In part, Progressivism was a reaction to the economic conditions and trends of the time. One of these conditions was the emergence of monopolies in American society.

However in order to explain this we have to backtrack just a little bit and discuss the issues of competition and monopoly.

1. THE PROBLEM OF "EXCESS" OR "CUT-THROAT" COMPETITION

In the post Civil War period you have the rise of big business. We have also discussed the problem of the business cycle and cyclical depressions. One aspect of this was competition. Businessmen such as John D. Rockefeller and J.P. Morgan believed there was too much competition. This was the problem of excessive or cut-throat competition. If competition is pushed too far, producers slash prices to get more customers. But this hurts profits. It may also force the lay off or firing of workers, or a cut in the wages of workers. If a company fails because it cannot compete, the workers suffer. Rockefeller and Morgan regarded this kind of competition as chaos, as anarchy. And they felt it was terribly destructive. Instead, they wanted to bring order and stability to the marketplace.

2. THE SEARCH FOR SOLUTIONS

Therefore men such as Rockefeller and Morgan tried a number of approaches to solve the problem of excessive competition.

3. GENTLEMEN'S AGREEMENT

Their first solution to excessive competition was for businessmen to meet together and compare notes on prices, on output and on distribution. In other words, why can't we agree that steel or oil or autos or a given commodity will be sold for a given price. Let's agree on a common price. No one will undersell the others.

If we can predict that the demand is for X number of automobiles, or so much steel or oil, let's agree to produce only that number, or amount, or maybe just a few more than that. Let's agree to limit our output.

Why don't we agree to divvy up the market. Each business will have a certain quota on what it can produce, and no one will produce more than his or her share.

And let's agree to divide up the territory. I won't compete with you in North Jersey, you won't compete against me in South Jersey, the other guy will have PA or Delaware.

These discussions were called gentlemen's agreements, or a pool. It is an informal agreement.

But the problem was, in order for a small firm to increase its market share it must cut prices to attract a higher volume of customers. Often the incentive for small firms is to cut prices to attract more customers. Carnegie, for one, rose to power by producing cheaply, and efficiently, and underselling his rivals, and driving them out of business.

4. CONSPIRACIES IN RESTRAINT OF TRADE

Part of the difficulty for businessmen, however, was that for centuries in the English commom law, it was against the law to practice what was called "conspiracies in restraint of trade." Many states had laws against this. For the producers of a commodity to get together and set a common price was called collusion, or price fixing. In most states it was illegal, and had been since colonial times. To agree on output, or production quotas, was restraint of trade. To divvy up the market looked like restraint of trade.

5. THE SHERMAN ANTI-TRUST ACT OF 1890

In this spirit, in 1890, Congress passed the Sherman Anti-Trust Act. It banned "illegal conspiracies in restraint of trade." The presumption was that this applied to inter-state commerce.

This brings us to a second problem with the pool or gentlemen's agreement. It was illegal. Its greatest weakness was that it could not be enforced. If someone broke his word not to cut prices, or not to produce more than a certain amount, there was nothing anybody could do, because the agreement was illegal to begin with. And as of 1890 it would have been seen as a violation not only of state laws, but also of the Sherman Anti-Trust Act.

The problem for American businesses, then, was how to collude and fix prices without breaking the letter of the law.

6. THE TRUST

For a while in the 1880s they tried the trust. In a trust different companies give their voting stock to a central group of trustees. These trustees can then set common prices for their respective companies. But this was a cumbersome arrangement. The search for a better solution continued.

In 1870 the Penna. Railroad pioneered with something called a holding company. In 1880 American Bell Telephone adopted this form. But the legal status of the holding company was unclear and uncertain.

7. THE NEW JERSEY INCORPORATION ACT OF 1889

Then in 1889 the state of New Jersey adopted the Incorporation Act. It was quite lenient and pro-business. The great importance of the Incorporation Act was that it explicitly stated that the holding company was legal and permissible. Also under this Incorporation Act, the requirements for issuing stock were lenient, and the personal liability of directors and stockholders was limited. A corporation chartered in any state has the right to do business in all other states. Businesses flocked to incorporate in New Jersey, and then Delaware and West Virginia quickly adopted similar lenient incorporation acts. In 1899 Standard Oil incorporated in New Jersey.

8. THE HOLDING COMPANY

The New Jersey Incorporation Act of 1889 specifically authorized the holding company. It said that it was okay for a company to hold a controlling share of the stocks of other companies. The value of this is that if you own a controlling share of the stocks in other companies then you can dictate what they do, and the company with the controlling shares can give unified, common direction, set common prices, control output, marketing, distribution, etc. In other words, you can collude and fix prices, etc. In many states up to this time the holding company was illegal, or at best highly questionable, and would have been seen as an illegal conspiracy in restraint of trade. The Incorporation Act resolved this. One oil company could now buy a controlling share of the stocks of other oil companies. One steel company could buy a controlling share of the stocks of other steel companies. In this way it would be possible to dominate an industry.

