9. The National Civic Federation: Big Business Organized for Progressivism

At about the same time the nation acquired its first progressive President Theodore Roosevelt, various big business leaders decided to organize on behalf of the new concept, one which has in recent years been termed “corporate liberalism.” The nation was to be guided into the new path of a strong State, expanding, regulating, and governing all in behalf of a tripartite coalition led by Big Business, by means of Big Government, and creating Big Unionism as junior partner. Or rather, a quadripartite coalition, since economists and other intellectuals were needed to argue for and help plan the new system. How fitting, then, that the major big business-led organization for the new dispensation should itself include all four of these groups!1

1. The Origins: The Chicago Civic Federation

The National Civic Federation (NCF), the major organization for the new statism, was organized in 1900 by Ralph M. Easley, a former schoolteacher and journalist, and a self-styled conservative Republican. The NCF emerged out of the Chicago Civic Federation (CCF), which itself was launched in a blend of pietist reform, corporate statism, and high-level foreign influence.

The CCF began as the result of frenetic denunciations of vice, gambling, and prostitution in Chicago by the pietistic Englishman William T. Stead, editor of the distinguished London magazine Review of Reviews. The culmination of Stead’s agitation over sin in Chicago came at a mass meeting in the city’s Civic Center Club in November 1893, at which Stead hoped to establish a Chicago form of his “Civic Church,” a London group Stead had helped to organize. The November meeting selected an organizing committee, which in turn incorporated the Civic Federation of Chicago in early 1894. President of the new CCF was Lyman J. Gage, head of the First National Bank of Chicago, a man strongly in the Rockefeller ambit who was later to become Secretary of the Treasury in the McKinley administration. Secretary of the CCF and operating head was Ralph Easley. A majority of posts in the new CCF was held by a group of wealthy Chicago businessmen.2

Stead, the spiritual founder of the CCF, was a powerful figure in England as a religious reformer and editor, and even more so behind-the-scenes. A social reformer and ardent English imperialist, Stead was a disciple of the English art critic and social philosopher John Ruskin and was instrumental in bringing Ruskin’s young Oxford as well as Cambridge disciples together with an older Ruskinian, Cecil Rhodes. In early 1891, Rhodes and Stead had formed a secret society to spread the cause of social imperialism, the “Society of the Elect.” Rhodes was the leader, and Stead was on the executive committee, along with Alfred (later Lord) Milner. Other devotees of the circle included future Prime Minister Arthur (Lord) Balfour and the powerful investment banker, Lord Rothschild.3

The new CCF lost little time in plunging into political activity in Chicago. It pioneered in upper-class municipal “reform” efforts, which would later become so prominent during the Progressive Era. It drafted and pushed through expansion of civil service in Illinois. Various academics worked with the wealthy businessmen in the CCF, including Albion W. Small, University of Chicago sociology professor, and particularly Chicago political economy professor Edward W. Bemis, member of the five-man nominating committee of the Federation. Both Small and Bemis had been students of the formidable progressive economist Richard T. Ely, and both followed Ely enthusiastically into statism.

Very quickly, the well-organized CCF branched out into national affairs, holding four national conferences, one on American foreign policy in 1898. The most publicized and important conference held by the CCF — which led directly to the formation of the National Civic Federation — was the Chicago Conference on Trusts, held in 1899. Ralph Easley traveled across the nation mobilizing delegates and support for the conference. Indeed, the Conference took on semi-official status, since some governors, including Theodore Roosevelt in New York, were induced to send delegations to the Chicago Conference.

Most speeches at the Conference, spearheaded by progressive economists Jeremiah W. Jenks, Edward Bemis, and John R. Commons, asserted that the trust was here to stay and trusts needed to be regulated by government. Even the supposedly radical Democratic leader William Jennings Bryan, while more aggressively anti-business in rhetoric, ended by advocating a very similar program. The Conference also touched off the compulsory publicity agitation which marked the early days of the corporate reform movement.

So successful was the Chicago Conference on Trusts that the leadership of the CCF determined, by unanimous vote of the executive committee in September, 1899, to organize a national civic federation with Easley at the head, a task accomplished the following year. The more progressive and corporatist leaders then joined the new NCF while the more conservative, local-minded members continued to run the CCF.

2.  Organizing the NCF

Helping Easley organize the ambitious new NCF was Jeremiah W. Jenks, Oscar S. Straus of the New York department store family and later to become Secretary of Commerce and Labor under Theodore Roosevelt, and Samuel Gompers and John Mitchell of the AFL (the American Federation of Labor). Also on the Advisory Council of the new federation were Richard T. Ely, Bemis, Commons, the Columbia University economist E.R.A. Seligman of the powerful international banking family, and the intriguing Albert Shaw.

Shaw, a political scientist and a disciple of Ely, was later to be a leading advisor of Theodore Roosevelt, and he had spoken before the Chicago Conference on Trusts. As a leading magazine editor of The American Review of Reviews, Shaw lent the power of the press to the corporatist cause. When John D. Rockefeller came to launch his General Education Board, Albert Shaw became one of the trustees of the powerful new foundation. An interesting point about Shaw is that he became the long-time editor of the journal in 1891 when it was set up by William T. Stead, editor of the London Review of Reviews.

