Mark Stoval

Any well-read individual would have to agree that the early U.S. was basically a classically liberal state with a nearly laissez-faire outlook on the market. Please note the qualifiers in that sentence; I am well aware that the early U.S. system was not perfect. It was, however, dramatically freer economically than today’s U.S.

There are countless points in history where the people allowed the state to grab more power. But there is one point in history that seems to be the birthing point of the corporatist system that we have now. When did the U.S. make a great leap towards the quasi-fascist system that we have now? According to Murray Rothbard the critical tipping point was World War I:

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…for state corporate capitalism for the remainder of the twentieth century.

The policies put in place as part of the mobilization for the war effort involved massive new interventions in the economy on the part of the government. New economic planning committees were established to “standardize” major industries. Major business and industrial interests provided many of the members for the new government economic planning committees.

The Council of National Defense, established in 1916, had an Advisory Council composed largely of leading industrialists. Its “nonpartisan” (according to President Wilson) members included the president of the Baltimore and Ohio Railroad, the president of Sears, Roebuck and Co., the former chief statistician of the American Telephone and Telegraph Co., and the vice president of the Hudson Motor Co.

The CND’s most important division, the War Industries Board, was headed by the president of the major manufacturing concern Warner & Swasey Company. Other major officers in the WIB included the former vice president of the farm equipment manufacturer Deere & Co., the chairman of the board of Union Pacific Railroad, and the former president of the American Vanadium Co.

Not coincidentally, major business interests benefited immensely from the resulting regulations, with the steel industry, for example, achieving its highest profit margins to date during the war. This “war collectivism” offered special favors such as preferentially awarding government contracts, outlawing numerous “inefficient” variations on key products (in other words outlawing much of their competition), and generally supporting major industries’ efforts to form and maintain cartels. The WIB even had a blatantly named Price-Fixing Committee, which helped big business to force out competition. The state could also lower labor costs, by supporting companies in their anti-union efforts. Intelligent union leaders, though, saw that they could become partners in the fixed game; the president of the American Federation of Labor was a member of the CND Advisory Council.

Liberal intellectuals helped develop this new system, seeing it as superior to the two major alternatives available to them: laissez-faire capitalism or Marxist socialism. Many of them gained influence and prestige as members of the new planning organizations.

This new system was in many ways a reversion to the old system known as mercantilism. In the intervening years since the original English system by that name, though, the industrial revolution had taken place. Thus the new mercantilism in America was necessarily more industry- and manufacturing-based than the old form. Just as importantly, the new system, designed for a democracy, had to appear to be more “democratic” than the old English system, which had existed under a system of aristocracy. And so, many liberals proclaimed that the new system was radically different than the old exploitative system, as it had a more democratic goal, the betterment of all people. The government would supposedly introduce regulations to protect the common man from the business leaders, in spite of the fact that business elites were senior partners in the regulation enterprise.

Conveniently for those who justified this system by necessity for the war effort, wars have not been in short supply in the intervening years since then. After the hot war of World War II came the Cold War, and all of its proxy conflicts around the world. In fact, the U.S. has been at war more often than not throughout its history. Wars from World War I onward, though, have been used as one of the major excuses for this new kind of intrusive government behavior.

Woodrow Wilson and World War I finally turned the general direction of America away from its classical liberal heritage. The system of central economic planning established as part of the war effort inspired what later become a permanent condition, what Rothbard calls the Corporate Monopoly State.