The Roots of Corporate Capitalism

During the Progressive Era of 1890-1916, the United States underwent an economic transformation--from a small producer, proprietary capitalism to a large-scale corporate capitalism-- forcing the power structure of the country to redefine its relationship with the society in which it operated. In The Corporate Reconstruction of American Capitalism, 1890-1916 author, Martin Sklar, constructs a detailed explanation of the complex interaction between the economic, political, social and legal development of the period, out of which emerged what Sklar terms an evolving "corporate liberal consensus."

Sklar contends that the anti-trust debate was a struggle over the "basics" of the American business and social order and that the outcome of that debate set the course of business development in the United States. The "three major variants of corporate liberalism" which emerged during this period were a "statist-tending corporate liberalism on the left associated with Theodore Roosevelt"; "a regulatory corporate liberalism on the center left associated with Woodrow Wilson; and "a minimalist regulatory corporate liberalism on the center-right associated with William Howard Taft." Sklar sees corporate liberalism as an umbrella for diverse interests including large corporations, smaller producers and labor unions; it also involved an acceptance on the part of these groups of a larger role for government. Government and the public came to accept, in turn, changes in the competitive, free enterprise model toward the development of greater market controls and of a government-business partnership in foreign markets. The term, corporate liberalism, serves in this book both to describe a culmination of distinct historical tendencies and as an analytical tool to examine conventional wisdom about the relationship between business and the state during that time. The struggle over corporate trust questions and unfair trade practices, viewed by many as a labor vs. business conflict, is presented here as a fluid, multi-sided conflict which pitted small manufacturers against large corporations.

The debate over the degree and kind of government regulation is focused by Sklar on the constitutional struggle waged by those, including small business interests, who favored strict judicial interpretation of the Sherman Act (1890) and those, including large corporations, who favored a looser interpretation and less reliance on a free market. On the one hand there was a respectable body of judicial opinion that held that prosecutions for restraint of trade under the Sherman Act should be governed by a "rule of reason," and that only "unreasonable" combinations of business in restraint of trade should be outlawed instead of all combinations. This view held sway until the landmark Supreme Court decision in the Trans-Missouri case of 1897 in which a majority, led by Chief Justice Harlan, held that all restraints of trade were illegal whether or not they were reasonable or unreasonable. This decision gave rise to the so-called "Harlan interpretation" of the Sherman Act which lasted for three years, during which time there were several prosecutions under the Act and corporate leaders grew increasingly anxious.

Roosevelt, Taft and Wilson each struggled to develop his own conception of how government should respond to the emergence of the corporate power bloc and the ripple effect that this development had on the rest of American society, the three men differed in their approaches to the unfairness and anti-trust problems. Sklar shows us, however, how corporate and government leaders working with other interest groups can create a new synthesis favorable to corporate growth, to international expansion and to a partnership between government and business. According to Sklar, that synthesis was formalized during Wilson's presidency.

Corporate liberalism as historical solution

It was Woodrow Wilson who said that the "old time of individual competition is probably gone by,"and will not come back within our lifetime." Wilson also supported the notion of Herbert Knox Smith, a key player in legislation in these pages, to make "guilt and punishment for unfair methods and unreasonable restraints of trade individual rather than corporate." Wilson, unlike Roosevelt,believed that government, business and society must overlap and that the market must be paramount. He was, according to Sklar, "more determinist" about the evolving economy than Roosevelt who maintained the distinction between business and the rest of society where he believed government should play a strong regulatory role.

Because of Wilson's belief in the importance of the rise of the corporation, he compromised on the formation of the Clayton Act, agreeing to by pass the interests of those who had a stake in preserving the old system, for the sake of accommodating the corporations. Sklar writes:

The evolutionary creed implied a large ethical loophole: the neutralism of positive government consisted not in satisfying every interest but as Wilson had put it, in distilling national and long-term from narrow, sectional, particular or transient interests. The distillation must accord with the dictates of evolution. For those interests, and people, bypassed by evolution, conciliation often lies on the other side of paradise--or the grave.

The central problem, as he saw it, was not that a way must be found to apply Jeffersonian maxims to modern conditions, but on the contrary, that the modern 'centralized and complex society' constituted 'a new world, struggling under old laws,' laws rooted precisely in the bygone regime of competitive-individual enterprise and the corresponding laissez-faire conceptions of government commonly associated with Jefferson. It was the task of statecraft to balance public with private law to fashion a state suited to and regulative of, the modern economy.>

According to Sklar the rise of one part of the corporate capitalist class in America, brought about a "realignment among the higher circles that paralleled and ultimately fostered a policy-making coherence in, the voter realignment shaping the major parties from the mid-1890s to the early years of the new century." Former political rivals found themselves working for the same goals as "free trade gold Democrats, mugwumps, and regular Republicans [joined] in a common front against agrarian populism and socialistic radicalism on the left and against laissez-faire provincialism on the right."

The Supreme Court rulings on the nature of property to include the rights and identity of corporate property played a key role in this aggregating of forces, the author notes. The legal value given to intangibles such as corporate stock, "facilitated the exchange of tangibles for securities and hence the separation of operational control from legal ownership characteristic of the corporate form of property."

Business and political realignments, 1890-1912

The Progressive Era, Sklar argues, was first and foremost the period in which corporate power was consolidated and rationalized and in which the regulatory role of government, particularly the judiciary, developed in response. The "rule of reason" test applied by the Court with respect to the distinction between reasonable and unreasonable restraint of trade left wide discretion for corporate growth with "reasonable market restraints" and laid the basis for legislation which followed the Harlan interpretation of the Sherman Act. Business interests combined with Bryan populists, labor unions and others on the basis of the threat posed to all of them by judicial rulings under the Sherman Act. Unions were afraid that they too would be vulnerable to prosecution. Corporate leaders struggled during this period, not to avoid all regulation (some of which they saw as an inevitable part of their own growth), but to avoid, on the one hand, the perils of unrestricted competition and, on the other, the emergence of total state control. They feared the statist implications of Roosevelt's licensing and registration plans as much as unfettered competition and populist programs. As Sklar puts it, the political compromise worked out in the Clayton Act "has sustained the principle and practice of a large autonomy of the market from party politics and state command, and hence the principle and practice of the supremacy of society over the state."

Under the Clayton Act, business leaders achieved the kind of regulation they wanted; the definition of "unfair methods" was left to the courts to decide. Conspicuously absent from the Act was the tough application of federal licensing and incorporation conditions to businesses engaging in commerce as proposed by Roosevelt.

Conclusion

Wilson believed that the corporation stood "in the foreground of all modern economic questions," and that thinkers in the fields of morals and economics would have to "translate law and morals into terms of modern business." Implicit in that understanding and in Sklar's analysis is an obligation on the part of the government to fill the vacuum left by a crumbling free market and the growth of a new corporate reality. Martin Sklar's book sheds new light on U.S. economic history and puts today's capitalist system into the context of an evolving economic and political order. Market forces can and will be controlled. Sklar points out that the essential question then, as now, is who will control them and for what purposes.