Chapter 7: Markets
7.2 America’s Not-So-Free Markets
Much like topics in previous chapters, to talk about “the loss of freedom” in regard to markets is not quite accurate. Although they have often been much freer than they are today, America has never had truly free markets. The causes for this are multiple—everything from ideology to graft, war and crisis, socialistic schemes and bank fraud, big business and big government. The list really is endless, but could be boiled down to covetousness and greed armed with the guns of government.
Mistakes abounded from day one. The first pilgrim colony attempted to enforce a communistic society. In months the communistic storehouse was strained. It did not take long for some to learn they could slack in working and yet received the same amount of rationed victuals; meanwhile, those who did work hard to produce more also received the same amount while those who slacked ate of the extra fruits of the labors of those who worked harder. Soon, everyone slacked and the storehouse was empty. Half of the settlers died in the first winter. The governors learned the hard way, though slowly; it took three years into the settlement when they finally took the advice of the farmers who were doing the work: land was divided into private plots. Greater prosperity soon followed. The story is well known. What is lesser known is that many elements of this quickly-privatized property economy remained under common ownership and government control. This only improved after 1675.1
The path toward great wealth in colonial America was often through State-sanctioned monopoly. In fact, many of the colonies were founded—as we have discussed—as land-grant charters from the English crown. These in themselves were meant to be monopolistic sources of wealth: ports were controlled, tariffs imposed, and merchants depended upon the crown to protect them from competitors in every way. This State-Big business alliance is called mercantilism and in many ways still exists today. It was criticized by Adam Smith, who published his The Wealth of Nations in the same year America declared independence.
Despite the ascendancy of Smith’s views of freer economics, many early Americans favored the British model of mercantilism—not the least of which were Hamilton, Washington and the Federalist/Nationalist party. Indeed, as we saw earlier under the topic of States’ rights, Washington, Hamilton, and Madison, among others, colluded to establish corporate welfare—essentially a form of mercantilism in which a few businesses get the special monopolistic favor and subsidy of government—as the rule in the new nationalized government. In the first-ever State of the Union address, Washington favored, as we noted, the establishment of a State-funded military-industrial complex during peacetime, manufacturing, Indian suppression, agriculture, commerce, transportation, postal services, science and education, as well as public finance. Here are his words:
The advancement of agriculture, commerce, and manufactures, by all proper means, will not, I trust, need recommendation. But I cannot forbear intimating to you the expediency of giving effectual encouragement [that is, money], as well to the introduction of new and useful inventions from abroad, as to the exertions of skill and genius in producing them at home; and of facilitating the intercourse between the distant parts of our country, by a due attention to the post office and post roads.
Nor am I less persuaded that you will agree with me in opinion, that there is nothing which can better deserve your patronage than the promotion of science and literature. Knowledge is, in every country, the surest basis of public happiness. In one in which the measures of Government receive their impression so immediately from the sense of the community, as in ours, it is proportionably essential. . . .
Whether this desirable object will be best promoted by affording aids to seminaries of learning already established; by the institution of a national university; or by any other expedients—will be well worthy of a place in the deliberations of the Legislature.
And Washington finished his speech with a propagandistic nod to the common good which any modern liberal can love:
The welfare of our country is the great object to which our cares and efforts ought to be directed; and I shall derive great satisfaction from a co-operation with you, in the pleasing, though arduous task, of ensuring to our fellow-citizens the blessings which they have a right to expect from a free, efficient, and equal Government.
Thus was the precedent of America as a Welfare-Warfare State solidified in her infancy—although the welfare at this point was mainly corporate welfare, early neo-mercantilism.
These beginnings were mild compared to what would come, but represented the very same principle in action. The principle of subsidizing certain endeavors was gradually expanded to cover more special interest groups. After all, how many things can be justified under the “great object” of the “welfare of our country”? If a little funding for education is a good thing here, then why not a whole lot of it? Why not compulsory government education? If a little funding for postal roads is a good thing, then why not for transportation in general? Especially since the promotion of “commerce” was established already in general, why not extend that principle to cover more convenient transportation of goods for those subsidized groups. Indeed this is exactly what happened: roads, bridges, canals, locks, dams, and eventually the mother of all public-private schemes of the nineteenth century, railroads.