Easley’s success was marked and rapid, and very quickly official leadership of the new NCF was assumed by top Rockefeller ally Marcus A. Hanna as first president of the NCF, by Chicago utilities tycoon Samuel Insull, Chicago banker Franklin MacVeagh (later Secretary of the Treasury), Andrew Carnegie, and — inevitably — several partners of J.P. Morgan and Company. By 1903, the National Civic Federation included representatives of nearly one-third of all the 367 corporations worth more than $10 million, and it also included one-fourth of the largest railroads. George W. Perkins, Morgan’s main man in the political sphere, was prominent in the organization. August Belmont Jr., prominent Democrat and Rothschild agent in the U.S., was elected president of the NCF on Hanna’s death. At various times, the executive committee of the NCF also included such prominent politicians as ex-President Grover Cleveland, Roosevelt’s Attorney-General Charles J. Bonaparte, T.R.’s close friend Nicholas Murray Butler of Columbia University, T.R.’s Secretary of State Elihu Root, George B. Cortelyou, Roosevelt’s private secretary, later his Secretary of the Treasury, and finally president of Consolidated Gas, and Secretary of War under T.R. and then President William Howard Taft. It is clear, in short, that the NCF represented a coalition of top big business interests with the Morgans the most prominent, but with Rothschilds and Rockefellers also included.4

3.  The Clash over Unions

The union problem was a particularly sticky one for the NCF, for two major reasons: many businessmen were stubbornly laissez-faire and particularly were opposed to unionism, and unions scarcely existed, except in such non-competitive (between localities) industries as the building trades, the cartelized railroads, and in certain skilled crafts where unions could exclude competing labor. Overall, unions did not rise above a meagre 6% of the labor force until America’s entry into World War I, and they were usually well below that figure. But those unions that did exist were perfectly suited for the corporatist ideal: monopolistic craft unions grouped in the AFL unions which had abandoned the early radical socialism of the Knights of Labor, and were prepared to take their place in a corporatist order — a role that would be far greater than any they could possibly achieve in a free market.

And so, labor leaders played a prominent role in the National Civic Federation from the very beginning. Samuel Gompers, longtime head of the AFL, was first vice president of the NCF from its inception until his death in 1924. John Mitchell, head of the United Mine Workers, was chairman or co-chairman of the Trade Agreements Department of the NCF from 1904 to 1911. The heads of the railroad Brotherhoods, powerful craft unions in the railroad industry, were on the NCF executive committee.

The Trade Agreements Department was organized in 1904 to promote unionism among employer groups. It was jointly chaired for four years by Mitchell and a prominent employer, Francis L. Robbins of the Pittsburg Coal Company. The Department engineered union agreements with the New York clothing trades, the iron molders, the newspaper publishers and the Typographical Union, between Theatrical Managers and the Musicians Protective Association, the New York Metal Trades Association and the Boilermakers Union, bituminous coal operators and the struggling United Mine Workers, and U.S. Steel and the Metal Workers Union.

Many of the progressive big businessmen, however, while eager to foist corporatist unionism on the rest of the country, balked at dealing with unions in their own plants. Leading the parade favoring unions for everyone but themselves were men prominent in the Morgan ambit: George W. Perkins, Cyrus McCormick of International Harvester, and Judge Elbert Gary of U.S. Steel.

Typical was the fact that August Belmont Jr. was boosted vigorously as successor to Hanna as president of the NCF by the union leaders in the organization. Despite these cordial relations, Belmont refused to have anything to do with unions in his own Interborough Rapid Transit Company on the New York City subways.

Opposing the big-business-dominated NCF was the newly organized National Association of Manufacturers. Formed in 1895 as a small, low-profile group to promote foreign trade, the NAM was taken over in 1902 by an aggressive group of small businessmen in the Middle West, dedicated to free markets and hostility to labor unions. Revealingly, Easley condemned the NAM and like-minded capitalists as “anarchists”; he saw the NCF as a third way between radical socialism on the one hand and “anarchist,” free-market capitalism on the other. As Easley wrote to a supporter, “our enemies are the Socialists among the labor people and the anarchists among the capitalists.”5

For their part, the NAM leaders angrily saw the National Civic Federation as “part and parcel” of the AFL and as a proponent of “the most virulent form of socialism, closed shop unionism.” They also attacked the threat they saw in “socialized industry,” and they perceptively saw the NCF, as a later historian would sum it up, “as a conspiracy between the magnates and the unionists aimed directly at them.” As Professor Wiebe puts it, the threat of “big labor and big business combined horrified members of the NAM, who believed their future depended upon an economic fluidity which the recently formed trusts and the AFL would destroy.”6 Meanwhile, Ralph Easley was sneering at the NAM anti-union employers as small fry; they included “none of the great employers of labor representing basic industries, such as coal, iron and steel, building trades and railroads.”7

The conflict between the two groups was dramatized by the anti-union action taken by one of the leaders of the newly-constituted National Association of Manufacturers, James W. Van Cleave, head of the Buck’s Stove and Range Company of St. Louis. The Metal Polishers Union had struck the Buck’s Company for union recognition, and the AFL, in 1908, had organized a secondary boycott of the Buck’s Company in support of the strike. Van Cleve responded by filing suit to try and obtain an injunction against the boycott. At that point, Wall Street lawyer Alton B. Parker, Democratic presidential candidate in 1904 and later president of the NCF, became the defense counsel for Gompers, while much of the AFL defense was secretly financed by Andrew Carnegie, steel magnate in the Morgan ambit, who was also the NCF’s biggest contributor.8

4.  The Drive for Workmen’s Compensation Laws

If the pro-union attitude of the NCF offended anti-union employers, the Civic Federation’s increasing attention to promoting welfare and the welfare state after 1905 avoided such alienation. The Welfare Department of the NCF was founded in 1904 and took on an accelerating role by the following year. By 1911 it had 500 employer-members. Its task was to promote a voluntary paternalistic welfare program by the corporations toward their workers, promoting a sense of team spirit and a kind of feudalistic loyalty by the workers to the corporation. As Weinstein puts it, the approach of the Welfare Department “was to promote sympathy and a sense of identification between the employer and his employees by integrating the lives and the leisure time of the workers with the functioning of the corporation.”9

More important was the National Civic Federation’s push for welfare state measures. Particularly important was its leadership driving for workmen’s compensation laws. Under the sensible and cogent doctrine of the common law, employers were not liable for accidents to workers if: (a) other workers were responsible for the accident (the fellow-servant defense), (b) if the worker knew the risk and therefore could be held to have voluntarily assumed it (the assumption-of-risk defense), or (c) if the worker himself contributed to the accident by his negligence (the contributory negligence defense). In this period, labor unions did not favor workmen’s compensation laws; rather, they called for changing liability laws to make the employer liable when the worker himself did not contribute to the accident. By 1907, agitation had managed to pass such “employer liability” laws in 26 states. Most of these laws applied only to railroads, however, where unions were strongest, and limited only the fellow-servant, the weakest of the three employer defenses.

