AMERICAN CAPITALISM

ITS RISE, VICISSITUDES AND SURVIVAL

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CONTENTS

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CHAPTER 1 : What is American Capitalism ?

CHAPTER 2 : Capitalism in Colonial America

CHAPTER 3 : Capitalism from the founding of theRepublic to the Industrial Revolution ofthe Gilded Age

CHAPTER 4 : From Imperial Capitalism to the end of theRoosevelt era (1897 - 1945)

CHAPTER 5 : American Capitalism in the After-World War II era

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CHAPTER 1

WHAT IS AMERICAN CAPITALISM ?

As early as the late 19th century, the United States stood out as the standard model of capitalism : its per capita wealth and productivity were then already exceeding the British level, then the highest in Europe.

Even if today the economic preeminence of the US has become increasingly challenged by the rise of such formidable competitors as Japan or China or "fortress Europe" (a designation coined by the Americans), the US still remains the most fascinating example of a capitalist economy. Neither the advantages nor the drawbacks of the system should of course be underestimated. Some may claim that advantages do not make up for the human cost and that the success of the US model is only relative. Under the influence of dominant Marxist or para/peri- Marxist economic analyses, capitalism, especially US style capitalism, was even long regarded as the enemy of mankind, an exploitative system that must be done away with. Having said that, however, few would question the vigour and resilience of US style capitalism when compared with the recent collapse of the antagonistic system of collective ownership "best" embodied by the former USSR. In this perspective, looking into the saga of American capitalism sounds especially relevant.

Historically, capitalism has gone through various stages. Depending on the period, one can speak of the dominance of commercial capitalism, financial capitalism, industrial capitalism, unchecked capitalism or of changeable combinations of such elements (1)(1). If one looks at the particular history of America, including colonial times -when the territory that later became the US was a mere outpost of Great Britain- it is all too clear that over four centuries there have been significant fluctuations in the most outstanding aspects of what can be described as a "business civilization". Fluctuations, however, should not inhibit attempts at identifying some of the chief ingredients generally associated with the American version of capitalism. Looking into the nature of this system as impartially as possible will therefore be our first objective.

Before coming to US capitalism proper, it may be expedient to speak of capitalism in general, an economic system which developed in Western Europe between the end of the Middle Ages and the 18th century when the Industrial Revolution really came into being in Great Britain. First, the words we use -capital/capitalism- are of course never innocent even if, over time, we tend to forget their original meaning. The first definition of the word "capital" given by the Littré dictionary is of special interest : "où il s'agit de la tête ou de la vie". "Capital" comes indeed from the Latin "caput" -the head. What is “capital” is what is connected with the head. What type of head? One may ask. Certainly not any type of head… In relation to our subject, one can especially think of cattle's "heads" which in agrarian societies were -and still are- regarded as one of the major sources of wealth. In this respect, it is superfluous to add that in modern thinking the notion of capital is first and foremost connected with wealth. Then, of course, what is "capital" is also what is vital. Characteristically, modern science speaks of human beings' "genetic capital" -a capital which is reproducible and can, so to speak, fructify by producing new generations of human beings. This notion of endless production is obviously a prime mover in the dynamic of capitalism. Capitalism is synonymous with accumulation or hoarding of wealth (capital) by private individuals but this is no accumulation for the mere sake of wealth -static wealth at least ; it is rather accumulation within the framework of an entrepreneurial project aiming at

(1)(1) Se reporter à ce propos à François PERROUX, Le Capitalisme (Paris : PUF, "que sais-je ?", 1958, 3ème édition) p. 27.

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production and reinvestment of profit in order to increase production . Needless to say that producing ever more brings about satisfaction to the capitalist in terms of financial results but it also does in terms of creation and private venture although the latter does not necessarily rule out State interference. Far from it in fact...

Despite all their historical errors, entrepreneurs have been the lifeblood of western countries' economies. Earlier on, reminding the etymology of "capital", we associated the word "head" with cattle's heads but it need also be associated with the intelligence of the private entrepreneur who by applying his know-how to his production means transforms static wealth into a living economy. It is because of this fecundity -of this contribution to "the wealth of nations" (cf. Adam Smith)- that accumulation of capital was to be legitimized and that "capitalists" were to be regarded as powerful engines of progress in western societies, especially in the US. Having said that, it is of course necessary to add that if capitalism is based, initially at least, on private property and the skilful use of production means, it also heavily relies on a hired labour force which, as a rule, does not enjoy ownership of production means and may come to suffer from entrepreneurial decisions. In the case of U.S. capitalism, objectivity compels one to say that at certain stages in the development of the country's economy, workers have been very little protected in the face of disgraceful exploitation by their employers.

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American capitalism is often described in the US as "the American system" (an expression generally preferred to the word « capitalism ») or "the free enterprise economy" or still « the free-market economy ».

The key incentive at work in such a system rests on a fairly simple principle and has been omnipresent both in political discourse and in the statements of business leaders : men's brains and energy are believed to work best when they have no hampering restrictions and there is a close relationship between effort and reward. Free enterprise is inseparable from the pioneering spirit. From the time of the pioneers to today's managers, the belief has been that efficiency depends on entrepreneurs offered real opportunities to undertake and enjoying freedom. The trouble is that more often than not, unchecked freedom results in the law of the jungle where the luckiest or, better, the « fittest » turn out to have the upper hand, thereby verifying Darwin's theories. Instead of enjoying the free competition that an ideal liberal economy should generate, entrepreneurs consequently end up having to reckon with powerful monopolies.

Another great driving force of American capitalism is that, unlike what may have happened in other cultures, profit and money have never been taboo subjects in America. This may be partly due to America being a predominantly protestant country. In this regard, Max Weber's theses still remain standard although they tend to have been qualified over time, especially by those of Richard Henry Tawney. In The Protestant Ethic and The Spirit of Capitalism (1901), Max Weber argues that there exists a privileged relationship between the protestant tradition and the development of capitalism. In his eyes, Benjamin Franklin's maxims and teachings praising industry and frugality exemplify best the essence of American capitalism. If one looks at the history of America, even prior to Franklin's times, the link between religion and business is already inescapable. For the early Puritans (and that was also to apply to their descendants...) profit was nothing but the natural reward of a virtuous behaviour. Work and a pious, even ascetic life would secure the wealth that made material progress and philanthropy possible. This was also in step with John Wesley's well-known precept : "Gain all you can, save all you can, give all you can". Rather than use money for hedonistic pursuits or have sterile savings, one was expected to reinvest one's money for useful pursuits and ...new profit. The typical man representing American capitalism is the businessman, i.e. a man who keeps busy and pursues the magnitudes of profit. This is his chief purpose. The survivors in the fierce competitive struggle have generally been those embodying best the businessman's single-mindedness.

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Money itself has never been a taboo in the eyes of American people and insofar as their religions allow them to believe in angels, the latter's sphere will tend to be closely associated with the sweet smell of money... It is no coincidence if one can read "In God we trust" on dollar bills... Likewise, Europeans travelling to the U.S. are often surprised to note how naturally the Americans will refer to their earnings or, more generally, to money in their everyday conversation. Money is regarded as both a symbol of what you are worth -which may occasionally lead to a somewhat limitative view of the self- and a tool that one must learn to use for the better.

Last but not least, the corollary of free enterprise is that you need to have a free market economy. Economy is all the more prosperous as it depends on millions of individual decisions.The market must therefore be left to its natural regulation by the law of supply and demand. That is in keeping with Adam Smith's famous concept of the "invisible hand" necessarily operating for the common good although, at the start, individuals’ motivations are basically selfish.. Such "laissez-faire" doctrines have regularly come under attack but the neo-conservative economic orientation that has set in since the early 80's still makes them quite topical. If one considers mainstream trends at least, the belief in the harmony of interests - i.e. a harmony tying workers and farmers to business prosperity and consequently to business decisions- is far from having disappeared. Nevertheless, America's free market economy has often been much more theoretical than real. Freedom has not prevented State intervention through customs duties or tariffs, subsidies to the private sector and diplomatic action to further the interests of America, a fairly recent case in point being the lengthy GATT negotiations preceding the creation of the World Trade Organization. State intervention may also mean prices limited by government decisions. In many respects, it seems appropriate to hold the view that American capitalism is organized as a "private enterprise system" protected by the State as private property but enjoying no absolute freedom. Even under President Ronald Reagan, a champion of the free market economy, deregulation had its limits. It is also worth noting that in this liberal economy three fourths of State orders essentially benefit giant companies which compel smaller firms to act as subcontractors in order to survive. Having said that, it is still free enterprise : US economy is not government directed whereas, on the other hand, economic necessity, as viewed at least by the business elite, often tends to impact upon government orientations…

Now, despite the permanence of the prime movers of the system, it can hardly be doubted that sweeping changes have taken place in the structure and functioning of American capitalism. This is what we will study in the next chapters. Suffice it to say for the moment that there has been a significant evolution of the notion and nature of private property : industrial ownership is no longer in the hands of a few magnates or tycoons though some old fortunes (as well as more recent ones...) remain exceptionally substantial. Capital is most often scattered under the form of stock ownership ; however, "popular capitalism" seems to be much more a myth than a reality : proportionally, the number of stockholders in the US is much higher than in other capitalistic countries but a majority of these "capitalists" have invested a small amount whereas most of the stock is owned by a well-to-do minority. Another essential characteristic of US capitalism -shared by modern capitalism in general- is that decision-making has increasingly depended upon "specialists" : salaried managers with first-class business expertise. Last but not least, if the US economy continues to lead, American capitalism has had to reckon with a growing number of aggressive competitors, especially those of Asia, in a world where business empires have no frontiers.

When trying to "take stock" of US capitalism, one can legitimately have divided feelings. The first drawback of the system is probably that it has usually generated a wild and exhausting race for profits. Since World War II this has led in particular to an anarchic development of war industries with the emergence of a formidable military-industrial complex. Overall, the making of arms has always represented from 10 to 20 % in the gross national product. Still, the US has not been the only protagonist in the arms race and with the collapse of the Soviet Union military

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budgets have been cut down, at least for a while… Another drawback of the "American system" is that the resources of the land -not only those of the US proper but also those of the American continent- are being used up too rapidly. It is significant to note that the US produces 20 % of the world's energy resources and consumes over 25 % of the energy resources on the planet while its population is a mere 5% !

The success of the system can best be tested through its stability and productivity. As we shall see, in the test of stability, American capitalism has proved to be very vulnerable but it has definitely survived and its so often announced decline has not really happened yet ! As for productivity, few would deny today that the more efficient the production tool, the more productive workers will be, which, combined with the effects of collective bargaining, will also lead to higher wages. Thanks to mechanization then to the advent of today's technological wonders, the productivity of labour -i.e. what a worker produces per hour- has been one of the assets of U.S. capitalism, especially over the last two decades. Most sectors, including "traditional ones" have benefited from strong productivity. For instance, in the times of the Soviet Union, with a much higher manpower in the latter than in the US, US productivity in the agricultural sector was up to seven times as high as its level in the other camp.

This strong productivity has given rise to mass production and a host of new products. It has contributed to raising living standards and led to the « triumph » of the consumer society. Consumption is encouraged by advertising and keeps the production of riches going, which in turn boosts consumption in a sort of never-ending "vicious circle" that the advocates of the system do not get tired of regarding as extremely virtuous... It obviously results in an overall increase of the national product. Still, is this a source of greater happiness and prosperity for all citizens ?

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CHAPTER 2

CAPITALISM IN COLONIAL AMERICAGuiding principles and economic events

It has often been remarked that American capitalism developed in the wake of British capitalism, essentially because throughout colonial times the American economy was under Great Britain's control. It must even be admitted that long after the Americans had won their political independence, London capitalists remained leading investors in the US. Now, having said that, one should simultaneously observe that at a very early stage of its development, America marked its will for independent economic progress and appeared as the capitalist country par excellence.

