Those Who Control the Past Control the Future
(posted by Roderick T. Long)
There’s a popular historical legend that goes like this: Once upon a time (for this is how stories of this kind should begin), back in the 19th century, the United States economy was almost completely unregulated and laissez-faire. But then there arose a movement to subject business to regulatory restraint in the interests of workers and consumers, a movement that culminated in the presidencies of Wilson and the two Roosevelts.
This story comes in both left-wing and right-wing versions, depending on whether the government is seen as heroically rescuing the poor and weak from the rapacious clutches of unrestrained corporate power, or as unfairly imposing burdensome socialistic fetters on peaceful and productive enterprise. But both versions agree on the central narrative: a century of laissez-faire, followed by a flurry of anti-business legislation.
Every part of this story is false. To begin with, there never was anything remotely like a period of laissez-faire in American history (at least not if “laissez-faire” means “let the market operate freely” as opposed to “let the rich and powerful help themselves to other people’s property”). The regulatory state was deeply involved from the start, particularly in the banking and currency industries and in the assignment of property titles to land. (Even such land as was not stolen from the natives was seldom appropriated in accordance with any sort of Lockean homesteading principle; instead, vast tracts of unimproved land were simply declared property by barbed wire or legislative fiat.)
The early republic’s two major political factions – to oversimplify a bit, call them the Jeffersonians (as represented by the Democrats) and the Hamiltonians (as represented successively by the Federalists, Whigs, and Republicans) – disagreed primarily about which forms of governmental interference to emphasise. To be sure, both side paid lip service (and sometimes more than lip service) to the “Principles of ’76,” i.e., the libertarian ideals enshrined in the Declaration of Independence; but each side quickly deviated from those principles when doing so served its economic interest. The Hamiltonians, whose chief base of support was in the urban financial centers of the northeast, called for mercantilist interventions such as subsidies, protectionist tariffs, and central banks; the Jeffersonians, whose chief base of support was rural, including the plantations and the frontier, called for state assistance in extracting labour from slaves and land from Native Americans. In each case the state ran roughshod over laissez-faire in the interests of a privileged elite.
To be sure, the Hamiltonians sometimes offered up good libertarian-sounding defenses of the rights of blacks and Indians, while the Jeffersonians offered up equally libertarian-sounding condemnations of mercantile privilege; but it’s relatively costless to take a stand against those violations of liberty of which your political opponents, rather than yourselves, are the primary beneficiaries.
But while 19th-century America was no free market, it was still too free-market for the corporate elite, who accordingly campaigned for government relief against “cut-throat competition.” As Adam Smith famously pointed out, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”; hence the perpetual mercantile quest for monopoly privilege.
One especially useful service that the state can render the corporate elite is cartel enforcement. Price-fixing agreements are unstable on a free market, since while all parties to the agreement have a collective interest in seeing the agreement generally hold, each has an individual interest in breaking the agreement by underselling the other parties in order to win away their customers; and even if the cartel manages to maintain discipline over its own membership, the oligopolistic prices tend to attract new competitors into the market. Hence the advantage to business of state-enforced cartelisation. Often this is done directly, but there are indirect ways too, such as imposing uniform quality standards that relieve firms from having to compete in quality. (And when the quality standards are high, lower-quality but cheaper competitors are priced out of the market.)
The ability of colossal firms to exploit economies of scale is also limited in a free market, since beyond a certain point the benefits of size (e.g., reduced transaction costs) get outweighed by diseconomies of scale (e.g., calculational chaos stemming from absence of price feedback) – unless the state enables them to socialise these costs by immunising them from competition – e.g., by imposing fees, licensure requirements, capitalisation requirements, and other regulatory burdens that disproportionately impact newer, poorer entrants as opposed to richer, more established firms.