Progressive employers, in contrast, began moving in this period toward workmen’s compensation laws. From their point of view, these laws would confer several important benefits. First, they would forestall the threat of employer liability laws; the payments would be far less, and the costs would be spread among all the employers, not only those with the highest rates of accidents. Second, and more important, the taxpayers would be forced to pay a large proportion of the costs of compensation. In contrast, say, to voluntary insurance, the taxpaying public would be forced to pay for the bureaucracy of the regulatory commissions and to socialize the costs of accident insurance under state insurance plans. Third, the laws would impose high fixed costs for compliance and for accident prevention, which would fall with particular severity on smaller competitors. Hence, workmen’s compensation laws, in the name of humanitarianism and progress, would advance the cartelization of industry. Specifically in line with cartelization, such large firms, which had already instituted voluntary workmen’s compensation plans such as International Harvester and U.S. Steel, could now impose higher costs on their competitors by agitating for the government legislation. And fourth, for anti-union employers, workmen’s compensation would reduce benefits workers might expect from unions and lead them to look elsewhere.

Thus, at the annual 1911 meeting of the National Civic Federation, August Belmont Jr. announced that he had induced half a dozen major corporations, from Edison Electric and Otis Elevator to Ingersoll-Rand to come out for workmen’s compensation laws. Andrew Carnegie also endorsed the idea. The NCF frankly saw a major reason as the forestalling of any application of employer liability laws to manufacturing. In the meanwhile, the always far-sighted George W. Perkins stressed workmen’s compensation as part of a broad reach toward industrial cartelization. As Perkins explained at the 1909 annual meeting of the NCF, “Cooperation in business is taking and should take the place of ruthless competition.” To succeed, this “new order” must demonstrate that it is better for the laborer as well as for capital and the consumer.10

The NCF began its drive for workmen’s compensation in 1908, establishing an Industrial Insurance Commission with George W. Perkins as chairman. This commission was rather quiescent, however; the major drive was launched the following year when new president Seth Low appointed past-president August Belmont Jr. as head of a new Department on Compensation for Industrial Accidents and Their Prevention. From then on, the NCF was at the center of the movement for workmen’s compensation legislation. Among those involved in the NCF agitation were the prominent progressive reformer Louis D. Brandeis, active in the Massachusetts branch of the NCF, the vice president of Metropolitan Life Insurance Company, and a representative of the Sage Foundation Fund. At the 1909 annual meeting, workmen’s compensation was strongly defended by George M. Gillette, head of Minneapolis Steel and Machinery Company and president of the Minnesota Employers’ Association; Louis B. Schram, head of the labor Committee of the U.S. Brewers Association, and Major J.G. Pangborn of the Baltimore and Ohio Railroad. By 1909, too, the NCF had managed to convert Samuel Gompers and the AFL to the idea of compensation laws.

In the meanwhile, by 1910 the small manufacturers of the NAM had also been converted to workmen’s compensation. By the spring of 1911, journalist Will Irwin noted that the entire business community was now in favor of workmen’s compensation laws. The only remaining holdouts against this “scientific system,” he opined, were “a few old-time manufacturers who can see nothing but next year’s dollar.”11

The NCF proceeded to draw up model workmen’s compensation bills and to agitate for them on the state and federal levels. There were no state laws before 1909; but, as in so many other areas of statism in 20th-century America, President Roosevelt led the way by pushing a federal compensation act through Congress in 1908.

The actual drive for workmen’s compensation legislation was sparked by August Belmont Jr. Shortly after becoming head of the NCF Compensation Department in 1909, Belmont appointed a legal committee headed by P. Tecumseh Sherman, a conservative lawyer and former Commissioner of Labor in New York, to draw up a model bill. Sherman was particularly inspired by the German system of compulsory medical, old age, and accident insurance. Realizing that this comprehensive welfare state model could not be established in the United States all at once, he frankly called his proposed model state workmen’s compensation bill “a halfway measure — a mere entering wedge.”12 Completed by the spring of 1910, the model bill was sent to all state governors and legislators interested in the problem.

In contrast to the stereotype of older historians, the major opposition to the Sherman Bill within the NCF was from big businessmen urging Sherman to have the courage to be far more radical. One leading critic within the Federation was Raynal C. Bolling of U.S. Steel, who declared that workmen’s compensation should be nothing less than universal and compulsory (Sherman had extended it only to hazardous industries), and applied to agriculture and domestic work as well as manufacturing. Also leading an unsuccessful call for more radical legislation were George M. Gillette, head of the Minnesota Employers’ Association, and Hugh V. Mercer, a Minnesotan appointed to study workmen’s compensation in that state.

In 1909, New York became the first state to pass a compulsory workmen’s compensation law. After the NCF flooded the states with the model Sherman bill the following year, former-president Theodore Roosevelt addressed the annual meeting of the NCF and called for workmen’s compensation laws. During the year 1911, the number of state workmen’s compensation laws jumped from one to thirteen.

But a temporary hitch suddenly developed in the rapid march to Paradise. In the spring of 1911, the New York Court of Appeals in Ives v. South Buffalo Railway Co. unanimously held the compensation law to be unconstitutional, an assault on the common law and deprivation of property without due process. In many ways, the courts proved to be the last stronghold of the old laissez-faire order.

While the courts had outlawed compensation acts before without provoking much comment, times were now changing rapidly. Teddy Roosevelt led the howls of outrage, writing that the path of necessary “social reform” was being blocked. The progressive magazine Survey significantly and trenchantly noted that the court would not have struck down workmen’s compensation “if a board of broad gauge business men [with]... responsibility for vast property interests on their shoulders” had constituted the judges’ bench. Survey particularly pointed to the wise statesmanship in this matter of J.P. Morgan, E.H. Gary, Andrew Carnegie, and Jacob H. Schiff — all but the last solidly in the Morgan ambit, and the latter the head of Kuhn-Loeb. Sure enough, the Ives decision was promptly denounced by Sherman, the National Civic Federation, and by the redoubtable Francis Lynde Stetson, long-time Morgan lawyer and now attorney for Morgan’s International Harvester Company. The NCF called for Congress to pass federal compensation legislation.

