History Lesson

Too Big To Fail, the 1912 Version

How Wilson and Roosevelt tried to roll back the power of corporations.

Woodrow Wilson

In the historic election of 1912, a sitting president faced a former president and a future president. William Howard Taft, the conservative Republican incumbent, enjoyed support from banking and business, which mostly opposed any new federal powers and agencies that might restrict their freedom. The former president was Theodore Roosevelt, who, like many Democrats today, argued for coming to terms with the realities of a new economy dominated by huge corporations and using government to control them firmly. The future president was Woodrow Wilson—the eventual winner—who, insisting T.R. didn’t go far enough, assailed bigness itself, somewhat like those on the left who now despair that the package of regulatory fixes heading for President Obama’s signature won’t solve our financial problems or tame the powerhouses deemed too big to fail.

If our era, with its opulence and extravagant wealth masking inequality and hardship, deserves to be called the new Gilded Age, then our debates over financial reform have a rough historical precedent in the Progressive Era disputes on display in 1912. That year, Taft, who had come to the White House as Roosevelt’s hand-picked successor, had fallen from favor with progressives and was beaten in the Republican primaries by T.R. himself. But Taft controlled the convention, which predictably renominated him, and Roosevelt formed his own Progressive Party, with his own platform. Relying on the 1909 treatise The Promise of American Life by journalist Herbert Croly, which T.R. had been using in speeches for two years, he called it “the New Nationalism.”

Roosevelt, despite imposing historic regulations during his own two presidential terms, and despite his (somewhat inflated) reputation as a “trust buster,” had no wish to return to a laissez-faire economy. On the contrary, the New Nationalism made explicit T.R.’s emerging belief that the consolidation of the economy was an inescapable feature of modernity, one whose efficiency and productivity brought real benefits. The economic transformations, however, also made it incumbent on the federal government to actively check the trusts’ abuses and counterbalance their power. Building on the “Square Deal” rhetoric of his presidency, Roosevelt further insisted that the federal government alone should ensure the welfare of workers, farmers, consumers, and others who, through no fault of their own, hadn’t partaken in the fruits of this mighty new economy.

Besides giving him the chance to showcase his new vision, Roosevelt’s decision to bolt the GOP put pressure on the Democrats to compete for the progressive vote. In late June, the Democrats did just that by nominating an inspiring, dynamic leader in Woodrow Wilson. Despite only two years in politics as governor of New Jersey, Wilson had established himself as a highly competent, bold, and ambitious reformer. The progressive vote was up for grabs.

Wilson felt obliged to counter Roosevelt’s New Nationalism with a slogan of his own. In consultation with Louis Brandeis, whom he would later appoint to the Supreme Court, he proposed the “New Freedom.” In its name and general thrust, it contrasted sharply with Roosevelt’s vision of a strong state, evoking instead precisely the sort of 19th-century vision of small farmers, small businessmen, and small government that many progressives considered anachronistic. But the Jeffersonian tenor of the New Freedom was partly a product of campaign exigencies. Wilson had never been a die-hard Jeffersonian.

As John Milton Cooper makes clear in his new biography of Wilson, the candidate had always admired Jefferson’s rival, Alexander Hamilton, the champion of an energetic executive and active government. Moreover, as a political scientist, Wilson had argued that since the president was the only official elected by the whole nation, he should be the “originator of policies” and “the vital place of action in the system.” Yet Wilson also knew in 1912 that he needed to mobilize support among Southerners and more generally among William Jennings Bryan’s populist followers. (Having taken the Democratic ticket down to defeat three times already—in 1896, 1900, and 1908—Bryan had no hopes of running again but remained an influential force in the party.) Cognizant of the mix of constituencies now flocking to his banner, Wilson was happy to include in his speeches the traditional warnings about letting government grow too big, as well as kinder words for Jefferson than he had previously summoned.