The vast regulatory apparatus that emerged in the late 19th and early 20th centuries was thus specifically campaigned for by the business community. (This is documented for the “Progressive” era by James Weinstein’s Corporate Ideal in the Liberal State, Gabriel Kolko’s Railroads and Regulation and Triumph of Conservatism, and Murray Rothbard and Ronald Radosh’s New History of Leviathan; their finding are usefully summarised in Roy Childs’ article “Big Business and the Rise of American Statism.” Butler Shaffer’s In Restraint of Trade extends the analysis through the New Deal.) The supposedly pro-labour legislation that emerged from this area was also mostly bogus, a matter of co-opting labour leaders into a junior partnership with government and business in exchange for not rocking the boat.
That this should be so is not terribly surprising; wealthy, concentrated interests are inevitably going to have a greater impact on the political process than poorer and more dispersed ones. (Contrary to popular wisdom, which has the contrast gong the other way, it is only on the market, where the price system aggregates the preferences of the poorer and more dispersed, that the latter can systematically trounce the influence of business power.) What is more surprising is that such blatantly and thoroughgoingly pro-business legislation should have been perceived as anti-business.
But in the end this is not really all that surprising either. Of course these pro-business “reforms” had to be packaged as anti-business in order for the politicians and their corporate cronies to get away with them. Moreover, many of the instigators appear to have sincerely believed, on ideological grounds, that control of the economy by a government-business partnership was in the best interests of the general populace; and thanks to such partnerships’ disproportionate control of the means of information (media and public education), the rest of society could be brought to take a similar view. In addition, because business and government each always want to be the dominant partner, there was inevitably some grumbling in the business community about the precise way in which, for example, FDR advanced their shared corporatist agenda, and this likewise contributed to the misperception of fundamental antagonism. But the historical research cited above indicates that big business has been the chief architect and cheerleader for the regulations that are supposedly designed to restrain its power. Liberals who advocate further such regulations in order to combat plutocracy, and libertarians who leap to the defense of the poor embattled corporation, are equally misguided.
September 18th, 2008 at 11:35 pm
Great post. And, unfortunately, we can see history repeating itself. I expect the same sorts of New Deal-style regulations to be imposed to deal with the current crises, with the predictable pro-corporatist and anti-market results.
One question, though: Shouldn’t the following also apply to unions?
September 19th, 2008 at 6:41 am
I was watching season 2 of Heroes last night, and Claire’s love interest states (paraphrased) “the best lies are those that reflect badly on you.” That advice resonates with the way big business was able to paint its privileges as penalties for their prior excesses.
Much in the same way we see naked shorting being banned now that a lot of people in the financial industry have made fortunes using them - but don’t want others to be able to use naked shorts against their paper empires.
September 19th, 2008 at 10:09 am
I agree that the “popular historical legend” contains many inaccuracies, and that these inaccuracies can be used to unfairly disparage laissez-faire polices. But Roderick T. Long’s larger story arguably identifies other dynamics that can be fairly used to criticize laissez-faire policies:
First, there never was a golden era of laissez-faire polices. Thus, the idea that a society organized around such polices could endure is largely untested.
Second, and more importantly, powerful groups create and maintain the social order. Thus, any effort to promote laissez-faire policies – or any other policies – must begin with identifying or organizing a group with both the power and the self-interest in promoting such policies. Arguably the work of Wilson and the Roosevelts was necessary to create a countervailing force against the Robber Barons. Was the Progressive Era an unadulterated blessing? Perhaps not, but it was an adulterated blessing. I, for one, like antitrust laws and protection against the Pinkertons.
Similarly, I regard the Civil Rights Act of 1964 as abridging the free association rights of bigots. I also regard it as promoting many autonomy rights for ethnic minorities. Again, it’s not an unadulterated blessing; it’s an adulterated one.
I share Micha Ghertner’s view that unions engage in price-fixing, and that they tend to be unstable absent government intervention. I sense Micha Ghertner and I disagree about whether Progressive-Era policies including labor laws — and the corresponding rise of a moderately powerful middle class — has resulted in more or less efficient markets than a world governed by Robber Barons alone.