Both major parties embraced such schemes from early on. Jefferson’s treasury secretary proposed a system of tax funded waterways, and nationalists like Henry Clay and John Quincy Adams favored a whole system of internal improvements including transportation in general.2 Early turnpike projects gained State charters, and in some cases State funding. The Eerie canal was built based on State bonds floated under the persuasion of DeWitt Clinton.3 Chamberlain concludes candidly that
the American people, though they had resented British mercantilism, were not averse to government help when it came to getting goods to market. . . . As in Britain, the pertinacity of businessmen seeking a profit contributed significantly to what modern economists choose to call the “public sector” of the economy.4
And again, this was often if not almost always justified by some appeal to the common good or the welfare of the nation. Well, as the saying goes, the road to hell is paved with good intentions. The sayers, however, have neglected to mention that the pavers are government employees, and that those “good” intentions are funded via hell’s most egregious abuse, the public treasury.
The Destructive Power of the Commerce Clause
No area of American life displays this abuse more systematically than the progressive tyranny that has ratcheted up from the Commerce Clause of the U. S. Constitution (Article 1, Section 8, Clause 3). The Article empowers Congress “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” The abuse has grown most particularly in regard to commerce “among the several States.” Throughout American history, Congress has employed this Clause gradually to expand Federal control over every area of life. For the most part, the Courts have approved.
We have said quite a bit already about John Marshall legislating Hamilton’s (and the Federalists’ in general) agenda from the bench and how this included centralized control over State power in courts, banking, taxation, and many other issues, including commerce. The Constitutional issue came to the fore in a 1995 Supreme Court case which rehearsed a decent amount of the history in this regard. The case was United States v. Lopez (1995). Sure enough, the history begins with Marshall.
It was Marshall who vehemently upheld Congress’ right to regulate Interstate Commerce. In 1824 he decided Gibbons v. Ogden. This landmark case confirmed that control of commerce was a primary motive of the centralizing instrument, the Constitution. Earlier we reviewed Madison’s comments in regard to New York and the real purposes of the Constitution: “which was among other things to take from that State the important power over its commerce.” In Gibbons v. Ogden we hear Marshall summarizing the same sentiment:
Few things were better known, than the immediate causes which led to the adoption of the present constitution; and he [the plaintiff, on the nationalist side of the case] thought nothing clearer, than that the prevailing motive was to regulate commerce. . . . The great objects were commerce and revenue; and they were objects indissolubly connected.
Again, “In the history of the times, it was accordingly found, that the great topic, urged on all occasions, as showing the necessity of a new and different government, was the state of trade and commerce.” Marshall reviews historical evidence backing this claim and concludes,
We do not find, in the history of the formation and adoption of the constitution, that any man speaks of a general concurrent power, in the regulation of foreign and domestic trade, as still residing in the States. The very object intended, more than any other, was to take away such power.
Such quotations are multiplied throughout the decision. Marshall saw it important to solidify national control in this area, and specifically to limit the role of individual States. For States to share in the power, Marshall concluded, “is insidious and dangerous.” He warned of a slippery slope: “If it be admitted, no one can say where it will stop.”
Of course, slippery slopes may run both ways. The same argument can be put against Marshall’s centralized system: once Congress begins to regulate this and regulate that aspect of commerce, no one can say where it will stop. It’s one thing to strike down shipping monopolies one State grants to cargo ships travelling interstate waters (the subject in dispute in Gibbons). It’s quite another thing to argue that the federal government can intrude into local schools based on defining “education” as “commerce,” declaring potential crime in schools as a threat to the insurance industry (commerce), and the idea that any threat to education is a threat to the economy in general. Yet this latter is exactly what the government argued in 1995 in U. S. v. Lopez. Thankfully, the Supreme Court acknowledged, finally, that there has to be some limit on the federal power; the government had gone too far in regard to interstate commerce in this case, and the Court decided against the U. S.
Nevertheless, Marshall himself had expressed that this power is unlimited: “This power, like all others vested in Congress, is complete in itself, may be exercised to its utmost extent, and acknowledges no limitations, other than are prescribed in the constitution.” The Lopez decision rehearses the long train of compromises, abuses, and usurpations which have grown up upon the Constitutional power since Marshall’s 1824 decision:
For nearly a century thereafter, the Court’s Commerce Clause decisions dealt but rarely with the extent of Congress’ power, and almost entirely with the Commerce Clause as a limit on state legislation that discriminated against interstate commerce. . . .
In 1887, Congress enacted the Interstate Commerce Act, and in 1890, Congress enacted the Sherman Antitrust Act, as amended. These laws ushered in a new era of federal regulation under the commerce power. When cases involving these laws first reached this Court, we imported from our negative Commerce Clause cases the approach that Congress could not regulate activities such as “production,” “manufacturing,” and “mining.”5
In other words, even though this legislation increased tyranny, it still formally retained a view of limits upon Congress’ power. But it was the first step toward serious compromise:
Simultaneously, however, the Court held that, where the interstate and intrastate aspects of commerce were so mingled together that full regulation of interstate commerce required incidental regulation of intrastate commerce, the Commerce Clause authorized such regulation.
