted to be president, and thus tried to avoid raising taxes until he could no longer avoid it. Money for the average consumer and small producer (usually the same people) was thus becoming increasingly scarce.
At the same time, the rich were able freely to finance the rapid growth of commercial, industrial and financial capital. The rich financed new capital principally by drawing bills of exchange, that is, creating money upon acceptance of their bills. These bills could either be used directly as money through acceptance in the channels of trade and commerce ("merchant's" or "trade" acceptances), or discounted and rediscounted at commercial banks ("banker's" acceptances).
The National Bank system made large scale discounting and rediscounting through the banking system a much safer alternative than in the "wildcat banking" days before the war. This is because the National Banks functioned as commercial banks for the rich as well as banks of deposit for the non-rich and banks of circulation for the federal government. By accepting bills of credit as backing for the National Bank Notes, the federal government circumvented its lack of a specific enumerated power under the Constitution to monetize its debt. (The provision allowing the federal government to emit bills of credit — the "constitutional" or government version of private sector bills of exchange — had been removed from the first draft of the Constitution over this very issue.) The federal and state governments also fostered rapid capital expansion by the rich with land grants, subsidies, and favorable tax treatment.
There was thus the supreme irony — due almost exclusively to the flawed financial system and reliance on existing accumulations to finance new capital formation for small owners — of there being a virtually unlimited supply of money and credit to finance immense production for a few. At the same time, the small producer — the consumer — was faced with a rapidly decreasing supply of money and credit. The result was an enormous increase in production just as the capacity to absorb that production was evaporating due to the decrease in capital ownership among the general population.
As the "free" land available under the Homestead Act ran out, increasing numbers of people were forced into wage system jobs. This was both for their subsistence and for the cash income required to keep the new economy running. Unlike today when consumers can delay the day of reckoning for consumer cash expenditures out of an inadequate wage income, sometimes for years at a time, by creating money by means of the expansion of consumer credit, and through access to State welfare, the propertyless worker of the 1890s had nothing other than wages to generate cash. When forced into unemployment, immediate homelessness and starvation were often only staved off by reliance on private charity, or by simply disappearing to escape debt — creating the popular image in American folklore of the "haunted house" from which the inhabitants had mysteriously vanished.
The response from the populist movement to the Panic of 1893 and the Great Depression was to demand that the government engage in a massive public works program to create jobs. "Coxey's Army" was the first popular demonstration on a national scale that demanded action by the federal government to create jobs and control commerce and industry. After a cross-country march, with some elements coming from as far away as California, remnants of the "army" camped out for months around Washington, DC, living off of charity until finally evicted by the police after accomplishing nothing.
Demands of Coxey's Army and others were similar to those of today, and would have been just as ineffective. Job creation would (allegedly) be financed either by inflating the National Bank Note currency (issuing more federal debt to back the new issues), or permitting "free coinage" of silver. This latter came to be called "silver socialism," as it would undermine private property by shifting purchasing power from creditors to debtors by basing the currency on cheap silver rather than expensive gold, lowering the value of the dollar and making it easier to settle debts.
A strong push was also made for an income tax to equalize the tax burden, the intent being to shift from the heavily regressive ad valorem ("value added") tariffs, sales and property taxes on producers passed through to consumers. An income tax was passed under the Wilson-Gorman Tariff Act of 1894 (ch. 349, §73, 28 Stat. 570) to make up for the anticipated fall in revenue from reducing the tariff, but was declared unconstitutional in 1895 (Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 158 U.S. 601).
Contrary to popular myth, the Supreme Court did not declare an income tax unconstitutional per se. The issue was whether an income tax is a "direct" or "indirect" tax. The Constitution did not allow any direct tax to be imposed unless apportioned among the states on the basis of population. This would be manifestly unjust, for a poor state with many inhabitants would pay more in taxes than a rich state with fewer inhabitants.
The 16th Amendment did not make the income tax constitutional. An income tax is, and always has been constitutional (Penn Mutual Indemnity Co. v. Commissioner, 32 T.C. 653 at 659 (1959)). What the 16th Amendment did was make it possible for Congress to impose a direct tax without apportionment among the states on the basis of population, thereby removing, not imposing, an injustice.
Largely through the efforts of William Jennings Bryan, the presidential campaign of 1896 was diverted from the need for a fundamental reform of the financial system to a focus on the currency. This was a fatal distraction at a critical time. Coin and banknotes (including the Treasury Notes of 1890 and gold and silver certificates) accounted for only 25% or less of the national money supply.
The bulk of the money supply in the 1890s was, as always, in the form of private sector bills of exchange. Acrimony over "the silver question" ensured that deeper problems were ignored. The problem seemed to have solved itself as the Great Depression ended with nothing other than superficial legislative action on the part of the federal government. This was only whitewashing the problem, however, for the acrimony remained, creating deep divisions in the country. As Dr. Harold G. Moulton related,
"With the return of great business prosperity the need of reforming the banking system appeared less pressing to our legislators, who at best perceived none too clearly the fundamental weaknesses inherent in the system. The return of the Republicans to power, coupled with the establishment of a gold standard, undoubtedly satisfied most congressmen that henceforth financial difficulties would be unknown." (Harold G. Moulton, Financial Organization and the Economic System. New York: McGraw-Hill Book Company, Inc., 1938, 343.)
Failure to reform the system led directly to the Panic of 1907. The Congressional committee formed in 1912-1913 under the leadership of Congressman Arsène Pujo of Louisiana to investigate the causes of the Panic determined that it had been caused by concentrated control over money and credit. Ironically, the Panic occurred at a time when Theodore Roosevelt, the acknowledged leader of the progressive movement who was in the middle of his second term, seemed unstoppable, and followed hard on the heels of legislation that, as noted, had been thought to make future panics and depressions impossible.
Appearances were deceiving. Roosevelt worked long and hard to lay the groundwork for sustainable reforms of the system that avoided the anti-property orientation of the now-decayed populist movement. The Old Guard Republicans who tended to view any limitation on their exercise of property as socialist were still extraordinarily powerful, however, and in control of Congress. At the same time, the remnants of the populist movement could still count on the hearts of many Americans, having been captured by the brilliant oratory and sterling personal character of William Jennings Bryan — at this time more powerful as a private citizen than many elected officials.
It is probably not an overstatement to say that only Theodore Roosevelt could have kept the vision of Orestes Brownson and America's Founding Fathers alive at this time. Bryan had the personal integrity and charisma to do the job, but his principles, while held with deep conviction, were not adequate. Bryan focused — apparently unconsciously — on undermining the natural rights of private property and freedom of association. This was through manipulation of the currency and a State-created money supply to guarantee results. This was, in effect, a sort of monetary Fabian socialism, justifying the label "silver socialist" applied to Bryan.
