GOVERNMENT AND BUSINESS

Regulating the Economy

The American blend of republican government and capitalist economy, in combination with the nation's vast natural resources, had catapulted the United States into the first rank of world powers by 1910. Nevertheless, the national ideal of freedom had its limits. Enterprising capitalists, free to act as they wished, were amassing vast wealth to the point of monopolizing an entire sector of the economy. Presidents Roosevelt and Taft had used the Sherman Antitrust Act of 1890 to break up some of the most egregious monopolies, but by the 1910s it was clear to many Americans that further regulation of industrial and financial interests was needed. Thus, the Wilson administration, with help from progressives in Congress and political pressure from a variety of organized reform groups, pushed through a series of measures aimed at making the federal government a more efficient and effective regulator of economic activity.

The Pujo Committee

Between 16 May 1912 and 26 February 1913 the House of Representatives investigated the "money trust." Named after the chairman of the House Banking and Currency Committee, Rep. Arsene Pujo of Louisiana, the hearings were conducted by committee counsel Samuel Untermeyer. Many individuals from the largest U.S. financial institutions were called to testify, including representatives from J. P. Morgan and Company, the National Bank, and the National City Bank. The Pujo Committee hearings uncovered astonishing facts about American financial institutions. Most impressive was the discovery that 341 directors of corporations with a net worth of more than $22 billion were controlled by banking interests dominated by J. P. Morgan and the Rockefellers. There could be little doubt that, as Louis D. Brandeis wrote in Other Peoples Money and How the Bankers Use It (1914), "a few men control the business of America."

WILSON'S FIRST
INAUGURATION ADDRESS

At his first inauguration, on 4 March 1913, President Wilson spoke movingly. In part he said:

Our life contains every great thing, and contains it in rich abundance.

But the evil has come with the good, and much fine gold has been corroded. With riches has come inexcusable waste. We have squandered a great part of what we might have used, and have not stopped to conserve the exceeding bounty of nature, without which our genius for enterprise would have been worthless and impotent, scorning to be careful, shamefully prodigal as well as admirably efficient We have been proud of our industrial achievements, but we have not hitherto stopped thoughtfully enough to count the human cost, the cost of lives snuffed out, of energies overtaxed and broken, the fearful physical and spiritual cost to men and women and children upon whom the dead weight and burden of it all has fallen pitilessly the years through. The groans and agony of it all had not yet reached our ears, the solemn, moving undertone of our life, coming up out of the mines and factories and out of every home where the struggle had its intimate and familiar seat With the great Government went many deep secret things which we too long delayed to look into and scrutinize with candid, fearless eyes. The great Government we loved has too often been made use of for private and selfish purposes, and those who used it had forgotten the people.…

There has been something crude and heartless and unfeeling in our haste to succeed and be great. Our thought has been "Let every man look out for himself, let every generation look out for itself," while we reared giant machinery which made it impossible that any but those who stood at the levers of control should have a chance to look out for themselves.

Source:

Leon Fink, ed., Major Problems in the Gilded Age and the Progressive Era (Lexington, Mass.: Heath, 1993).

The Federal Reserve Act

President Wilson had urged controls on "the money monopoly," and as president he worked to implement economic reforms. Prompted in part by the Pujo Committee's findings, he and Congress cooperated in the passage of the Federal Reserve Act of 1913 (or the Glass-Owen Act), which proved to be one of the most important banking and currency reforms of the twentieth century. The complexities of the final provisions of this act were the result of the politics surrounding its passage. Two competing bills emerged in Congress. In the House, Carter Glass, a conservative Democrat from Virginia and chairman of the Committee on Banking and Currency, promoted a reserve system owned and operated by American bankers themselves. In the Senate, however, Robert L. Owen, a progressive Democrat from Oklahoma and chairman of the Senate Banking Committee, advocated a plan that placed control of the national reserve system and the currency in the hands of the federal government. The banking community fiercely opposed Owen's plan. Secretary of State William Jennings Bryan and agrarian interests were equally adamant in opposition to the Glass proposal. Wilson at first was noncommittal. Six months of congressional hearings and debates, coming as they did in the wake of the Pujo Committee's revelations, resulted in a compromise bill that largely resembled Owen's plan. Wilson backed the compromise, telling Congress that control of the new banking system "must be public, not private, must be vested in the Government itself, so that the banks may be the instruments, not the masters, of business and of individual enterprise and initiative." The Federal Reserve Act established twelve regional Federal Reserve Banks and required every national bank to join the system. It also established a Federal Reserve Board to control the money supply. By setting interest rates at which it lends money to member banks, the Federal Reserve Board can—when it uses its power wisely—affect the growth rate of the economy and help ensure robust growth with low inflation.

