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April 17, 2008 Corporatism

The following is my editing, rewriting and excerpting various portions of a 1995 publication by my colleague Walker Todd entitled, “The Federal Reserve and the Rise of the Corporate State.” 

Many of the issues that had been at the forefront of Anglo-American constitutional and economic debates from the time of Francis Bacon (early 17th century) onward were again raised in the early 1930s as policymakers struggled to deal with the deepening economic downturn. The emergence of Fed power during this time signified the abandonment of the classically liberal model on which the Constitution was based, and the rise of corporatist models derived from 19th-century European political philosophies. Government response to the latest crisis confirms that the corporatist model now dominates the American political and social landscape.

The unifying principle of corporatism is the idea that Marxist or Dickensian visions of class struggle could be avoided if, somehow, corporate owners and managers, agricultural interests, and urban laborers could be brought together cooperatively under the benign auspices of government.

Despite the disgraceful performances of Mussolini’s Italy and Peron’s Argentina (to name just two) corporatist thinking has continued to attract many powerful proponents throughout the world. Many of those proponents are drawn to this political economy model precisely because it appears to resolve troublesome issues of distributive justice in a way that seems, at least at first glance, to be consistent with altruistic doctrines while avoiding strict Marxist egalitarianism – a so called “third way.”

Once one understands the degree to which politicians, jurists, businessmen, and economic policymakers continue to be attracted to any idea that holds out the promise of relieving the symptoms of economic contractions, it becomes easier to understand how quickly and how thoroughly corporativist ideas like the National Recovery Administration of the 1930s, or much of the Fed’s intervention today, become permanent fixtures of the Washington political environment.

It is particularly distressing, after a century of evolution of the corporatist model in American political life, to understand that an unbroken chain of doctrinal belief runs from the “classically corporatist” World War I years and early 1930s through what could only be described as a kind of “left corporatism” during the Roosevelt and Truman years, a “right corporatism” during the Eisenhower and Kennedy years, a “left corporatism” during the Johnson years, and a “right corporatism” again during the Nixon-Ford- Carter years.

Only with the ascendancy of Ronald Reagan in 1981 did the rhetoric (if not the actual practices) of those who govern us shift toward the pre-1931, pre-corporatist political economy model. In the first Reagan administration, a portrait of Calvin Coolidge was hung in a place of honor in the White House. Nonetheless, a very much watered-down classically liberal rhetoric was coupled with a lot of the same types of corporate protections and subsidies that Mussolini supplied to Italian corporations in the 1920s-1930s.

At least Carter Glass and Herbert Hoover would have recognized and understood Reagan’s rhetoric, even if Glass (but probably not Hoover) would have condemned Reagan’s practices.

The following exchange between FDR and Senator Carter Glass in Roosevelt’s hotel room at 11:30 on the night before his first inauguration is a telling indictment of the legal, as distinct from the political, basis for government actions. Though the discussion was in regard to the emergency proclamation of a Bank Holiday in March 1933, it still resonates today:

[Roosevelt]: [Hoover says that the Board has asked him twice within the last three days to issue an emergency proclamation, but I told him that the governors of the states can take care of bank closings.]

[Glass]: “Yes, I know.”

[Roosevelt]: “The previous time [that the Board asked Hoover for the proclamation] I sent [incoming Treasury Secretary William] Woodin to outgoing Treasury Secretary Ogden] Mills to tell him I would not give my approval to such a proclamation.”

“I see. What are you planning to do?” asked Glass.

“Planning to close them, of course,” answered Roosevelt.

“You will have no authority to do that, no authority to issue any such proclamation,” protested Glass. “It is highly questionable in my mind if you will even have the authority to close national banks — and there is no question, at all, that you, even as President, will lack the authority to close banks chartered by the states.”

“I will have that authority,” argued Roosevelt. “Under the Enemy Trading Act (emphasis added), passed during the World War and never rescinded by Congress, I, as President, will have the authority to issue such an emergency proclamation ‘for the purpose,’ as the Act says, ‘of limiting the use of coin and currency to necessary purposes.”’

“It is my understanding that President Hoover explored that avenue a year or two ago — and again during recent days,” said Glass. “Likewise, it is my understanding that the Attorney General informed him that it was highly questionable if, even under this act, though it has never been rescinded by Congress, the President has any such authority. Highly questionable because the likelihood is the act was dead with the signing of the Peace Treaty, if not before.”

“My advice is precisely the opposite.”

“Then you’ve got some expedient advice,” returned Glass.… [Glass then argued that the courts would find the proclamation unconstitutional because it would require the unwarranted closing of solvent banks and because, even if all the banks were known to be insolvent,] “I am sure such a proclamation could not legally include banks chartered by the states.” [Wyatt’s written opinion of December 5, 1932, argued just the contrary, that the federal government could close state-chartered banks.]

“Nevertheless,” declared Roosevelt, “I am going to issue such a proclamation.”

Convinced though he [Glass] was there had been no need for closing the banks [Glass believed that only insolvent banks could not withstand the runs of February-March 1933] and certain, too, the President was without constitutional authority for his act, those convictions were lost causes.

Hoover writes in his memoirs that if Roosevelt really believed what he told Senator Glass late on March 3, then he should have joined Hoover in issuing a proclamation limiting withdrawals and issuing the 80 percent guarantee of deposits to avoid closing the banks: “But closing the banks would be a sign the country was in the ditch. It was the American equivalent of the burning of the Reichstag to create ‘an emergency.”’ However, it was Fed Governor Meyer and the Board’s staff who led the way in finding reasons for proclaiming emergencies and for pushing forward the boldest emergency relief schemes, against the recalcitrance of Hoover, who went along with much that he should not have but retained to the end the capacity to discern excess where the Board apparently did not.

Since the first Reagan administration, the official rhetoric in both major political parties again has drifted toward “industrial policy,” “managed trade,” financial market intervention, and the like, all of which are classic corporatist ideas. An electoral choice in 2008 between the “left corporatism” of Senator Obama or Senator Clinton and the “right corporatism” espoused by Senator McCain is no choice at all in terms of pre-1931 American political economy models.

Also, after more than 70 years of lack of practice in distinguishing the classically liberal political economy model from the corporatist rhetoric and policies of contemporary politicians, a large segment of the American electorate may have lost the capacity to make enlightened or even merely self-interested choices.

Alternatively, many voters may see no opportunity to make meaningful choices among the opinion-poll driven, contradictory nonpolicies usually offered by contemporary politicians. And although many Americans by and large do understand both the actual and the potential oppression of the corporate state, my personal view is that this understanding is found more frequently among those old enough to remember wars against fascism, individual savings before the ravages of Social Security and the “progressive” income tax, and the illegality of individual or family ownership of gold. Too many of the young, lacking these memories and unaware of the relevant histories, apparently do not understand why corporatism usually contains the seeds of a far greater capacity for evil than classical liberalism, even if corporatism superficially seems to resolve class struggle issues while being more efficient than socialism.

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