[fastpat]

Collectivism had been gaining force since the late 19th century, but the unhappy marriage of socialism and the business enterprise was spurred by the U.S. entry into World War I in 1917. Rothbard writes,

More than any other single period, World War I was the critical watershed for the American business system. It was a “war collectivism,” a totally planned economy run largely by big-business interests through the instrumentality of the central government, which served as the model, the precedent, and the inspiration for state corporate capitalism for the remainder of the twentieth century.

The development of “war socialism” for the purpose of waging “total war” was approved by both political parties, Progressives, business leaders, and religious leaders. Furthermore, the practitioners saw this as a new horizon, an onward-and-upward step in the development of the United States. Rothbard writes,

Apart from the role of big business in pushing America down the road to war, business was equally enthusiastic about the extensive planning and economic mobilization that the war would clearly entail. Thus, an early enthusiast for war mobilization was the U.S. Chamber of Commerce, which had been a leading champion of industrial cartelization under the aegis of the federal government since its formation in 1912. The Chamber’s monthly, The Nation’s Business, foresaw in mid 1916 that a mobilized economy would bring about a sharing of power and responsibility between government and business. And the chairman of the U.S. Chamber’s Executive Committee on National Defense wrote to the du Ponts, at the end of 1916, of his expectation that “this munitions question would seem to be the greatest opportunity to foster the new spirit” of cooperation between government and industry.

As I pointed out in part 1 of this series, many of the nation’s intellectuals were won over to collectivism in the first half of the 19th century, and that trend accelerated, especially after the Northern victory in the Civil War. Nor were American intellectuals alone in their endorsement of socialism; the ideology, after all, had come from Europe. Great Britain and states such as Germany, in order to hold off the more radical calls for communism, already had implemented some “progressive” policies such as the establishment of government “old-age pensions” and some small forms of socialistic medical care.

The desire for intellectual “respectability” carried over to those involved in business, as intellectuals often displayed scorn for those involved in the “trades.” (This was hardly a new phenomenon, as the antipathy toward work and those engaged in trade existed in antiquity, and still is part of the intellectual mindset today.) But as many people began to pile up large fortunes, they also found they could afford to enter a world that previously had been closed to them.

In a recent conversation I had with the economic historian Robert Higgs, he said that he believed that the desire for “respectability” was one of the driving forces of the Progressive Era. This certainly would have been true for many of the so-called captains of industry. Embracing collectivism and an ordered system of government regulation placed them in much more “respectable” company than would have been the case had they insisted on the “unscientific” and “unsophisticated” regime of laissez faire, with all of its “dog-eat-dog” implications of unfettered competition. Notes Rothbard,

The new dispensation cloaked the new form of rule in the guise of promotion of the overall national interest, of the welfare of the workers through the new representation for labor, and of the common good of all citizens. Hence the importance, for providing a much-needed popular legitimacy and support, of the new ideology of twentieth-century liberalism, which sanctioned and glorified the new order. In contrast to the older laissez-faire liberalism of the previous century, the new liberalism gained popular sanction for the new system by proclaiming that it differed radically from the old, exploitative mercantilism in its advancement of the welfare of the whole society. And in return for this ideological buttressing by the new “corporate” liberals, the new system furnished the liberals the prestige, the income, and the power that came with posts for the concrete, detailed planning of the system as well as for ideological propaganda on its behalf.

Yet, as Rothbard also points out, the end result was the return of mercantilist policies that benefited the politically connected firms at the expense of those who were lacking political ties. In the final irony, in the name of preserving competition and promoting the “public welfare,” the Progressives ultimately created a system that stifled competition and created entrenched interest groups and the ubiquitous “revolving door” between regulated businesses and the agencies that regulate them.

The “dog-eat-dog” system that Progressives and their business allies created was supposedly put into place to combat a previous regime of monopolistic and anti-consumer big businesses. In reality, the old system, as reviled as it was, did more to raise the standards of living in the United States and to create opportunities for people who once would have been relegated permanently to poverty, sickness, and early death than anything that came out of the Progressive Era. Indeed, if we are to be honest, the true name for Progressivism should be Regressivism.
http://www.fff.org/freedom/fd0602d.asp

The Future of Freedom Foundation