Roosevelt, just as charismatic and with fully as much integrity, managed to steer a middle course — a just third way — between the logical (if completely erroneous) insistence of the conservative Republicans that their exercise of property and liberty were absolute, and the emotional humanitarian insistence of the populist wing of the Democrats that liberty (freedom of association/contract) and private property must in all cases be subordinated to the demands of the majority.
Roosevelt's genius gave him an enormous power base among moderate Republicans and Democrats. Roosevelt's just third way, unfortunately, alienated him from the entrenched power centers. These were the radical Democrats who had a virtual monopoly on socialist rhetoric — the most vocal and emotional form of "people power" — and the conservative Republicans who monopolized the capitalist money power.
The conservative Republicans and the radical Democrats were both wrong, but in a way that made their errors particularly attractive to many people even today. Both camps lost sight of the fact that the right to be an owner is inherent — absolute — in each and every human being, but that the exercise of property is necessarily limited by the rights of other individuals and groups, and the common good as a whole. Similarly, the natural right of liberty is constrained by the requirement that no one can legitimately use his or her liberty to harm even him- or herself, other individuals or groups, or the common good as a whole. As Roosevelt would later summarize his position,
"Nothing is more true than that excess of every kind is followed by reaction; a fact which should be pondered by reformer and reactionary alike. We are face to face with new conceptions of the relations of property to human welfare, chiefly because certain advocates of the rights of property as against the rights of men have been pushing their claims too far. The man who wrongly holds that every human right is secondary to his profit must now give way to the advocate of human welfare, who rightly maintains that every man holds his property subject to the general right of the community to regulate its use to whatever degree the public welfare may require it." (Theodore Roosevelt, "The New Nationalism," Social Justice and Popular Rule. New York: Charles Scribner's Sons, 1926, 17.)
As Pius XI declared twenty years later,
"[T]win rocks of shipwreck must be carefully avoided. For, as one is wrecked upon, or comes close to, what is known as "individualism" by denying or minimizing the social and public character of the right of property, so by rejecting or minimizing the private and individual character of this same right, one inevitably runs into "collectivism" or at least closely approaches its tenets. Unless this is kept in mind, one is swept from his course upon the shoals of that moral, juridical, and social modernism which We denounced in the Encyclical issued at the beginning of Our Pontificate." (Pius XI, Quadragesimo Anno ("On the Restructuring of the Social Order"), 1931, § 46.)
As Roosevelt's second term came to a close, it appeared that matters were well in hand. Thanks to prompt emergency measures, the country stabilized after the Panic of 1907, and there was increasing agitation for lasting financial reform. The groundwork had been laid for a restoration of the natural law as understood by the Founding Fathers and embodied in the Constitution. Roosevelt's intelligent assessment of the hardening of the conflict between individualism/capitalism and collectivism/socialism and his energetic action (combined with the inherent decency of Bryan who refused to countenance violence and who gave Roosevelt credit when he felt it was due) had, to all appearances, saved the country from a second Civil War, this time between capitalism and socialism instead of two forms of capitalism.
The battle, however, was just beginning.
#30#
Friday, December 2, 2011
News from the Network, Vol. 4, No. 48
There are a number of very exciting things going on. Unfortunately, from a typical "news orientation" it's a little like reporting the grass growing. Yes, it's very important that the grass grow, and the results should be phenomenal, but do you really want to read about it, or (worse) watch it?
In this case — yes! The Just Third Way turns economics from "the dismal science" into something not merely hopeful, but an actual life (and economy) saver:
• On Monday of this week, Dr. Shelton A. Gunarate, professor of Mass Communications (emeritus) Minnesota State University, Moorhead posted a very good "outsider's" view of the Just Third Way on "Lankaweb," a forum for the latest news from and discussion on Sri Lanka. There are one or two things that are not quite from our perspective or orientation, but that's small stuff. The article is a good summary.
• Norman Kurland spoke on Tuesday at American University in Washington, DC. The talk was on "Islam and Occupy Wall Street: From Problems to Solutions." The talk was oriented toward the Just Third Way reforms as a way of meeting the demands of the "Occupiers," and showing how the principles of the Just Third Way are consistent with the major (and minor) religions of the world.
• Amazon has put up the "thumbnail" illustrations for the novels of John Henry Newman recently published by Universal Values Media, Inc., a small for-profit publisher that works with CESJ's publishing program. If anyone who has an internet bookstore and is interested in using book sales to raise funds for, e.g., schools and churches, please make contact with CESJ at "publications [at] cesj [dot] org with your needs, and we'll see if there's a fit.
• The latest CESJ publication, an annotated edition of William Thomas Thornton's A Plea for Peasant Proprietors, With the Outlines of a Plan for Their Establishment in Ireland (1848, 1874) went to the printers on Wednesday. Bulk orders (ten or more copies) should be available next week at $20 per copy plus shipping. To reserve copies in bulk, send an enquiry to "publications [at] cesj [dot] org." Be sure to say how many copies you want and a street address for shipping. We'll let you know how much the shipping will be by return e-mail, and you can place an order.
• Supporting Life: The Case for a Pro-Life Economic Agenda (2010) has been submitted as CESJ's entry into the Atlas Foundation's annual Sir Anthony Fisher International Memorial Award to honor outstanding publications produced by independent public policy research institutes that have made the greatest contributions to the public understanding of a free society.
• As of this morning, we have had visitors from 60 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia and Bulgaria. People in Australia, Venezuela, India, the United States and Slovenia spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Thomas Hobbes on Private Property," Orestes Brownson and Socialism, I: The Evil," "How Joe Lunchbucket Could Get Money for Capital Homesteading," and "The Political Animal, Part XIX."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
In this case — yes! The Just Third Way turns economics from "the dismal science" into something not merely hopeful, but an actual life (and economy) saver:
• On Monday of this week, Dr. Shelton A. Gunarate, professor of Mass Communications (emeritus) Minnesota State University, Moorhead posted a very good "outsider's" view of the Just Third Way on "Lankaweb," a forum for the latest news from and discussion on Sri Lanka. There are one or two things that are not quite from our perspective or orientation, but that's small stuff. The article is a good summary.
• Norman Kurland spoke on Tuesday at American University in Washington, DC. The talk was on "Islam and Occupy Wall Street: From Problems to Solutions." The talk was oriented toward the Just Third Way reforms as a way of meeting the demands of the "Occupiers," and showing how the principles of the Just Third Way are consistent with the major (and minor) religions of the world.
• Amazon has put up the "thumbnail" illustrations for the novels of John Henry Newman recently published by Universal Values Media, Inc., a small for-profit publisher that works with CESJ's publishing program. If anyone who has an internet bookstore and is interested in using book sales to raise funds for, e.g., schools and churches, please make contact with CESJ at "publications [at] cesj [dot] org with your needs, and we'll see if there's a fit.
