Morton Keller (1929–2018)

In this excellent if rather technical study, former Brandeis University professor Morton Keller examines the corporate-industrial transformation of the American economy after 1900 – “A burst of corporate consolidation, unique in its suddenness and scale, [that] made it clear that big business was the primary instrument of American industrial capitalism” – from the perspective of public policy. The expansion of government regulation, often seen as a hallmark of the Progressive response to economic consolidation and the rise of big business, was rapid and widespread. During the first three decades of the 20th century, governments (federal, state, local) created most of the regulatory structures that we know today.

Keller examines the public oversight of trusts, utilities, transportation, communications, contracts, prices, business law, unions, agriculture, natural resources, housing, urban planning, banks, tariffs and taxation. The outcome, he argues, was novel in each case – the regulatory structures that emerged were hybrids, the result of political conflict and compromise among the competing interests involved. The values of bigness and corporate control did not win every battle. As Keller points out, “in field after field of regulatory policy traditional values (of laissez faire, of individualism and competition) yeastily coexisted with the new stress on corporate efficiency and corporatist control.” The importance of pluralism (the politics of competing interests) and of persistence (the staying power of traditional economic values despite the demands of a new corporate, consumerist economy) is, in fact, the key theme running through his narrative.

Not surprisingly, the regulatory structures that emerged from this cauldron of competing interests rarely were the streamlined, efficient schemes that reformers envisioned. To take one prominent example, banking regulation developed in a hodge-podge manner over decades, most notably with the Federal Reserve Act of 1913. Despite decades of careful planning and study of European models by financial experts, the central bank that finally emerged was a unique and rather odd compromise between the interests of large and small banks. The authority of the central, policy-setting Federal Reserve Board was hedged with the creation of 12 regional Federal Reserve Banks, owned and (ostensibly) controlled by private banks in each region. Other bank regulatory agencies came into being during the New Deal to handle specific parts of the financial industry.

Lest one think, however, that the current system of bank regulation is simply an archaic holdover from the past, it turns out the same competing interests of large and small banks continue to shape policy today. The New York Times (06/14/09) reported that conflict between the Comptroller of the Currency (est. 1863) and the chairwoman of the Federal Deposit Insurance Corporation (est. 1933) over needed changes in bank regulation reflected the differing views of large and small banks. Those two officials, plus the Federal Reserve chairman and the Secretary of the Treasury, reportedly did agree that “if starting from scratch, they would not create the cumbersome system that has evolved piecemeal over the last 150 years.” Nonetheless, the Times reported that they found the most efficient solution – creation of a single, unified bank regulatory agency – to be politically infeasible; as a Treasury spokesman said, “On an issue like regulatory reform, with so many differing opinions, the expectation is not that all sides will agree on the final product.” For their part, “most of the banking industry couldn't be happier with the current system...the fractured nature of regulation...makes it easier for financial institutions to shop for the friendliest regulator or pit agencies against one another.” Pluralism and persistence, I suspect Keller would argue, continues to shape political debates.

Keller also emphasizes the importance of the growth of a consumer-based economy, another hallmark of our times that originated at the beginning of the 20th century. After World War I, economic policy makers “had to come to terms with an economy uniquely, unprecedentedly given over to servicing a vast domestic consumer market. Competition now took on new meanings, not only among makers of the same goods, but between products seeking the same consumer dollar. Production yielded primacy of place to distribution and marketing. The traditional perception of the worker as producer now also had to make room for the worker as consumer.” The growth of public policy and regulation was thus a response not only to fears of bigness and corporate power, but also to an increasingly complex economy and society, and a proliferation of interests and demands.

I found Keller's discussions of anti-trust policy and the regulation of big business and utilities (including railroads) thorough and enlightening. In other areas, he faced a more difficult task in making the subject as interesting. Still, there are lots of fascinating tidbits. Twenty-five states required license plates and auto registration by 1906, but as late as 1933 only five states set absolute speed limits. Legislation proposed (but never passed) in 1911 called for an ocean-to-ocean highway along the thirty-fifth parallel, with feeder lines to every state and a right of way a mile wide, combining a macadam road for cars, tracks for electric cars, and a fast railroad. From 1929 to 1931, some 80 laws were introduced in state legislatures to control retail chain-stores (the precursors of Walmart) and protect independent retailers; six passed and other state and federal regulations followed, but with the economic recovery and expansion after World War II, restrictions on chain stores disappeared. Early twentieth century laws meant to discourage tenement housing determined the shape of certain cities: Philadelphia row houses were the result of low land costs, eased building requirements for houses less than sixteen feet wide, and an 1895 building code that made tenement houses too costly.

Though not a book for the casual reader, this straight-forward, non-ideological study is essential to understand how government interaction with, and control of, business developed over the first three decades of the 20th century. And where our current regulatory structure came from.… (altro)