The Progressive Era

In high school textbooks, the so-called "Progressive Era" is presented as a period in which benevolent government planners and sections of the business elite worked together to regulate the market for public benefit, through various measures such as the the creation of the FDA and the Federal Reserve. This Era is packaged as the "first time the government really stepped in to fight poverty". Simply put, this is a crock of shit, as is everything else we learn in state schools.

In the following piece, the anarcho-capitalist Murray Rothbard analyzes the real motives for the Progressive Era reforms, and for the creation of the Federal Reserve. In short, Rothbard demonstrates that all of the Progressive reforms were really efforts by big business leaders to monopolize their respective industries and by big bankers to secure their power to engage in economically destructive activities that they could never get away with without the government protection offered by the Progressive Era reforms.

PUTTING CARTELIZATION ACROSS: THE PROGRESSIVE LINE

The origin of the Federal Reserve has been deliberately
shrouded in myth spread by pro-Fed apologists. The official
legend holds that the idea of a Central Bank in America
originated after thePanic of 1907, when thebanks, stungby the
financial panic, concluded that drastic reform, highlighted
by the establishment of a lender of last resort, was desper-
ately necessary.
All this isrubbish. The Panic of 1907 provided a conven-
ient handle to stir up the public and spread pro-Central Bank
propaganda. In actuality, the banker agitation for a Central
Bank began as soon as the 1896 McKinley victory over Bryan
was secured.
The second crucial part of the official legend claims that
a Central Bank is necessary to curb the commercial banks
unfortunate tendency to over-expand, such booms giving
rise to subsequent busts.An "impartial" Central Bank, on the
other hand, driven as it is by the public interest, could and
would restrain the banks from their natural narrow and
selfish tendency to make profits at the expense of the public
weal.Thestark fact that it wasbankers themselves who were
making thisargument was supposed to attest totheir nobility
and altruism.
In fact, as we have seen, the banks desperately desired
a Central Bank, not to place fetters on their own natural
tendency to inflate, but, on the contrary, to enable them to
inflate and expand together without incurring the penalties
of market competition. As a lender of last resort, the Central
Bank could permit and encourage them to inflate when they
would ordinarily have to contract their loans in order to save
themselves. In short, the real reason for the adoption of the
Federal Reserve, and its promotion by the large banks, was
the exact opposite of their loudly trumpeted motivations.
Rather than create an institution to curb their own profits on
behalf of the public interest, the banks sought a Central Bank
to enhance their profits by permitting them to inflate far
beyond the bounds set by free-market competition.
The bankers,however, faced a big public relations prob-
lem. What they wanted was the federal government creating
and enforcing a banking cartel by means of a Central Bank.
Yet they faced a political climate that was hostile to monop-
oly and centralization, and favored free competition. They
also faced a public opinion hostile to Wall Street and to what
they perceptively but inchoately saw as the "money power."
Thebankers also confronted a nation with a long traditionof
opposing Central Banking. How then, could they put a Cen-
tral Bank across?
It is important to realize that the problem faced by the
big bankers was only one facet of a larger problem. Finance
capital, led once again and not coincidentally by the Morgan
Bank, had been trying without success to cartelize the econ-
omy on the free market. First, in the 1860s and 1870s, the
Morgans, as the major financiers and underwriters of Amer-
ica's first big business, the railroads, tried desperately and
repeatedly to cartelize railroads: to arrange railroad "pools"
to restrict shipments, allocate shipments among themselves,
and raise freight rates, in order to increase profits in the
railroad industry. Despite the Morgan clout and a ready
willingness by most of the railroad magnates, the attempts
kept floundering, shattered on the rock of market competi-
tion, as individual railroads cheated on the agreement in
order to pick up quick profits, and new venture capital built
competing railroads to take advantage of the high cartel
prices. Finally, the Morgan-led railroads turned to the federal
government to regulate railroads and thereby to enforce the
cartel that they could not achieve on the free market. Hence
the Interstate Commerce Commission, established in 1887.

In general, manufacturing firms did not become large
enough to incorporate until the 1890s, and at that point the
investment bankers financing the corporations, again led by
the Morgans, organized a large series of giant mergers, cov-
ering literally hundreds of industries. Mergers would avoid
the problem of cheating by separate individual firms, and
monopoly firms could then proceed peacefully to restrict
production, raise prices, and increase profits for all the
merged firms and stockholders. The mighty merger move-
ment peaked from 1898-1902. Unfortunately, once again,
virtually all of these mergers flopped badly, failing to estab-
lish monopolies or monopoly prices, and in some cases
steadily losing market shares from then on and even plung-
ing into bankruptcy. Again the problem was new venture
capital entering the industry and, armed with up-to-date
equipment, outcompeting the cartel at the artificially high
price. And once again, the Morgan financial interests, joined
by other financial and bigbusiness groups,decided that they
needed the government, in particular the federal govern-
ment, to be their surrogate in establishing and, better yet,
enforcing the cartel.

The famed Progressive Era, an era of a Great Leap For-
ward in massive regulation of business by state and federal
government, stretched approximately from 1900 or the late
1890s through World War I. The Progressive Era was essen-
tially put through by the Morgans and their allies in order to
cartelize American business and industry, to take up more
effectively where the cartel and merger movements had left
off. It should be clear that the Federal Reserve System, estab-
lished in 1913, was part and parcel of that Progressive move-
ment:just as the large meat packers managed to put through
costly federal inspection of meat in 1906, in order to place
cripplingly high costs on competing small meat packers, so
the big bankers cartelized banking through the Federal Re-
serve System seven years later.