Moving quickly and obediently to bury Ives, the New York State legislature in 1913 proposed a constitutional amendment to remove the protection of due process in the case of workmen’s compensation. In the former times, this drastic assault on private property would have caused a great furor; now it passed overwhelmingly both in the legislature and among the public. In December 1913, the Conference of New York State Republicans, led by the formidable Elihu Root, unanimously passed a resolution hailing the new amendment and trumpeting the new spirit of government intervention. “Changed and changing social and industrial conditions impose new duties on government,” the Republicans opined. The party must therefore “meet industrial and social demands of modern civilization.”13

Seeing the handwriting on the wall, other state courts began to ratify compensation legislation. By 1920, all but six states had workmen’s compensation laws in force, and the federal government had widened its coverage to all of its own employees.14

5. Monopolizing Public Utilities

Another aspect of progressive reform pushed by the NCF was the transformation of public utilities in the United States. The thrust here was to change from a roughly free market in utilities toward outright grants of monopoly privilege. The public utility — the gas, electric, or trolley franchises — was to be protected from competition and regulated by the state or municipality so as to provide a guaranteed, fixed rate of profit. For those lucky enough to obtain utility franchises, this seemed like paradise.

The NCF established a Commission on Public Ownership of Public Utilities in late 1905, ostensibly to engage in a scientific, impartial study of the public utility question and of the results of public ownership, which had become the prevalent system in Europe. The Commission was chaired by Melville E. Ingalls, chairman of the board of the Big Four Railroad, and its first vice-chairman was John Mitchell of the United Mine Workers. Other members of the executive committee of the Commission included Frank A. Vanderlip of the Rockefeller-oriented National City Bank, prominent investment banker Isaac N. Seligman, wealthy reformer Jacob Riis, Louis D. Brandeis, and utilities magnate Samuel Insull, who was previously affiliated with Thomas Edison and General Electric. It also included the leading progressive economist John R. Commons of the University of Wisconsin. Ingalls and Commons were featured in a tour of Britain and the U.S., studying public utilities. Finally, in 1907, the Commission issued a three-volume report, whose tone was set by Samuel Insull and whose views were close to that of the National Electric Light Association, the trade association of the electric utility industry. Public utilities were to be legal grants of monopoly, to be regulated by public utility commissions established by government. In contrast to the NELA, however, the NCF commission took no stand on municipal ownership.15

Insull had formed these views nearly a decade earlier, learning them from Chicago traction magnate Charles Tyson Yerkes. Yerkes, in the late 1890s, had a problem, his system of public utilities could, under state law, only receive monopoly franchises for 20 years’ duration, and hence one part or another of his utility empire had to have its franchise renewed every few years. Yerkes was willing and able to bribe city councilmen to keep renewing the franchises, but he found that he could not float long-term bonds for companies that might lose their monopoly status in a few years’ time.

Taking advantage of the election of a purchasable Republican governor, Yerkes managed to have introduced a series of bills in the 1897 Illinois legislature, which presaged Wisconsin progressivism by a decade. They would have extended all traction franchises by 50 years and removed control of transportation from city councils and transferred it to an expert, allegedly non-partisan state regulatory commission. This not only would have placed the mantle of science on monopoly privilege; it would, of course, have considerably reduced Charles Tyson Yerkes’ bribery costs.

While Yerkes’ bills presaged progressive reform, he came a cropper because of another aspect of the burgeoning progressive ethos that he had violated. A vital part of urban progressivism, as shall be seen further below, was a frenetic attack on the “corruption” of politicians, and it was the bribery issue that laid Yerkes low.16 Even such progressive business organizations as the powerful Chicago Civic Federation turned on Yerkes, and his measures went down to defeat.17

Learning from Yerkes’ abortive program and applying it to electric utilities, Samuel Insull launched progressivism in public utilities in his presidential address before the National Electric Light Association in June 1898. He urged his fellow electric utility magnates to get the industry regulated by state commissions with the full power to fix rates and the quality of service. In contrast to Yerkes’ bold grab for monopoly, Insull, more sensitive to public relations, stressed the government’s rate-making power rather than the attendant long-run monopoly franchise. Most of the utilities executives were shocked at this assault on laissez-faire, but Insull garnered a few supporters and appointed them to the association’s new Committee on Legislative Policy.

While the Committee languished for lack of support in the industry, Insull instructed the employees of his Chicago Edison and Commonwealth Electric companies in advertising and public relations, and established one of the first public relations departments in industry in 1901.

The threat of the municipal rate regulation and municipal ownership of public utilities, which had given rise to the NCF’s Commission study in 1905, provided an impetus for the eventual success of the regulated monopoly movement. The idea of municipal ownership of electric utilities had been launched in the 1880s and 1890s by electric equipment salesmen, who wanted electric power subsidized by the taxpayers, and gas companies, which wanted to stifle the growing competition of electricity by having it supplied by local governments. Municipal ownership grew after the mid-1890s and reached a peak in 1905–06 when interest yields were low and the municipal bond market was strong. Transportation companies were the principal area of government ownership, but public electric companies grew as well. From 1902 to 1907, the number of publicly-owned plants were growing at twice the rate of private electric plants. This was particularly true in the small cities; more than 80% of municipally-owned electric plants were in cities of less than 5,000 population.