On a blog called The Art of the Possible, I expect people recognize how often the perfect becomes the enemy of the good. The Progressives strove for progress, not perfection.
September 19th, 2008 at 10:13 am
For what it’s worth, I’m not persuaded that the Declaration of Independence is really the pure expression of libertarianism that many people suggest. The text includes a list of grievances against George III, including many grievances about the King’s inaction:
September 19th, 2008 at 12:04 pm
Micha,
I think it would on a free market - but then again, we’ve never had such. Unions, when engaged in price fixing on an unfree market, are doing so in a direction that tends back towards t
September 19th, 2008 at 12:05 pm
sorry, last messge was clipped
…tends toward “natural” or free market, and therefore are probably likely to be more stable while the background imbalances are still present.
September 19th, 2008 at 12:54 pm
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September 19th, 2008 at 3:45 pm
i’m sure it was a typo, but radosh, not, william appleman williams, wrote a new history of leviathan.
September 19th, 2008 at 4:29 pm
w/rothbard obv.
i imagine william appleman williams (love that name) has written on the topic too. i’d like to pick something up by him. i had a hard time slogging through triumph of conservatism.
September 19th, 2008 at 10:03 pm
[...] Jump to Comments Roderick Long on the secret history of American [...]
September 20th, 2008 at 8:43 am
I’m not sure if I am more intelligent as a result of reading this post. I must say that I am better informed and perhaps I can more capably explain my intuitive feeling that regulations always seem to favor those who are (supposedly) being regulated.
As a second career I got my real estate license at the age of 55. To say that the industry is “regulated” is a joke. The regulation is by a board (consisting of Brokers) with an agenda that favors Brokers by placing the liabilities on the realtors. 30 or 40 years ago, getting a Broker’s license was similar to getting a driver’s license. Now (to become a Broker) there are classes and tests (similar to the realtor classes and tests that I took) that one takes after being a realtor for a minimum of 2 years. The avalanche of fees and requirements to become and remain a broker are merely intended to discourage new brokers.
This phenomena is repeated in all industries. This is but one of so many examples of the cozy relationship between government and business. Is it wrong? Perhaps it is wrong. Perhaps it is not. It is the way things are. Individuals have played the game and risen to the top of industries. The truly great individuals created industries and figured out the cozy relationship that their industry needed to create with the government. Or maybe someone in politics helped them understand how they could protect everyone’s interests with some new regulations?
September 20th, 2008 at 2:29 pm
Above, nobody.really asks if the Declaration of Independence was really the libertarian document it’s sometimes made out to be. The answer is no; you can read about this quite clearly in Gordon S. Wood’s _The Creation of the American Republic, 1776-1787_. The philosophical spirit behind the Declaration took its cues from the republics of ancient Greece and especially Rome (and consequently it’s now called republicanism, with a small r). Republicanism saw virtue as the key to a successful government: Virtue was sacrificing one’s own interests in order to advance those of society. The only people who were in a position to do that were the aristocracy (because they were the only ones who had the time to do anything other than try to survive), but the aristocracy was also wealthy enough to indulge in luxury. Luxury was seen as the polar opposite of virtue, and an excess of luxury was a sure omen of a doomed state.
As a consequence of this, there were attempts throughout the Revolutionary period to forbid luxury. Sometimes these were excise taxes or bans of luxury goods; other times, it was government confiscation and redistribution of property. Some even proposed making it be illegal to be too rich. Most of these proposals never came to fruition, but their very existence demonstrates that the Spirit of ‘76 was not libertarian. Libertarianism didn’t exist back then.
If anything, I think republicanism is more parallel to socialism. The Revolutionaries saw themselves as trying to make a new and better state, even a utopia, and they knew that they needed to fashion new and better people to make it work–specifically, people with more virtue. John Adams hoped for the creation of “a Christian Sparta”. When it didn’t work (and Wood catalogues all the many ways in which the state governments of the Confederation period failed to work), the initial response was not to adjust ideologies, but to redouble the calls for virtue.