A Federal Income Tax

The passage of the Sixteenth Amendment to the Constitution in 1913 was one of the most important political reforms in American history. Prior to its passage, the federal government had to rely heavily on the tariff to raise revenue. (In the nineteenth century the other major source of federal funds was the sale of public lands.) Reliance on the tariff for revenue meant that import duties had to be kept relatively high, and—because revenues from even high tariffs were quite limited—government expenditures had to be kept low. The institution of a federal income tax would help to address these limitations, but passage of an income-tax amendment was necessary because the Constitution explicitly forbade the levying of such a tax. In addition to increasing federal revenues and allowing the expansion of the federal government, institution of an income tax would permit the downward revision of tariffs, appeasing southern and western congressmen whose rural constituents suffered under burdensome tariff rates that made manufactured goods more expensive. Proposed on 12 July 1909, the Sixteenth Amendment read: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." Supporters of the new amendment included tax experts, social reformers, and organized labor, as well as most Democrats and many insurgent Republicans. It was opposed by many industrialists, financiers, Republican regulars, and conservative southern Democrats. Voting tipped in favor of the amendment as a result of the Democrats' electoral victories of 1910 and 1912 in the crucial states of Illinois, Indiana, Ohio, Maine, Massachusetts, New Jersey, and New York. The amendment was declared ratified on 25 February 1913. Implemented in a provision included in the Underwood-Simmons Tariff Act of 1913, the first income-tax rates were low by later standards. Incomes over $3,000 and up to $20,000 were taxed at 1 percent. (Only 4 percent of income earners were in this category in the first year.) Those earning between $20,000 and $500,000 a year (an even smaller portion of the total population in 1913) were taxed at rates between 2 and 6 percent.

The Underwood-Simmons Tariff

The first significant tariff reductions since 1846 were brought about by the Democratic Underwood-Simmons Tariff of 1913. Sponsored by Oscar W. Underwood of Alabama in the House and Furnifold McLendel Simmons of North Carolina in the Senate, the tariff lowered rates from an average 40 percent to about 30 percent. The tariff was also the first significant piece of legislation supported by the new Wilson administration, and in the effort to assure passage of the bill Wilson personally addressed a joint session of Congress on 8 April 1913, becoming the first president to do so since John Adams.

The Clayton Antitrust Act

Another major piece of Wilson's "New Freedom" legislation—fulfilling his pledge to revitalize competition in the marketplace—was the Clayton Antitrust Act of 1914. Introduced by the chairman of the House Judiciary Committee, Democrat Henry D. Clayton, the law augmented the Sherman Antitrust Act of 1890. It forbade interlocking directorates, prohibited a company from holding stock in a competing firm, and in certain circumstances banned the acquisition of competing firms. It also outlawed price discrimination (the practice of charging different customers different prices for the same product) and made it illegal to enter into agreements limiting a distributor to selling products from a restricted number of producers. Corporate officials were to be held personally responsible for violations of the act. Also seen as a major improvement for organized labor, the act declared that "the labor of human beings is not a commodity or article of commerce," a phrase which labor leaders took to mean that labor unions were exempt from antitrust laws, which had been used to weaken unions on the grounds that they, like business monopolies, were "combinations in restraint of trade." Samuel Gompers, president of the American Federation of Labor (AFL), hailed the act as labor's "Magna Carta." Subsequently, however, the courts substantially weakened the labor provisions, holding that the act did not exempt labor from antitrust prosecutions.