In response to this trend, the National Electric Light Association was moved to establish a Committee on Municipal Ownership, which grew two years later into the Committee on Public Policy. The new Committee included Insull and most of the people on his earlier Legislative Policy Committee. The new Public Policy Committee lobbied energetically for state regulatory commissions, basing its propaganda on its own report of 1907, which paralleled the recommendations of the NCF Commission report of the same year. The NELA Public Policy Committee report stressed that the NELA should favor state commission regulation, with the power to control franchise, establish rates, and enforce a uniform system of accounting as well as making all pertinent information public — thus adding to the cartelization and decreasing competition in the utility industries. The Committee particularly stressed the threat of municipal ownership as the alternative, deliberately ignoring the third alternative of free competition and free markets.18

The municipal ownership threat died shortly thereafter, living long enough to act as a goal toward monopoly privilege. The Panic of 1907 drove up interest rates and shattered the municipal bond markets, especially for the weak smaller cities.19

The National Civic Federation was never content to stop at theory; theory, in the pragmatic progressive tradition, was to be the groundwork for political action. The NCF Commission report was used by Professor Commons, one of its authors, to draw up the Wisconsin public utilities law as part of Commons’ promotion of the “Wisconsin Idea” while working for Charles McCarthy’s Legislative Reference Bureau in that state. The progressives in Wisconsin pushed the law through in the spring of 1907, establishing the Wisconsin Railroad Commission and setting the model for the other states. Similar laws quickly followed in New York and Massachusetts. The result was the monopolization of the public utilities industry, the end of competitive “discriminatory” pricing, and the raising of rates. As Weinstein sums it up:

By 1909 many industry people had begun to look favorably on regulation by state commissions and to understand the advantages of taking utilities regulation out of politics. The underlying principles of the regulatory legislation supported responsible private ownership, and the experts appointed to the new commission were almost invariably conservative in that they did not question the framework of the utilities industry. The result, therefore, was to introduce stability in the industry and to “raise public morality” through the removal of discriminatory rates.20

Spearheading the NCF drive for state public utilities regulation was Emerson McMillin, banker and president and director of several gas, electric, and traction companies; collaborating with him was Teddy Roosevelt’s ex-secretary George B. Cortelyou, now head of Consolidated Gas of New York. When some utilities magnates balked at the possible effect of regulatory commissions on the floating of utilities bonds, McMillin shrewdly pointed out that state utilities commissions performed the valuable function of supervising utilities’ finances and their bond issues, both calculated to assist in the financing of public utilities.

By the fall of 1913, Ralph Easley was able to write to President Seth Low of the success of the drive for public utilities regulation. “Twenty five years ago,” he exulted “we would have regarded this as a species of socialism,” but now utilities are submitting, with many railways even embracing regulation, “joyfully in some cases.”21

6.  Regulating Industry

On the national level, the NCF, as might be expected, was close to President Roosevelt and his Bureau of Corporations. In its first annual report in 1904 the Bureau attacked the Sherman Antitrust Act and proposed that it be replaced by another kind of legislation, one that regulates trusts by eliminating “improper rebates, discrimination, and unfair combinations.” Each one of these proposed crackdowns was well calculated to cripple the most effective forms of competition and the market’s ability to break up cartels and monopoly.

The NCF leadership then moved to draw up proposed legislation along the Rooseveltian lines. Spurred by Melville E. Ingalls, chairman of the Big Four Railroad, and more especially by August Belmont Jr., the NCF first established a commission to rewrite the antitrust laws. But soon it concluded that more powerful and dramatic action was needed. Drawing on the CCF experience of the Conference on Trusts, the NCF called in Professor Jenks, steeped in the experience of organizing the previous conference. Before going ahead with the new conference, Easley won the unofficial but powerful blessing of President Roosevelt and his Secretary of Commerce and Labor Oscar Straus.

The NCF’s National Conference on Trusts and Combinations was held in Chicago in October, 1907. It drew 492 delegates from 147 delegations appointed by state governors, business and labor associations, and civic groups. Businessmen were in the overwhelmingly majority, seconded by a sprinkling of academics, politicians, and reformers. The revered president Nicholas Murray Butler of Columbia served as chairman and convenient front man. The Conference urged that railroads be permitted to enter into rate agreements, as recommended by the ICC and Roosevelt, that Congress establish a commission to amend the Sherman Act to regulate competition, establish federal licensing of corporations, and endorse trusts “in the public interest” (in short, Teddy Roosevelt’s “good trusts”), and that the Bureau of Corporations be empowered to require compulsory publicity from large corporations. It was a program designed to quicken the hearts of big corporations and the Roosevelt administration.

So delighted were Roosevelt and the Congressional leaders with the Conference proposals that they easily induced the NCF to draw up the required bill and not wait for any commission. Seth Low, new president of the NCF, established an informal committee of leading corporatists to draw up the desired bill for industrial regulation. It was truly a gathering of the eagles. Businessmen on the committee included among others Judge Gary, chairman of the board of U.S. Steel, Isaac N. Seligman and James Speyer, top New York investment bankers, the ubiquitous Morgan man, George W. Perkins, and August Belmont Jr. Labor leaders included Samuel Gompers and John Mitchell, while progressive academia was well represented by President Butler and Jeremiah W. Jenks; from the media there came the inevitable Albert Shaw. Also on the committee were Judge Alton B. Parker, who had made the disastrous Democratic run for the presidency in 1904, and Herbert Knox Smith, Roosevelt’s Commissioner of Corporations, representing the administration. Actually drawing up the bill were two formidable and also ubiquitous lawyers in the Morgan ambit: Morgan’s own attorney Francis Lynde Stetson and Victor Morawetz, counsel to the Atchison, Topeka and Santa Fe Railroad.

Working eagerly and at top speed, this formidable committee came up with a bill in February 1908, and it was approved by the NCF shortly afterwards. Working closely and approvingly with Stetson and Morawetz was Commissioner Smith. The NCF bill, obediently introduced into Congress by Representative William P. Hepburn, gave the Bureau of Corporations power to approve any corporate contract or merger in advance, thus lending a selective imprimatur of the federal executive to combinations, and to supervise and veto a host of daily operations of business firms. Unions were also to be exempt from the antitrust laws.