Capitalism established itself from the beginning, not only because of the bountifulness of nature -after all, the latter needed to be tamed- but also, and more decisively, because America rejected those parts of the European "heritage" that ran counter to "acquisitiveness" and adopted those that strengthened it. Whether they were free men or indentured servants, the European emigrants who came to America in the 17th century had left behind institutions and ideas that had often prevented their upward climb or even survival. In Europe, although feudalism was on the wane, medieval land tenure and organization still subsisted whereas in America the immigrant could become a freeholder regardless of his being a purchaser, a squatter or a bondsman at the start. This revolutionary difference was probably America's most significant attraction. The settlers could live where they pleased, they could till their land as they found it suitable and, more and more, they chose to grow staples as cash crops. Acquisition was unhampered and, at the same time, a freeholder was a free man. Such vestiges of feudalism as the privileges enjoyed by European "corporations" or "guilds" were not to cross the ocean either. With their control over wages, apprentices, production and new capital investments, these European institutions limited the freedom of both workers and enterprisers while the American could set up his own shop, move about and trade under basically freer conditions. In other words, the Americans did not then suffer from the existence of entrenched monopolies.

Apart from this climate of freedom, American capitalism benefited from cultural postures connected with the Puritan origins of New-England. The basic implications of capitalism with its employment of accumulated funds and unequal distribution of rewards based on acccomplishment, was accepted morally, legally and socially without reservation. Not only that, it was religiously sanctioned. As they believed in predestination, the Puritans considered that any lapse from righteousness was a likely sign of ultimate damnation. Conversely, they would view material success achieved through individual effort as a possible sign of divine election. Therefore, they were careful to plan a well-ordered, disciplined life, which extended to their professional activity. While their natural frugality and thrift -in keeping with divine commandments- fostered accumulation of capital, they would launch a "business-like spirit", working more methodically for the improvement of production and trade. This behaviour pattern became inseparable from the capitalist system. Of course, puritan doctrines did not spread to all the colonies but they did leave their imprint, perhaps because the New World was predominantly Protestant (cf. Weber). Even if they did not go so far as to link salvation with a "calling" (useful labour), Protestant Churches generally emphasized the dignity of labour and ennobled man's quest for material success. Late into the 18 th century even such a secularized mind as Franklin seemed to advocate a type of "asceticism" not so distant from the puritan/Protestant ethic. This is for example what he wrote in Poor Richard's Almanac : "the way to wealth, if you desire it, is as

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plain as the way to market. It depends chiefly on two words, industry and frugality ; that is, waste neither time nor money, but make the best use of both".

Besides, the legal system inherited from Great Britain was to safeguard the essentials of capitalism, all the more so after the Glorious Revolution of 1688. The mainland colonies of America were among the leading beneficiaries of the latter. This Revolution did away with arbitrary power and reinforced the Rule of Law securing the individual his basic rights : of conscience, association, speech and also of property. Through the creation of constitutional government, the Rule of Law imposes limits on the fiscal powers of public authority.

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Colonial America was initially regarded as a commercial venture by British "merchant adventurers". The first settlements in the New World were sponsored by trading companies : the Virginia Companies of London and of Plymouth, both granted the permission to establish a colony in America.. Even the deeply religious "Pilgrim Fathers" who settled the Plymouth colony were members of a joint-stock company. Since they were too poor to finance their journey to America, they persuaded a group of London merchants to finance their passage in return for an interest in the profits of their prospective colony. It was agreed that after seven years, the property and resources of the colony would be divided among the London merchants and the planters -i. e. the Pilgrims- on a pro-rata basis. Likewise, though initiated by staunch Puritans, the Massachusetts Bay Colony (founded in 1630) was backed by wealthy London adventurers who anticipated both earthly profits and heavenly dividends. They formed the Massachusetts Bay Company the regulations of which became the laws of the new colony. So, apart from political or religious motivations, the ultimate aim was to reap profits, possibly from precious metals, and if the latter proved hard to find, from trade in exotic products like furs and tobacco. Interestingly, the capitalistic "experiments" of America soon gave signs of their will for escaping British interference. Thus, after difficult beginnings, the Plymouth Colony developed a profitable trade in timber and furs and during 1626-27, it was decided to buy out the London merchants so that the Pilgrims could organize their community on an independent basis. The London merchants agreed to accept 1800 British pounds in full settlement of their claims and the profits from the fur trade served to liquidate the debt.

Initially, agriculture was the primary economic activity of New England but as the New England soil soon proved stony and poor, people turned to other areas of economic activity. After a pioneering period of self-sufficiency, a market economy was to emerge and within less than a century, towns like Boston and Salem became bustling commercial centers with an aristocracy of businessmen.

Now, economic conditions were not identical from one colony to the other. One can make out three main groups : the New England Colonies we have already referred to, the Middle Colonies and the Southern Colonies with Virginia as their leader. The Middle Colonies (New-York, New Jersey, Pennsylvania and Delaware) were the most cosmopolitan and the most highly diversified. They combined commercial agriculture based on crops grown for sale on a world market with a vigorous manufacturing and mercantile life. By the mid 18 th Century they already enjoyed a prosperous middle class society which, in many ways, foreshadowed future developments, especially in terms of melting pot. With a population of 85 000 (60 000 in Virginia, 20 000 in Maryland and about 5000 in the Carolinas), the Southern Colonies were already well established by 1690 with Virginia as the unquestioned leader. As in New England, Virginia originated in a joint stock company (the Virginia Company) which hoped to prosper by finding and processing raw materials (timber, naval stores, sugar, tobacco, etc.) which England needed but could not obtain at home. Georgia was to be created later, in 1732, and developed slowly. The South made its living from tobacco essentially and developed its characteristic plantation economy. As the number of indentured servants was not sufficient to satisfy the need

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for labour and as wage rates for free labour were some six times higher than wage rates in England, the plantation increasingly relied on slave labour. There were still few slaves in America in 1700 (about 25000) but their number had grown to 500 000 in 1760, three fourths of whom were in the South. With its one crop economy, the South, especially Virginia, was to be severely affected by the enforcement of Great Britain's mercantile laws as its production could not be freely exported to other to other countries than Great Britain.

Despite significant differences from one colony to the other, the colonial economy presented common characteristics. The chief characteristic was mobility in every way and prompt access to a market economy. Initially, capital came from Great Britain in large part. Investments came from the outlays of chartered companies and the so-called "proprietors" but with the emergence of a merchant class, capital was to get americanized. Labour too mostly came from Great Britain and then became more diversified with immigrants from Germany and Northern Ireland in particular. Steady exploitation of the country's resources and rising production were made possible thanks to the mobility of capital and labour. Trade soon joined the process : the pioneering times of self-sufficiency soon gave way to a commercial economy, although cycles of primitive culture and market economy were to coexist in America until the end of the 19th century. As early as the 18th century, America definitely asserted its capitalist orientation. Even in its pioneering setting, American agriculture soon showed its preference for cash crops (for example : wheat in the Middle Colonies) instead of remaining on a self-sufficiency basis. The impetus was given by the new merchant class which grew up to buy farm commodities, turn them into commercial goods, supply the countryside with its needs and advance credit... The new capitalist/merchant was to prove quite polyvalent. Specialization in the various functions did not appear until much later in America.

Though colonial America consisted chiefly of small independent farmers, this should not obscure the economic leadership exerted by a significant group of entrepreneurs. Certain specific activities were to reach an industrial scale and resulted in increasingly booming commerce. Thus, as settlement pushed into the hinterland, the gathering of furs and hides became a commercial venture with the Indians at the center of it (New York became a major centre for this trade). The country's wood resources also led to a great lumbering trade and made possible the appearance of a shipbuilding industry (at least 30 % of the whole English merchant marine was built in American yards during the colonial period). In New England, the "kingdom of cod", fishermen fished to eat and to sell. Fishing became a well-capitalized industry so much so that exports of fish soon exceeded those of the mother country. Whaling too, with all its by products became a source of substantial profit. Still in New England, the manufacture of rum soon became the most important industrial activity. It relied on brisk trade with the foreign colonies in the West Indies ; from the latter, molasses were bought and then distilled into rum. The colonies, notably in Pennsylvania were also to engage in the iron industry. Large amounts of capital were attracted to it, which Great Britain came to regard as a threat to its own interests. In 1750, a restrictive policy was finally worked out with the Iron Act which favoured production of English iron. In the South too, where the great cash crops were tobacco (later superseded by cotton) and rice, the plantation economy was organized on a capitalist basis with the capital fund invested not in land or machinery but in slaves. Credit was therefore the life blood of the plantation system but the latter often came from England. It was both a necessity and a cause of grievances. Southern planters complained about English merchants providing credit and acting as commissioners for their crops : credit was too costly while crops were sold at low prices. Planters also resented inadequate money supply and market restrictions. No wonder then if in the prerevolutionary period the Virginia elite showed special determination in voicing colonial claims.

The basic market for American production was Britain while the mother country again was the only source of those finished manufactured goods that young America needed. However, as the balance of payments in such exchanges was unfavourable to the colonies, American trade needed to seek other markets. The trouble was that because of Great

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Britain's mercantilist system the colonies' economic rise could not be paralleled by full mobility of commerce, a circumstance which eventually led to the American Revolution.

Mercantilism as understood by the British meant that the colonies existed chiefly for the enrichment of the mother country. The colonies were under the obligation of keeping to raw material production and there was a range of products, included in the so-called "enumerated lists", which could be exported to Great Britain alone. While the mother country imported the raw materials it needed from the colonies, the latter supplied a profitable market for British manufactured goods. The system had its positive points for the colonies, especially in terms of protection from foreign competition and low-priced manufactured goods ; besides, its restrictive regulations were not strictly observed as Great Britain's policy of "benign neglect" prevailed for a long time. However, mercantilism came to create a sense of dependence on the part of colonial merchants and planters and one of superiority in London. The colonies were put at a disadvantage with more goods and services bought from the mother country than they sold to the latter. Moreover, the restriction of colonial manufacturing to non-competitive fields or to those which could supplement the economy of Britain became a major source of frustration. Had capitalism in the 18th century been working in an international community where capital, trade and labour moved freely there would probably have been no American Revolution.

In order to offset the effects of their unfavourable balance of payments with Great Britain, colonial merchants had to develop many multilateral trades. That was necessary to acquire the cash and bills of exchange with which to discharge their obligations in Britain. The triangular trade between the American colonies, the West Indies and Africa was certainly the most instrumental in sustaining American prosperity. New England merchants sold the products of the Northern colonies to the planters of the West Indies in return for cash, sugar and molasses. Sugar and molasses were used in the production of rum which was then taken to West Africa and sold to local chieftains in return for slaves. Such trading activities also included illegal intercourse, especially with the non-British West Indies and smuggling was to grow into a very lucrative business.

As there was a general shortage of cash in the colonies, the Americans would resort to every means to expand their currency but it was part of Great Britain's mercantilist policy to prevent this. As a result of English restraint, America had no public or commercial banks. Land banks however made loans against farm mortgages issuing notes which became legal tender but this was opposed by the mother country. In the same way, it increasingly opposed paper money issues by colonial governments.

When, after its victory of 1763 over France, the burden of administering its empire became heavier Great Britain decided to raise greater tax revenues from its North American colonies and to improve the efficiency of its mercantilist system. The policy of "benign neglect" was given up and superseded by tough enforcement of trade regulations under the so-called Navigation Acts. Predictably, Americans soon regarded such measures together with the tougher fiscal policies of Great Britain as infringements on their constitutional liberties and "rights as Englishmen", which was to give rise to the American Revolution.

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CAPITALISM FROM THE FOUNDING OF THE REPUBLICTO THE INDUSTRIAL REVOLUTION OF THE GILDED AGE

In addition to securing political independence fom the British, winning the revolutionary war meant economic freedom : under the terms of the peace treaty (1783) all restraints inherent in the former mercantilist system were removed. From then on, Europe and the East were opened up to American commerce and, more generally speaking, American businessmen had a much larger world in which to operate. In every field -be it manufacturing, land speculation or banking- there appeared new opportunities for capital enterprise.

Change was gradual. For about half a century, the American economy remained predominantly agricultural but farmers developed a progress-oriented mentality, especially in areas where staple crops were grown for the market. Agricultural and commercial activities mixed easily and thinking as they did in terms of productivity and investments, farmers also began to look westward towards the "frontier" as a promise of enrichment. As early as 1787, the Northwest Ordinance turned such prospects into reality. However, real economic take-off did not really come about until the new nation could rely on a firm institutional basis thanks to the work of the Philadelphia Convention (1787). Under the new Constitution, the credit of the State was on the way to being restored, all the more so as both domestic and foreign creditors/investors approved of two essential commitments of the new government : a sound fiscal policy and a strict neutrality as regards European involvements. The master-mind of the economic recovery was Alexander Hamilton, secretary of the Treasury. He stood opposed to Thomas Jefferson (Secretary of State) but benefited from the support of President Washington.

