5—The Paradox of Capitalist Progress, 1922–1929

THOMAS NIXON CARVER, a professor of economics at Harvard University, was one of many New Era prophets of the booming 1920s who had touted the achievements of unprecedented economic growth and what he believed was the crowning achievement of American capitalism. Laborers were becoming capitalists, thus ensuring that prosperity and progress would continue without interruption. Carver made these declarations in his 1925 book, The Present Economic Revolution in the United States. But the Great Depression proved Carver wrong on all counts. “Blind, as only the scholar become ballyhoo-maker can be,” wrote Lewis Corey in 1934. Corey, a Marxist economist and political writer, called the book “a distortion of history.” It had become just “another curiosity of economic literature, a fantastic combination of misleading statistics, apologetic economics, slipshod sociology, and rationalized prejudices.”1

Almost a century ago, Carver was convinced that a revolution in American capitalism would bring an end to inequality, a systemic feature of the world capitalist system for centuries. It would also make the United States the great bulwark of democracy against the rising menace of international communism. Contrary to what the Bolsheviks were claiming about building a new society in Russia—rarely was it called the Soviet Union—Americans were making the real revolution and it was a capitalist one. Nothing the communists envisioned could match what was being created by the diligent efforts of ordinary people who believed in freedom and the right to own property. Everyman a capitalist! It was a stunning vision of democratic capitalism made possible by prosperity the world had never seen. Yet Carver’s ideal scenario bore little resemblance to the realities for a majority of Americans. Instead of an economic revolution destined to eliminate inequality and bring uninterrupted social progress, capitalist modernization in the booming 1920s only widened the gap between wealth and poverty.

The combined force of state power and Big Business had initially crushed and then successfully repressed the working class. The massive strike wave that swept much of the nation in the aftermath of the First World War had been pacified by brute force, court-ordered injunctions, and the complicity of organized labor. Following a sharp but brief economic downturn, a surge in production and the coming of Boomtown USA brought the promise of a modern lifestyle defined by comfort and enjoyment. But this only sharpened the divide between the haves and the have-nots. Prosperity mainly padded the fortunes of those already at the top. As the rich got richer and the upper strata of the middle class prospered, the majority of working Americans and the poor remained at or below minimum levels of need and comfort. Throughout a seven-year stretch (1922–1929) of enormous economic growth, wages and salaries remained stagnant for most working people while corporate profits and dividends soared to record highs. The wondrous world of new things mattered little to millions of people who could not buy them. Always looking to maximize productivity and profits, the great lords of production and finance lowered their production costs by replacing workers with machines and rendering human labor increasingly disposable. As capital accumulation advanced at lightning speed, purchasing power of the masses lagged.

Meanwhile, the scale of capitalist modernization generated deep currents of anxiety, fear, and resentment for a majority of 119 million Americans who did not prosper and found life difficult to comprehend or accept. People who stayed back on the farm became even more steadfast in the mindset and behavior of nineteenth-century rural life. Those who dashed to the cities found themselves in the swirl of modern urban life. Seeking security in the whirlwind, their earlier prejudices became more engrained. Even the established small merchant and banker, the rising professional and salaried employee, and some of the best-paid workers, felt both awed and threatened by the features of the big city. Among the middle rungs of the class ladder arose a stream of consciousness between progress and reaction. While clinging to the vision of a true liberal-capitalist democracy, the middle class, unable to comprehend the rising powers of monopoly-finance capital, became the major force of political reaction in America. Finding solace in identifying themselves as old-stock True Americans, their nativist, racist, and anti-communist views provided the seedbed of right-wing extremism and populist demagoguery.

Such were the main contours—and contradictions—of capitalist modernization in the United States during the booming 1920s. Progress, indeed, but at great cost. If the Great Boom of the New Era fueled unprecedented wealth, it also created growing misery. It was a paradox of capitalist progress—growing poverty in an everrising sea of plenty. The great advance in production and exchange that fueled the rise of the American empire, Pax Americana, intensified long-standing capitalist contradictions within the heart of the nation. The power of capital had advanced beyond the capacity of the working class, which, except for periodic strikes of some magnitude, remained quiescent throughout the decade. The aspiring middle classes were also held in check. The most dynamic class in American society was the ruling capitalist class, an oligarchy in the making whose imperial architects were extending the global reach of the United States.