A firestorm of opposition descended upon Congress, however, from small- and medium-size businesses across the country. Organizations of such businesses, including the National Association of Manufacturers, the Merchants Association of New York, and the Board of Trade of New York, opposed the legislation. They objected not only to the pro-union provision but also to allowing the executive branch to pick and choose between good and bad corporate actions. The Roosevelt administration was forced to withdraw its support for the bill, and Perkins wrote to Smith that “if the opponents to Governmental supervision could only know how intelligently and how fairly you have worked for the very highest and best interests of American corporations, I am sure they would abandon their present attitude.” As Seth Low correctly wrote to the President, “the large interests, such as Judge Gary represents, are still loyally behind our bill. The objection comes from the mercantile element ...”22

It was time to regroup, and the NCF then turned to an alternative approach suggested by Ingalls and Andrew Carnegie to accomplish the same purpose by setting up a new interstate trade commission, to do for general business, as it was often put, what the ICC had already done for the railroads. The embryo of the Federal Trade Commission had come into being.23

7.    Allied Group: The American Association for Labor Legislation

If the National Civic Federation was an organization of corporatist big businessmen with a sprinkling of intellectual and academic allies, the American Association for Labor Legislation (AALL) was an organization of corporatist intellectuals financed by Big Business.

The AALL was a spinoff of the American Economic Association, which had originally been organized to foster the new spirit of statism among economists. The AALL was organized by a committee established at the 1905 annual meeting of the AEA, and its first annual meeting two years later was held in conjunction with the meeting of the economists’ association. First president of the AALL was the inevitable Richard T. Ely, and its long-time executive secretary was John B. Andrews, a research associate of Ely and John R. Commons, and a collaborator with Commons in various tomes on industry and labor.

The AALL worked the labor and “social welfare” end of the corporatist street. It was organized as a branch of the International Association for Labor Legislation and received a government subsidy from the Bureau of Labor Statistics to publish an English edition of the Bulletin of the International Labor Bureau.

As self-proclaimed “scientists,” AALL claimed not to take a partisan stand in economic or industrial conflicts, but it pretentiously asserted that its “only allegiance is to the general welfare.” As such, it supported uniform labor legislation among the states. In addition, a 1914 AALL national conference, including businessmen, state, and labor officials, agreed on the idea of stabilizing employment, on calling for state and federal unemployment agencies to provide tax-supported free employment service to workers and employers, and on the desirability of some form of compulsory unemployment insurance. The conference quickly inspired Governor Martin Glynn, Democrat of New York, to push through a bill establishing a state employment agency. In the following year, AALL called for a planned program of public works to relieve unemployment — a program well calculated, of course, to subsidize the construction industry.

In subsequent years, AALL drafted model bills pushing for employment agencies, workmen’s compensation, compulsory health insurance, increased safety legislation, a minimum wage unemploying marginal workers, and child labor laws, a “humanitarian” program outlawing the employment of minors and thereby freeing adult workers from their unwelcome and often successful competition. In 1916, Congress passed the Kern-McGillicuddy Bill, which had been drafted by AALL and which applied workmen’s compensation to federal employees.24

The idea behind the seemingly innocuous and merely “efficient” drive for uniform labor legislation, and also behind much of the push for workmen’s compensation and other social welfare measures, was to enable paternalistic employers, who had already established private welfare programs, to impose higher costs on their “non-socially conscious” competitors. As Eakins puts it:

A number of pieces of Progressive legislation were not only supported but also were, in a number of important instances, drafted by [enlightened] businessmen. These men, many of them “corporate liberals,” could support some regulation on the grounds that a uniform application of the laws by the states or the federal government would permit the socially conscious employer to compete on an even footing with the individualistic cost-cutting employer. There would be no room for “unscrupulous” [i.e., successfully competitive] employers.

He goes on with a candid quote from the New York Branch of AALL in 1910: “To set limits to this competition, to establish standards in law which it cannot overcome, and thus to put an end to the process of exploitation are the meaning and purpose” of the AALL.25

AALL included the standard business-politician mix, but with a broader spectrum of statist intellectuals than the NCF. A particularly important politician was Woodrow Wilson, while Governor of New Jersey and later while president; Wilson was an officer of AALL for five years. Wilson’s Secretary of Commerce, businessman William Redfield, was also active in the AALL. Unionists Gompers and Mitchell were also in AALL. Corporatist intellectuals included such NCF stalwarts as Ely, Commons, and Jenks, and AALL published a book by Jenks (1910) on Governmental Action for Social Welfare. NCF consultant Henry R. Seager, professor of political economy at Columbia, was a three-term president of AALL, and in his AALL-published work, Social Insurance, A Program of Social Reform (1910) Seager set forth much of the basic AALL doctrine. He called for “an aggressive program of governmental control and regulation” on behalf of the “common welfare.” The idea of freedom from government interference is obsolete, Professor Seager thundered, and must be replaced by active government promotion of the common welfare. His ideal was the compulsory state insurance plans for accident, disease, and unemployment modelled after Europe. Three years earlier, Seager had pioneered in proposing a uniform minimum wage law.26

A major difference from NCF is that AALL included a raft of frankly leftist and socialist intellectuals; its spectrum of statist and collectivist intellectuals was considerably broader than NCF. This included socialists such as Florence Kelley, Victor Berger, W.D.P. Bliss, and Robert Hunter.

Corporatist big business control remained secure, however. Officers of AALL included corporate liberal financiers and industrialists like the Bostonian Edward A. Filene, and Charles M. Cabot, Gerard Swope of General Electric and investment banker Isaac Seligman. Financers of AALL included such financial notables as Judge Elbert Gary of United States Steel, Mrs. Madeline Astor, John D. Rockefeller, Anne Morgan, daughter of J.P., and the Kuhn-Loeb-connected banker Felix Warburg.