Contrary to some of his detractors' accusations, Hamilton was no authoritarian and no mercantilist but a libertarian in the best Adam Smith sense. Still, in Hamilton's eyes, public credit and private credit went hand in hand. Public credit meant that the government was efficient enough to redress a huge public debt, provide revenues for the needs of administration, guarantee the money supply, regulate foreign trade and safeguard its rank between the great powers. Only in such a climate could private enterprise function properly.

Hamilton was then active in getting another great scheme through Congress : the creation of the First Bank of the United States (voted in February 1791 despite strong opposition). It was chartered for a twenty year period with the state owning only 20 % of the shares while private investors held the remaining 80 %. By instituting a federal central bank, Hamilton's hope was to achieve currency stability, strengthen confidence in the financial integrity of the national government and enable steady economic growth by making needed credit available to the business community. The Bank was indeed to prove equal to the task. It boosted business. As early as 1792, twenty four New-York merchants founded another institution : The Stock Exchange at n° 68 Wall Street.

Hamilton was less lucky in promoting his vision of an industrialized America patterned upon the British model. Hamilton's starting point was that an international community allowing totally unhampered trade had not yet come into existence : other nations were not only supporting their home industries but also discriminating against foreign products. Accordingly, America, a young nation, had to protect itself against such discrimination and stimulate its own manufactures by government intervention. Hamilton's proposals were turned down, especially owing to the staunch opposition of the agrarian interests, but to later generations his Report on the Subject of Manufactures (Dec. 1791) became the classical text on the relations of government and industry.

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The Anti-federalists had the upper hand in 1811 when the charter of the First Bank of the United States was allowed to lapse. Still, in the face of a new proliferation of State banks and the ensuing fluctuations of the American currency, in 1816 Congress voted the foundation of a second Bank of the United States with again a twenty year Charter. Nicholas Biddle who presided over the bank from1823 onwards viewed it as a real central bank with control over the national money market. He also played an active part in channelling Eastern capital into the expanding West and South. Credit and currency were made more easily available there, which contributed to the development of the "frontier".

During the whole "era of good feelings" (pre-Jackson period) much of the State interventionism advocated by Hamilton was taken up as a necessity, especially under the form of Henry Clay's "American System". It met the expectations of an expanding nation. Merchants and businessmen demanded the building of bridges, canals (the Erie Canal opening a water route between New-York and the Great Lakes was completed in 1825), "turnpikes" (toll roads) and, later on, railroads. The federal government together with State governments would issue bonds, grant subsidies and monopolies to private companies willing to invest capital in enterprises of ambitious scope. During the years going from the advent of Jackson (1828) to the mid 19th century, demand was dramatically boosted by such determining factors as the settlement of the West and rapid demographic progress (the population nearly doubled between 1828 and 1848). Skilled craftsmen and small manufacturers were encouraged by those circumstances but, in the beginning of the period, they found surviving economic practices still acting as a check upon their ambitions. They resented State legislatures for granting "corporation charters" (often another term for "monopolies") to affluent and influential people preferably while they also blamed the Second Bank of the United States for its restrictive credit policy. President Jackson, whose success embodied the rise of the West and of the "common man", was responsive to the impatience of this new class of entrepreneurs. He felt that much of the mischief arose from "the power which the moneyed interest derives from a paper currency which they are able to control, from the multitude of corporations with exclusive privileges which they have succeeded in obtaining in the different States". No wonder then that when the Bank charter came to expiration in 1836, Biddle's fight to have it renewed proved of no avail. Small and/or average businessmen found allies among the agrarians who viewed the Bank as an instrument of speculation in the hands of patrician Easterners as well as among the hard-money theorists who feared the inflationary effects of this Bank system. The result was that from 1837 to 1863 State banking alone existed in the US. It meant sound banking in New-York and New-England but in the South and West "wildcat banking" was mostly unsound.

The disappearance of the Bank of the United States was in keeping with Jackson's ideal of a "free-for-all democracy" in political and economic life. It heralded the new age of liberal capitalism and marked the real beginnings of free enterprise though such an evolution was already discernible as early as 1824 in one of the landmark decisions of the Supreme Court : Gibbons v. Ogden (in this ruling the Supreme Court nullified the monopoly in river transports bestowed upon the Fulton-Livingston Company by the state of New-York) (1)(1). From the end of the Jacksonian era to the Civil War the American economy moved ahead -though irregularly and in short cycles of prosperity and decline (the major setback was the crisis of 1857)- and remained open to the initiatives of newcomers in the business community. The incorporation Acts (1)(1) voted by the various State legislatures in the two decades before the Civil War set up uniform State (1)(1) This monopoly generated tensions with the surrounding States and, in the eyes of the Court, it unduly escaped Congressional power of regulation of interstate commerce. Through this ruling, the Court confirmed the powers of the federal government to control the country's economy but "to control" here meant doing away with restrictions. It was to have far-reaching consequences : not only did it make it possible for the port of New-York to expand, more generally speaking it also gave new impetus to a commercial system extending beyond the narrow State frontiers. Much later on, Chief Justice Charles E. Hughes was to regard this Supreme Court ruling as a "proclamation of emancipation of American commerce".

(1)(1) Lois régissant la création de Sociétés

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requirements to be met by anyone wanting to create a corporation ; previous "rules" the intricacies of which used to result in favoritism and corruption were thereby done away with.

Now, in the whole ante-bellum period, capitalism remained pre-industrial by and large in the sense that there was still little industrial concentration. The firm base for accumulation of capital and investment that existed in the British manufacturing sector had no real counterpart in the US. American enterprise, which was still predominantly mercantile or oriented towards speculation, land-jobbing standing in the first place. "Manufacturing" for the most part was at the domestic stage of production. The workers usually were farmers working in their cottages. In only one area, the iron and textile industries of New-England, did enterprise take on the characteristics of industrial capitalism with sizeable investment in mechanical operations and a wage-earning labouring class. Textile manufacturers such as Lowell or Lawrence (Massachusetts) established an early factory system. Because of the development of textile industries, the cotton plantation of the South, like the tobacco plantation before it, was linked with capitalist production. Southerners' main investment was in slaves. The South sought a maximum cash return from the labour of its "human machines" while "King Cotton" entered world markets to be affected by supply and demand.

Relations between North and South had otherwise grown increasingly tense, first of all because the country's economic evolution had given the North a clear advantage over the South. The North was the section which had benefitted most from demographic expansion (60 % of the new immigrants settled there) and economic improvements connected with progress in transports (the first railroad was inaugurated in 1826) and the revolution brought about by inventions such as Eli Whitney's cotton gin. Because of its little diversified economy, the South was mostly dependent on the North and remained backward in many ways. One of the major bones of contention between the two sections long hinged on the issue of protectionism and tariffs. Southerners had generally been in favour of free trade and, consequently, mild tariffs to get cheap articles from Europe ; those who, like Henry Clay, had different views failed on all points. On the other hand, the industrial interests of New-England, Pennsylvania and the Middle West (much dependent on the North East) demanded protection against foreign competitors. After the Nullification crisis of 1833(2)(2), the Southern view had prevailed so that in 1857 the country was almost on a free-trade basis. But now a strong opposition had appeared in the person of the Republican party whose platform reflected Northern aspirations. Not only did the North advocate protective tariffs, it was also set to limit slavery, a system abhorrent to an increasing number of abolitionists as well as to less committed people finding in the "peculiar institution" additional reason for denouncing the basic immorality of the South. After the South had decided secession, a cruel five year war was necessary to settle the conflict.

However devastating it may have been in terms of human cost, the Civil War, as any period of war, proved to be a tremendous booster of private enterprise. The insatiable needs of the armies had to be met. Besides, the government financed itself by borrowing and the monetization of the public debt enormously increased the money supply and therefore credit (1)(1). Fortunes were made and ploughed back into new business ventures. It was during that period that the basis for the impressive industrial growth of the U.S. until the end of the 19th

(2)(2) Since the 1828 "Tariff of Abominations", the South had fiercely opposed and even "nullified" protective tariffs as detrimental to its economy. This "nullification" was an unprecedented challenge to federal authority and condemned by the North and West as treason. Still, on March 2, 1833, Jackson came to an agreement with the South : he accepted the "Compromise Tariff" by which customs duties were levelled down.

(1)(1) The North found it nessary to float $ 2600 million in bonds and to issue $ 450 million in greenbacks. After specie payments (paiements en argent-métal) were suspended in 1861, prices more than doubled. It encouraged speculation but also stimulated enterprise.

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Century was really laid. Thanks to the defeat of the South, the programme of the Republicans could be carried out. With protective tariffs pushed up from 1861 to 1864, the economy was put on a secure footing while substantial revenues were created for the Treasury. In 1863, a nationally supervised banking system was set up under which federal authorities might charter banks and restrict their purposes. Though no central bank system came into being, this new arrangement led to a healthier situation, curbing inflationary trends in particular. Industries were then to pass from their infant stage to the era of industrial capitalism which gave rise to gigantic accumulation of capital and higher standards of living though not everybody was to take advantage of them similarly.

After the Civil War, the States grew with amazing swiftness. In addition to the ideological dimension -the business spirit of the North had triumphed over the archaic Southern plantation system- the conjunction of several important assets tended to make America an ideal ground for new entrepreneurs : the wonderful natural resources of the country in which every basic source of energy could be found in plenty together with a profusion of raw materials ; the steady immigration of cheap labour from Europe while increasing population numbers provided a larger and larger domestic market (the population doubled from 1870 to 1900) ; the development of an impressive network of railroads extending so rapidly that it passed from 30. 000 to 193 000 miles between 1860 and 1900 (before reaching half the total mileage of the world in 1910...). Still, on the ideological plane, the business spirit of the period was also propped up by the prevalent philosophy of Social Darwinism best developed by the Englishman Herbert Spencer in The Social Statics (1851) which then met with an enthusiastic response in the United States. Spencer argued that man's life was a struggle for survival : in the social jungle, the fittest were naturally rewarded by success while the unfit were eliminated and it was normal that it be so. Therefore, the State had no business interfering with individual actions. Trying to regulate socio-economic life was bound to be unhealthy for it ran counter to Adam Smith's pivotal concept that the businessman seeking his own profit was "led by an invisible hand to promote an end which was no part of his intention - the common good". In such circumstances, no wonder if the new heroes were the entrepreneurs, the "captains of industry", also called "barons" (occasionally "robber-barons"(2)(2) by their detractors...), "kings", "empire-builders" or even "emperors". The philosophical rationalization of economic laissez-faire served their purposes so that such business tycoons as Andrew Carnegie had come to regard Spencer as a genius. The new type of society also found its expression in the literary field, especially in Horatio Alger's stories. Horatio Alger (1832-1899) epitomized the spirit of the times with countless and predictable success stories with self-explanatory titles such as Bound to Rise, Luck and pluck, Sink or Swim, etc. Their typical hero was a poor hard-working boy, often thwarted by crooks or sheer adversity, but finally rising "from rags to riches"(3)(3). However, not every writer shared Alger's idyllic vision. The new age was labelled "the Gilded Age" after the title of a satirical novel that Charles Warner and Mark Twain wrote in 1783 (besides being a master of humour, Twain was himself a businessman...) : the authors wrote an indictment of the methods by which big fortunes were built up. In the novels of Henry James, the obsession of money is ever present too. In The House of Mirth, Edith Wharton shows money-driven women. Frank Norris and Theodore Dreiser deal with similar problems. Dreiser calls the businessman the "Titan", half-conqueror, half-child who has a daring vision and makes reckless use of his resources to gain his ends. As for William Dean Howells, he makes a distinction between the good and the bad businessman in A Traveller from Altruria.

(2)(2) One of them, Jay Gould, a shady financier relishing business warfare, inspired the title of one of Matthew Josephson's most famous novels, precisely The Robber Barons, (1934).

(3)(3) In fact, closer reading of Alger's stories also shows that the hero's success does not always lie in hard work and honesty exclusively. The hero may unexpectedly inherit or benefit from the support of a rich old gentleman, not such frequent occurrences in real life...