• The latest CESJ publication, an annotated edition of William Thomas Thornton's A Plea for Peasant Proprietors, With the Outlines of a Plan for Their Establishment in Ireland (1848, 1874) went to the printers on Wednesday. Bulk orders (ten or more copies) should be available next week at $20 per copy plus shipping. To reserve copies in bulk, send an enquiry to "publications [at] cesj [dot] org." Be sure to say how many copies you want and a street address for shipping. We'll let you know how much the shipping will be by return e-mail, and you can place an order.
• Supporting Life: The Case for a Pro-Life Economic Agenda (2010) has been submitted as CESJ's entry into the Atlas Foundation's annual Sir Anthony Fisher International Memorial Award to honor outstanding publications produced by independent public policy research institutes that have made the greatest contributions to the public understanding of a free society.
• As of this morning, we have had visitors from 60 different countries and 50 states and provinces in the United States and Canada to this blog over the past two months. Most visitors are from the United States, the UK, Canada, Australia and Bulgaria. People in Australia, Venezuela, India, the United States and Slovenia spent the most average time on the blog. The most popular postings this past week were "It's the Academics v. the Politicians . . . v. Economic Reality, Part I: Accounting," "Thomas Hobbes on Private Property," Orestes Brownson and Socialism, I: The Evil," "How Joe Lunchbucket Could Get Money for Capital Homesteading," and "The Political Animal, Part XIX."
Those are the happenings for this week, at least that we know about. If you have an accomplishment that you think should be listed, send us a note about it at mgreaney [at] cesj [dot] org, and we'll see that it gets into the next "issue." If you have a short (250-400 word) comment on a specific posting, please enter your comments in the blog — do not send them to us to post for you. All comments are moderated anyway, so we'll see it before it goes up.
#30#
Guest Blogitorial: Real Change for the Better
By Dan Parker
With the dismantling of the original Occupy Wall Street encampment and others like it around the world, it is up in the air as to which way the movement will go. Hopefully, the protestors will work at creating viable alternatives to the present system, and move beyond media stunts that ignore property rights. Active 'occupy' participants are of course already doing this to some degree, but there needs to be much more work in this direction. As a starting point, the focus has to be more on the specifics of how our monetary and financial systems have led to today's problems. The first step in creating a viable solution is having detailed knowledge of the problem.
Although there will no doubt be some violence in the protests, including that sparked by agent provocateurs, it is likely the main thrust of the change movement will be peaceful. Given the increasing knowledge about how the money system really works among the protestors and general population alike, serious monetary reformers look to play an increasingly important role in the upcoming change. Many of these monetary reformers are not only accredited economists, they also have insider knowledge and experience working with the current system; sometimes at very high levels in both governmental institutions and private industry.
The experienced, accredited reformers have also thought long and hard about the problem, and offer many promising avenues for sustainable, peaceful change. The best way forward seems to be the solution offered by economists such as Norm Kurland. The concept is known as binary economics and has been under development for decades. Mr. Kurland also has a law degree, which is useful for incorporating the necessary legal framework around the new economic system.
Mr. Kurland was a close colleague for eleven years of Louis O. Kelso, author of binary economics and inventor of the Employee Stock Ownership Plan (ESOP). Collaborating with Kelso, he authored and lobbied the first and subsequent ESOP legislative initiatives in the U.S. Congress. Business Week magazine described Kurland as "the resident philosopher of ESOP in the capital." In 1985, President Reagan appointed Mr. Kurland as deputy chairman of the bipartisan Presidential Task Force on Project Economic Justice, to promote economic democratization through ESOP reforms in Central America and the Caribbean.
Robert Ashford is another champion of binary economics. He is a Professor of Law at the Syracuse University College of Law, in Syracuse, New York. He teaches subjects including Binary Economics, Business Associations, Corporations, Securities Regulation and Professional Responsibility. Ashford holds a J.D. with honors from Harvard Law School. He also holds a B.A. with majors in physics and English literature from the University of South Florida, where he graduated first in his class.
In Canada, Winnett Boyd unsuccessfully pushed to have binary economics adopted by the Progressive Conservative party in the 1970's. Boyd is perhaps best known for being the engineer in charge of the design of the Orenda jet engine, which powered the Avro Arrow among other jets. The Orenda was the most powerful jet engine in the world in the late forties and early fifties. In short, Boyd was a world beater when it came to solving complex problems. When Boyd was promoting binary economics in the early 1970's, it was presented as an improvement in an economy with little debt compared to today. In today's financial climate, binary economics could more be considered as a necessary development, rather than as just an improvement on the economy.
What is most promising about binary economics is that it proposes growing the economic pie to increase the productive wealth of the bottom 99%, without taking anything from the top 1%. In this way it is non-confrontational. The super-rich would remain free to do what they saw fit with their accumulated wealth. However, the trillions of dollars that are created from nothing each year by the private banks would be available for interest-free loans to each and every adult to acquire shares of productive property; instead of just the well connected. In essence, binary economics promotes a truly free-market type of capitalism; one with widespread ownership.
As Wikipedia relates "Binary economics is a theory of economics that endorses both private property and a free market but proposes significant reforms to the banking system. The aim of binary economics is to ensure that all individuals receive income from their own independent capital estate, using interest-free loans issued by a central bank to promote the spread of employee-owned firms. These loans are intended to: halve infrastructure improvement costs, reduce business startup costs, and widen stock ownership.
Binary economics is a minority discipline, hard to place on the left-right spectrum. It has variously been characterized as an extreme right-wing ideology and as extremely left-wing by its critics. The 'binary' (in 'binary economics') means 'composed of two' because it suffices to view the physical factors of production as being but two (labour and capital which includes land) and only two ways of genuinely earning a living _ by labour and by productive capital ownership. Humans are usually considered as owning their labour, but not necessarily the other productive factor — capital.
Binary economics is partly based on belief that society has an absolute duty to ensure that all humans have good health, housing, education and an independent income, as well as a responsibility to protect the environment for its own sake. The interest-free loans proposed by binary economics are compatible with the traditional opposition of the Abrahamic religions to usury. Binary Economics was proposed by American lawyer Louis Kelso in his book The Capitalist Manifesto (1958). The title of the book is best viewed as a thing of its time, being a Cold War reference in opposition to communism.
Employee Stock Ownership Plans (ESOPs) are compatible with some of the principles of binary economics and were sparked by some of the leading advocates. The idea stems originally from Louis Kelso & Patricia Hetter Kelso (1967) Two-Factor Theory: The Economics of Reality; and then from conversations in the early 1970s between Louis Kelso, Norman Kurland (Center for Economic and Social Justice), Senator Russell Long of Louisiana (Chairman, USA Senate Finance Committee, 1966 — 1981) and Senator Mike Gravel of Alaska. There are about 11,500 ESOPs in the USA today covering 11 million employees in closely held companies.
