From Reconversion to the TVA
By the time Warren G. Harding entered the White House, in early 1921, many of the Great War expansions of government regulation and control had been eliminated or greatly scaled back. President Wilson, who was focused on international issues in 1919, favored a quick dismantling of the WIB, among other wartime agencies.49 Most of the wartime experiments in government enterprise now came to an end. The management of telecommunications by the post office, which brought rate increases but never diminished labor unrest, was widely seen as an abject failure; it ended in mid-1919. This reversal helped to erode congressional and popular support for continued government management of the railroads, which ended in 1920, over the objections of labor unions and other groups on the political left. McAdoo was dismayed by what he regarded as unfair partisan criticisms of government operation and inflated claims by the private roads for damages. Nonetheless, McAdoo—who had his eye on the White House—dropped his call for an extended period of control. He was well aware of the mood in Congress, where the midterm elections of 1918 (held just a few days before the end of the war) had created Republican majorities in both houses. In the railroad industry, Congress used the Transportation Act of 1920 to revive the prewar order: private railroads, subject to ICC regulation. The ICC’s new regulatory powers were robust enough to make the railroad industry remain one of the most tightly controlled of all sectors in the American economy. For instance, the new law required the agency to confiscate half of any profits that any company managed to earn in excess of 6 percent of its invested capital, so that the money could be loaned out to struggling lines. But in practice, very little money was ever turned over to the government.50 More important, champions of private enterprise could at least take heart that the nationalization had been temporary.
Meanwhile, to the dismay of Daniels, the radio industry was privatized, with some of the Navy’s former assets taken over by a big new for-profit enterprise: the Radio Corporation of America (RCA).51 Daniels’s beloved GOGO armor-plate plant, whose completion had been delayed by the war effort, was abandoned not long after it started casting steel in 1921. To Daniels, the reason for all this reform was obvious. “Monopoly won,” he explained, “when it put Harding in the White House.”52 The new president put it differently: “We want a period in America with less government in business,” Harding reportedly said, “and more business in government.”53
Most American business leaders welcomed the shift away from progressive governance, for many reasons. One key field was industrial relations. During the war, the Wilson administration’s policies had favored the AFL. But this changed in 1919, when the president spent many weeks abroad and was focused squarely on international concerns. During the major wave of labor strikes across North America in 1919, the Wilson administration did little to assist unions. As the Bolsheviks attempted to consolidate power in Russia, observers of international affairs wondered whether communism might become an important force in the postwar world. In the United States, a series of domestic bombings contributed to an antilabor, anti-immigrant “Red Scare,” which culminated, by the end of the year, in mass arrests and wholesale violations of civil liberties by the federal government and by many states. These developments worked in favor of business leaders, some of whom combined antiunion efforts within their own firms with broader, more coordinated public campaigns against domestic “Bolshevism.” By early 1921, as Harding entered the White House, organized labor was very much on the defensive. Calvin Coolidge, the new vice president, had risen to prominence thanks in part to his role in crushing a strike by Boston policemen in 1919. With men such as Coolidge in Washington, business leaders were reassured that federal labor policy would improve.54
For most business leaders, organized labor was not the only political concern: they also hoped to rein in the recent excesses of government. In 1917–18, business groups and Republican politicians had complained about what they saw as incompetence and excessive bureaucracy in the Wilson administration’s management of the war economy.55 During the last year of the war, the Chamber of Commerce had criticized the “growing tendency for government control of industries.” Immediately after the armistice, the Chamber called for an end of government operation of transport and telecommunications. In 1919 and throughout the interwar period, Chamber members passed resolutions calling for an end to government competition with private enterprise. The same was true of the National Association of Manufacturers (NAM), another leading business association. One NAM leader, Francis H. Sisson, echoed the Republican Party’s calls for “a business government for business people.” In 1920, NAM president James A. Emery warned against “the undue and improper influence of government” in the economy, which stifled innovation.56
From the point of view of the NAM and the Chamber, the departure of the Wilson administration was a blessing. As Daniels recognized, it was Republican control in Washington, and not just the coming of peace, that guaranteed the death—or at least the downsizing—of many wartime experiments in state enterprise and heightened regulation. Working with a Republican-majority Congress, the Treasury secretary, Andrew W. Mellon, lowered taxes. Income taxes did continue to generate a large fraction of federal revenue. However, top rates dropped dramatically (eventually all the way down to 20 percent), and the excess profits tax was killed off.57 Meanwhile, Congress and the Harding and Coolidge administrations liquidated the government’s considerable fleet of merchant ships, in which the government had invested $3.5 billion between 1917 and 1924. At the beginning of 1920, the U.S. Shipping Board owned and operated a fleet of 1,525 cargo ships and tankers. These vessels competed with privately owned ships, whose owners (along with the NAM) lobbied Washington to get rid of the government fleet. Republicans were happy to oblige. By the end of 1925, the government-owned merchant marine, which just a few years earlier had been world-class, consisted of only 276 aging vessels.58
Such moves in the direction of deregulation and privatization were in keeping with the development of the Republican Party, which emphasized the need for economic liberty. When President Coolidge proclaimed in December 1923 that “the business of America is business,” he meant that the government’s role should be to assist private enterprise—and get out of its way. Nationally, there were now fewer Republicans who embraced progressivism and more who saw state regulation as an evil that needed to be minimized.59 Progressivism was not quite dead in the 1920s, however. The Republican-majority Congress did pass bills providing subsidies for farmers, which were defeated only by Coolidge’s vetoes. And at the state and local levels, certainly, voters and politicians, as well as many business leaders, continued to support some new regulations and state enterprises.60
Despite the ascendance of pro-business Republicanism in the 1920s, some progressive experiments of the 1910s did not fade away so easily. This was true for a small network of Navy-owned petroleum reserves, which included some lands in California that had been set aside in 1912, as well as some in Wyoming, created three years later, dubbed “Teapot Dome.” Josephus Daniels, naturally, had argued throughout his tenure as Navy secretary that the oil reserves must remain under public control. But not long after Daniels left office in 1921, President Harding transferred authority over the reserves from the Navy to the Interior Department. That agency was now headed by Albert B. Fall, a former U.S. senator from New Mexico who was known as a friend to mining and oil companies. In 1922, as Fall proceeded to negotiate leases with private interests, Daniels put critics of the plan in touch with sympathetic Navy officers; he also used his Raleigh, North Carolina, newspaper to call for congressional investigations.