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Though the laissez-faire atmosphere of the times logically led to objectionable business practices, the appeal of business enterprise was so strong that few Americans really grudged their admiration to the big business barons who actually ruled the country. In the last third of the 19 th Century, the outstanding figures of the age were no longer politicians or presidents but such wealth-builders as Andrew Carnegie, George M. Pullman (1)(1), John Pierpont Morgan -a financial wizard-, J. D. Rockefeller, Solomon Guggenheim -industrialist and great art collector-, Cornelius Vanderbilt -the great railroad magnate- and a few others. As the vigorous sons of the pioneers, many Americans considered these people's wealth as the reward of a way of life they themselves subscribed to. The latter implied the observance of the Puritan virtues of austerity and acquisitiveness. It could be summed up as "efficacy in the sight of God and power in the sight of man". As a matter of fact, most of the great businessmen were marked by Puritan principles. They often came from small conformist towns. These characters, presenting a stern visage to the world, firmly believed that success was brought about by a righteous, virtuous life. Anyway, lots of candidates to a success story were thrilled for example by the odyssey of Andrew Carnegie who had worked his way up from the cotton factory to the control of the greater part of steel production ; and the patient work of J. D. Rockefeller, eliminating waste and anarchy in the oil business, appealed to their practical sense. The founder of the Standard Oil invented in 1882 a combination according to which all affiliated firms were to be governed by one body of trustees so as to organize output and distribution, lessen expenses and crush competition : it worked so effectively that from then on trusts grew rapidly in number. These people and their likes wielded more real power than many a monarch and in many cases it was hard not to be fascinated by their visionary sense as organizers of men, materials or credit. People also had a liking for the figure of the inventor of genius, such as John Pemberton, the Atlanta chemist who, in 1886, launched on the market "the intellectual beverage and temperance drink" : Coca-Cola. (It had to face a rival as from 1898 : Pepsi Cola).

Fascination for great business figures did not mean however that public opinion took a unanimously positive view of the business community. Far from it. Even if few people wanted the Government to kill the goose that laid such mountains of golden eggs, the Americans had not lost their critical sense and those who suffered most from the evils generated by industrial capitalism were increasingly clamoring for reforms. These considerations will then lead us now to try and take stock of the achievements and flaws of the period as objectively as possible.

While the US was "only" the fourth industrial power in 1860, it had become the world leader as early as 1894. The country's income was multiplied by eight between 1850 and 1900 while the real per capita income of the occupied population almost doubled, that is from $ 787 to $ 1388. By combining increased automation with taylorist principles -the latter were to triumph at the Ford factories- production was rationalized. Production costs were thereby lowered and so were prices paid by consumers. It led to the distribution of enormous quantities of uniform products. Historian André Siegfried contended that standardization worked all the better as the Americans had similar tastes throughout the country. It must be admitted that, in one way or another, the country's stupendous expansion benefited almost every sector of the population. All those who emigrated to America at that time were obviously aware of such improvements... Louis M. Hacker is right to point out that though the period presented many cases of captains of industry "engaged in cutthroat and unfair means of production" (1)(1), it would be unfair to assume that private fortunes, however earned, and human exploitation automatically went hand in hand.

(1)(1) Carnegie, the steel tycoon and George M. Pullman (the inventor of the "Pullman-car" or sleeper) formed a partnership to create the Pullman Palace Car Corporation.(1)(1) Louis M. Hacker, American Capitalism, Princeton, NJ : Van Nostrand, 1957.

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Objective evidence compels one to say that wages were kept high, much higher than in Europe. Entrepreneurs would consider that decently treated and better paid workers made sense in terms of better efficiency at the factory and consumption of the goods they produced and the trend was to subsist (on the eve of the first World War, lots of skilled workers enjoyed living conditions still unknown to some samples of the European "bourgeoisie"). Even historians openly critical of capitalism will seldom deny these facts(2)(2). Neither can they ignore that many of the leaders of enterprise came from the ranks of the humble. Paradigmatic success stories were no mere legend.

The seamy side of the system cannot reasonably be played down though. First, viewed from today's perspective, it may already sound outrageous that no income tax and inheritance law came to bridge the gap between enormous personal fortunes and the common people. The really rich could then literally indulge in extravagant living. Above all, there is no doubt that because there were few government regulations, the history of business during that period was often one of gigantic financial manipulations. Capitalists such as Jay Gould would act like gamblers or cheating poker players. They manipulated the stock market, speculated on land, minerals, any kind of goods. By artificially raising the value of declining stocks, they would reap enormous profit. Financiers were all-mighty but when economic results were below the excessive expectations they had generated, it entailed the ruin of the investors they had attracted into the trap.

In an economy with many speculative elements, it was predictable that the course of business should have sharp ups and downs. Besides, the absence of monetary and fiscal mechanisms capable of having corrective effects on recession and inflation was a fundamental flaw. America's heavy dependence upon European markets for credit and outlets to sell its farm surpluses also played an important role. Price movements were not uniform. They fell most sharply in wheat and flour, textiles and iron and steel. Between 1878 and 1896, prices had declined by 25 %, a decline which can also be partly explained by falling gold production and contraction of government expenditures. The years 1873-79 saw sharp depression but recovery soon came back : in 1883, the boom was in full swing. However, partly because the American banking system was unable to cope with the awful repercussions of a severe credit squeeze in London, recession came about again in 1893-1896. 1893 was a black year : six hundred banks as well as seventy four railroad companies and fifteen hundred businesses had to close down. In the face of the downfall, a growing feeling was that expansionism might be a good means of finding new outlets and also of defusing rising social agitation.

The extraordinary rise of capitalism could have entailed class warfare in the European style. But because working class problems in the US could not be assimilated to those in Europe, it partly explains that there was little penetration of Marxist ideology in America. Still, having said that, it is all too clear that sizeable groups of workers were increasingly suffering from low living standards : developing industries had caused the crowding of proletarian masses in great urban centers where unskilled workers generally started on very low wages. Besides, skilled workers were definitely set to claim improvements. As a consequence, Labour began to get organized quite early. In 1866, with a membership of 60 000 workers, the National Labor Union was founded. In 1869, it was the turn of the Noble Order of the Knights of Labor, a secret society emphasizing the nobility of work and of those who had to earn their daily bread. Only salaried workers were recruited. Organized labour was to be given more substance in 1881 with the creation of the Federation of Organized Trades and Labour Unions by Samuel Gompers. Lots of workers disappointed by the Knights of Labour joined the new association. A moderate, Gompers was to set the direction of what remained the basic principles of American unionism in the future : the existing order was not questioned ; unionism was part of capitalism and pursued the same objective : gain ; labour expected to get wage raises and better working conditions by negotiating with employers instead of resorting to the State. Apart from negotiating, striking was

(2)(2) Recent reading of that somewhat "left-wing" secondary school Bible -the Mallet Isaac course in history- confirmed this view.

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another privileged weapon. Some strikes resulted in positive gains, others came up against strong resistance. They occasionally were of formidable scope. In 1877, it was the first national strike of railroad workers. The intervention of the army was then requested in most of the States. In the year 1882, Labor Day was celebrated for the first time : a great labor demonstration, with the Knights of Labor at its head, gathered 30 000 people in New-York around such slogans as "Labor built this Republic and Labor shall rule it". 1886 was marked by another huge strike in Chicago : 100.000 marched through the streets flaunting their slogan "Eight hours a day with no cut in pay" ; on May 5th, a bomb was exploded by a member of the Black International (the American branch of the International Working Men's Association) ; the demonstration then turned into a riot and the unionists lost the popular support they had benefited from until then. In 1892, the militia of the State of Pennsylvania opened fire on workers of Carnegie's steel works who had been on strike for five months. Another major strike was that of the workers of the Pullman Car Company, in Chicago again, in 1894. President Cleveland resolved to send 14 000 soldiers to bring the strikers into line and the president of the American Railway Union was condemned to six months' imprisonment. Insofar as they resorted to spectacular methods, strikers seldom got the support of the public and of public authorities. Not only that, as shown by the mentioned episodes, they could expose themselves to fierce retaliation. Capitalism remained a bastion defending itself against possible risks of destabilization.

Industrial workers were not the only ones standing up in protest against the inequities of the capitalist system. Farmers' discontent was also to increase. Owing to the Homestead Act (1862), accessibility to land had been facilitated -although much fraud had limited the sound effects of the Act- and for the whole remaining part of the century, land continued cheap. The acreage of lands in farms was therefore doubled from 1860 to 1900. However, farmers had always blamed financiers for tight credit. To face often huge investments (modernization made the latter unavoidable) credit was necessary, all the more so as agricultural prices had gradually been declining and, as indebted people, farmers favoured inflationary policies. In the years 1890-1896, the Middle States and the West were shaken by an agrarian revolt giving rise to the Populist party. The latter pressured the government to control the practices of banks and railroad companies (their transport prices were regarded as exorbitant) and to reduce tariffs. They also called for easier money as a solution to their predicament. They were especially the ones who raised the standard of "free silver". The United States was indeed on a bimetallic standard but little silver was minted because of the overvaluation of this specie. Despite strong opposition, the Silver Purchase Act of 1890 allowed the minting of silver, which increased money circulation. Still, the Act was repealed fairly soon after in 1893 -a step confirmed by the Currency Act of 1900 which established the gold standard. Fortunately, prospects looked brighter after 1894- the trade balance with Europe then began to be positive -and the recession was over after 1896 so that farmers could at last benefit from rising prices and bank credit expansion.

It must at last be noted that the distortions of industrial capitalism increasingly became a cause for complaint on the part of small and average industrialists. Indeed, the paradox was that the policies of laissez-faire had led to a quasi-suppression of freedom, the very freedom on which the system was supposed to be founded. Free competition had originally been regarded as the only valid regulator but it turned out that weak or small entrepreneurs were bought out or driven out of business by stronger competitors. By instituting trusts, rather than mere "gentlemen's agreements", as a durable type of combination, the most powerful businesses could rule the market, fixing prices artificially and upsetting the laws of supply and demand. Such practices angered their most direct victims -the more fragile entrepreneurs- as well as the general public -with farmers in the first place- so that there was a growing outburst of protest demanding more government intervention. Such claims raised a difficulty : government intervention, taking the form of assistance and encouragement to business was as old as the Republic itself but intervention to restrict and control business was new. Still, Congress finally came to be responsive to the discontent of small businessmen and their numerous allies. In 1887, the Interstate Commerce Act created the Interstate Commerce Commission : the latter was meant to

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regulate interstate commerce, guarantee equitable prices and fair competition between railroad Companies. Then, in 1890, the Sherman Antitrust Act was the first significant governmental effort to regulate economic life. It admitted that trusts represented a major threat to a sound economic life and social peace by declaring that any joint action "in restraint of trade" was illegal but the phrase was so hazy that it made it possible for the Supreme Court to interpret it as it pleased. Long a stronghold of conservatism, the Supreme Court defended the interests of big business : it voided the Act of its true meaning while applying it to fight labor unions. It was not until 1911 that the Supreme Court really had the Sherman Antitrust Act enforced. In the same way, the Supreme Court Justices were to curb the application of State laws regulating worktime and wages. Besides, even before the Sherman Antitrust Act was voted, in 1889, big corporations had found a good way of complying with the letter of this antitrust law while flouting its spirit thanks to the institution of "holding companies". A holding company, as defined in the reference law of New Jersey, would acquire control over a group of companies by buying a majority of their stocks but each company remained theoretically independent.

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In conclusion, the period going from the Civil War to the end of the Gilded Age was synonymous with unprecedented progress but shocking inequities still had to be tackled. The leaders of the age of wild-cat capitalism were determined to show their stamina. Undaunted as they may have been, they had nevertheless to reckon with a growing demand for government intervention and a decline of laissez-faire, however timid, was already discernible by the turn of the century.

CHAPTER 4

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FROM IMPERIAL CAPITALISM TO THEEND OF THE ROOSEVELT ERA (1897 - 1945)

A - ECONOMIC STRIDES, EUPHORIA AND COLLAPSE (1897 - 1929)

Though this period ended up in the worst crisis of American capitalism, it also confirmed the supremacy of the American economy on the world scene. The advent of what can be described as imperial capitalism was due to various factors : an expansionist policy which, after the "closing of the frontier" (1)(1), enabled the US to gain new territories and markets ; the consolidation of the country's international trade and investments abroad ; the emergence of a consumer society and, at any rate, of a larger and larger domestic market (the population increased from 73 to 121 million, especially thanks to the arrival of 19 million immigrants) ; first-class world status thanks to a determining participation in World War I. Within three decades, the national product passed from 18 to 104 billion dollars though it must be specified that inflation also increased by 100 %. Simultaneously, the urge of social reformers to humanize the system remained strong throughout the period.