Binary economics also rejects conventional financial savings doctrine (that there must be financial savings prior to investment) — no financial saving is necessary if money is already being created out of nothing (Ed — only instead of being largely used for speculation by the 1%, it would go towards productive endeavours by the 99%). The theory asserts that what matters is whether the newly-created money is interest-free, whether it can be repaid, whether there is effective collateral and whether it goes towards the development and spreading of various forms of productive and the associated consuming capacity. Very fundamentally, binary economics rejects the claim of conventional economics that it promotes a 'free market' which is free, fair and efficient.
The two economics also differ on the subject of democracy. Conventional economics upholds the periodic political vote. Binary economics does the same but deepens democracy by arguing that productive capital would be more widely distributed too. In binary economics, freedom is only truly achieved if all individuals are able to acquire an independent economic base."
How the current protest movement shakes out will be interesting. There is no doubt a faction that relishes confrontation, rather than thoughtfully created alternatives. However, it is difficult to see these people as being in the majority, particularly in Canada. One reason for the relatively low levels of violence is no doubt the high standard of living in North America and Europe. However, even here, Canada with its history of largely peaceful evolution would seem poised to be a world leader in enacting needed fundamental financial changes.
Those who think tinkering with the existing system is a sustainable solution do not understand the basic math behind compound interest, or that general populations can only be fooled for so long. In a short ten years or so, awareness of the massive injustice inherent in our current money system has grown dramatically (along with the inevitable indebtedness that is mathematically guaranteed by compound interest). What is more, it is the young, internet savvy future leaders who are most aware of the reality of our current money system and its defects.
Futurist Alvin Toffler is enough of an insider that he has dined at the U.S. White House. In one of his books, he gave an astute assessment about the need for fundamental change. He wrote: "We are left with only one option. We must be willing to shape ourselves and our institutions to deal with the new realities. Much depends on the flexibility and intelligence of today's elites, sub-elites and super-elites. If these groups prove to be as short-sighted, unimaginative and frightened as most ruling groups in the past, they will resist the [needed change] and thereby escalate the risks of violence and their own destruction."
Other insider involvement in the occupy movement will likely play a large part in supporting the peaceful part of the protest. As usual, most mainstream media have conveniently overlooked the critical concept of who is really behind the occupy movement. Patrick Henningsen provided some enlightenment when he wrote in The Guardian that: "Although the global Occupy movement has branched out in an open-source way, many of its participants and spectators might be completely unaware of who actually launched it. Upon investigation, what one finds is a daisy chain of non-profit foundations, all tied together by hundreds of millions per year in operational funding. The original call for Occupy Wall Street came from non-profit international media foundation Adbusters. Like many non-profits, Adbusters receives its funding and operating capital from other behind-the-scenes organizations. According to research conducted by watchdog Activistcash, Adbusters takes a significant portion of its money from the Tides Foundation, an organization partnered with one of Wall Street billionaire oligarch George Soros's foundations, the Open Society Institute."
When one traces change initiatives to establishment figures like Soros, it is tempting to see the entire initiative as irredeemably compromised. However, many change agents have the astounding view that all the super-elites think alike. Personal experience and common sense would dictate otherwise. There are of course super-elite figures who are in support of needed fundamental change today, as has been the case throughout history.
How to bring the various change agents at all levels together behind a viable alternative to the present system is a tall order. Still, binary economics could be prototyped in one area, and a truly free market would see that it would take over from the less efficient conventional economics, and become the new norm. As economically independent individuals obtain income from automated production and are increasingly freed from 'busy work' by binary economics, there would be more and more ability to engage in the creative work necessary deal with the challenges of the future.
#30#
With the dismantling of the original Occupy Wall Street encampment and others like it around the world, it is up in the air as to which way the movement will go. Hopefully, the protestors will work at creating viable alternatives to the present system, and move beyond media stunts that ignore property rights. Active 'occupy' participants are of course already doing this to some degree, but there needs to be much more work in this direction. As a starting point, the focus has to be more on the specifics of how our monetary and financial systems have led to today's problems. The first step in creating a viable solution is having detailed knowledge of the problem.
Although there will no doubt be some violence in the protests, including that sparked by agent provocateurs, it is likely the main thrust of the change movement will be peaceful. Given the increasing knowledge about how the money system really works among the protestors and general population alike, serious monetary reformers look to play an increasingly important role in the upcoming change. Many of these monetary reformers are not only accredited economists, they also have insider knowledge and experience working with the current system; sometimes at very high levels in both governmental institutions and private industry.
The experienced, accredited reformers have also thought long and hard about the problem, and offer many promising avenues for sustainable, peaceful change. The best way forward seems to be the solution offered by economists such as Norm Kurland. The concept is known as binary economics and has been under development for decades. Mr. Kurland also has a law degree, which is useful for incorporating the necessary legal framework around the new economic system.
Mr. Kurland was a close colleague for eleven years of Louis O. Kelso, author of binary economics and inventor of the Employee Stock Ownership Plan (ESOP). Collaborating with Kelso, he authored and lobbied the first and subsequent ESOP legislative initiatives in the U.S. Congress. Business Week magazine described Kurland as "the resident philosopher of ESOP in the capital." In 1985, President Reagan appointed Mr. Kurland as deputy chairman of the bipartisan Presidential Task Force on Project Economic Justice, to promote economic democratization through ESOP reforms in Central America and the Caribbean.
Robert Ashford is another champion of binary economics. He is a Professor of Law at the Syracuse University College of Law, in Syracuse, New York. He teaches subjects including Binary Economics, Business Associations, Corporations, Securities Regulation and Professional Responsibility. Ashford holds a J.D. with honors from Harvard Law School. He also holds a B.A. with majors in physics and English literature from the University of South Florida, where he graduated first in his class.
In Canada, Winnett Boyd unsuccessfully pushed to have binary economics adopted by the Progressive Conservative party in the 1970's. Boyd is perhaps best known for being the engineer in charge of the design of the Orenda jet engine, which powered the Avro Arrow among other jets. The Orenda was the most powerful jet engine in the world in the late forties and early fifties. In short, Boyd was a world beater when it came to solving complex problems. When Boyd was promoting binary economics in the early 1970's, it was presented as an improvement in an economy with little debt compared to today. In today's financial climate, binary economics could more be considered as a necessary development, rather than as just an improvement on the economy.
What is most promising about binary economics is that it proposes growing the economic pie to increase the productive wealth of the bottom 99%, without taking anything from the top 1%. In this way it is non-confrontational. The super-rich would remain free to do what they saw fit with their accumulated wealth. However, the trillions of dollars that are created from nothing each year by the private banks would be available for interest-free loans to each and every adult to acquire shares of productive property; instead of just the well connected. In essence, binary economics promotes a truly free-market type of capitalism; one with widespread ownership.