The Federal Trade Commission

Further fulfilling his campaign pledge to increase competition in the national economy, President Wilson championed creation of the Federal Trade Commission (FTC), established by Congress in September 1914. The FTC replaced the Bureau of Corporations (which had been in existence since 1903) and was charged with enforcement of the Clayton Anti-trust Act. Established as an independent regulatory agency with broad powers to investigate the trading practices of businesses and corporations, the FTC comprised five commissioners who were authorized to file suits against businesses engaged in what they determined to be unfair labor practices and to issue cease-and-desist orders when they believed them necessary.

Regulation of the Rails

One of the greatest assets during the 1910s was the American railroads. By mid decade there were a quarter million miles of rails crisscrossing the country. With the automotive and trucking industries still in their infancy, farmers and manufacturers relied heavily on railroads to transport crops, live-stock, raw materials, and finished goods to market. Railroad owners often charged higher permile rates for hauling goods short distances than they charged for longer hauls. This price inequity was especially injurious to small farmers and producers, and in 1910 Congress, at the insistence of the Taft administration, passed the Mann-Elkins Act. The act prohibited charging higher rates for short hauls than for long hauls—unless the Interstate Commerce Commission (ICC) ruled otherwise—and gave the ICC power to investigate rate increases.

The Adamson Act. In

spring 1916, amid the emerging tensions surrounding the Great War in Europe, American railway unions demanded an eight-hour day and overtime pay for their members. After meeting with both sides of the dispute, President Wilson suggested a compromise, by which the unions would be granted only their first demand. Though labor was willing to comply, railroad owners, who met with the president at the White House on 21 August, refused to accept Wilson's proposal—upon which the president said, "I pray God to forgive you, I never can," and stormed out of the room. The president's next move was to address a joint session of Congress, requesting them to legislate an eight-hour day for railway workers. Representative William C. Adamson, a Democrat from Georgia, sponsored the legislation, and on 3 September 1916, one day prior to the strike deadline set by the railway unions, Wilson signed the Adamson Act into law. The following year the Supreme Court upheld its constitutionality.

Sources:

Louis D. Brandeis, Other Peoples Money and How the Bankers Use It (New York: Stokes, 1914);

John D. Buenker, The Income Tax and the Progressive Era (New York: Garland, 1985);

Vincent P. Carosso, Investment Banking in America, A History (Cambridge, Mass.: Harvard University Press, 1970);

Earl W. Kintner and Joseph P. Bauer, Federal Antitrust Law (Cincinnati: Anderson, 1989);

Arthur S. Link, Woodrow Wilson and the Progressive Era, 1910-1917 (New York: Harper & Row, 1954);

David Philip Locklin, Economics of Transportation (Chicago: Business Publications, 1935);

Richard A. Posner, Antitrust Law: An Economic Perspective (Chicago: University of Chicago Press, 1976);

James Weinstein, The Corporate Ideal in the Liberal State, 1900-1918 (Boston: Beacon, 1968);

Henry Parker Willis, The Federal Reserve System, Legislation, Organization and Operation (New York: Ronald, 1923).