I - Imperialism and progressivism (1897 - 1914)

The victory of President William McKinley in 1897 meant that a majority of Americans believed that industrial capitalism was synonymous with progress and, as economic recovery was there, the laissez-faire trends went on including those which fueled the protest of increasing numbers of "progressives".

Concentration of industrial corporations and of the banking system remained a dominant feature. Trusts and holdings continued to challenge the Sherman AntiTrust Act, keeping their preeminence with the complicity of the Supreme Court. It is estimated that in 1904, there were 318 industrial combinations, 236 of which had sprung up during 1899-1904 (2)(2). Among them, there were ten giants. As for agriculture, it was boosted by strong exports in a country otherwise self-sufficient except for tropical produce and rubber, necessary for the expanding car industry(3)(3). As it turned increasingly to mechanization, fertilizers and introduced blooded stock, it obtained higher yields. The same upward trend existed in banking where concentration also prevailed. Two financial groups then ruled the show in Wall Street : the Morgan firm and Rockefeller. Great banks, allied with investment houses and insurance companies because they could thereby control the investment of the country's savings, dominated credit and interlinked with the industrial life of the nation. J. P. Morgan was thus at the head of a huge empire of financial houses and the partners of his firm held 341 directorates in 112 corporations. Between 1898 and 1901, there was a ruthless battle between J.P. Morgan and Carnegie for the control of the steel industry. It ended up with Morgan buying out Carnegie for $450 million. It gave birth to the biggest trust : the United States Steel and obviously testified to the government's lack of interest in enforcing the antitrust legislation... Such giant combinations

(1)(1) The natural frontier of the Pacific had then been reached.

(2)(2) The latter were worth about 6 billion dollars. (3)(3) In 1908, Henry Ford created his famous Model T, "a motor for the multitude". On the same year, he also had a new major competitor, William C. Durant's General Motors.

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resulted in spectacular productivity gains by an increasingly rational use of raw materials, transports and manpower and the development of scientific management. However, the gap between the leading captains of industry and the rest of the nation tended to get alarmingly wider and wider, bringing up this question : was the return to prosperity to mean no more than "business as usual"?

Imperial capitalism clearly benefited from the expansionist policies of the US which then became a colonial power. Ironically, that was partly the result of the country's "splendid little war" against Spain in which the Americans sided with the Cuban rebels fighting Spanish colonial rule. This war -which made future President Theodore Roosevelt illustrious- generated enthusiasm going much beyond the business community. The peace-treaty (1898) enabled the States to place Porto Rico, Guam and the Philippines under its tutelage and, in 1901, the Platt Amendment provided that the States could intervene in Cuba if the latter's independence was threatened. Moreover, Hawaï was annexed in 1898 and it soon became clear that the US increasingly considered that its manifest destiny was to be the policeman of Central America and of the Caribbean. Not only that ; in 1904, the "Roosevelt Corollary" was added to the Monroe doctrine. It openly expressed the vocation of the US to be acknowledged leader status in the world order : "... chronic wrongdoing, or an impotence which results in a general loosening of the ties of civilized society... may force the United States, however reluctantly, in flagrant cases of such wrongdoings or impotence to exercise an international police order". By being given easier access to the markets of the Pacific and of the American hemisphere, the business community still gained additional momentum.

The power of organized labour seemed puny by comparison. There were still only 2,6 million organized workers in 1914. Partly because of their moderate "voluntaristic" philosophy of improvement through collective bargaining, unions failed to attract the great masses. Strikes were the ultimate weapon of unions but business went on fighting back by injunctions (obtained from the courts) and class warfare. It was in this context that a fringe of unskilled (usually migrating, casual) workers joined the revolutionary group of the IWW (Industrial Workers of the World). They preached working class seizure of power and did not shrink from sabotage and other anarchistic acts. Born in 1905, they partly relied on the support of the Socialist party created by Eugene Debs(1)(1) in 1901.

After President McKinley's assassination and Republican Theodore Roosevelt taking over (1901-1909), the US government began to be more responsive to the demand for reform and, after a return to softer government control under President William Taft (1909-1913) the ideas of the Progressive Movement finally had the upper hand with president Wilson's "New Freedom" programme in 1913. Theodore Roosevelt, probably one of the cleverest presidents in US history, harboured an imperial vision for America but he also had a strong sense of social responsibility, hated speculators and thought that corruption had to be done away with. In consequence, he saw the need for large intervention by the federal government to avoid the tyranny of "Big Business". In his first message to Congress, he denounced the "grave evils" of trusts though in his eyes it was not only a matter of dissolving concentrations but, rather, of regulating them, notably their financial practices. The Bureau of Corporations -set up in 1903- was entrusted with the control of industrial concentrations and under T. Roosevelt's impetus, the judges of the Supreme Court began to awaken to the implications of the Sherman Antitrust Act... In 1904, the Supreme Court dissolved Morgan's Northern Securities Firm, which controlled the whole network of Northern railroads. A similar fate hit the Beef Trust in 1905. Last but not least, two major symbols, the Standard Oil in 1907, then the American Tobacco Company in 1908 were indicted. In 1911, the Supreme Court compelled the Standard Oil and the American Tobacco Company to split into thirty seven corporations for the former and fourteen corporations for the latter. Harsher control of private monopolies went along with the first significant attempts at social legislation as the progressive movement was gathering momentum. Besides, the denunciation of the excesses of

(1)(1) Debs was the former leader of the American Railway Union. He ran for the presidency in 1912, proclaiming that "every capitalist is an enemy". He was sent to jail because of his pacifist discourse during the 1st World War.

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wildcat capitalism by "the muckrakers" -newsmen and writers- began to pay off. Laws regulating children's industrial work were initiated in Southern and North-Eastern States and in Congress. Then, States in the West and the Middle West began to limit women's work time.

The 1912 presidential election marked the triumph of the Democratic version of progressivism(1)(1) with the arrival of Woodrow Wilson at the White House. As of 1913, Wilson set about implementing his "New Freedom" programme in which he advocated a return to the pristine values of small producers, modest fortunes and individual responsibility. To achieve this goal, regulation was not enough. Fair competition had to be restored.

Wilson succeeded in having most of his reforms accepted by Congress. Banking was one of the sectors in which antitrust legislation had had very little effect. The Morgan firm could be regarded as central banker (banker of last resort) and regulator of the Big Money. For example, in 1907 when Wall Street was in dire straits Morgan bought out the Tennessee Coal and Iron, then on the verge of collapse. Unfortunately, the United States had no central banking system in a position to control the booms and the depressions of the business cycle and to supervise the money supply (masse monétaire) adequately. These shortcomings were partly remedied (2)(2) by the Federal Reserve Act of 1913. Reserves (based on gold and commercial and agricultural paper when offered for discount) were mobilized in twelve federal reserve banks located in twelve key cities. By raising and lowering their rediscount rates, the reserve banks could contract and expand the flow of commercial credit and by buying and selling government bonds they would affect private credit. Another important measure was the reduction of the tariff rates by the Underwood Tariff of 1913. Though protectionism was continued, an unprecedented effort was made to apply it to infant industries only. To make up for the loss thereby undergone by the Treasury, the great novelty was the first institution of an income tax in America as authorized through the ratification of the 16th amendment in 1913. The other great breakthrough was the reinforcement of the antitrust legislation with the passing of the Clayton Act in 1914. It created the Federal Trade Commission (replacing the Bureau of Corporations) which was granted investigative powers. Once it had determined that business used "unfair methods of competition and commerce", it was empowered to issue "cease and desist orders" to be enforced by the federal courts. The three most important provisions of the Act were : 1°/ its prohibition of corporate practices such as the interlocking directorates in industrial corporations and banks, 2°/ providing remedies for relief, 3°/ excepting organized Labor from the provisions of the antitrust laws ("nothing contained in the antitrust laws shall be construed to forbid the existence and operation of Labor, agricultural and horticultural organizations"). This third provision was to be regarded as Labor's Magna Carta. Then, section 20 of the Act sought to protect workers from the indiscriminate use of injunctions by the federal courts to break strikes. Still, it was not until 1935 that labor unions were really recognized.

Though the "New Freedom" programme showed a genuine will to tone down the effects of wildcat capitalism, the big monopolies usually found loopholes to remain alive and kicking while the progress of Labour remained precarious. Certain "enlightened" company owners like Ford would however consider that raising workers' wages benefited both workers and themselves by turning their workers into customers... Thus, in 1914, Ford doubled his workers' wages.

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II - From the Great War to the Great Depression (1914 - 1929)

(1)(1) Wilson's contenders, Theodore Roosevelt and EugeneDebs were both "progressives" as well but they belonged to different trends.

(2)(2) The decisive changes to strengthen central-banking control really came about in the Banking Act of 1935.

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With the light depression of 1914, the pace of the New Freedom reforms began to slow down. The depression was however short-lived because of the outbreak of World War I, which the Americans entered in 1917. By 1915, though still "neutral", the United States was increasingly involved in the conflict as a large supplier and creditor of the Allied powers . From 1915 on, in fact, as the Allied nations were being allowed to raise funds directly in the American money market -changing overnight the status of the US from a debtor to a creditor nation- the American economy was on a wartime footing. Production and employment increased, agriculture enjoyed prosperity and wholesale prices almost doubled from 1916 to 1920. The balance of external trade became definitely favourable to the United States. As a result of their involvement in the war, the Americans confirmed their pivotal role in the world economy and lived in a richer country where full employment was secured.

Because of the return to steady prosperity, it got easier for President Wilson to implement his progressive programme. In 1916 firms having contracted with the federal government were put under the obligation of instituting an eight hour work day. On the same year, the Keating Owen Act represented the first federal regulation of children's work in the US. Later on, in 1918 the National War Labor Board was created to arbitrate disputes between employers and workers. Now, it's worth noting that the most radical progressives had often been averse to US involvement in the war. As for industrialists themselves, they were far from being unanimously favourable to US military participation in the war : Carnegie, Ford and Durant were thus well-known for their pacifism. In fact, from the period of official "neutrality" to victory, the US government set the guidelines of what was to be a war economy and exerted active control to meet two intertwined objectives : tailoring industrial production to the needs of the moment and supporting the Allies as massively as possible. State interventionism was the dominant feature of the period though it did not result in nationalisations of companies and price controls left profitable margins to industrialists. In 1917 a War Industries Board was created, with Bernard Baruch at its head, it became a very efficient means of coordinating government purchases. In the same way, Herbert Hoover -future president of the US- was in charge of the Food Administration and virtually controlled the whole agricultural sector. During the whole war-period federal authorities and businessmen learnt to collaborate with one another. It was an unprecedented and finally successful experience in State interventionism which many came to regard as a model, although the latter soon proved obsolete and was to be far surpassed in a more distant future. Besides, the leadership of the US president had been enhanced ; that remained true during the peace-process in Versailles but, in this regard, the president proved no "prophet" in his own country...

*

After the victory of the Allies -in which the US emerged as the new giant of the Western world- the new slogan was "back to normalcy" though nobody seemed to know what it exactly meant. It sounded in fact like a catch phrase that could be invested with various meanings : return to peace with no more commitments abroad, doing away with State intervention in the economy or reacting against the social reformism of the progressive period. Anyway, the victory of Republican President Warren Harding (he got 61 % of the votes) in 1920 showed that the Americans turned their backs on the ideal vision embodied by the "New Freedom" and, instead, trusted "business as usual" to ensure prosperity.

With the return to peace and "normalcy", most agencies of federal control were dismantled and the main objective of the business community was to meet the backlog of consumer demand (especially strong in residential housing and durables such as cars and house appliances), invest in new industries and the streamlining of old ones and also increase their presence and "help" in the world economy by injecting huge amounts of money in private

22

investment abroad and in the purchase of public securities of foreign governments (1)(1). The dominant impression soon was that America was entering a "new era" rather than returning to mere normalcy. As a matter of fact, despite brief recessions, in 1919 (because of the spinoff of massive "demobilization") then again in 1921-1922 (the promising prospects had brought speculation to excessive heights while the contraction of European markets was to cause bankruptcies), the 20's stand out as a period of uninterrupted prosperity, at least until 1929 when the flaws of the system -all too easily ignored so far- brought the US onto the brink of disaster. Industrial production grew by about 64 % from 1920 to 1929 while the national income of the US increased from $ 58 billion in 1920 to $ 717 billion in 1929 (2)(2). Besides the euphoric mood of the period -it seemed that with the triumph of mass production, mass consumption was now around the corner- progress was also served by technical evolution. With the widespread use of electricity and the development of assembly-line processes, the country went through a second industrial revolution but the latter also tended to make manpower less necessary in certain areas. As the Americans became increasingly mobile people, the automobile industry came into its heyday (by 1929, the US was turning out 85 % of the world's cars and trucks). Similar success stories existed in many other sectors, especially new ones : the radio (broadcasting stations were being established all over the country by 1924), aviation, electric power and light companies, chemicals, retail distribution (chain stores vastly expanded) and of course motion pictures.

