The Rise of Regulation in the U.S.
Excerpt from Commanding Heights by Daniel Yergin and Joseph Stanislaw, 1998 ed., pp. 48-55, 58-59.
Essay
Regulation -- rule making -- has many purposes, of course. They range from health and safety and environmental protection to working conditions, equality, equity, and social policy. National regulation specifically for economic purposes originated in the 19th century, beginning during America's development era -- with the establishment of the Interstate Commerce Commission (ICC) to regulate railroads, the great new industry of the era.... Railways had become not only a critical industry but also a national force, erasing the boundaries of states as they tied the nation together. The ICC was created in order to ensure "just and reasonable" rates and equitable treatment of shippers and communities -- and to limit manipulation by the robber barons....
By the late 19th century, America was well on its way to being an industrial nation. Its cities were becoming home to millions and millions of new immigrants, along with sprawling factories that spewed dark smoke out of their chimneys. The advent of industrialization and the transformation of living space brought a host of ills, which in turn became the target of a group of investigative journalists known as muckrakers. The term, borrowed from Bunyan's Pilgrim's Progress, was first used by President Theodore Roosevelt, a writer of considerable accomplishment himself.
Roosevelt did not mean the [term] as a compliment; he thought the writing of these journalists too negative, their work too focused on "the vile and debasing," and their impact too much a fan for the flames of revolution. Nevertheless, the muckrakers' exposes of the ailments of the new industrial society -- dirty food, dirty working conditions, dirty cities, dirty business, dirty money, and dirty politics -- set the agenda for turn-of-the-century America, and Roosevelt and other politicians embraced the cause. Regulation was the response to the catalog of abuses.
Much economic regulation focused on one problem -- what to do about bigness and monopolies.... Monopolies seemed determined to extinguish the atomistic world of small, family-owned enterprises; they were indeed the dominating national issue of the time. Something had to be done. But what? Although he earned the sobriquet "trust buster," President Roosevelt was not against bigness per se. Combinations, he said, could be turned back no more easily than the spring floods on the Mississippi. But, he continued, "we can regulate and control them by levees" -- that is, by regulation and public scrutiny. He distinguished between "good trusts" and "bad trusts." Only the latter should be destroyed.
The People's Lawyer
Others saw size itself as the enemy and were determined to demolish the trusts. The foremost proponent of that position was "the people's lawyer of the Progressive Era," Louis Brandeis, whose eyes were fixed on one evil -- what he called "the curse of bigness." Brandeis was a man of outstanding intellect. Entering Harvard Law School at age 18, he quickly amassed a phenomenal record, one of the best in the entire history of the school. He "is supposed to know everything and to have it always in mind," one of his fellow students wrote of him. "The Profs. listen to his opinions with the greatest deference, and it is generally correct. There are traditions of his omniscience floating through the School."
Brandeis's subsequent career bore out his promise. He went on to become a formidable advocate, and on nothing was he was so powerful as in his advocacy of the destruction of bigness. He was a masterful attacker in the courtroom and no less masterly as a muckraker. The title of his most famous work -- "Other People's Money and How the Bankers Use It" -- told all. He was also a trenchant critic of Theodore Roosevelt. The president, he said dismissively, was in favor of "regulated monopoly," while he, in contrast, advocated "regulated competition." As for the public, he feared they "still admire the Captains of the trusts."
The issue of bigness and the trusts was thrashed out in both the political process and the courts. Although differentiating between "good" and "bad" trusts, the Roosevelt administration launched no fewer than 45 antitrust suits, many of them long-running. None was more prominent than the prosecution that culminated in the Supreme Court's decision in 1911 to break up John D. Rockefeller's Standard Oil trust.
For his part Louis Brandeis became the chief economic advisor to Woodrow Wilson, who was elected president in 1912. Brandeis thereafter played a major role in designing both the new Federal Reserve System and the new regulatory agency, the Federal Trade Commission, which was intended to police bigness, restrict restraint of trade, and prevent "unfair" trade practices. Yet even Wilson did not fully satisfy the people's lawyer. "In my opinion," Brandeis explained, "the real curse was bigness rather than monopoly. Mr. Wilson (and others politically wise) made the attack on lines of monopoly -- because Americans hated monopoly and loved bigness." In 1916, Wilson nominated Brandeis for the Supreme Court, and despite a fierce anti-Semitic campaign, he was confirmed. He served on the court for 23 years. He was an outstanding justice and, as it turned out, most committed to judicial restraint.
Normalcy, "Not Nostrums"
And there regulation more or less stood for a number of years. Business seemed, in the worshipful fever of the 1920s, incapable of doing wrong, save for the occasional scandal such as that involving the naval oil reserve at Teapot Dome. Those captains of capitalism who had so exercised Brandeis were now heroes, and the less government did, the better. President Warren Harding opened the decade of the 1920s with a reassuring call for a return to "not heroism, but healing, not nostrums but normalcy."
A Republican attorney general denounced the Federal Trade Commission as nothing more than "a publicity bureau to spread socialist propaganda." "Association" and "cooperation" among businesses were encouraged; it was part of rationalization, one of the high values of the day. Even the critics got on board. Lincoln Steffens, among the most famous of muckrakers, declared that "big business in America is producing what the Socialists held up as their goal: food, shelter, clothing for all." Everything seemed to be working so well. "No Congress of the United States ever assembled," said President Calvin Coolidge in December 1928, "on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time."
That prospect did not last long. Ten months later, on Black Thursday, October 24, 1929, the stock market crashed. Thereafter, the entire edifice of debt and credit both in the United States and around the world -- banks, stock margin accounts, postwar reparations, loans to commodity-producing countries -- came tumbling down. The nascent democracies in Germany and Japan succumbed to dictatorship. With unemployment at almost 25 percent in the United States and the GNP falling by half, it was not all that certain that democratic capitalism in the United States would survive. |