GOVERNMENT AND BUSINESS

Consumerism and the American Dream

America emerged from World War II as the dominant world power player—not only militarily but economically as well. Ravaged by war, European industry was at a stand-still, and the Continent was open to receive American-made products. At home pent-up consumer demand—caused by government-sponsored rationing during the world war and the Korean War—exploded, and American plants ran at full capacity to provide their customers with automobiles, television sets, household appliances—all the amenities of an American way of life that was becoming increasingly defined by the tastes of a burgeoning middle class with more money to spend. America was evolving into a consumer-oriented society during the 1950s, and the pursuit of modern goods and appliances that made everyday life easier became identified with the American Dream. In 1959, while viewing an American kitchen display at the trade fair in Moscow, Richard Nixon defended this relationship between consumerism and American democratic principles during a spirited, impromptu debate with Nikita Khrushchev. The Soviet leader suggested that the large variety of U.S. products aimed at modernizing domestic life—and Americans' insatiable appetite for these products—had turned the American people lazy, a charge to which Nixon replied: "To us, diversity, the right to choose, the fact that we have a thousand different builders, that's the spice of life."

Big Business Becomes Bigger

The "kitchen debate" scored big political points for Nixon back home. Yet, despite Nixon's ringing defense of capitalism, both the American government and people had grown increasingly wary of big business, which was growing bigger. Between 1949 and 1955 the number of mergers rose by 300 percent. More and more the decision-making power regarding the setting of prices and the developing of product lines was being controlled by a single megacorporation—the result of large mergers—within a given industry. Small businesses felt that their ability to compete was being undercut by merging big business. Many feared that the power and influence of the big corporations had become too great and widespread.

Uncle Sam Investigates Big Business

Government responded to the calls for control of big business by launching a record number of antitrust suits. Armed with the Celler-Kefauver Act of 1950, which allowed government investigators to use a company's market share as an indicator of monopoly, the feds waged an aggressive legal campaign against industry-dominating corporations. In 1952, for instance, the Federal Trade Commission filed suit against five U.S. oil companies for taking part in an international oil cartel that controlled 65 percent of the world's oil reserves. Senate investigations targeted the National Broadcasting Company and the Columbia Broadcasting System, two companies which accounted for 46 percent of the income earned by the television industry. The pricing policies of companies such as Eastman-Kodak were examined by congressional committees, and picture studios were forced to relinquish control of their theater chains. The individuals and families behind big business also did not escape scrutiny. The du Pont family was forced to divest their controlling interest in General Motors, U.S. Rubber, and E. I. du Pont de Nemours and Company.

The Democrats and Big Business

Prior to 1953 the Democrats had been in power for nearly twenty years, during which time, claimed many industry heads (who were for the most part Republicans), American business had been forced by government to bow to the whims of federal regulators and union officials, who held the presidency in their back pocket. The Democrats, on the other hand, charged that big business operated according to its own agenda, with little concern for the working man or national interests beyond what it could make in profits. Although relations between business and government during the World War II years had been characterized by a rare spirit of cooperation for the sake of the war effort, industry leaders had grown tired of continued government regulations in the immediate postwar years. But, with American entry into the Korean War in 1950, a Democratic president was once again asking business to cooperate with government to serve higher national interests. In April 1952 President Harry S Truman used his executive powers to seize the steel industry. In justifying an action that amounted to the nationalization of an industry that served as a backbone of the American economy, Truman cited the inability of steel executives to bargain with labor, the unwillingness of the industry to accept the prices recommended by the War Labor Board, and the importance of maintaining high levels of steel production to serve the war effort. What followed was a public-relations battle between the executive office and big business from which Truman never fully recovered. Steel executives purchased airtime on radio and television to lambaste the president, publicly comparing Truman to Benito Mussolini and Adolf Hitler. To add to Truman's humiliation, the Supreme Court ruled in June 1952 that his actions had been unconstitutional.

Ike's Big-Business Administration

Business leaders welcomed Dwight D. Eisenhower's presidency with open arms. The Republicans' return to power meant the possibility that government might once again be probusiness in setting its policies on industry, labor relations, and trade. Furthermore, in forming his cabinet Eisenhower was reaching into America's corporate boardrooms and plucking out those men who shared his vision of no-nonsense government and fiscal responsibility. The selection of such men as Charles E. Wilson, president of General Motors, and George M. Humphrey, president of M. A. Hanna Company, to key government posts made many Americans uneasy, however, despite the otherwise high marks of approval they were giving Eisenhower in his first days in office. A January 1953 Gallup poll showed Ike's approval rating at 78 percent, but when those polled were asked, "Has Dwight Eisenhower done anything so far that you disapprove of?," one of the few criticisms offered was that Ike's cabinet appointments had created a BigBusiness administration.