Despite what appeared as "everlasting prosperity", the system was undermined by flaws stemming from the combined short-sightedness of government and management. First, the period was marked by a definite return to mergers and concentration entailing the disappearance of small and average firms : by 1929, one tenth of the corporations owned more than half of the country's corporate assets. Simultaneously, an unprecedented and unchecked expansion of credit was taking place with a view to boosting business investment as well as new security sales, real estate and consumption. There were in fact too many banks with a fragile financial structure and very few checks on what turned out to be an unhealthy expansionary process. There was no real monetary and fiscal policy to control the speculation boom in securities -a boom fed by the wave of mergers (lots of security issues were meant to finance consolidation). Besides, consumer credit inflation did not make up for what remained an inadequate distribution of the national income, finally accounting for the relative stagnation of mass consumption. Indeed, though workers' conditions improved in certain sectors (3)(3), their wages seldom gave them a purchasing power enabling them to be ideal consumers. Strikes occurred but they were not successful for there still existed little organized power among the workers(4)(4). Few employers seemed to see the relationship between mass consumer demand and general economic well-being. Profits did not bolster purchasing power and, in fact, they moved into the stock-market. There were also disparities between the various economic sectors, while manufacturers' profits continued high -the highest in American annals- for a long time, American agriculture was in distress during the whole of the 20's, with surpluses of wheat, cotton and other staples which could find no outlet. Besides, the US suffered from severe contradictions in its economic transactions with foreign countries. From 1915 onwards the US had become a creditor nation and invested abroad ; Europe in particular benefited and this contribution to the Old Word's recovery was a source of both profit and "puritan" satisfaction for the US. Logically, they should have accepted the consequences of this recovery : more imports from Europe. Instead, they refused competition by instituting protectionism, especially with the Fordney

(1)(1) US investments abroad grew from $ 3,5 billion in 1919 to $ 16 billion in 1929.

(2)(2) Calculated in 1926 dollars.

(3)(3) In 1922, the eight hour work-day was generalized in steel works and in 1926, the Ford corporation in Detroit set up a 48 hour, 5 day work-week.

(4)(4) The number of union members had dropped to 4 million in 1929.

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Mac Cumber tariff of 1922. The balance of external trade then resulted in a surplus in favour of the States throughout the period : exports grew by 26 % from 1920 to 1930 while imports did by only 16 %. Still, this protectionism also led to retaliatory measures against American goods on the part of twenty five countries. Obviously, exports could have made much more progress with a different policy.

As early as 1928, there was evidence of danger signs when residential building fell off sharply. Later, automobile and steel production began to sag. Difficulties were compounded when the English money rate was raised (to 6,5 %) : foreign short-term funds then began to move out of the States. In October 1929, Black Thursday followed Black Tuesday leading to the collapse of the New-York Stock Exchange. In two weeks, panic had set in causing prices to fall as much as 80 % below their highs in September. After the dramatic boom of the 20's, recession was there soon to be followed by depression until 1932.

B - NEW DEAL REVOLUTION AND WORLD WAR II IMPACT

From 1929 to 1932, things went from bad to worse. National income fell dramatically (from $ 87,4 billion to $ 41,7 billion). The plight of farmers in particular became desperate (their income was halved) while 85 000 businesses failed. Even in the automobile industry, the number of workers dropped from 5,5 million in 1929 to 4 million (1)(1). In the face of such an unprecedented slump, President Herbert Hoover, who had been in office since 1928 had resorted to mere homeopathy or belated measures. Thus, the Reconstruction Finance Corporation, a government agency which aimed at granting loans to banks or big corporations hit by the crisis was not created until 1932. An unshakeable optimist, Hoover regarded the crisis as a temporary phenomenon and claimed that "prosperity (was) around the corner". Any federal state intervention could, in his eyes, be only detrimental to a capitalist economy and to the philosophy of "rugged individualism" he advocated. Because of his stubbornness, he totally failed to meet the expectations of the nation at a time when the economy had reached rock-bottom. On March 4, 1933(2)(2), banks had been closed down in 27 States while the burden of debt, with the collapse in prices, had become intolerable. There were at least 15 million unemployed people reduced to meagre public support or beggary. The very capitalist system upon which the United States had founded its pride and greatness then seemed to be afflicted with lethal illness. That explains that the Americans did not return Hoover into office and his Democratic contender, Franklin Delano Roosevelt, won a landslide victory.

An open-minded pragmatist with an iron will, F.D. Roosevelt knew that to revive confidence in capitalist institutions, new solutions including drastic measures had to be worked out and experimented. The "experiment" resulted in the New Deal which, by putting big business under firm governmental control, represented a major watershed in the history of American capitalism. The need to restore the health of a nation which had also long stood out as the champion of democratic virtues was all the more necessary at a time when only totalitarian systems seemed to be economically successful.

Roosevelt relied on a "Brain Trust" made up of such brilliant academics as Adolf Berle and Tugwell. Though this task force was dominated by planners generally inspired by Keynesian methods, it was far from monolithic for Roosevelt thought it essential to consult people holding different theories before decision-making. Besides, though the president trusted government leadership to secure each citizen a "new deal", he nevertheless remained very much attached to private initiative. Freeing his fellow-countrymen from destitution did not mean that they should be made subservient to the State.

(1)(1) Besides, these workers were half unemployed (their work week had been reduced to 22 hours). Automobile industry securities were worth only $ 1 billion in 1933 as opposed to $ 6 billion in 1929.

(2)(2) The date when President Franklin D. Roosevelt came into office.

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The newly elected president confronted the nation's problems as one does a war. The New Deal legislation -with 15 Acts voted during the first 100 days- spelled a revolution in many ways for despite the president's attachment to a free economy, it turned the Federal State into a prime mover and supervisor on a long-term basis. Not only was the government to regulate business, it was also to act as an enterpriser by setting up public corporations empowered to buy and sell, lend and borrow, produce and distribute and that was an entirely new form of government intervention. Most of all, the people in charge of the New Deal gave rise to the Welfare State. Besides being the promoter and regulator of economic progress, the government would assume responsibility for the security and welfare of Labour.

Granting loans to public bodies and private businesses as well as government expenditures were the chief methods of the New Deal in order to revitalize the economy and create employment. It all rested upon the belief in the virtues of deficit financing, the public debt being necessarily increased to obtain the required funds. Debt did not trouble the New Deal planners as long as it boosted private business and resulted in a growing national income. Still, what would happen if the public debt and the accompanying fiscal policy -higher taxation as a rule- failed to energize private investment ?

As so many businesses were collapsing or had already gone bankrupt, Roosevelt had bankruptcy laws rewritten and decided to alleviate the burden of debtors by causing prices to rise. Accordingly, the government opted for the devaluation of the dollar (1)(1). The value of agricultural produce and of securities was thereby immediately doubled ; besides, the Americans who had saved money during the slump became buyers again, now preferring to stock goods rather than devalued banknotes. Because of the growing currency circulation, the rise in prices already triggered off by devaluation was stepped up even more. It undeniably stimulated recovery from 1933 to 1937. Besides, as huge credit had been released thanks to the re-evaluation of gold reserves, the Federal State was in a position to bail out banks and private corporations. The monetary reform went along with a much needed reform of banking practices . Under the 1933 Emergency Banking Act, virtual public control of the Federal Reserve System was instituted so that the expansion and contraction of credit would now be part of government responsibility. In contrast with the previous state of anarchy, the Board of Governors of the Federal Reserve System now had the power to lower and raise the legal reserve requirements of banks and the right to raise or lower the margin requirements for the purchase of securities. From then on, the saver and the investor were to be protected. The Securities and Exchange Commission in particular was given wide authority over new corporate security issues and the activities of security exchanges. Both by acting as an entrepreneur and by resorting to a range of policies -fiscal, monetary and regulatory (if one thinks of banking and of the Stock Exchange)- the government accepted responsibility for reorientating the economy with a view to preventing too sharp swings in the business cycle. During the years of the "First New Deal" at least, it is all too clear that the planners looked to government leadership and investment rather than to private initiative by companies for the country's recovery. It was also believed that foreign trade needed to be encouraged and revived. An Export-Import Bank was set up to finance the flow of goods and to extend credit to foreign governments if need be. Reciprocal trade agreements worked out by the State Department led to the lowering of tariff barriers everywhere, largely thanks to the device of most-favored nation treatment.

To adjust supply to demand and vice versa became one of the major concerns of the Roosevelt Government as it was no longer believed that this process could operate satisfactorily without government intervention. That accounts in particular for the passing of the Agricultural Adjustment Act (A.A.A.) in May 1933. The A.A.A. limited agricultural production to cause prices to rise ; subsidies encouraged farmers to comply with this restrictive policy. It also lowered the rate of mortgages and granted generous credit facilities. The income of American farmers consequently made progress. While they attempted to rescue the farmers, the Roosevelt Administration also set about applying appropriate remedies to the bankrupt American

(1)(1) In 1934, the value of one ounce of gold was set at $ 35, a parity which was to be maintained until 1971.

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industry. That was the object of the NIRA (National Industrial Recovery Act) of June 1933. The government requested employers to reduce their personnel's workday (so as to hire more people) and to raise wages in order to push up Labour's purchasing power. Higher (selling) prices were expected to make up for this heavy sacrifice. Not less importantly, the law put every industrial and commercial sector under an obligation to set up codes of fair competition, which also included a definition of working conditions and establishing minimum salaries after agreements between management and labour. These codes would then be sent to the National Recovery Administration for approval and made compulsory. Before these various codes being instituted, Roosevelt enacted an omnibus code (July 21, 1933) which was to be temporarily applied to all industries.

Not only did the New Dealers believe that the government should throw its weight "to prime the pump" in the economic sphere, they also inaugurated a new era by considering that engineering security and welfare for the country's working populations was also part of the duties of the modern State. From then on, high employment and a more equitable distribution of the yearly national production (by maintaining high real wages and by taxation) became government concerns. Under the Federal Emergency Relief Act of May 1933, Harry Hopkins set up a relief agency : cities and States were granted huge subsidies to enable them to institute welfare centres. Then, to bring down the country's unemployment, Roosevelt set up a vast program of public works. Within two months, 4 million (part-time) jobs of public usefulness provided relief for the unemployed. Simultaneously, the Civilian Conservation Corps put youths at work in conservation camps. Still, the most impressive innovation was perhaps the establishment of the Tennessee Valley Authority, entrusted with the task of building dams, by which a whole underdeveloped area was rescued. It also reflected a determination to bring the electric and light power industry under closer public control. These programmes which turned the federal State into the nation's biggest employer were continued and extended during the second stage of the New Deal. Despite strong opposition on the part of businessmen and the manœuvring of demagogues, this approach earned Roosevelt the country's approval, as shown by the president's triumphant reelection in 1936. In between, Roosevelt had confirmed the "leftward" tilt of his policies, the alliance between New Dealers and organized Labour appearing as natural after the passage of two landmark pieces of legislation : the National Labor Relations Act (Wagner Act) in July 1935, then the Social Security Act in August 1935. The Wagner Act guaranteed collective bargaining once unions had been established by election as the workers' representatives and it established a National Labour Relations Board to outlaw unfair practices (such as preventing union organizing) on the part of management . This Act can be regarded as the first real official recognition of unions in US history. Under the new legislation, trade unionism was to expand, especially in the mass-production industries (1)(1). The two main labour federations (the AFL and the CIO) had a growing impact on salary increases (wages increased much faster than productivity) and fringe benefits. The Wagner Act was reinforced by the Fair Labor Standards Act of 1938 which instituted a forty hour week, fixed forty cents an hour as a minimum wage -raised to $ 1 an hour in 1956- and made possible the elimination of child labor. As for the Social Security Act, it created various government agencies, orientating the government towards a system of social welfare. The unemployed were to be taken care of by local authorities with financial support from the federal government. Funds were also allocated for pensions to the aged and to the infirm while dependent mothers and children were granted benefits.