This doesn’t mean Wilson’s advocacy of the New Freedom was insincere. It wasn’t. He believed that trusts had grown so big as to thwart the competition on which economic development depended. He feared that Roosevelt’s plan would devolve into what today might be called corporatism—an alliance between big government and big business. “There is a point of bigness—as every businessman in this country knows, though some will not admit it,” Wilson said, “where you pass the point of efficiency and get to the point of clumsiness and unwieldiness.” Instead, Wilson wanted to have the government set forth which practices constituted antitrust violations and spell out how those violations should be addressed—including, if necessary, by prosecution and dissolution. He pledged to create an agency, the Federal Trade Commission, to enforce antitrust law.

Some observers have portrayed Wilson’s platform as a return to laissez-faire and therefore Roosevelt’s as the more radical. Others saw Wilson’s desire to abolish, rather than tolerate, the trusts as the bolder plan. Both summaries have merit, but both oversimplify. The difference was really one of emphasis. Wilson saw corporate bigness in and of itself as more of a threat than did Roosevelt. Despite his superficial gestures toward small government, Wilson had more faith in government to rid the economy of this blight. As a product of the middle class himself, Wilson sympathized with the average American’s aspirations to professional success and financial security, and he wanted government to enable everyone to pursue those goals. The patrician Roosevelt, in contrast, carried a deep belief in noblesse oblige. His vision of enlightened men managing the economy for the common welfare expressed his faith in the virtue of the well-born liberals of his world.

Wilson, of course, won the election—42 percent to 27 percent—though in a two-man race, Roosevelt might well have gotten most of Taft’s vote and prevailed. It’s far from clear that voters cared much about the differences between the New Freedom and the New Nationalism, or that those differences—as opposed to the sharp personal contrasts between the blustery Roosevelt and the eloquent, professorial Wilson—tilted them one way or the other. The journalist William Allen White was one of many who dismissed the finer points of the candidates’ disagreements. “Between the New Nationalism and the New Freedom,” he wrote, “was that fantastic imaginary gulf that has existed between tweedle-dum and tweedle-dee.”

As president, Wilson earned his place in history by enacting, within his first two years, a flurry of bills from the New Freedom playbook: the lowering of tariffs, to help consumers and weaken monopolistic corporations (it was coupled with a modest, graduated income tax—made possible by the recently passed 16th Amendment); the creation of the Federal Reserve, answerable to a government board and not just private bankers (as many had wanted); and a new, tougher antitrust law, alongside the creation of the Federal Trade Commission. These laws achieved a greater measure of economic fairness and empowered the government to intervene against corporate predation. Few people have doubted their wisdom since.

But these laws didn’t lead to the vision of the New Freedom, the dynamic capitalism of the 19th century. Indeed, the New Republic, then a brand-new magazine edited by Herbert Croly, coiner of the New Nationalism, praised Wilson because it felt the president had wisely backed away from his campaign positions.Croly’s assessment was unfair, since it slighted, among other things, the potential of the antitrust laws to restore competition. But in another sense Croly was correct. Wilson’s program did nothing to refute Roosevelt’s contention that bigness was here to stay.

Ideas, especially those born on the campaign trail, rarely turn out as planned. In the long view of history, Wilson’s victory mattered not because his presidency bequeathed a regulatory regime so different from what Roosevelt would have overseen, but because progressivism itself prevailed. From one perspective, the most important fact about the outcome was that Taft, representing the stand-patters, finished third—the only incumbent ever to seek re-election and do so.

Having failed to reverse the metastasis of big business in the Progressive Era, reformers have stood little chance of doing so in the years since. In the wake of the great debate of 1912, liberals have periodically warred among themselves about the best way to repair the injustices of the capitalist system that they otherwise support. Most often, the Rooseveltian view has prevailed, even when Wilsonian solutions were put in place. Today, even those aware of the constraints the Democrats face can sympathize with the judgment that the new controls fall short. The curse of bigness will continue. But just as the progressive moment of 1912 brought forth some good laws that mitigated the worst of industrial capitalism, so the progressive moment of 2008—fleeting though it was—brought to power officials who are prevailing, however imperfectly, over the forces who would stand pat.

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