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NOTE 31. The Progressive Movement

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Part Two. The Origins of the Federal Reserve. The Progressive Movement.

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The Federal Reserve Act of December 23, 1913 was part and parcel of the wave of progressive legislation on local, state and federal levels of government that began about 1900.

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Progressivism was a bipartisan movement which, in the course of the first two decades of the 20th century, transformed the American economy and society from one of roughly laissez-faire to one of centralized statism.

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Until the 1960s, historians had established the myth that progressivism was a virtual uprising of workers and farmers who, guided by a new generation of altruistic experts and intellectuals,

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tools surmounted fierce big business opposition in order to curb, regulate, and control what

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had been a system of accelerating monopoly in the late 19th century.

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A generation of research and scholarship, however, has now exploded that myth for all

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parts of the American polity, and it has become all too clear that the truth is the reverse

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of this well-worn fable.

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In contrast, what actually happened was that business became increasingly competitive during

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in the late 19th century, and that various big business interests, led by the powerful

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financial house of J.P. Morgan & Company, had tried desperately to establish successful

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cartels on the free market.

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The first wave of such cartels was in the first large-scale business, railroads, and

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in every case, the attempt to increase profits by cutting sales with a quota system and thereby

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to raise prices or rates, collapsed quickly from internal competition within the cartel

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and from external competition by new competitors eager to undercut the cartel.

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During the 1890s, in the new field of large-scale industrial corporations, big business interests

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tried to establish high prices and reduce production via mergers, and again, in every

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case, the mergers collapsed from the winds of the new competition.

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In both sets of cartel attempts, J.P. Morgan and company had taken the lead, and in both

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Both sets of cases, the market, hampered though it was by high protective tariff walls, managed

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to nullify these attempts at voluntary cartelization.

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It then became clear to these big business interests that the only way to establish a

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cartelized economy, an economy that would ensure their continued economic dominance

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and high profits, would be to use the powers of government to establish and maintain cartels

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by coercion.

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In other words, to transform the economy from roughly laissez-faire to centralized and coordinated

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ism. But how could the American people, steeped in a long tradition of fierce opposition to

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government-imposed monopoly, go along with this program? How could the public's consent

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to the new order be engineered? Fortunately for the cartelists, a solution to this vaccine

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problem lay at hand. Monopoly could be put over in the name of opposition to monopoly.

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In that way, using the rhetoric beloved by Americans, the form of the political economy

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Monopoly had always been defined in the popular parlance and among economists as, quote, grants

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of exclusive privilege by the government.

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It was now simply redefined as, quote, big business or business competitive practices,

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such as price cutting, so that regulatory commissions, from the Interstate Commerce

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Commission to the Federal Trade Commission to state insurance commissions, were lobbied

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for and staffed by big business men from the regulated industry, all done in the name of

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curbing quote, big business monopoly on the free market.

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In that way, the regulatory commissions could subsidize, restrict and cartelize in the name

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of quote, opposing monopoly, as well as promoting the general welfare and national security.

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Once again, it was railroad monopoly that paved the way.

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For this intellectual shell game, the cartelists needed the support of the nation's intellectuals

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Intellectuals, the class of professional opinion molders in society.

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The Morgans needed a smokescreen of ideology, setting forth the rationale and the apologetics

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for the new order.

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Again, fortunately for them, the intellectuals were ready and eager for the new alliance.

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The enormous growth of intellectuals, academics, social scientists, technocrats, engineers,

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social workers, physicians, and occupational quote, guilds of all types in the late 19th

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led most of these groups to organize for a far greater share of the pie than they could possibly achieve on the free market.

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These intellectuals needed the state to license, restrict and cartelize their occupations so as to raise the incomes for the fortunate people already in these fields.

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In return for their serving as apologists for the new statism, the state was prepared to offer not only cartelized occupations,

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Patience, but also ever-increasing and cushier jobs in the bureaucracy to plan and propagandize

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for the newly stateized society.

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And the intellectuals were ready for it, having learned in graduate schools in Germany the

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glories of statism and organicist socialism, of a harmonious, quote, middle way between

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dog-eat-dog laissez-faire on the one hand and proletarian Marxism on the other.

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Instead, big government, staffed by intellectuals and technocrats, steered by big business

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and aided by unions organizing a subservient labor force, would impose a cooperative commonwealth

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for the alleged benefit of all.