Such unprecedented economic and social reforms resulted in an economic recovery which remained of mixed character. Production did move up from 1933 to 1937 -which was however much more the consequence of deficit financing than of business expansion- but it was to slow down dangerously between 1937 and 1938 when the government began to cut down on federal expenditures as the latter had nearly gone up exponentially until then. Simultaneously, unemployment was only partly brought down, with about 10 million jobless people in 1937.

(1)(1) In 1941, each federation (the AFL and the CIO) was claiming 4 million members.

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Lack of business confidence, due to rising wages, higher taxation and an impressive public debt, accounted for narrow private investment. The nation itself had its doubts about the validity of the new policies, the high level of taxes tending to reduce the spending power of both individuals and business. Nevertheless, the Roosevelt government decided not to change their course : deficit financing and government interventionism were maintained . This led therefore to no abatement of income taxes though, on the other hand, taxes on corporations tended to be alleviated. One must admit that the resumption of federal spending together with a certain good will in terms of cooperation between government, business and Labour brought back revival in 1938 and 1939. It then seemed that the times of liberal capitalism were over and giving way to a new era : capitalist institutions were not rejected but increasingly put under the control of a regulatory State. Still, it also soon appeared that, in actual fact, the main incentive to recovery was the war effort...

*

The US entered World War II in 1941 after the Japanese attack on Pearl Harbor. With some 12 million draftees who had to be equipped and all the military supplies going to the Allies, overall production increased by 25 %. Manufacturing, mining and construction doubled their output. Such extraordinary levels were due to the War Production Board freezing the manufacture of durable consumer goods and devoting 50 % of the nation's industrial output to war purposes. American farms as well doubled their yield and consequently their income.

The War effort resulted in huge public expenditures ($ 347 billion between 1941 & 1945) which could be met only thanks to eight war loans (1)(1), higher taxation and intensive bond sales. These combined strategies also provided means of stemming inflation -constantly uppermost in the minds of the government ; inflationary trends indeed arose from an "overheated" economy generating additional purchasing power likely to rush to consumer goods. Avoiding excessive inflation was the special responsibility of the Office of Price Administration which instituted freezing of stocks and rationing. The Office also put banking activity under control, setting limits in particular on installment credit. However, price controls proved to be moderately successful. They did not prevent the price index from rising from 77.1 in 1939 to 105.8 in 1945.

With the Allies' victory of 1945, the whole production machinery had to be put back on a normal basis. In fact, as early as 1944, Washington had begun to think of the processes of reconversion and, in the face of such problems as massive demobilization and great stocks of surplus goods, it was necessary to avoid some of the errors of the immediate post World War I period.

Preparing the reconversion occurred in a climate of uncertainties and questioning about what returning to normalcy implied. Would there be, as some economists predicted, hosts of unemployed people once hostilities were over ? Would the end of the war lead to deflation and a slump in sectors such as agriculture ? What were the most adequate measures -tax reductions ? public works ?- for the government to assume responsibility in maintaining employment and giving industry the necessary impetus to reorientate its efforts ?

*

(1)(1) $ 156,9 billion were raised in loans, of which $ 43.3 were absorbed by individuals, the rest being taken up by banks mostly.

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CHAPTER 5

AMERICAN CAPITALISM IN THE AFTER-WORLD WAR II ERA

Far from putting an end to the economic recovery set off by the war effort, return to peace soon went along with an unprecedented boom which lasted through the 1950's. Still, however triumphant it could seem, American capitalism retained its soft spots in terms of business fluctuations and though the welfare of the whole American people undeniably made progress, unfulfilled social wants subsisted. Moreover, the ever growing size of corporations and the consolidation of groups into "oligopolies" tended to become the rule which, again, warped the nature of theoretically free competition.

With the prompt elimination of wartime controls(1)(1), the higher productivity of American workers as a result of new processes and machines and, above all, thanks to consumer demand economic prosperity was not only maintained but also stepped up. Due to savings (2)(2) and purchases of bonds during the war, consumers had built up a considerable buying power. Consumer demand was to be more especially orientated towards housing (3)(3) and automobiles -where huge shortages still existed- while, after war restrictions, a more general infatuation with consumer goods was taking shape. Besides, the boundless needs of all countries busy reconstructing(4)(4) together with the modernization of obsolescent plants and, from 1950 to 1953, the Korean war, provided additional incentives to the economy. Instead of the deflation that had been feared right before the 1945 Victory, inflation soon became the major threat. The consumer price index thus went up from 76,9 in 1945 to 102,80 in 1950. Because of such inflationary trends, also connected with insufficiently controlled credit facilities, per capita income in constant dollars was to decline somewhat between 1945 and 1955. Still the rise in the GNP (it passed from $211 billion in 1944 to $ 500 billion in 1960) was paralleled by a steady purchasing power and if one considers the 15 years from 1940 to 1955, the real income of every American for spending and saving increased by 48 %, a most remarkable performance. With the bullish trend and in the context of mounting competition with the USSR, business was spending billions each year on new capital creation and getting involved in raising standards of production and living in developing countries to contain the spread of the communist ideology. Domestic success increasingly went along with the ambition of sustaining the American imperium.

The passage from a Democratic (Truman) to a Republican (Eisenhower) Administration brought about no dramatic change in the commitments of the federal State. Though full confidence in the capitalist processes had been restored, the government still stood by to prevent sharp swings in the business cycle. That was done by appropriate monetary and fiscal controls (taxes were for example lowered when consumption needed to be boosted), support given to great technological projects and military expenditures and by a marked willingness to finance long-term public improvements (Washington thus paid 90 % of the bill for highways). Budgets showed evidence of a well-adjusted Keynesianism varying between slight deficits when business was slack and excedents in bullish times as cycles remained an endemic weakness of the system. In fact, there had been growing acceptance of both governmental and (1)(1) Only the control on rents was to remain.(2)(2) Despite higher consumption in the 50's, at least 70 million Americans still had money in saving accounts during this decade.(3)(3) In the 50's, more than 1 million new houses were built every year.(4)(4) The Marshall Plan powerfully contributed to this reconstruction enabling Europe to become a valuable trade partner for the US.

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business responsibilities : a self-regulated economy was no longer believed to be the panacea. While capitalists kept seeking profits to be achieved through better productivity in particular, they came to think that a sound economy also relied on a dependable market, which could be possible only if real income continued to move up. As for the federal government, whatever the party in office, its policies in terms of employment levels, minimum social security, health, housing, equal opportunities in education and, increasingly, civil rights bore witness to its concern for the welfare of the Americans. As a result, there was little radicalism in the America of "the quiet fifties". The narrowing spread in income brackets, with a growing "middle class" making up the backbone of the country, largely explains the consensus around capitalism.

Now, though it was hardly questioned that capitalism had definitely survived and seemed most likely to defeat its great "challenger", the seamy side of the picture had not been fully eradicated : medical costs remained prohibitive to too many, poverty pockets subsisted in certain farming areas, equality of educational opportunities stagnated and underdogs still lived in ghettos with substandard housing. Even leaving aside the most festering sores, the improvements won by Labour need be qualified. Since the Wagner Act, collective bargaining had become a key element of the consensus but the "power" of Labour Unions seldom changed for example the custom of tying wages to the mere cost of living index regardless of produtivity gains. Besides, such laws as the Taft-Hartley Act (1947) regulating the right to strike and the Landrum-Griffin Act (1959) meant to fight union leaders' corrupt practices (which occasionally did exist...) were to temper Labour Unions clout.

*

The sixties are often referred to as the Golden Sixties. They were indeed years of expansion in many ways. The country gained about 28 million inhabitants -reaching 208 million in 1971- though demographic growth was not only due to "the natives" (3 million immigrants, Latino-Americans and Asians mainly, also joined in). The "baby boomers" also arrived on the Labour market with more education than their elders and reformist ideas. Still, the actual economic boom lasted only from 1961 to 1965 when the GNP progressed by 30 % without any significant inflation(1)(1) whereas the late 60's showed increasing evidence of dysfunctions.

John F. Kennedy's election, in 1960, undeniably marked a turning point in terms of economic policies and of social vision as well. After the fitful performance of the Eisenhower years, with unemployment finally reaching about 6 %, Kennedy advocated State intervention to revive full economic growth. The new president and his Democratic "task forces" were the heirs to the New Deal spirit. The State would engineer great public projects relating to the "New Frontier" programme and to the ideological confrontation with the USSR. Much was spent on public works, assistance to the Third World and, above all, on the space programme (2)(2) and on the military buildup. On assuming office, Kennedy had announced a $ 20 billion programme to put an American astronaut on the moon before 1970 and promised to "close the missile gap" between the US and the USSR. Simultaneously, Washington provided incentives for investors and lowered income taxes. The results were positive : industrial output took off and unemployment was cut down to 3,8 %. After 1966, with President Lyndon B. Johnson in office, the picture became much less rosy-coloured. An overall inflationary trend affecting production costs caused corporate profits to decline and unemployment to rise. Agriculture suffered from large surpluses. Besides, federal budget deficits were pushed up by having to wage two wars : the "war on poverty" declared by Johnson and the Vietnam war, the cost of which soon became alarming. Another major factor in the US setback was the growing competition with Europe and Japan, largely resulting from the success of the Marshall Plan. The consequences were the deficit

(1)(1) If one takes the whole decade, the Gross National Product passed from $ 504 billion to $ 1000 billion.(2)(2) The latter was far from being to everybody's taste. The NASA was often blamed for draining the best engineers from other industries and the government for neglecting home priorities.

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of the balance of payments and the flight of capital from the US. Investments, however, went on, especially in computers.

The 60's clearly confirmed the crucial role of the military-industrial complex. Thanks to the latter in particular the alliance between the government and the business community was to gain new vitality. Businessmen understood all the profit they could derive from good relations with an entrepreneurial State and would not hesitate to throw their financial weight in electioneering. Besides, concentration grew: as they increasingly depended on governmental markets and operated on an international scale, corporations thought it more profitable to form conglomerates made up of units representing diverse activities. In fact, these conglomerates tended to be lacking in long-term strategies and often proved vulnerable to take-overs of their weaker components.

*

From the early 70's up to now, US capitalism has been affected, as in many other countries of the G7, by an enduring crisis that, as shown by today's recovery, it has finally weathered though the dramatic changes induced by the advent of a post industrial economy -with services playing a prominent part- and the emergence of multinational corporations have caused unprecedented redeployment efforts and created persistent uncertainties both in the States and in the rest of the world...

The burden of the Vietnam war strained US finances and compelled Washington to print ever more greenbacks. That had strong inflationary effects especially detrimental to US exports. In 1970, the US had to face the first serious trade deficit in 70 years ! Stemming inflation was part of the chief objectives of President Richard Nixon, then of his successor, Gerald Ford. In this context, the Bretton Woods system (set up in 1944) under which the dollar -together with other major currencies- was convertible into gold could no longer be applied. In 1971 (Aug 15) the Nixon government decided that the gold exchange standard had become obsolete. It then turned the dollar into the standard currency -a regal privilege since the US could now export its inflation ("hot dollars") to the whole world- and created an era of instability in exchange rates. The deflationary policies of the Nixon and Ford Administrations finally led to stagflation (a combination of economic stagnation and inflation) in 1976. The US enjoyed two years of economic growth in 1972-1973 but the latter went along with rising unemployment and were followed by recession in 1974-1975. Besides, difficulties were compounded as of 1973 by the first oil shock, which was to affect all Western economies (1)(1) and mark the beginnings of "the Crisis". The GNP then decreased while inflation went on. Federal subsidies did not prevent the crises in the automobile, electrical appliances and steel industries. The US also increasingly had to reckon with the better productivity of its competitors. In 1976, with 8 million unemployed people, Gerald Ford lost the presidential election to Jimmy Carter. Despite an endearing moral stature, Carter went against the American grain in many respects and by wavering between boosting strategies and anti-inflation measures, he failed to win the confidence of the business community. In 1977-1978, imports swelled to proportions endangering domestic industries. It resulted in a big deficit of the balance of trade and record unemployment (the latter affecting young black people most severely). Inflation itself had gone over 10 % as of 1977. A slight recovery was however in sight in 1980 as after the appointment of Paul Volcker to the Federal Reserve Board (in 1979) the monetarist policies inspired by Milton Friedman's theories and "the School of Chicago" seemed to move in the direction expected by entrepreneurs. Monetarism -based on the notion that the market is stable and efficient as long as the money supply is under control and does not grow by fits and starts- and the supply-side economics of the School of Los Angeles(1)(1) soon became the two pillars of the "conservative" revolution

(1)(1) A major oil-producer, the US was of course less directly affected than other Western countries but it too needed to import huge quantities of oil and it too was hit by the global economic commotion set off by this first oil schock.(1)(1) Its most prominent figures were George Gilder (the author of Wealth and Poverty (1981) and Arthur Laffer.)