Labor Representation in Cabinet,

Yet it soon became clear that Ike had no intention of catering to the interests of big business. Indeed, one of his cabinet appointments—the American Federation of Labor's plumber's union head Martin Durkin as secretary of labor—bewildered Republican officials and businessmen, who were fearing imminent drastic changes in the Taft-Hartley Act, which to the anger of labor leaders had outlawed the closed shop. The appointment of a union man to oversee delicate labor relations angered Robert Taft and prompted the New Republic to comment wryly, "Ike had picked a cabinet of eight millionaires and one plumber."

Fighting the Monopolies

Under Eisenhower government regulators continued to target those businesses that were thought to be monopolistic. The way of doing business in entire industries was altered: the Bank Holding Company Act of 1956, for instance, called for multibank holding companies to divest their holdings in nonbanking businesses. In reaction to what they deemed to be heavy-handed governmental interference, business leaders fought back through what became two powerful lobbying groups, the National Chamber of Commerce and the National Association of Manufacturers.

Ike's Internationalist Trade Policies

Moreover, many American industrialists were less than pleased to learn that Eisenhower was an internationalist when it came to issues of trade. Most leaders of basic industry, such as steel executives, were fiercely protectionist in their desire to seal off domestic markets from foreign competition. Eisenhower did not want to alienate himself politically from industrialists over issues of trade, yet he felt that a more lax foreign-trade policy was a necessary part of U.S. cold-war strategy: the United States needed to open economic channels to those European and Asian countries which were in danger of falling under Communist influence. Through various commissions and the Council on Foreign Economic Policy, Ike worked to reverse the protectionist policies of Truman and the anti-free-trade sentiments that existed among industry executives and union leaders who feared that foreign competition would lead to price hikes and a suspension of wage increases.

The Military-Industrial Complex

During his farewell speech broadcast on radio and television on 17 January 1961, Eisenhower uttered his most memorable lines delivered during his presidency. He warned that the government and the American people "must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist." At a postspeech news conference Ike was characteristically vague when asked to elaborate on what he meant by "military-industrial complex" and whether or not the corporate world posed an immediate threat to the inner workings of democracy. Yet the speech managed aged to create a sensation among the press and the public, for its message was an ominous departure from what Americans had come to expect from their president: expressions of confidence and optimism that through much of the 1950s held sway over public opinion.

The Business of Making Bombs and Rockets

Eisenhower's vivid warning that corporate boardrooms had the potential to control the political apparatus heightened public fears that big business had grown too big. Yet it was precisely public fear that had contributed to the growth of the military-industrial complex—missile-making companies such as Grumman, McDonnell, Martin, and Northrop which by 1958 were completely devoted to filling military orders and which filled their top executive positions with retired military generals. The Sputnik scare in 1957 had created the perception that the United States lagged behind the Soviet Union in missile development. In fact, Eisenhower had intelligence information at his fingertips which proved that just the opposite was true—that the Americans continued to outpace the Soviets in developing military technology. But to divulge the information would have been tantamount to admitting that the Americans had been spying on the Soviets. Meanwhile an outraged American public demanded massive federal spending in research and development to counter the Soviet menace—exactly the kind of spending increase that Eisenhower had fought to avoid. In sizing up the economic boon Sputnik would have on the American technology industry, a spokesman for an aircraft and missile company was quoted in Nation as saying, "The boys are going to be jumping all over themselves to see who'll get in the first bill to increase funds for missiles and manned aircraft after Congress reconvenes."