Within this capitalist totality, the economic decline of the middle class as a whole relative to the great wealth of the ruling oligarchy turned it toward political reaction and extremism. Its greatest proponent was the “second” Ku Klux Klan, whose growth extended far beyond the South between 1920 and 1925. All of it was the product of a modernizing drive by the capitalist class. As the latter grew more powerful in its control over production and distribution, its gains were protected by state power now bound to the needs of monopoly and financial capital. Under these conditions came the class divide between the two capitalist classes, the oligarchy who owned and controlled the economy and the middle classes who wanted their fair share of it. Both played their respective roles in the making of American fascism.

PROSPERITY FOR WHOM?

In a landmark study of American workers published in 1960, Irving Bernstein wrote that “the twenties were, indeed, golden, but only for a privileged segment of the population.” From his research and analysis, Bernstein knew where the majority of the American people stood in relation to the ruling class and the paradoxical character of the moment:

Although on the surface American workers appeared to share in the material advantages of the time, the serious maladjustments within the economic system fell upon them with disproportionate weight. This interplay between illusion and reality is a key to the period. In fact, this was a society in imbalance and workers enjoyed few of its benefits.2

The economic revolution that Carver claimed was occurring in 1925 had not materialized. Everyday life had, in fact, remained a challenge if not a struggle for the vast majority who had little left after essential expenses—apart from those who had none at all. It was especially bad in large rural areas where villages and small towns dotted the landscape. The economic boom had concealed the rural exodus of some twenty million people that fueled it. The rush to bustling and prosperous urban centers, which included more than a million African Americans who left the South for cities in the Northeast and Midwest, indicated how sharply people understood that wages in town were better than those on the farm. Technical innovation in capitalist farming wreaked havoc on traditional means of cultivation and employment. It had displaced “the horse, the mule, and, most important, the farmer, his wife, and his children,” Bernstein wrote.3 But this was not news. The economist and historian Louis Hacker had said as much in 1938: American agriculture was “permanently depressed” throughout the 1920s. Unlike the industrial takeoff that commenced in 1922, farmers saw their land values and crop prices plunge as their debt climbed. “Put simply,” Hacker wrote, “farm prices had been deflated, while farm costs—necessaries for home and field, mortgage debt, taxes—were still highly inflated. The farm account could not be balanced.” For Hacker, the Great Depression of the 1930s only made the bleak picture of the American farmer during the Great Boom even darker.⁴

There were other downward economic pressures. A declining birth rate and restrictions on immigration had driven up the price of labor, compelling employers to rely increasingly on machinery to boost efficiency and lower costs. This halted further growth of the labor force and created a general condition of stagnation in the economy. Those employed in the manufacturing sector amounted to little more than ten million workers who had few opportunities for advancement. On the other hand, the number of white-collar and service workers employed in a range of occupations rose significantly. Then, there were the millions of unemployed. The absence of government statistics made it impossible to report the number accurately. Still, a few studies in the late 1920s showed that anywhere between 10 and 13 percent of the available labor force was unemployed between 1924 and 1929. High unemployment was a permanent feature of the New Era.5

One of the first writers and journalists to see these realities was Mauritz Hallgren, whose 1933 book, Seeds of Revolt, penetrated what he called the “beautifully deceptive myth” of the New Era. Pulling together numbers from scant government sources and private studies, Hallgren admitted that the nation had indeed experienced “fabulously prosperous” times. Still, only 40 percent of the U.S. population was living in comfort or above in 1929.⁶ Available statistics on income and unemployment revealed that the majority had not shared in the general prosperity. In the sources he examined, Hallgren saw a mass of Americans who had “no nourishment, no shelter, no medical attention, no opportunity to lay away money against their declining years.” For industrial workers, it often depended on what they were producing or mining. Textiles and bituminous coal industries—among the biggest of the older, “sick” industries—paid comparatively lower wages. According to a 1928 study of wage rates by the Bureau of Labor Statistics, bituminous coal miners in some parts of the country had earned as little as $10.34 weekly in 1926, compared to those in motor vehicle manufacturing who a year earlier were already earning $24.02 per week. There were also the large numbers of seasonal workers—carpenters, bricklayers, masons, plumbers, steamfitters, among others, who earned higher wages, but their yearly totals often qualed those of semi-skilled factory workers.⁷