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engineered by neo-liberal President Ronald Reagan although the latter was eventually led not to stick to his programme...

More than a revolution, Ronald Reagan's economic policies -Reaganomics- represented a counterrevolution in opposition to the long preeminence of Keynesian theories. As Keynes' disciples had failed to explain such evils as double digit inflation, sluggish productivity growth (2)(2)

and lasting unemployment, the Americans wanted to test new methods and were also looking for new leadership, which R. Reagan -with his upbeat, populist Californian image- seemed to provide. Reagan advocated a return to the American tradition of free enterprise, considering that "Big Government", i.e. excessive government intervention, was the source of all evils. Reagan and his "Reaganauts" fully subscribed to the supply-siders' approach (3)(3) hinging on the view that entrepreneurs' initiative and productivity leading to improved productivity, "supply" rather than demand (as Keynesians believed) was what needed to be encouraged. Only growth could create employment and prosperity. Growth, not redistribution, was therefore their chief concern and they thought that many of the problems were due to a debilitating and increasingly expensive Welfare/nanny State. The objective of getting the government "off the people's back" led to unprecedented taxcuts (4)(4) and deregulation. Taxcuts gratified a general longing for softer fiscal policies in public opinion though it led to whittling away at a large number of social programmes(5)(5). Taxcuts were also in keeping with the analysis of supply-siders such as Arthur Laffer. Laffer has remained famous for his "curve" (see chart) showing that beyond a certain balance point (E) -it may vary from one country to another- too high a fiscal pressure leads to smaller and smaller fiscal returns as people are deterred from working or, at least, from working overmuch to avoid ever more taxable peak earnings. Then, saving on taxes, consumers would have more money to spend and invest. Corporations were equally happy : they benefited from both lower corporate taxes(6)(6) and also from the relaxation of regulation about environmental and occupational safety hazards ; nevertheless, pleased as they were to get the government off their backs in this regard, they kept appealing to the government for help under the form of tariffs and import quotas to shelter them from foreign competition. Though theorists would claim that the market was not the problem, it still seemed a fallacy to believe that an absolutely free market was possible...

With benefit of hindsight , what judgment can we pass on "the Reagan effect" ? I t undeniably restored the confidence of Big Business -turning again the businessman into a cult figure, sometimes exaggeratedly. There was a definite productivity growth in the 80's, which has proved to be a long term boon. Monetarism had its virtues as inflation decreased from 12,5 % in 1980 to 1,1 % in 1986 but it was to go up after (4,2 % in 1988 when George Bush took over) (1)

(1). Still, the "tight money" policy of the Federal Reserve Board led to a severe recession in 1981-1982. The economy, however, was prompt to recover and, in 1984, the GNP grew at a rate of nearly 6 % but this was achieved at the cost of huge deficits in the federal budget and in the balance of trade (with lower inflation and a higher dollar, American products became more expensive abroad). Paradoxically, though Reagan had lashed out at irresponsible budgets during the 1980 campaign, he began accepting deficits at intolerable levels as early as 1983. By 1985, the US had become a debtor nation after being one of the world's main creditors for so long. The Federal government thus seemed as big as ever, especially as cutbacks in social welfare outlays had been offset by increased military expenditures. The problem was that with dwindling fiscal revenue, the government had to borrow money from speculators to finance its deficits. To attract lenders, high interest rates had to be offered, which was prejudicial to

(2)(2) Productivity growth decreased to 0,8 % between 1973 and 1979, largely as a result of insufficient investment in Research & Development (R&D). It had been by 2,4 % between 1965 and 1972.(3)(3) Supply-siders : economistes de l'offre.(4)(4) The two income rates were finally set at 15 % and 28 % in 1986.(5)(5) The latter, however were not to disappear as is sometimes ungraciously suggested. If one takes Medicare for example, it is far from having regressed. It progressed by 30 % from 1980 to 1989...(6)(6) Corporations, however, did not benefit as much as individual tax-payers did after 1986.(1)(1) Inflation reached 5,2 % in 1990, decreased to 3 % in 1992 and is now under 3 %.

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the economy for by going to the government, speculators' money would not spur the economy. It did not benefit either the world economy in general as the money of lots of foreign speculators was lost to many other economies, all the more so as it caused interest rates to rise in other countries, undermining their economies.

Combined deficits in the federal budget and in the balance of trade brought about the Wall Street Crash of Oct 19, 1987. Still, the country's economy had a much more reliable basis than in 1929 ! Especially thanks to steady progress in productivity growth, impressive deployment efforts and the aggressive strategies of giant corporations increasingly involved in international trade, recovery was quick, so much so that George Bush was easily elected on a programme pretty much similar to that of his predecessor, despite more flexibility in some respects. Clinton's victory itself was possible only because he adjusted to the neo-liberal mood with a plan aiming at stimulating producers' supply rather than consumers' demand and at cutting down the budget deficit to 2,7 % of the GNP in 4 years.

The theory that the market is the cornerstone of everything and that "small government is beautiful" has subsisted though it has gone along with the notion that the Federal State has to remain strong in preserving the business of America, as shown by the active US diplomacy in the marathonian GATT negotiations. Belief in the market -the "free" market- and advocacy of worldwide liberalism does not rule out protectionism when one's competitors' freedom might be too risky... NAFTA itself -the North American Free Trade Agreement involving the US, Canada and Mexico and ratified by the US Congress in late 1993- is especially emblematic of this double dimension : NAFTA creates a huge North-American free trade zone meant to protect oneself against external "fortresses" such Europe, Japan and a few others, adumbrating perhaps a new version of the Blocs War.

*

Some of the aspects in the evolution of American capitalism over the last decade may leave the observer under the unpleasant impression that a ruthless logic of profit has come to permeate the whole system -an evolution which, nevertheless, is not peculiar to the US... Despite antitrust laws, business is bigger and bigger and "smallness" seems to stand fewer and fewer chances. Prosecution against "unreasonable" trusts still hits the headlines and the most blatant abuses are punished but the big corporation and the oligopoly are here to stay. Mergers continue and are even regarded as a stabilizing element in the economy.

Since the Reagan years, the US government has increasingly committed the US to free international trade. Seeking ever more juicy profit, American corporations have turned into semi-expatriates, creating subsidiaries throughout the world, forming industrial, commercial and financial empires known as multinationals, such as IBM, Exxon and General Motors. Lots of them take advantage of the low-paid manpower -"blue collars" as well as "white collars", in insurance companies for instance- of developing countries and in this case the big manager is much less a disinterested servant of the American people than a shrewd organizer of production and distribution to ensure the optimum success of his firm. However, he may well be blinded by short-term strategies worked out under the pressure of stockholders hungry for immediate profit instead of developing a long-term vision which, ideally, would enable him to put his firm on a more secure basis in terms of production performance and general improvement of quality. The omnipresence of risk due to the volatile flows of capital in times of computerized data transmitted by satellites or fax machines has also increasingly become an inescapable characteristic of the system. Wall Street (The Stock Exchange) can prove to be the temple of propitiatory Gods or of Nemesis... The "traders" or "golden boys" may well turn into (corporate) raiders swooping down on weak preys, setting up hostile takeovers (OPA inamicales) in the process of which they will reap fat commissions. "Junk bonds" (obligations pourries) issued within the framework of such takeovers (or "leveraged buy-outs") can be regarded as the very symbol of both risk and possible windfall.

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Lucidity when having to take stock of the most disturbing facets of the "American system" does not detract from the astounding resilience, dynamism and capacity for survival of US capitalism.

Today, after a fairly long period of adjustment, restructuring and streamlining -taxing as it may have been for both Labour and Management- recovery ("renaissance", as some put it) has come. With unemployment at only 5,2 %(1)(1) in 2005 (half what it is in Europe, on average), an inflation rate around 2,7 %, steady productivity growth (it has overtaken Japan & Germany since 1990), rising exports and many other positive signs -such as an upward trend in salaries- the US still stands out as the unquestioned leader of the World economy and a formidable competitor for its challengers. That is best symbolized by the enduring supremacy of the dollar as the standard currency despite the occasional inroads of the yen ; the "euro" might well prove a more dangerous challenge, though.

One is very likely to go on hearing predictions about American decline but the latter does not seem to be on the agenda for the time being. It remains to be seen, however, to what extent the system is viable if governments do not strike a balance between the search for efficiency linked with a logic of profit and the humanizing counterpoint of a social vision. Today, with the impressive growth of multinationals, the US government -like its counterparts in most other countries- has increasingly lost much of its leverage on Big Business. If the US, as well as other capitalistic countries, fails to develop adequate means of transnational control, what may now be regarded as the vitality of capitalism could end up in the tyranny of business and toll the knell of true democracy or possibly be self-destructive of the system whose triumph was taken for granted...

BIBLIOGRAPHIE

------------------------------Joyce APPLEBY, Capitalism and a new Social Order, New-York : New-York University Press, 1984.Daniel BELL, The Cultural Contradictions of Capitalism, 1976, rpt. Basic Books, 1996.Fernand BRAUDEL, La Dynamique du capitalisme, Paris : Flammarion, 1985.Laurent COHEN-TANUGI, L’Europe et l’Amérique au seuil du XXIème siècle, Paris : Odile Jacob, 2004A. COTTA, Le Capitalisme, Que Sais-je ? 1977Marianne DEBOUZY, Le Capitalisme "sauvage" aux Etats-Unis, éd. Points-Seuil, 1972.Economie et Pouvoirs aux Etats-Unis N°21/22 de la Revue Française d'Etudes Américaines, Paris : Bordat, 1984.M. FOUET & H. BAUDUCHON, L’Economie des Etats-Unis, Paris :La Découverte, collection « Repères », 2002John K. GALBRAITH, Le Nouvel Etat industriel : essai sur le système économique américain , Paris : Gallimard, 1979.John K. GALBRAITH, American Capitalism, The Concept of Countervailing Power, New Brunswick, N.J. : Transaction Publishers, 1993.Michel GROUSSOT, Les Etats-Unis dans la nouvelle économie mondiale, Paris : Armand Colin, 2000.Claude JESSUA, Le Capitalisme, Paris : PUF, collection Que sais-je ?Annie LENNKH et Marie-France TOINET, L'Etat des Etats-Unis, Paris : Editions La Découverte, 1990. Consulter pp 311-374 & passim.Jacques MAUDUY, Économie et société aux États-Unis depuis 1945, Paris: Ellipses, 2003.C.A. MICHELET, Le Capitalisme mondial, PUF, 1976.

(1)(1) Out of the 8 million jobs Clinton promised, he has created 7,8 million.

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Yves-Henri NOUAILHAT, Evolution économique des Etats-Unis du milieu du XIXe siècle à 1914, éd. Sedes, 1982.François PERROUX, Le Capitalisme, PUF, Que Sais-Je ? , 3ème Edition, 1958.Jean RIVIERE, Le Monde des affaires aux Etats-Unis, Paris : Armand Colin, 1973.Jean RIVIERE, Les Etats-Unis à l'horizon de la troisième révolution industrielle , Nancy : Presses Universitaires de Nancy, 1986.Jean RIVIERE, Le Système économique américain : Emprise et entreprise, Nancy : Presses Universitaires de Nancy, 1986.Joseph SCHUMPETER, Capitalisme, socialisme et démocratie, 1942.Pierre SICARD, Histoire économique des Etats-Unis depuis 1945, Paris: Nathan, 1995.Joseph STIGLITZ, Quand le capitalisme perd la tête, 2004Marie-France TOINET, L'Etat aux Etats-Unis, Presses de la Fondation Nationale des Sciences Politiques, 1989.I. WARDE & R. FARNETTI, Le modèle anglo-saxon en question, Paris : Economica, 1997.Olivier ZUNZ, Le siècle américain, essai sur l’essor d’une grande puissance, 2000

*NB : Les ouvrages de Jean RIVIERE, principalement Le Système économique américain : Emprise et entreprise, constitueront une excellente initiation pour l'étudiant. La lecture de L'Etat des Etats-Unis est également très recommandée.

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