Of course, republicanism also had an extreme distrust of centralized power; this, I think, is what really distinguishes it from socialism. Republicans constantly feared the emergence of a new Caesar (remember that they loved pretending to be Romans). Broadly speaking, the people who continued thinking like republicans eventually became Antifederalists and then Jeffersonians. But their legacy lives on in all of American politics today. Every time someone rails against “the rich”, they’re just reviving the Spirit of ‘76.
September 20th, 2008 at 6:20 pm
We’ve discussed the legitimacy of the American war of independence here before.
Was it really the case that the Federalists “offered up good libertarian-sounding defenses of the rights of blacks and Indians”? I thought those became controversial after their time.
September 20th, 2008 at 6:45 pm
I should have linked to Say You Want a Revolution in my first sentence.
September 22nd, 2008 at 9:41 am
Long writes:
“To begin with, there never was anything remotely like a period of laissez-faire in American history….”
True. America never lived up to the laissez-faire ideal anymore than it lived up to the “all men are created equal” ideal. So what?
The implication of Mr. Long’s post is that nothing has changed in the last century, we never really believed in laissez-faire and those of us that did were duped by clever insiders.
Much has changed however. Whereas we still believe in the motto “all men are created equal” and strive mightily to bring it to reality-some argue we are still failing- that is not the case with laissez-faire econmics. Very few today argue that laissez-faire is desirable or something we should be pursuing. There is a profound difference between a country that believes in something even though it fails to achieve its aspirations and a country that repudiates an idea as anachronistic at best. That is the difference between 19th and 20th century America with regard to laissez-faire.
No, Mr. Long, much has changed and we are the worse for it.
September 22nd, 2008 at 12:02 pm
[...] sehr interessanter Beitrag von Roderick Long auf “The Art of the Possible”: “Those who control the past control the future“. Darin räumt Long mit der irrigen Vorstellung auf, die USA seien im 19. Jahrhundert [...]
September 22nd, 2008 at 5:10 pm
[...] corporatism, and since the days of the South Sea Company, we’ve never really been without it. Corporations have always used their power to try to win favors from the government, while leaving all the rest of us still subject to the vicissitudes of the market. That’s the [...]
September 23rd, 2008 at 5:23 am
Really? Was there a point to that post? That was pitiful.
First, a lovely evisceration of a straw man, perhaps, but more an intellectually convenient phantom. Second, some historical digressions, which I’m assuming function as arguments against this phantom, though are eventually conceded as “not terribly surprising”.
Every part of that story is false because Long made it up. Thanks for the historical survey.
September 23rd, 2008 at 2:18 pm
[...] The Art of the Possible: There’s a popular historical legend that goes like this: Once upon a time (for this is how [...]
September 23rd, 2008 at 3:37 pm
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September 28th, 2008 at 7:50 pm
This was a fascinating post. However, it would be so much more enjoyable for me if there were footnotes supporting your claims. What you said was compelling, but without references it is difficult to accept at face value. I don’t mean to be disparaging, but there is good cause for cynicism in regards to punditry.
Tim
October 1st, 2008 at 7:29 pm
I disagree with your analysis. I think you are overy harsh on the Jeffersonians, as you call them, by giving them the responsibility for slavery and taking away land from native-americans. But your post does make me think.
Over on my blog I also posted a historical analysis- in mine I compare the financial crisis of today to Shays’ Rebellion. Take a look for a good read. It is more generalized than your post, but you might like it.
October 2nd, 2008 at 9:24 pm
[...] A Conservative Teacher: I disagree with your analysis. I think you are overy harsh on the Jeffersonians, as you call them, by giving them the responsibility for slavery and … [...]
October 10th, 2008 at 9:04 am
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October 11th, 2008 at 2:42 pm
Regulation and Big Business…
With all the talk of ‘more regulation’ that’s currently doing the rounds, I thought it would be very much worthwhile to re-emphasise the simple but often overlooked fact that regulation has historically been campaigned for by big business as a tool …