This arrangement lasted only until FDR’s New Deal legislation moved to enforce labor and wage laws, and another new era was in view. The Courts at first struck these down:
In A. L. A. Schecter Poultry Corp. v. United States (1935), the Court struck down regulations that fixed the hours and wages of individuals employed by an intrastate business because the activity being regulated related to interstate commerce only indirectly. . . . Activities that affected interstate commerce directly were within Congress’ power; activities that affected interstate commerce indirectly were beyond Congress’ reach. . . . The justification for this formal distinction was rooted in the fear that otherwise “there would be virtually no limit to the federal power and for all practical purposes we should have a completely centralized government.”
This decision was actually a death blow to FDR’s New Deal legislation, for a moment. FDR and the progressive tyrants had no use for “limit to the federal power” in any way; this is when his great pressure on the Courts began. Sadly, the same Court that rejected the Deal as unconstitutional in 1935 melted enough under pressure by 1937 to allow for radical reinterpretation:
Two years later, in the watershed case of NLRB v. Jones & Laughlin Steel Corp. (1937), the Court upheld the National Labor Relations Act against a Commerce Clause challenge, and in the process, departed from the distinction between “direct” and “indirect” effects on interstate commerce. . . . The Court held that intrastate activities that “have such a close and substantial relation to interstate commerce that their control is essential or appropriate to protect that commerce from burdens and obstructions” are within Congress’ power to regulate. . . . [Emphasis added.]
The dikes were thus exploded, and thus came the flood:
In United States v. Darby (1941), the Court upheld the Fair Labor Standards Act, stating:
“The power of Congress over interstate commerce is not confined to the regulation of commerce among the states. It extends to those activities intrastate which so affect interstate commerce or the exercise of the power of Congress over it as to make regulation of them appropriate means to the attainment of a legitimate end, the exercise of the granted power of Congress to regulate interstate commerce.” . . .
See also United States v. Wrightwood Dairy Co. (1942) (the commerce power “extends to those intrastate activities which in a substantial way interfere with or obstruct the exercise of the granted power”).
In Wickard v. Filburn, the Court upheld the application of amendments to the Agricultural Adjustment Act of 1938 to the production and consumption of home-grown wheat. The Wickard Court explicitly rejected earlier distinctions between direct and indirect effects on interstate commerce, stating:
“[E]ven if appellee’s activity be local and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress if it exerts a substantial economic effect on interstate commerce, and this irrespective of whether such effect is what might at some earlier time have been defined as ‘direct’ or ‘indirect.’”
[In other words, the New Deal Court completely ignored judicial precedent.]
The Wickard Court emphasized that although Filburn’s own contribution to the demand for wheat may have been trivial by itself, that was not “enough to remove him from the scope of federal regulation where, as here, his contribution, taken together with that of many others similarly situated, is far from trivial.”
Jones & Laughlin Steel, Darby, and Wickard ushered in an era of Commerce Clause jurisprudence that greatly expanded the previously defined authority of Congress under that Clause. In part, this was a recognition of the great changes that had occurred in the way business was carried on in this country. Enterprises that had once been local or at most regional in nature had become national in scope. But the doctrinal change also reflected a view that earlier Commerce Clause cases artificially had constrained the authority of Congress to regulate interstate commerce.
Thus the Commerce Clause has provided us the avenue to tyranny, a highway to hell. And sure enough, Marshall’s grant of unlimited power was based upon the same allegedly good intention: “the only remedy has been applied which the case admits of; that of a frank and candid co-operation for the general good.”
As Gabriel Kolko’s book The Triumph of Conservatism (by “Conservatism” he means big-business-big-government partnership) makes clear, it was the Rockefellers, Carnegies, Morgans, etc., who used Interstate Commerce regulation to secure fat business contracts and monopolies at the expense of tax payers and small businesses, all in the name of trust-busting, stabilization, and controlling costs. During this era,
The federal government, rather than being a source of negative opposition, always represented a potential source of economic gain. The railroads, of course, had used the federal and local governments for subsidies and land grants. But various other industries appreciated the desirability of proper tariffs, direct subsidies in a few instances, government-owned natural resources, or monopolistic privileges possible in certain federal charters or regulations. . . .
It was perfectly logical that industrialists who had spent years attempting to solve their economic problems by centralization should have been willing to resort to political centralization as well.6
This is exactly what they did. Beginning with the creation of the Interstate Commerce Commission (ICC) in 1887 (as the Lopez case also noted above), the big-business magnates used government regulation to squeeze out smaller competitors.