A report compiled by the Labor Bureau, Inc., a private consulting firm, late in 1928 called the “Minimum Health and Decency Budget” focused on the cost of goods and services required by a family of both parents and three children “below which a family cannot go without danger of physical or moral deterioration.” The report admitted that the criteria lacked many of the comforts that should be included in an acceptable and proper “American standard of living.” Yet workers even in the largest and most prosperous industrial cities came up short. The highest-paid factory workers in New York and Illinois, for example, were not earning enough to attain the minimum standard of living. In Illinois, only the newspaper printers, whose weekly average earnings were $45.84, and construction workers, who averaged $43.80, came close to the minimum of $46.98 set as acceptable income for the city of Chicago.8 Of course, the worst off were farmers and farm laborers. Farmers’ cash income fell 35 percent from 1919 to 1929, while the tax burden and indebtedness on family farms rose substantially. White-collar workers in the bustling cities were not much better off. According to a November 1929 article in The Nation, store clerks made as little as $10 a week; even the best paid among them averaged little more than $30. In 1926, $25 was the average weekly earnings of school teachers, though in some parts of the country it was as little as $14. Even men of the cloth were poorly paid. Those who could count themselves lucky among the “rather munificently paid rectors of fashionable metropolitan churches” averaged $35 a week. According to the same Nation report and statistics from the 1931 edition of the American Labor Year Book, employees in the executive branch of the federal government, which included high-salaried officials, were making about the same as the best paid clergymen.⁹

Hallgren was highly aware of the significance in the plight of the middle class. Indeed, some of the worst hit during the prosperous years were small shopkeepers, manufacturers, and bankers, all of whom had thrived in earlier times. A few got rich by investing in stocks but the majority had failed to improve their economic status. Many were becoming poorer. Citing material in a 1929 article by Stuart Chase in The Nation, Hallgren wrote that 750,000 independent storekeepers were doing less than $25,000 a year in business. A survey of one large city found that a third of its retailers were taking in less than $7 in daily business. All shared the same problem while chain stores, department stores, and mail-order houses cut into their sales. Mass-production factories were doing the same thing to their smaller counterparts. Commercial failures of small shopkeepers and manufacturers amounted to 21,500 annually from 1923 to 1929. A similar fate befell small banks: “No fewer than 4,474 banks—an annual average of 639—were forced to close their doors.” All these failures “brought in its wake personal tragedy and catastrophe touching many more individuals than the single factory-owner, shopkeeper, or banker concerned.”10 So this is what “Professor Carver meant by the ‘equalization of prosperity,’” Hallgren exclaimed. As he saw it, the lower middle class was “struggling to keep up appearances as required by a new and inflated standard of living” because “the installment-buying psychosis” drove the middle class to live beyond its means—completely ignored were the 22 million paupers spread over the country.¹¹

As for the number of unemployed, Hallgren attempted to come up with an estimate, made difficult by the dearth of government statistics. Yet according to the U.S. Bureau of Labor Statistics, at no time from 1924 to 1929 did the 10,000 factories and industrial establishments that reported regularly to the government have enough work for all employees on their payrolls. The bureau estimated that about 14 percent of industrial workers who were listed as employed suffered temporary layoffs during that time frame; in July 1924, the number of workers on payrolls but not working climbed to 25 percent. Even at the high point of the stock market boom in 1929, temporary layoffs ran between 7 and 8 percent of the normal amount employed by these factories and establishments. Hallgren rounded out the picture with studies by individual scholars. An average of various estimates in December 1927 showed that the number of unemployed was likely 3.5 million but could exceed 4 million. One study by Horace Taylor of Columbia University in 1928 suggested the latter number. That year, the Bureau of Labor Statistics also found that 1,847,000 men and women who sought work failed to find it. Though far from a complete picture, the evidence was sufficient for Hallgren to conclude that the prosperity of the New Era was not something experienced by most industrial workers. Their true economic status was “obscured by the operation of such uneconomic devices as installment buying, steam-roller salesmanship, and modern advertising.”¹²