Just as the big bankers, in trying to set up a Central Bank,
had to face a public opinion suspicious of Wall Street and
hostile to Central Banking, so the financiers and industrial-
ists faced a public steeped in a tradition and ideology of free
competition and hostility to monopoly. How could they get
the public and legislators to go along with the fundamental
transformation of the American economy toward cartels and
monopoly?
Theanswer was the same inboth cases: thebigbusiness-
men and financiers had to form an alliance with the opinion-
molding classes in society, in order to engineer the consent
of the public by means of crafty and persuasive propaganda.
The opinion-molding classes, in previous centuries the
Church, but now consisting of media people, journalists,
intellectuals,economists and other academics, professionals,
educators as wellas ministers, had tobeenlisted inthis cause.
For their part the intellectuals and opinion-molders were all
too ready for such an alliance. In the first place, most of the
academics,economists, historians, social scientists, had gone
to Germany in the late nineteenth century to earn their
Ph.D.s, which were not yet being granted widely in theU.S.
There they had become imbued with the ideals of Bismar-
ckian statism, organicism, collectivism, and State molding
and governing of society, with bureaucrats and other plan-
ners benignly ruling over a cartelized economy in partner-
ship with organized big business.
There was also a more direct economic reason for the
intellectuals' eagerness for this new statist coalition. The late
nineteenth century had seen an enormous expansion and
professionalization of the various segments of intellectuals
and technocrats. Suddenly, tool-and-die men had become
graduate engineers; gentlemen with bachelor's degrees had
proliferated into specialized doctorates; physicians, social
workers, psychiatrists, all these groups had formed them-
selvesinto guilding and professional associations. What they
wanted from the State was plush and prestigious jobs and
grants (a) to help run and plan the new statist system; and
(b) to apologize for the new order. These guilds were also
anxious to have the State license or otherwise restrict entry
into their professions and occupations, in order to raise the
incomes of each guildsman.
Hence the new alliance of State and Opinion-Molder, an
old-fashioned union of Throne and Altar recycled and up-
dated into a partnership of government, business leader,
intellectual, and expert. During the Progressive Era, by far
the most important forum established by Big Business and
Finance which drew together all the leaders of these groups,
hammered out a common ideology and policy program, and
actually drafted and lobbied for the leading new Progressive
measures of state and federal intervention, was the National
Civic Federation; other similar and more specialized groups
followed.
It was not enough, however, for the new statist alliance
of Big Business and Big Intellectuals to be formed; they had
to agree, propound, and push for a common ideological line,
a linethat would persuade the majority of thepublic to adopt
thenew program and even greet itwith enthusiasm.The new
line was brilliantly successful if deceptive: that the new
Progressive measures and regulations werenecessary tosave
thepublic interest from sinister and exploitative Big Business
monopoly, which business was achieving on the free market.
Government policy, led by intellectuals, academics and dis-
interested experts in behalf of the public weal, was to "save"
capitalism, and correct the faults and failures of the free
market by establishing government control and planning in
the public interest. In other words, policies, such as the
Interstate Commerce Act, drafted and operated to try to
enforce railroad cartels, were to be advocated in terms of
bringing the Big Bad Railroads to heel by means of demo-
cratic government action.

Throughout this successful "corporate liberal" impos-
ture, beginning in the Progressive Era and continuing ever
since, one glaring public relations problem has confronted
this big business-intellectual coalition. If these policies are
designed to tame and curb rapacious Big Business, how is it
that so many Big Businessmen, so many Morgan partners
and Rockefellers and Harrimans, have been so conspicuous
in promoting these programs? The answer, though seem-
ingly naive, has managed to persuade the public with little
difficulty: that these men are Enlightened, educated, public-
spirited businessmen, filled with the aristocratic spirit of
noblesse oblige, whose seemingly quasi-suicidal activities
and programs are performed in the noble spirit of sacrifice
for the good of humanity. Educated in the spirit of service,
they have been able to rise above the mere narrow and
selfish grasp for profit that had marked their own forefa-
thers.
And then, should any maverick skeptic arise, who re-
fuses to fall for this hokum and tries to dig more deeply into
the economic motivations at work, he will be quickly and
brusquely dismissed as an "extremist" (whether of Left or
Right), a malcontent, and, most damning of all, a "believer
in the conspiracy theory of history." The question here, how-
ever, is not some sort of "theory of history," but a willingness
to use one's common sense. All that the analyst or historian
need do is to assume, as an hypothesis, that people in gov-
ernment or lobbying for government policies may be at least
as self-interested and profit-motivated as people in business
or everyday life, and then to investigate the significant and
revealing patterns that he will see before his eyes.
Central Banking, in short, was designed to "do for" the
banks what the ICC had "done for" the railroads, the Meat
Inspection Act had done for the big meatpackers, etc. In the
case of Central Banking, the Line that had to be pushed was
a variant of the "anti-Big Business" shell game being perpe-
trated on behalf of Big Business throughout the Progressive
Era. In banking, the line was that a Central Bank was neces-
sary to curb the inflationary excesses of unregulated banks
on the free market. And if Big Bankers were rather con-
spicuous and early in advocating such a measure, why this
only showed that they were more educated, more Enlight-
ened, and more nobly public-spirited than the rest of their
banking brethren.