As Wikipedia relates "Binary economics is a theory of economics that endorses both private property and a free market but proposes significant reforms to the banking system. The aim of binary economics is to ensure that all individuals receive income from their own independent capital estate, using interest-free loans issued by a central bank to promote the spread of employee-owned firms. These loans are intended to: halve infrastructure improvement costs, reduce business startup costs, and widen stock ownership.
Binary economics is a minority discipline, hard to place on the left-right spectrum. It has variously been characterized as an extreme right-wing ideology and as extremely left-wing by its critics. The 'binary' (in 'binary economics') means 'composed of two' because it suffices to view the physical factors of production as being but two (labour and capital which includes land) and only two ways of genuinely earning a living _ by labour and by productive capital ownership. Humans are usually considered as owning their labour, but not necessarily the other productive factor — capital.
Binary economics is partly based on belief that society has an absolute duty to ensure that all humans have good health, housing, education and an independent income, as well as a responsibility to protect the environment for its own sake. The interest-free loans proposed by binary economics are compatible with the traditional opposition of the Abrahamic religions to usury. Binary Economics was proposed by American lawyer Louis Kelso in his book The Capitalist Manifesto (1958). The title of the book is best viewed as a thing of its time, being a Cold War reference in opposition to communism.
Employee Stock Ownership Plans (ESOPs) are compatible with some of the principles of binary economics and were sparked by some of the leading advocates. The idea stems originally from Louis Kelso & Patricia Hetter Kelso (1967) Two-Factor Theory: The Economics of Reality; and then from conversations in the early 1970s between Louis Kelso, Norman Kurland (Center for Economic and Social Justice), Senator Russell Long of Louisiana (Chairman, USA Senate Finance Committee, 1966 — 1981) and Senator Mike Gravel of Alaska. There are about 11,500 ESOPs in the USA today covering 11 million employees in closely held companies.
Binary economics also rejects conventional financial savings doctrine (that there must be financial savings prior to investment) — no financial saving is necessary if money is already being created out of nothing (Ed — only instead of being largely used for speculation by the 1%, it would go towards productive endeavours by the 99%). The theory asserts that what matters is whether the newly-created money is interest-free, whether it can be repaid, whether there is effective collateral and whether it goes towards the development and spreading of various forms of productive and the associated consuming capacity. Very fundamentally, binary economics rejects the claim of conventional economics that it promotes a 'free market' which is free, fair and efficient.
The two economics also differ on the subject of democracy. Conventional economics upholds the periodic political vote. Binary economics does the same but deepens democracy by arguing that productive capital would be more widely distributed too. In binary economics, freedom is only truly achieved if all individuals are able to acquire an independent economic base."
How the current protest movement shakes out will be interesting. There is no doubt a faction that relishes confrontation, rather than thoughtfully created alternatives. However, it is difficult to see these people as being in the majority, particularly in Canada. One reason for the relatively low levels of violence is no doubt the high standard of living in North America and Europe. However, even here, Canada with its history of largely peaceful evolution would seem poised to be a world leader in enacting needed fundamental financial changes.
Those who think tinkering with the existing system is a sustainable solution do not understand the basic math behind compound interest, or that general populations can only be fooled for so long. In a short ten years or so, awareness of the massive injustice inherent in our current money system has grown dramatically (along with the inevitable indebtedness that is mathematically guaranteed by compound interest). What is more, it is the young, internet savvy future leaders who are most aware of the reality of our current money system and its defects.
Futurist Alvin Toffler is enough of an insider that he has dined at the U.S. White House. In one of his books, he gave an astute assessment about the need for fundamental change. He wrote: "We are left with only one option. We must be willing to shape ourselves and our institutions to deal with the new realities. Much depends on the flexibility and intelligence of today's elites, sub-elites and super-elites. If these groups prove to be as short-sighted, unimaginative and frightened as most ruling groups in the past, they will resist the [needed change] and thereby escalate the risks of violence and their own destruction."
Other insider involvement in the occupy movement will likely play a large part in supporting the peaceful part of the protest. As usual, most mainstream media have conveniently overlooked the critical concept of who is really behind the occupy movement. Patrick Henningsen provided some enlightenment when he wrote in The Guardian that: "Although the global Occupy movement has branched out in an open-source way, many of its participants and spectators might be completely unaware of who actually launched it. Upon investigation, what one finds is a daisy chain of non-profit foundations, all tied together by hundreds of millions per year in operational funding. The original call for Occupy Wall Street came from non-profit international media foundation Adbusters. Like many non-profits, Adbusters receives its funding and operating capital from other behind-the-scenes organizations. According to research conducted by watchdog Activistcash, Adbusters takes a significant portion of its money from the Tides Foundation, an organization partnered with one of Wall Street billionaire oligarch George Soros's foundations, the Open Society Institute."
When one traces change initiatives to establishment figures like Soros, it is tempting to see the entire initiative as irredeemably compromised. However, many change agents have the astounding view that all the super-elites think alike. Personal experience and common sense would dictate otherwise. There are of course super-elite figures who are in support of needed fundamental change today, as has been the case throughout history.
How to bring the various change agents at all levels together behind a viable alternative to the present system is a tall order. Still, binary economics could be prototyped in one area, and a truly free market would see that it would take over from the less efficient conventional economics, and become the new norm. As economically independent individuals obtain income from automated production and are increasingly freed from 'busy work' by binary economics, there would be more and more ability to engage in the creative work necessary deal with the challenges of the future.
#30#
Thursday, December 1, 2011
Orestes Brownson and Socialism, IV: Progressivism
The great struggle that Orestes Brownson saw for possession of the soul of the United States had its origin before the American Civil War. His concern for individual and social rights — as opposed to individual or social rights — make Brownson, to a great extent, a "proto-progressive." The progressive movement in American politics, an effort to return to the original founding principles of the American Republic, "officially" began in the late 19th century and reached its zenith under Theodore Roosevelt early in the 20th. The movement, however (weak as it seemed at times), had never been silenced, even by the growing conflict between capitalism and socialism that characterized the latter half of the nineteenth century in America.
Briefly, if somewhat inaccurately, described as a political movement in opposition to conservatism, progressivism was actually an effort to return America to its constitutional and philosophical roots. Progressivism was in contrast to both individualism/capitalism ("conservatism") and collectivism/socialism ("liberalism").
The period following the Civil War saw the rapid passing of the way of life described in Alexis de Tocqueville's Democracy in America. This is best summarized as having embodied the three principles of economic justice — participation, distribution and harmony — in the "four pillars of an economically just society," covered in the previous posting.