Hallgren summed up his analysis by citing two important studies to strengthen his case. In 1928, Irving Fisher of Yale University determined that more than 93 million Americans earned about $500 annually. From this he also figured that the vast majority of Americans appeared to be making only a little over their expenses and had little or nothing in reserve. The following year, Paul H. Nystrom of Columbia University published Economic Principles of Consumption, which became the basis for a study by the International Chamber of Commerce on commodity distribution problems in the United States. Hallgren noted that even these hardboiled businessmen, who “cannot afford to be deceived by their own ballyhoo,” accepted Nystrom’s analysis. It showed that the distribution of purchasing power among individuals and families classified in six categories stretching from “public charges” to “minimum comfort,” amounted to 72 million people, or 60.5 percent of the total population of 119 million. These Americans did not make enough income to qualify for a decent standard of living. And among them were the poorest 18 percent, the paupers of Boomtown USA.13

“SEEDS OF REVOLT” IN THE MIDDLE CLASS: PROGRESS OR REACTION?

That the prosperity of the Great Boom had not been shared by more than half the population was nothing new in the history of the world capitalist system. As Karl Marx had explained decades earlier, the general law of capitalist accumulation that governed any advance in industrial production and economic growth always generated poverty as well.¹⁴ But at no other time had the paradox of capitalist progress been more evident in the history of modern capitalism than in 1920s America. The rich got richer while the poor remained paupers, finding relief only from private charities and limited efforts by local governments. Big Business had subjugated the working class to its control. “It may seem cruel,” Hallgren wrote in 1933, “but it is nevertheless necessary, to point out that the proletarians, who suffered in silence throughout the post-war decade, were relatively little worse off after three years of economic crisis than they had been at any time during the Golden Age.”15

But this was not the case for the middle class (Hallgren often uses the terms lower middle class or petty bourgeoisie interchangeably when referring to the whole middle class). Perhaps more than any of his peers, Hallgren showed a keen sense of the middle-class condition before the Wall Street crash. The small businessman, manufacturer, and banker had taken heavy hits from the growing concentration of capital during the economic boom. Many went down completely or were bought out by stronger competitors, usually corporations. According to the aforementioned studies by Chase, Taylor, Fisher, and Nystrom, Hallgren determined that a good number if not most in the ranks of the middle class lived at or below what was considered acceptable levels of comfort. Yet its peculiar outlook as a class—always looking to reach the top while fearing a fall to the bottom—played a big part in its undoing during the 1920s. Given its low income levels, such dreams of upward mobility were driven by an installment-buying psychosis that was created by the capitalists and presented to them at times in the most crooked ways. For example, the suburban home-buying boom of the mid- to late 1920s had kept the lower middle class chasing its dreams by ensnaring them in deals that amounted to a “criminal racket.” Schemes like “pay-the-rest-like-rent” enabled landowners to subdivide their properties and entrap “thousands of mechanics, clerks, salesmen and others” who “were given the illusion of security and prosperity.” What they were buying, Hallgren said, was not the property itself but only a share of its inflated value. The crash hit them hard. “The factory manager or corner grocer who had scraped together every dime that he could spare to buy a mortgage bond lost his savings. The insurance salesman or automobile mechanic who thought he was buying a home in the suburbs learned that he was not.”¹⁶

Left behind in the Great Boom, the lower middle class accommodated the status quo but remained essentially reactionary in its political and cultural outlook. Hallgren noted that this trajectory affirmed the position taken by Marx and Engels in the Communist Manifesto when they wrote that the petty bourgeoisie was always fighting the capitalist bourgeoisie to prevent its extinction, thereby attempting to roll back the wheels of history.17 But in the 1920s, looking back to an earlier era of small enterprise was even more futile in the face of capitalist modernization led by Big Business. With the exception of a brief moment in 1924 when its “more politically alert” members cast nearly five million votes for the Progressives and their presidential candidate Robert La Follette, the lower middle class did whatever it could to stay afloat by accommodating its capitalist rulers.¹⁸