Source:

Altofler, "Who Will Make the Missiles?," Nation, 185 (7 December 1957): 428-431;

Stephen E. Ambrose, Eisenhower: The President (N.p., Simon & Schuster, 1984);

Paul A. C. Koistinen, The Military Industrial Complex: A Historical Perspective (New York: Praeger, 1980).

GOVERNMENT AND BUSINESS

Laissez-faire

In contrast to both the preceding and the succeeding decades, the 1920s were a period of little growth in federal or state regulation; instead, laissez-faire was the rule of the day. Except in regard to railroads, public utilities, radio broadcasting, and air carriers, regulation was at a low ebb. Warren G. Harding, in his desire to return to "normalcy," had little interest in regulation, and Coolidge felt much the same way. Although the antitrust laws were still in place, the so-called "rule of reason" had rendered them of little use. There were no minimum-wage requirements on the federal level, no unemployment compensation, no National Labor Relations Act, no Environmental Protection Act, no Occupational Safety and Health Administration, no consumer protection laws, no Fair Employment Act, no Social Security Act, no Employment Act, and no federal programs for employment training. Taxes were generally low. Some historians have argued that the rapid shift to laissez-faire following the more interventionist mode of the Wilson era was not a reaction to the Wilson reforms but to the controls that had been put in place in wartime. In fact, much of the Wilson program was a casualty of the war. Whatever the reasons, the Harding-Coolidge years were certainly favorable to business and unfriendly, for the most part, toward regulation.

Views of Government Leaders

Harding, Coolidge, and the extremely conservative and influential Secretary of the Treasury Andrew W. Mellon (founder of ALCOA and Gulf Oil) strongly argued that low taxes and encouragement of business would promote prosperity and growth. Secretary of Commerce Herbert Hoover, who would become president after Coolidge stepped down in 1928, agreed, as did the business community and most of their fellow citizens. Certainly the nation seemed to be prosperous. Unemployment was low. Exports were at an alltime high, reaching $8.25 billion in 1920, three times the 1919 level. The federal budget was $8.23 billion (rather high for peacetime.

Coolidge and the Stock Exchange

When Coolidge took over after Harding's death, Wall Street had been a bit leery, feeling that he might be inclined to dampen things, but this fear proved groundless. The president greatly revered the business community, and he was certainly not one to intrude on its activities. When some of his advisers told him that perhaps the stock market was a bit freewheeling, he was somewhat concerned, but on finding that the New York Stock Exchange was under the jurisdiction of New York State, he happily abandoned the whole matter. There was of course no Securities and Exchange Commission, which no doubt pleased Coolidge. It can surprise no one that the business community for decades looked back on the 1920s as the golden age.

Broadcasting and Air Carriers

Two major exceptions to the government's generally "hands off" attitude toward regulation came in the radio-broadcasting and air-transport industries. The rapid entry of new commercial stations in the middle part of the decade had created intolerable conditions in regard to the frequencies at which they broadcast. Each station was free to choose (or change) its frequency, which resulted in a mishmash on the air. Without regulation, more powerful stations overwhelmed the less powerful. Radio owners enjoyed their nightly attempts to pick up distant signals and to brag of their accomplishments to their fellow workers the next day, but advertisers paying for air time were less amused. In 1927 President Coolidge SIGNED legislation to create a regulatory body (later to become the Federal Communications Commission). This body did not attempt to oversee the economic structure of the industry or to involve itself in the morass of First Amendment issues of free speech or program content; it simply regulated the frequencies at which the various stations could operate. Similarly, the air-transport industry, which had grown haphazardly with a wide variety of aircraft and a cadre of informally trained pilots, presented a safety issue that could not be avoided. Both radio and aircraft operations were taken, at least on a temporary basis, under the umbrella of Hoover's Commerce Department.