Still, the period before the Civil War was anything but halcyon, due principally to the abomination of chattel slavery. William Crosskey posited that the "power grab" by the Supreme Court that resulted in the decision in Scott v. Sandford in 1857 (the Dred Scott case), was the culmination of a decades-long effort to defend slavery. To accomplish this, the theory of "states rights" had been invented, and judicial review expanded far beyond what the Founders had ever intended.
Economically, Scott v. Sandford was a triumph of southern agrarian capitalism over northern industrial, commercial and financial capitalism. This undermined the natural law basis of the Constitution, and fostered the belief that socialism was the only alternative — viable or otherwise — to capitalism. It can be said that the southern agrarian capitalists found their position justified by the economic arguments best presented in David Christy's Cotton is King (1855). At the same time, the emotional presentation in Harriet Beecher Stowe's Uncle Tom's Cabin (1852) inspired the northern "socialist" humanitarians in their abolitionist crusade.
As we have already noted, the war itself was — in economic terms — a struggle between two forms of capitalism, a system depending on a twisting of the natural law. In a supremely ironic circumstance, the northern capitalists took as their justification socialist abolitionist arguments, while the southern capitalists (somewhat more consistently) twisted the natural law right of private property to justify theirs. In more fundamental terms, the war raised the question whether the country would be locked into a seemingly permanent struggle between individualism and collectivism, or whether it would return to what the Founders originally intended, purified of the taint of slavery.
With the passage of the 13th and 14th Amendments, it appeared as though the Founders' natural law orientation had won. The Homestead Act seemed to put the seal on the triumph of "Catholic" political philosophy and respect for the dignity of the human person by opening up near-universal access to the means of acquiring and possessing capital, at least in land.
Brownson, however, foresaw problems. There was, of course, the usual anti-Catholicism. This, however (especially in light of the courage shown by Catholic soldiers on both sides during the war), seemed to be fading. A greater concern, at least according to Brownson, was the growing power of northern capitalism, and the incentive it gave to socialism to oppose the abuses.
From a constitutional perspective, the greatest danger to the United States appeared in 1873 after Brownson published The American Republic. This was a number of lawsuits grouped together as "the Slaughterhouse Cases."
The story is complex, and we need not get into the details here. We only want to note that, according to William Crosskey's analysis, in the ruling in the Slaughterhouse Cases, the United States Supreme Court took the opportunity to nullify the 14th Amendment, which had been passed largely to overturn Scott v. Sandford. Despite the fact that the majority opinion seemed to favor "states rights," Crosskey noted that the opinion was so vaguely worded as to be completely meaningless. It could be — and was — used to make the 14th Amendment mean anything the Court wished, depending on the specific political goal sought.
Up through the 1940s, the precedent set by the Slaughterhouse Cases was used to justify the erosion of private property, especially in corporate equity. It formed the basis of the New Deal, and laid the groundwork for the rapid acceptance and spread of Keynesian economics.
The effort to counter the movement away from the natural law and return to the original intent of the Founders came to be known as "progressivism." While usually characterized as a late 19th and early 20th century movement, we can hypothesize that Brownson was, in a sense, a founder of the movement, and his magnum opus, The American Republic, as its manifesto of a sort.
The latter half of the 19th century was characterized by the struggle that Brownson seems to have anticipated. The more powerful northern capitalism grew, the stronger the socialist resistance became in response. Populism, especially in the west and the south, initially offered an alternative to socialism. The east, with its growing population of propertyless workers, tended more toward socialism.
As the "free land" available under the Homestead Act ran out, however, and the opportunities for small ownership disappeared, populism became increasingly socialist in tone. Ultimately, there was little to distinguish populism from socialism. This left the great mass of people propertyless and thus helpless before the growing power of both the government, and the industrial, commercial and financial power centers of the private sector.
A true understanding of the constitutional basis of the United States was rapidly fading. This had proceeded so far that, when Pope Leo XIII issued the "encyclical" Rerum Novarum ("On Labor and Capital") in 1891, capitalists took it as a defense of their position, while socialists insisted it really supported theirs. The thought that the encyclical is neither individualist nor collectivist, but political in the Aristotelian sense, rarely intruded into discussions then or now.
As a result, by 1900 the country was in serious danger. As described by Herbert Knox Smith, Commissioner of Corporations under Theodore Roosevelt and William Howard Taft, and a key man in the "trust busting" effort,
"In 1900 the surface of American life was, as it were, hardening, was growing less plastic. Dangerous division lines were opening from the pressures beneath, splitting the unity of the nation. The great trust movement was in full force, sweeping into a few hands special industrial privileges, the control of natural resources, and decisive advantages in transportation. Individual opportunity and the open highways of commerce were narrowing. Great corporations were considering themselves above the law, with the cynical but increasing concurrence of the public. A sinister atmosphere was gathering, menacing to American initiative and American ideals.
"These recognized inequalities, with the twisted standards which they implied, were moving strongly toward national disunity — that profound disunity which in a democratic people must result from confessed differences in privilege and opportunity." (Herbert Knox Smith, "The Great Progressive," introduction to Social Justice and Popular Rule, by Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xi.)
The failure of populism as an effective counter to capitalism left what amounted to a power vacuum among reform-minded citizens. This set the stage for a potential convulsion that could tear apart the nation as surely as slavery had forty years before. By what could only be described as a series of unforeseen circumstances (again, much too lengthy to relate here), however, Theodore Roosevelt was picked as William McKinley's vice president. The idea was both to bring into the Republican fold the reforming, progressive elements of the Republican Party and the more conservative Democrats who rejected William Jennings Bryan's "silver socialism," and to get the reforming Roosevelt shunted aside into a dead end office where he could do little to annoy the reactionary elements in the party.
The tragedy of McKinley's assassination in 1901 catapulted Roosevelt into the presidency at exactly the right time for the reform movement to gain a champion untainted with populism, socialism, or (especially) capitalist greed and corruption. McKinley, while honest, had been expected to carry out business as usual, which was why the party bosses had tried to make certain of his election. The country had only recently pulled itself out of the Great Depression of 1893-1898, apparently validating the refusal of the federal government to inflate the currency or intervene in any other way. (It was actually the combination of bumper crops in the U.S. and crop failures in Europe that brought the country out of the first Great Depression, just as World War II, not FDR's "New Deal" that brought the country out of the second Great Depression.) Only five years before the Supreme Court had ruled that the new income tax, as a direct tax levied without apportionment among the states on the basis of population, was unconstitutional, a decision that outraged the populists and socialists. The Republican Party was seen as catering to the demands of the rich, leaving the poor and downtrodden out in the cold. The road seemed clear for the ever-increasing concentration of ownership and control of industry, commerce and finance in fewer and fewer hands. "Don't rock the boat" might well have been the national slogan to replace "In God we trust."