Big business support and control of AALL demonstrates the fallacy of the traditional sharp separation by historians of progressives into “business moderates” and “radical intellectuals.” In actuality, there was no genuine separation, but rather an interpenetration, a happy collaboration between big business supporters and intellectuals, whether moderate or radical corporatist, marching hand-in-hand into the New Order.27

• 1[Editor’s footnote] Rothbard here is alluding to the famous rebirth of the “Alliance of Throne and Altar,” which occurred between progressive economists and government in the early 20th century. During the Progressive Era, big business turned to big government in order to cartelize, and both in turn needed planners to sell their interventions to the public and convince them that government sponsored monopolies were not being created. Instead of saying that the king was divine, the new court apologists said big government was necessary to improve welfare. In return, the collectivist intellectuals would benefit from the power and prestige of planning the new system, which was more lucrative than what existed in a laissez-faire regime. The secularization of the Alliance and the transformation of economists during this time from laissez-faire philosophers to activist government planners was heavily related to the fact that many Yankee postmillennial pietist reformers went to Bismarck’s Germany to get their Ph.D.s and became instilled with German socialism and centralization. See Chapters 11 and 13 below, pp. 333–30, 420–61; Murray Rothbard, “The Anatomy of the State” in Egalitarianism as a Revolt Against Nature and Other Essays (Auburn, AL: Mises Institute, 2000 [1965]), pp. 61–64; For a New Liberty, pp. 67–77; James Gilbert, Designing the Industrial State: The Intellectual Pursuit of Collectivism in America, 1880–1940 (Chicago: Quadrangle Books, 1972); Frank Tariello, Jr., The Reconstruction of American Political Ideology, 1865–1917 (Charlottesville: University Press of Virginia, 1981). 
• 2On the Chicago Civic Federation, see David W. Eakins, “The Development of Corporate Liberal Policy Research in the United States, 1885–1965,” (doctoral dissertation in history, University of Wisconsin, 1966), pp. 60–66.
• 3See Carroll Quigley, The Anglo-American Establishment: From Rhodes to Cliveden (New York: Books in Focus, 1981), pp. 33–40. [Editor’s remarks] In the early 1910s, this organization would establish Round Table groups in Britain, the U.S., and other countries. The U.S. branch would later be involved in setting up the highly influential and Morgan-dominated Council on Foreign Relations. See Chapter 13 below, pp. 447–48, Rothbard, Wall Street, Banks, and American Foreign Policy, pp. 39–32; Griffin, The Creature from Jekyll Island, pp. 270–74.
• 4[Editor’s footnote] James Weinstein, The Corporate Ideal in the Liberal State, 1900–1918 (Boston: Beacon Press, 1968), pp. 8–11; Burch, Elites in American History, pp. 135, 156, 166, 170, 184.
• 5Easley to Joseph L. Bristow, July 17, 1909. In Weinstein, The Corporate Ideal in the Liberal State, p. 11. [Editor’s footnote] Ibid., pp. 5–15.
• 6Robert H. Wiebe, Businessmen and Reform: A Study of the Progressive Movement (Cambridge, MA: Harvard University Press, 1962), p. 31.
• 7Weinstein, The Corporate Ideal in the Liberal State, p. 16.
• 8Van Cleave won a temporary injunction against the AFL secondary boycott in the federal courts, but two years later the Supreme Court reversed. Bucks was one of the few cases where the courts enjoined peaceful persuasion rather than the use of union violence. See Sylvester Petro, “Injunctions and Labor Disputes, 1880–1932, Part I,” Wake Forest Law Review 14 (June, 1978): 485, 488, 550.
• 9Weinstein, The Corporate Ideal in the Liberal State, p. 19.
• 10Ibid., pp. 41–47.
• 11Ibid., pp. 47–51.
• 12Ibid., p. 52.
• 13Weinstein, The Corporate Ideal in the Liberal State, pp. 55–56, 58, 61. 
• 14[Editor’s footnote] For more on workmen’s compensation laws, see Price Fishback and Shawn Kantor, A Prelude to the Welfare State: The Origins of Workers’ Compensation (Chicago: University of Chicago Press, 2000). For a similar analysis of the motivations behind the Social Security System, in which larger businesses tried to saddle their smaller competitors with a costly pension system, see Chapter 11 below, pp. 356–60.
• 15[Editor’s footnote] Weinstein, The Corporate Ideal in the Liberal State, pp. 24–25.
• 16[Editor’s footnote] Rothbard planned to elaborate on the de-democratization described earlier in Chapter 6 (pp. 196–97) and tie it in with the urban municipal reform movement. This movement was driven largely by upper-class pietist businessmen and professionals to take various elected “party machine” positions out of politics and replace them with centralized bureaucratic commissions of experts shielded from voters. Far from being championed by the poor and middle classes, this drive was seen as weakening ethnic-liturgical power in politics by removing local ward influence on the political structure. See Chapters 10, 11, and 13 below, pp. 302–08, 318–20, 323, 440–41; Weinstein, The Corporate Ideal in the Liberal State, pp. 92–116; Samuel P. Hays, “The Politics of Reform in Municipal Government in the Progressive Era,” The Pacific Northwest Quarterly 55, no. 4 (1964): 157–69; Murray Rothbard, “H.L. Mencken: The Joyous Libertarian,” The New Individualist Review (Summer 1962): 24; Murray Rothbard, “Historical Origins,” in The Twelve Year Sentence, William F. Rickenbacker, ed. (San Francisco, CA: Fox & Wilkes, 1999 [1974]), pp. 20–25.
• 17Forrest McDonald, Insull (Chicago: University of Chicago Press, 1962), pp. 84–88.
• 18[Editor’s footnote] For evidence on the relative effectiveness of competition in providing gas, a public utility, to Chicago before government restrictions in the late 1890s, see Werner Troesken, Why Regulate Utilities? The New Institutional Economics and the Chicago Gas Industry, 1849–1924 (Ann Arbor: University of Michigan Press, 1996), pp. 25–53. For more on Samuel Insull and public utilities regulation, see Robert L. Bradley, Jr., Edison to Enron: Energy Markets and Political Strategies (Salem, MA: M&M Scrivener Press, 2011), pp. 19–221, 493–522.
• 19See McDonald, Insull, pp. 113–21.
• 20Weinstein, The Corporate Ideal in the Liberal State, pp. 25–26. See also the similar estimate of Balthasar H. Meyer, president of the Wisconsin Railroad Commission, in 1909. The industry pushing for utilities regulation in this period was invariably the electric utility industry; other utilities tended to oppose regulation. See McDonald, Insull, p. 121.