Once the bureaucracies were in place, it made little difference who or what party took office. Thus, when the conservative Democrat Grover Cleveland took office, Andrew Carnegie’s partner Henry Clay Frick glossed, “I am very sorry for President Harrison . . . but I cannot see that our interests are going to be affected one way or the other by the change in administration.”7
Kolko notes the resilience of free enterprise despite increasing encroachments from the big-corporate-big finance-state alliance. After surveying the industries of iron and steel, oil, automobiles, agricultural machinery, telephones, copper, and meat packing up until 1890, he is able to conclude that decentralized competition ruled the day despite efforts of major financiers to consolidate and monopolize the trades:
The failure of the merger movement to attain control over the economic conditions in the various industries was brought about by the inability of the consolidated firms to attain sufficient technological advantages or economies of size over their smaller competitors—contrary to common belief and the promises of promoters.8
The big financiers—J. P. Morgan & Co., etc.—would not give up their quests for total domination simply because they could not win fairly in a free marketplace. They had no qualms at all about turning to government intervention and regulation. Thus, in the period immediately following the failed merger movement—the beginning of the twentieth century—we saw a rise in Progressive government domination. Indeed, “The dominant fact of American political life at the beginning of this century was that big business led the struggle for the federal regulation of the economy.”9 So we return to our earlier statement about covetousness and greed armed with the guns of government. Big business interests simply have used government coercion as a means of gaining market advantage and forcing out smaller competitors.
And the big business was not shy about admitting their agenda clearly. For example, J. P. Morgan owned the agricultural machine company International Harvester. After Teddy Roosevelt established the Bureau of Corporations—designed allegedly to investigate and expose any monopolistic powers on the part of big-corporations—IH came under suspicion and an investigation was ordered. The matter was a joke, for IH already had a back-room deal with the administration that an informal warning would give time to correct any “illegal” activity in the mean time. Indeed, IH’s lawyer told the administration that the company welcomed exposure showing actual losses on the Company’s behalf, “for then they would have just ground for raising American prices.”10 The Company was quite serious, for the sanction from the federal Bureau’s reports enabled the company to raise prices and yet “to prevent attacks from less friendly parties, and as a general shield.”11
Noticeable also in this respect were the massive railroad companies. Not only had they used “federal and local governments for subsidies and land grants” from early on, but “railroads themselves had been the leading advocates of extended federal legislation after 1887.”12 Indeed, the railroads wanted to use federal authority to guarantee their pooling agreements and thus free them from the disruptive pressures and temptations of the market.”13 The railroad-State alliance alone needs its own detailed study in this regard.
What has been said so far is a large part of the reason it is such a joke when leftists today rail against free market principles as the cause of historic inequality, class warfare, and all our economic woes. There has been very little “free market” to begin with; this country hasn’t had free markets very often at all, historically speaking. And the “capitalism” of the big bank-government collusion that we have today is hardly free-market capitalism. It’s rigged state capitalism, which is to say it’s socialistic to a large degree.
This arrangement extends into every industry and trade from finance to agriculture. Far from basic biblical protection of private property and enforcement of contracts, our governments have too often redistributed property in various ways (sometimes under the guise of free-market capitalism) and led the way in ignoring contracts. We have seen here only a smidgeon of how American governments have done so.
The solution is not what the leftists say—it’s not more government control and wealth redistribution. We’ve had enough of that already. Leftists just want to change the recipients of State welfare from the corporations to the masses. Nor is this to say big corporations are inherently evil in themselves—they are not of necessity. Proponents of the free market, however, want to establish true private property and abolish the state-enforced welfare scheme altogether—for the masses and the pet businesses. We’ll discuss a little more about that in the next section.
Next section: Putting the “free” back in free markets
- See Gary North, Puritan Economic Experiments (Tyler, TX: Institute for Christian Economics, 1988), 5–9. [↩]
- John Chamberlain, The Enterprising Americans: A Business History of the United States (Tyler, TX: The Institute for Christian Economics, 1991), 63–6. [↩]
- Chamberlain, 67–8. [↩]
- Chamberlain, 64–5. [↩]
- Emphasis added. [↩]
- Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900–1916 (New York: The Free Press of Glencoe, 1963), 59–60. [↩]
- Gabriel Kolko, The Triumph of Conservatism: A Reinterpretation of American History, 1900–1916, 62. [↩]
- Kolko, 55. [↩]
- Kolko, 57–8. [↩]
- See Kolko, 119–120. [↩]
- Kolko, 120. [↩]
- Kolko, 59. [↩]
- Stephen Skowronek, Building a New American State: The Expansion of National Administrative Capacities, 1877–1920 (Cambridge, UK: Cambridge University Press, 1982), 129. [↩]