At the same time, there were major developments in the consciousness and behavior of the middle class. The industrial takeoff that spawned an urban-based, cosmopolitan culture had introduced a new and vibrant lifestyle to those who eagerly embraced it. But the volatility of urban life fueled a potent reaction among the 20 million migrants from the countryside who had entered the ranks of the lower strata of the urban middle class. Still rooted in a strict code of Protestant moralism, many felt threatened. The world was bearing down on them, pushing millions toward political reaction that was at times extreme. Shopkeepers and clerks, small manufacturers and salesmen, ministers and policemen, all swept up in modernization were often simultaneously repelled by its culture. Illicit use of alcohol, brazen sexuality, the “loose” woman, disrespectful youth, and many other behaviors, were deemed objectionable according to the strict code of evangelical Protestant morality that had governed their consciousness. Obeisance to the necessities of buying and selling put them at odds with the open and dynamic lifestyles it promoted. As a result, the Great Boom had fractured the consciousness of the middle class as never before. The new urban lifestyle defined by greater acquisitiveness and a desire for personal comfort, enjoyment, and mischief also generated its opposite—a sense of anxiety, discomfort and anger about what they saw and heard. The exaltation of the new freedoms of modern life was accompanied by the advance of bigotry and hate.

In this great wave of reaction were the seminal forces of right-wing extremism, especially among the five million people who joined the Ku Klux Klan between 1920 and 1925.

THE KU KLUX KLAN: THE MIDDLE CLASS AS “ENTREPRENEURS OF HATE”

After decades of obscurity following its heyday of racist terror in the South after the Civil War, the so-called second Ku Klux Klan appeared in Georgia in 1915. But it was not until the postwar anxieties of a society fundamentally changed by war, a major strike wave, the Red Scare, and a deep economic downturn that its membership grew dramatically in 1920, the year Warren Harding was elected president. It quickly became the leading organization of political reaction during the first half of the decade. By 1925 its network of local units (Klaverns) stretched well beyond the South into the Midwest and Southwest, and along parts of the Pacific coast. It was strong in the midwest cities of Detroit, Indianapolis, and Chicago, as well as in Atlanta and other large cities across the South. Far from a monolithic structure, wrote the historian Robert Moats Miller in 1968, the Klan “was a many-splintered thing, or, less invidiously, a many-splendored thing.” The Knights were all “troubled souls,” but their troubles varied from region to region and Knight to Knight. “It was as though an outraged citizenry participated in a giant police lineup to identify the enemies of society, with each ‘good’ American fingering the suspect.”19

Of course, white supremacy against the Negro was the Klan’s core. “I swear that I will most zealously and valiantly shield and preserve by any and all justifiable means and methods White Supremacy,” read the oath each Klansman took.²⁰ But the list of enemies in the early 1920s, according to Miller, had grown considerably to include

the conspiratorial Catholic, avaricious Jew, dirty Mexican, wily Oriental, bloody-handed Bolshevik, scabrous bootlegger, fancy “lady,” oily gambler, fuzzy internationalist, grafting politico, Sabbath desecrator, wife-beater, home-breaker, atheistic evolutionist, feckless-faithed Modernist, scoffing professor, arrogant intellectual, subversive socialist, slick urbanite, simpering pacifist, [and] corrupt labor organizer. Of necessity, the line of suspects was endless because the evils threatening America were legion: miscegenation, mongrelization, Romanism, socialism, urbanism, skepticism, secularism, paganism, modernism, radicalism, internationalism, materialism, Freudianism, relativism, surrealism, alcoholism, sexualism.

Given all these variations, it made more sense to consider the Klan of the 1920s as made up of many local units operating on their own. Each unit, Miller said, prioritized the lists of dangers “just as each Knight was motivated (whether consciously or not) by his life experiences.”21

The second great anchor and glue for Klansmen was Protestant fundamentalism. Membership was restricted to adult-born Protestant males, which was between 15 to 20 percent of the total male population in the nation, and between 25 and 30 percent of all Protestants.²² Hiram Wesley Evans, who became Imperial Wizard in 1922, described the Klan as “a recruiting agency” for Protestant churches. Baptists, Methodists, and Disciples of Christ dominated membership rolls. At one point Protestant ministers made up two-thirds of the thirty-nine national lecturers working for the Klan. Each Klavern had its own minister. Leadership boasted that the organization included 30,000 in 1924. That year, Klansmen made up three-quarters of the 6,000 delegates to the Southeastern Baptist Convention.²³