• 21Weinstein, The Corporate Ideal in the Liberal State, pp. 34–35. [Editor’s remarks] For more on the origins of public utilities, see Thomas J. DiLorenzo, “The Myth of Natural Monopoly,” Review of Austrian Economics 9, no. 2 (1996): 43–58. As DiLorenzo, borrowing from Rothbard, points out, one of the main problems with “public utilities” is that they occur on public, and not private, streets, which interferes with the ability of entrepreneurs to effectively engage in economic calculation.
       Of course, in so called “natural monopolies” earning profits, as with all goods, there is always competitive pressure from other potential innovative producers of substitute products. Cost-price and franchise regulation leads to inefficient and cumbersome firms unable to quickly change when their costs change, reduces rivalrous innovation, incentivizes firms to “transfer” some of their profits into costs, and invites regulatory capture. Moreover, it neglects the fact that a firm’s costs and therefore prices are not objectively available to the regulator, but must be appraised and discovered by the entrepreneur.
• 22See Weinstein, The Corporate Ideal in the Liberal State, pp. 77–82. For the preceding Conference on trusts in 1907, see ibid., pp. 73–76. Also see Kolko’s account in The Triumph of Conservatism, pp. 129–38. Kolko lays exclusive emphasis for Roosevelt’s withdrawal of support on personal opposition to the pro-union clause of the NCF-Hepburn bill. He thereby downplays the effects of the pressure from small and medium businesses.
• 23[Editor’s footnote] Rothbard planned on devoting additional space later to the Clayton Antitrust Act and the Federal Trade Commission, the Bureau of Corporation’s successor, both of which were created under the Wilson administration in the fall of 1914. The five- man commission was dominated by pro-business sentiment from the outset, and in the words of prominent commission member Edward N. Hurley, it was intended “to do for general business” what the ICC, the Federal Reserve, and the Department of Agriculture did for railroads, bankers, and farmers. Influential advisors to the Commission included familiar names such as Louis D. Brandeis and Victor Morawetz, railroad executive Walker D. Hines, and Arthur Eddy. The latter was an important corporate lawyer who proclaimed in his influential book that “Competition is War, and ‘War is Hell’.”
       The acts helped eliminate competitive price discrimination and various market forms, such as holding companies and tying agreements. This benefited larger existing firms and smaller firms engaged in intrastate commerce. With regards to larger businesses, which vertically or horizontally integrated due to cost advantages, they would benefit at the expense of their medium-size competitors, who could only afford to partially integrate through various market agreements now deemed “restrictions” on competition. The FTC would later hold “trade practice conferences” in the 1920s in order to meet with industry members to figure out “unfair” practices, such as price discrimination and secret price cutting. For the origins of the acts see Murray Rothbard, “Left and Right: The Prospects for Liberty,” in Egalitarianism as a Revolt Against Nature and Other Essays (Auburn, AL: Mises Institute, 2000 [1965]), pp. 40–41; Kolko, The Triumph of Conservatism, pp. 255–78; Weinstein, The Corporate Ideal, 82–89. See also Chapters 12, 13, 14, and 15 below, pp. 383–86, 389–94, 448–49, 464–65, 473–74, 519–24; Shaffer, In Restraint of Trade, pp. 51–90. 
• 24[Editor’s footnote] The minimum wage and other proposals by progressive economists had strong racist and sexist underpinnings. Many economists and other social theorists were strong believers in eugenics, which stated that society could effectively plan and control the racial quality of the labor force in order to improve and thereby enhance social welfare. As a result, they were intensely worried about the flood of “inferior” immigrants from Asia and parts of Europe diluting the labor pool and undercutting the wages of the superior Anglo-Saxon white man. They were also concerned about female workers, who were undercutting the male breadwinners and not being properly allocated to the household to raise children. A minimum wage and other labor regulations, such as immigration restriction and maximum hour legislation, would unemploy the less skilled immigrants and females and protect the jobs of the superior white males. See Chapters 10 and 13 below, pp. 314–16, 412–13; Thomas C. Leonard, Illiberal Reformers: Race, Eugenics & American Economics in the Progressive Era (Princeton, NJ: Princeton University Press, 2016), pp. 141–85. The entire book is crucial for understanding the transformation of the economics profession from laissez-faire to one of interventionist technocrats and planners, and the inherent paternalism and elitism motivating it.
       Of course, modern progressivism has replaced eugenics with egalitarianism, or equality for all. However, it is not really egalitarianism but elitism in a different form, since everyone must be made equal except the intellectuals and opinion molders, who are still chosen to plan society and run people’s lives. See Murray Rothbard, “Egalitarianism and the Elites,” Review of Austrian Economics 8, no. 2 (1995): 39–57. 
• 25Eakins, The Development of Corporate Liberal Policy Research, pp. 84–85. [Editor’s remarks] This “exploitative competition” was already declining regardless of recent progressive legislative efforts. Since 1900, workers’ living standards rose through higher real wages, a decline in hours of work per week, reduced child labor, earlier retirement, and better working standards. This occurred primarily due to the normal progression of an unfettered capitalist economy and not legislation that only codified existing trends. See Claudia Goldin, “Labor Markets in the Twentieth Century,” in The Cambridge Economic History of the United States, Stanley Engerman and Robert Gallman, eds. (Cambridge: Cambridge University Press, 2000), vol. 3, pp. 549–624; Price Fishback, “The Progressive Era,” in Government and the American Economy (Chicago: University of Chicago Press, 2007), pp. 307–08.
• 26Eakins, Development of Corporate Policy Research,  pp. 91–93.
• 27See the incisive discussion by Eakins of this question in ibid., pp. 85–86.