9. THE GREAT MERGERS

Standard Oil was phenomenally successful, and raised the holding company to new heights, and popularized it. Everyone rushed to follow its example. In just 6 years, between 1897 and 1903 the number of holding companies rose from 12 to 305. By 1904 these firms controlled 2/5ths of the capital in manufacturing in the U.S. The largest of them all, at that time, was U.S. Steel, formed in 1901 by J.P. Morgan. This was the result of a merger between Carnegie Steel and several other steel firms.

For the record, the other leading holding companies were:

Amalgamated Copper

American Sugar Refining Co.

American Tobacco Co.

US Rubber Co.

US Leather Co.

International Harvester

Pullman Car Co.

ATT

General Electric

Also, by 1900, the major part of the railroad mileage in the US was in the hands of only 6 groups: J.P. Morgan-August Belmont; Harriman; Vanderbilt; PA RR; Gould; Hill).

This period of 1897-1903 is called the period of the great mergers or consolidations. It was an enormous expansion of the holding company. This is still the way we organize business in the US today.

To the public this unprecedented concentration of economic power was called "monopolies," or "the trusts." The trend toward monopolies had been underway since after the Civil War, and accelerated in the 1880s. It generated an equal and opposite reaction against big business. Mistrust of big business had spurred passage of the Sherman Anti-Trust Act in 1890.

10. THE KNIGHT CASE OF 1895

Pursuant to the anti-trust act, the government brought suit against the American Sugar Refining Company. The Supreme Court ruled in the case early in 1895. The owner of the company was E.C. Knight, and so the case is known as US v. Knight and Co. The American Sugar Refining Company owned 95% of the sugar refining in the U.S. They did not grow sugarcane.But they refined it. Of course sugar cane is next to useless if you don't refine it, unless you want to eat the raw sugar cane.

The Court ruled that the Sherman Anti-Trust Act did not apply to this company because the act was designed against monopolies of commerce, and the sugar refining company was a monopoly of manufacture or production. The Chief Justice (Fuller) created a dubious distinction between manufacture and commerce. The Court also said that manufacture was an intra-state matter, and not interstate commerce and so not under the jurisdiction of the Sherman Anti-Trust Act. The message was that the Supreme Court was bending over backward and doing triple summersaults not to apply the anti-trust act against corporations. As of 1895 the Sherman Anti-Trust Act was considered dead.

However in the Progressive Era the anti-trust tradition would be revived. We will come to that shortly.

II. THE PROGRESSIVE ERA

Progressivism has often been called a movement. This is done for convenience. However it is also misleading. If Progressivism was a movement, it was more movements than movement. In other words it was not one single, coherent movement but many different people trying to do many different things. Some people crusaded for an end to child labor, others crusaded to improve working conditions or to regulate industry; still others crusaded to make government more accountable to the people; and yet others crusaded for other causes. There was a Progressive Era or period, and it was a period of reform. Beyond this it is misleading to refer to a Progressive movement.

Progressivism can be analyzed on at least three levels, namely local, state and national government. What I will focus on the lecture is the legislative record, or the legislative accomplishment, of the Progressive Era.

1. PROGRESSIVISM AT THE LOCAL OR MUNICIPAL LEVEL

In part, the Progressive Era was a reaction against what the public perceived as the excesses and abuses of the Gilded Age, or the rise of big business after the Civil War. Businesses bribed state legislatures and corruption was widespread. The Credit Mobilier scandal, the Whiskey ring, the activities of Fisk and Gould and numerous other examples of corruption stirred the anger of the public. Progressivism attacked the greed, corruption and undeserved privilege of the corporations and monopolies.

a). UTILITIES

In many cities the educated middle classes now demanded regulatory commissions for railroads and for utility companies, such as water, gas, and electric companies, and also streetcar companies. In many cities the result was either municipal ownership of utilities or commissions to regulate privately owned utility companies. Thus there might be a commission to regulate the gas company or the electric company, and regulate the rates or prices they could charge for their services. As one illustration, in 1896 fewer than half of American cities owned their own waterworks. By 1915 two-thirds did. (America, past And Present, p. 638).

b). BREAKING WITH LAISSEZ-FAIRE

This was in fact an expansion of public or government power into the private sphere. It was a departure from traditional laissez-faire capitalism. This traditional view was that government ought not to interfere and should allow the owners or private businesses to do what they wanted with their property. A business is a form of property. However by the 1890s there was pressure from the public and especially the educated middle classes for regulation of utilities. Often these utilities enjoyed a monopoly in a given locality, and they provided a vital service that affected the public welfare. Regulatory commissions for utilities was one of the innovations of the Progressive Era, and we still live with them today.
 