Roosevelt, however, was a man consumed with reforming zeal — and the intelligence, energy and even the sense of humor needed to carry it through. Today's historians like to point out that Roosevelt's actual legislative accomplishments to carry out reforms were relatively few compared with those of Taft. The authorities tend to forget, however, that without Roosevelt to lead the way, there would have been little or no reforming legislation at all. Pioneers build few cities, but few cities are built without the pioneers to pave the way. As Herbert Knox Smith related, "In 1901, Colonel Roosevelt, with his seer's insight into Americans and American conditions, became President. He saw the danger, and with increasing clearness he framed the issues, speaking directly to the people." (Ibid., xi-xii.)
Throughout his first administration Roosevelt moved the Republican Party toward progressivism, emphasizing "trust busting," increased government oversight to stem the abuses of laissez faire capitalism, and a "square deal" for the average man. In these and other areas Roosevelt, while not a Catholic, seemed more in tune with Pope Leo XIII's view of the American political system expressed in the 1899 "Apostolic Letter" to Cardinal Gibbons, head of the American Church, Testem Benevolentiæ Nostræ ("Concerning New Opinions, Virtue, Nature and Grace, with Regard to Americanism"), than many Catholics. The high regard that Leo XIII exhibited for American civilization and the pope's recognition of its weaknesses was a virtual restatement of Brownson's position set forth in The American Republic.
(The Apostolic Letter is frequently misunderstood, even today, as a condemnation of the American political system. On the contrary, the letter is a virtual endorsement of the American system as a model for civil society. The dangers against which Leo XIII warned Cardinal Gibbons were those associated with applying American civil democratic principles to religious society, particularly in the determination of theological doctrines.)
Of particular note are the efforts of Judge Peter S. Grosscup in advancing progressive ideas in the area of widespread capital ownership, an absolute necessity in a program to secure a "square deal" — respect and support for essential human dignity. One of Roosevelt's "trust busters," Grosscup authored a series of articles in the early 20th century on the necessity of countering the rapid decay of small ownership of farms and businesses with small ownership of the large corporations — something in which G. K. Chesterton and Hilaire Belloc later concurred.
The problem with the proposals of Grosscup as well as Chesterton and Belloc was that all of them assumed the necessity of access to existing accumulations of savings to finance acquisition of existing or new capital. This locked them into what Louis Kelso and Mortimer Adler would later call the slavery of past savings. The effect was to restrict capital ownership either to a private wealthy elite to maintain the natural right of private property, or to the State through the abolition of private property to try and guarantee results instead of opportunity, usually through re-defining what "property" means.
Abolishing private property through re-definition (what John Maynard Keynes called "re-editing the dictionary") was made substantially easier in the United States as a result of the decision in the Slaughterhouse Cases. The vague decision (deliberately so, according to William Crosskey) made the status of "person" dependent on whatever a court might decide. The decision was also used to change the meaning of "property," as well as life and liberty (all inalienable rights of "persons"), making them subject to judicial whim or political expedience.
Past savings as the only source of financing for new capital for the non-rich was the shoal on which populism had been wrecked, turning it into just another form of socialism. It would now sink progressivism.
#30#
Briefly, if somewhat inaccurately, described as a political movement in opposition to conservatism, progressivism was actually an effort to return America to its constitutional and philosophical roots. Progressivism was in contrast to both individualism/capitalism ("conservatism") and collectivism/socialism ("liberalism").
The period following the Civil War saw the rapid passing of the way of life described in Alexis de Tocqueville's Democracy in America. This is best summarized as having embodied the three principles of economic justice — participation, distribution and harmony — in the "four pillars of an economically just society," covered in the previous posting.
Still, the period before the Civil War was anything but halcyon, due principally to the abomination of chattel slavery. William Crosskey posited that the "power grab" by the Supreme Court that resulted in the decision in Scott v. Sandford in 1857 (the Dred Scott case), was the culmination of a decades-long effort to defend slavery. To accomplish this, the theory of "states rights" had been invented, and judicial review expanded far beyond what the Founders had ever intended.
Economically, Scott v. Sandford was a triumph of southern agrarian capitalism over northern industrial, commercial and financial capitalism. This undermined the natural law basis of the Constitution, and fostered the belief that socialism was the only alternative — viable or otherwise — to capitalism. It can be said that the southern agrarian capitalists found their position justified by the economic arguments best presented in David Christy's Cotton is King (1855). At the same time, the emotional presentation in Harriet Beecher Stowe's Uncle Tom's Cabin (1852) inspired the northern "socialist" humanitarians in their abolitionist crusade.
As we have already noted, the war itself was — in economic terms — a struggle between two forms of capitalism, a system depending on a twisting of the natural law. In a supremely ironic circumstance, the northern capitalists took as their justification socialist abolitionist arguments, while the southern capitalists (somewhat more consistently) twisted the natural law right of private property to justify theirs. In more fundamental terms, the war raised the question whether the country would be locked into a seemingly permanent struggle between individualism and collectivism, or whether it would return to what the Founders originally intended, purified of the taint of slavery.
With the passage of the 13th and 14th Amendments, it appeared as though the Founders' natural law orientation had won. The Homestead Act seemed to put the seal on the triumph of "Catholic" political philosophy and respect for the dignity of the human person by opening up near-universal access to the means of acquiring and possessing capital, at least in land.
Brownson, however, foresaw problems. There was, of course, the usual anti-Catholicism. This, however (especially in light of the courage shown by Catholic soldiers on both sides during the war), seemed to be fading. A greater concern, at least according to Brownson, was the growing power of northern capitalism, and the incentive it gave to socialism to oppose the abuses.
From a constitutional perspective, the greatest danger to the United States appeared in 1873 after Brownson published The American Republic. This was a number of lawsuits grouped together as "the Slaughterhouse Cases."
The story is complex, and we need not get into the details here. We only want to note that, according to William Crosskey's analysis, in the ruling in the Slaughterhouse Cases, the United States Supreme Court took the opportunity to nullify the 14th Amendment, which had been passed largely to overturn Scott v. Sandford. Despite the fact that the majority opinion seemed to favor "states rights," Crosskey noted that the opinion was so vaguely worded as to be completely meaningless. It could be — and was — used to make the 14th Amendment mean anything the Court wished, depending on the specific political goal sought.
Up through the 1940s, the precedent set by the Slaughterhouse Cases was used to justify the erosion of private property, especially in corporate equity. It formed the basis of the New Deal, and laid the groundwork for the rapid acceptance and spread of Keynesian economics.
The effort to counter the movement away from the natural law and return to the original intent of the Founders came to be known as "progressivism." While usually characterized as a late 19th and early 20th century movement, we can hypothesize that Brownson was, in a sense, a founder of the movement, and his magnum opus, The American Republic, as its manifesto of a sort.