Transportation Act, Budget Act

Two important matters did, in fact, emerge from the era. Though they were not dramatic and lacked wide public interest, they were of considerable value. First, Congress passed the Transportation Act of 1920, which returned the railroads to their owners and adjusted the program of railroad regulation that had been coming in bits and pieces for nearly half a century. Unfortunately, the legislation would soon be undermined by the onset of the Great Depression, and much of it would be moot. Secondly, the Congress passed the Budget Act of 1920 that would, for the first time in history, establish a budget for the federal government. To be sure, the act would not put the federal expenditures into a mode of rigid control, but it would enable lawmakers to have some understanding of what was being spent and for what. Hitherto the spending items were merely enacted at random, and no one had the slightest idea of how much was being spent overall.

Sources:

Jonathan Hughes, The Governmental Habit (New York: Basic Books, 1977);

H. H. Liebhafsky, American Government and Business (New York: Wiley, 1971);

Hugh S. Norton, Economic Policy: Government and Business (Columbus, Ohio: Merrill, 1966);

D. S. Watson, Business and Government (New York: McGraw-Hill, 1958).

GOVERNMENT AND BUSINESS

Unprecedented Prosperity

Immediately following World War I the United States experienced a postwar boom, but in 1920-1921 this brief economic surge was followed by the sharpest shortterm recession in American history. Inflation remained under control despite an unemployment rate of 3-4 percent. Between 1922 and 1927 the economy grew at a rate of 7 percent per year. As the national industrial and manufacturing base produced more consumer goods, prosperity increasingly depended on consumption.

The Revival of Conservative Economics

Politicians and business leaders of the 1920s resurrected the conservative economic philosophy that dominated the late nineteenth century. Government took a backseat while business drove the nation. Successful businessmen commanded enormous respect and deference, and their reputations as leaders outpaced those of politicians. President Calvin Coolidge sounded the theme for the decade in 1925, when he declared: "The business of America is business. The man who builds a factory builds a temple. The man who works there worships there." Businessmen often espoused the belief that their material success confirmed their innate ability to lead the rest of society. Conversely, they maintained that poverty was the consequence of squandered opportunities. Therefore, business leaders reasoned, the government should not burden the virtuous rich to help the undeserving poor.

Drastic

Tax Cuts. This philosophy found an able and willing spokesman in Secretary of the Treasury Andrew W. Mellon, who held his cabinet post under all three Republican presidents of the decade. He worked diligently to insure minimal government intrusion on business. Dear to Mellon's heart was tax reform. In 1921 he initiated the first of many tax cuts he proposed during the decade. Reductions in government spending and taxing, Mellon believed, were essential to a healthy economy. Moreover, he argued, removing the tax burden from wealthy Americans would stimulate the economy. Instead of paying taxes, they would invest in job-creating industries from which all Americans would eventually profit as the benefits trickled down.

Government as the Facilitator of Business Growth

The role of government in the 1920s was essentially to provide a favorable legal climate, then step back and let business operate unfettered by restrictions and regulations. The Commerce Department, under the direction of Herbert Hoover, facilitated cooperation between government and the private sector. Hoover promoted the use of the principles of efficiency in business and emphasized "cooperative capitalism," which attempted to strike a balance between unregulated capitalism and aggressive government intervention.

Labor

The heyday for labor radicalism had passed by 1920. Union membership declined from 5.1 million in 1920 to 3.6 million in 1929. 'Welfare capitalism," a paternalistic system of services and benefits that businesses provided their employees, characterized the relationship between management and labor in this decade. Since the federal government did not yet provide unemployment compensation or Social Security pensions, business promoted welfare capitalism as a self-interested strategy for promoting worker loyalty and keeping unions and government regulations out of the workplace. Yet the system was wholly inadequate. Because businesses were expected to act voluntarily, most companies did not participate, leaving workers without adequate benefits or protection. Those corporations that had welfare programs often reduced them when hard times hit, precisely at the moment they were most needed.

Source:

William J. Barber, From New Era to New Deal: Herbert Hoover, the Economists, and American Economic Policy, 1921—1933 (New York: Cambridge University Press, 1985).