 

2. PROGRESSIVISM AT THE STATE LEVEL

A. MORE DEMOCRACY

By the 1890s the public, especially the educated middle classes, also began to react against the perception that government in America had become beholden to the corporations and was no longer responsive to the people. And after all, it was the people who paid the taxes. It was also the people, not the corporations, who sent their sons to fight and die to defend the country or fight in wars such as the Spanish-American War of 1898. In the 1890s and 1900s there was a movement to increase democracy and make government more directly accountable to the people.

1. INITIATIVE AND REFERENDUM

To make government more accountable to the people, reformers demanded an innovation called initiative and referendum. This means that the people can sign petitions to put an issue or a question on the ballot at election time, and the people can vote on the issue. In this way the people of the locality or the state decide the question, rather than the politicians in the county or the state legislature deciding the question. What is at stake is who decides: the people themselves or the elected representatives of the people. There are many variations on this theme, such as binding and non-binding referenda. But the purpose is to give the people more of a direct say in making the decisions.

South Dakota adopted the initiative and referendum in 1898, Utah in 1900 and Oregon in 1902, and it spread from there. By 1914 some 20 states had adopted it. Today California is the state that seems to use it most widely.

2. RECALL

As part of the public backlash, the voters also wanted the right to recall officials if they were unhappy with their performance. Oregon adopted the recall in 1908, and by 1914 ten other states had also adopted it. Most of these were Western states.

3. THE DIRECT PRIMARY

The most famous of the Progressive governors was Robert La Follette, Sr., of Wisconsin. In 1903 Wisconsin led the way with the direct primary. Previously a group of party bosses picked the nominees to run in the primaries. In the general election the people voted for nominees who had already been selected by the party bosses. In the direct primary a number of contenders run in the primary and the people decide who will be the nominee. This takes place at the local and state level. After Wisconsin most states adopted this, and by 1916 all but three states had adopted it. (America, Past And Present, p. 638). It is the system we live under today. In 1905 La Follette also gave Wisconsin a state commission to regulate the railroads.

4. THE AUSTRALIAN OR SECRET BALLOT

Another innovation of the Progressive Era was the secret ballot. It quickly became universal.

B. LABOR REFORM

The states also led the way in adopting labor reform legislation designed to improve working conditions.

1. WORKMEN'S COMPENSATION

In 1903 Maryland became the first state to adopt workmen's compensation. This gave unemployment benefits to workers who were injured on the job. This became a critical precedent, and other states followed. By 1916 almost two-thirds of the states mandated insurance for the victims of factory accidents. (America, Past And Present, p. 638).

2. PROTECTIVE LEGISLATION

Another issue of concern to the reformers of the Progressive Era was what is called protective legislation. This was legislation designed to protect women and children. The assumption was that women were NOT equal to men, and needed special protection. Further, advocates of the legislation such as Louis Brandeis argued that the state had an overriding interest in protecting the welfare of women because they were most directly responsible for raising children. Brandeis insisted that long hours damaged the health of women, and impaired their ability to be good mothers. This was detrimental to the welfare of society as a whole. He said this overriding concern took precedence over "freedom or liberty of contract," which is the right of workers to enter into any contract they wanted and the right of property owners to do whatever they wanted with their property. Louis Brandeis argued that the rights of property owners could be limited if the state could prove or show or demonstrate that the public welfare (the good of society) was at stake. The other great champion of the cause of limiting hours was Florence Kelly, head of the National Consumers League (Tindall and Shi, p. 942).

a) LIMITING HOURS

Following this logic, in 1903 Oregon became the first state to adopt a 10 hour maximum work day for women in industry. Eventually the law was challenged, but in 1908 in the case of Muller v. Oregon the Supreme Court upheld the law. In 1917, in the case of Bunting v. Oregon, the Supreme Court upheld a ten-hour working day for both men and women. The Court accepted the argument that excessive hours were a threat to the health of workers. The Supreme Court bounced back and forth on these questions, but by 1917 an important precedent had been set for limiting the hours that workers are required to work.

b) MINIMUM WAGES

In 1912 Massachusetts established the first state laws setting minimum wages for women and children. However in 1923, in the case of Adkins v. Children's Hospital, the Supreme Court struck down minimum wage laws as unconstitutional. They interfered with the freedom of contract. Again, this is the concept that employers and employees should be free to enter into any contract they want. Nevertheless, in the Progressive Era reformers at the state level were putting pressure on the legislatures to move in the direction of legislation limiting hours and establishing minimum wages. These efforts would finally achieve success in the New Deal of the 1930s.

C. AID TO WITH DEPENDENT CHILDREN

Reformers were also concerned about children growing up in homes without fathers. In 1911 Illinois established the first state law providing public assistance to mothers with dependent children. The concern here was with widowed women with children, or women who perhaps had been abandoned or the husband was disabled. Previously this had been a purely local or county responsibility. In the New Deal of the 1930s it became a federal responsibility as well.