The latter half of the 19th century was characterized by the struggle that Brownson seems to have anticipated. The more powerful northern capitalism grew, the stronger the socialist resistance became in response. Populism, especially in the west and the south, initially offered an alternative to socialism. The east, with its growing population of propertyless workers, tended more toward socialism.
As the "free land" available under the Homestead Act ran out, however, and the opportunities for small ownership disappeared, populism became increasingly socialist in tone. Ultimately, there was little to distinguish populism from socialism. This left the great mass of people propertyless and thus helpless before the growing power of both the government, and the industrial, commercial and financial power centers of the private sector.
A true understanding of the constitutional basis of the United States was rapidly fading. This had proceeded so far that, when Pope Leo XIII issued the "encyclical" Rerum Novarum ("On Labor and Capital") in 1891, capitalists took it as a defense of their position, while socialists insisted it really supported theirs. The thought that the encyclical is neither individualist nor collectivist, but political in the Aristotelian sense, rarely intruded into discussions then or now.
As a result, by 1900 the country was in serious danger. As described by Herbert Knox Smith, Commissioner of Corporations under Theodore Roosevelt and William Howard Taft, and a key man in the "trust busting" effort,
"In 1900 the surface of American life was, as it were, hardening, was growing less plastic. Dangerous division lines were opening from the pressures beneath, splitting the unity of the nation. The great trust movement was in full force, sweeping into a few hands special industrial privileges, the control of natural resources, and decisive advantages in transportation. Individual opportunity and the open highways of commerce were narrowing. Great corporations were considering themselves above the law, with the cynical but increasing concurrence of the public. A sinister atmosphere was gathering, menacing to American initiative and American ideals.
"These recognized inequalities, with the twisted standards which they implied, were moving strongly toward national disunity — that profound disunity which in a democratic people must result from confessed differences in privilege and opportunity." (Herbert Knox Smith, "The Great Progressive," introduction to Social Justice and Popular Rule, by Theodore Roosevelt. New York: Charles Scribner's Sons, 1926, xi.)
The failure of populism as an effective counter to capitalism left what amounted to a power vacuum among reform-minded citizens. This set the stage for a potential convulsion that could tear apart the nation as surely as slavery had forty years before. By what could only be described as a series of unforeseen circumstances (again, much too lengthy to relate here), however, Theodore Roosevelt was picked as William McKinley's vice president. The idea was both to bring into the Republican fold the reforming, progressive elements of the Republican Party and the more conservative Democrats who rejected William Jennings Bryan's "silver socialism," and to get the reforming Roosevelt shunted aside into a dead end office where he could do little to annoy the reactionary elements in the party.
The tragedy of McKinley's assassination in 1901 catapulted Roosevelt into the presidency at exactly the right time for the reform movement to gain a champion untainted with populism, socialism, or (especially) capitalist greed and corruption. McKinley, while honest, had been expected to carry out business as usual, which was why the party bosses had tried to make certain of his election. The country had only recently pulled itself out of the Great Depression of 1893-1898, apparently validating the refusal of the federal government to inflate the currency or intervene in any other way. (It was actually the combination of bumper crops in the U.S. and crop failures in Europe that brought the country out of the first Great Depression, just as World War II, not FDR's "New Deal" that brought the country out of the second Great Depression.) Only five years before the Supreme Court had ruled that the new income tax, as a direct tax levied without apportionment among the states on the basis of population, was unconstitutional, a decision that outraged the populists and socialists. The Republican Party was seen as catering to the demands of the rich, leaving the poor and downtrodden out in the cold. The road seemed clear for the ever-increasing concentration of ownership and control of industry, commerce and finance in fewer and fewer hands. "Don't rock the boat" might well have been the national slogan to replace "In God we trust."
Roosevelt, however, was a man consumed with reforming zeal — and the intelligence, energy and even the sense of humor needed to carry it through. Today's historians like to point out that Roosevelt's actual legislative accomplishments to carry out reforms were relatively few compared with those of Taft. The authorities tend to forget, however, that without Roosevelt to lead the way, there would have been little or no reforming legislation at all. Pioneers build few cities, but few cities are built without the pioneers to pave the way. As Herbert Knox Smith related, "In 1901, Colonel Roosevelt, with his seer's insight into Americans and American conditions, became President. He saw the danger, and with increasing clearness he framed the issues, speaking directly to the people." (Ibid., xi-xii.)
Throughout his first administration Roosevelt moved the Republican Party toward progressivism, emphasizing "trust busting," increased government oversight to stem the abuses of laissez faire capitalism, and a "square deal" for the average man. In these and other areas Roosevelt, while not a Catholic, seemed more in tune with Pope Leo XIII's view of the American political system expressed in the 1899 "Apostolic Letter" to Cardinal Gibbons, head of the American Church, Testem Benevolentiæ Nostræ ("Concerning New Opinions, Virtue, Nature and Grace, with Regard to Americanism"), than many Catholics. The high regard that Leo XIII exhibited for American civilization and the pope's recognition of its weaknesses was a virtual restatement of Brownson's position set forth in The American Republic.
(The Apostolic Letter is frequently misunderstood, even today, as a condemnation of the American political system. On the contrary, the letter is a virtual endorsement of the American system as a model for civil society. The dangers against which Leo XIII warned Cardinal Gibbons were those associated with applying American civil democratic principles to religious society, particularly in the determination of theological doctrines.)
Of particular note are the efforts of Judge Peter S. Grosscup in advancing progressive ideas in the area of widespread capital ownership, an absolute necessity in a program to secure a "square deal" — respect and support for essential human dignity. One of Roosevelt's "trust busters," Grosscup authored a series of articles in the early 20th century on the necessity of countering the rapid decay of small ownership of farms and businesses with small ownership of the large corporations — something in which G. K. Chesterton and Hilaire Belloc later concurred.
The problem with the proposals of Grosscup as well as Chesterton and Belloc was that all of them assumed the necessity of access to existing accumulations of savings to finance acquisition of existing or new capital. This locked them into what Louis Kelso and Mortimer Adler would later call the slavery of past savings. The effect was to restrict capital ownership either to a private wealthy elite to maintain the natural right of private property, or to the State through the abolition of private property to try and guarantee results instead of opportunity, usually through re-defining what "property" means.
Abolishing private property through re-definition (what John Maynard Keynes called "re-editing the dictionary") was made substantially easier in the United States as a result of the decision in the Slaughterhouse Cases. The vague decision (deliberately so, according to William Crosskey) made the status of "person" dependent on whatever a court might decide. The decision was also used to change the meaning of "property," as well as life and liberty (all inalienable rights of "persons"), making them subject to judicial whim or political expedience.
Past savings as the only source of financing for new capital for the non-rich was the shoal on which populism had been wrecked, turning it into just another form of socialism. It would now sink progressivism.
#30#
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