Still, perhaps the most important feature of the Klan that explained its outlook and behavior in the 1920s was its largely middle-class composition. This was vitally important to historian Nancy MacLean. The appeal of the Klan’s politics, she writes, “was rooted deep within American society and culture: in the legions of middle-class white men who felt trapped between capital and labor and in the political culture they inherited from their forebears.” For MacLean, the Klan was far from the stereotype of white trash. Anxious about current conditions and fearful of what the future might bring, Klan leaders drew from the wellspring of American politics to fashion an ideology based on established values that they believed would help them make sense of rapidly changing social relations and help them meet challenges to their power.24

This mindset was certainly true of the Klan’s founder, William Joseph Simmons, whom MacLean describes as “the son of a poor Alabama country physician” and “a man chronically on the make.” In 1920, Simmons realized that to build an organization he needed help from those more adept at modern sales practices. So he took on two partners, Mary Elizabeth Tyler and Edward Young Clarke, who quickly built the Klan as masters of advertising and propaganda. They, in turn, hired “seasoned organizers,” which turned the KKK into a thriving business, also making “a small fortune” for the dynamic duo.²⁵ Some of the profit trickled down to recruiters (Kleagles) who kept part of the high initiation fee charged every new recruit.²⁶ Southern manufacturers also did well doing business with the Klan, especially the Gate City Manufacturing Company in Atlanta, which held exclusive rights to produce and sell Klan regalia. Since each member was required to buy a white robe and pointed cap for $6.50, the profits climbed.²⁷ Moreover, Tyler and Clark had put together an impressive sales package that blended “white supremacy, Christianity, and the male-bonding rituals of fraternalism.” This presented the Klan as the country’s foremost “militant defender of ‘pure Americanism.’” Armed with this promotional material, Kleagles went out to the fraternal orders, especially Masons, Elks, and Odd Fellows whose memberships were made solidly of Baptists, Methodists, and the Disciples of Christ.²⁸

The Klan quickly became a moneymaking machine. A recent analysis of membership datasets from different areas and cities by Roland G. Fryer Jr. and Steven D. Levitt estimates that Klan leadership from top to bottom generated total revenues amounting to at least $25 million in 1924, its peak year of membership. With only a small portion of that amount needed to fund basic operations, the rest went into the pockets of leaders. Indeed, the “true genius” of the Klan was “its remarkable ability to raise revenue.” As Fryer and Levitt wrote, “Rather than a terrorist organization, the 1920s Klan is better described as a wildly successful multi-level marketing entity fueled by an army of highly incentivized sales agents and an unprecedented interest in fraternal groups of all kinds.” Citing other scholars, they characterized the Klan as a national organization built by “entrepreneurs of hate.”29

MacLean’s case study of the Klan in Athens, Georgia, reveals a middle-class consciousness rooted in “its own distinctive relationship to capital and labor … and its own modes of thought.” Local and regional prioritizing of enemies and evils only served to mask what she sees more significantly as the “underlying commonalities that justify treating the petty bourgeoisie as a class.”³⁰ Her analysis revealed that it was mainly an organization made up of “middling men” who had experienced some upward mobility during the war years but whose hopes for further advancement were dashed by the political turmoil and economic downturn of 1919–1921. The single most common occupation of the Klan in Athens was owner or manager of a small business or a small family farmer. White-collar employees of the so-called new middle class—salesmen, clerks, agents, and public employees—filled out the rest in the ranks. Absent were the wealthiest in the city, as were unskilled urban workers and poor farmhands. Without the pull from those below them, these middling men identified with the uptown urban population and landowning families and “lined up against mill operatives and landless farmers.”³¹

MacLean calls this petty-bourgeois consciousness in Athens “reactionary populism” and argues that it is typical of the Klan elsewhere, whether in large manufacturing cities or in smaller towns.³² “Although the exact proportions varied, those most likely to belong to the order included white-collar employees, small-business owners, independent professionals, skilled workers, and farmers.” But the real significance in understanding the “clustering” of Klan membership was to see it from a “transnational perspective.” Highly critical of the tendency among historians and others to confine class analysis to capital and labor alone, MacLean sees the ominous danger “to obscure the very existence of the petit bourgeoisie as a class with its own distinctive relationship to capital and labor, its own internal dynamics, and its own modes of thought.” Most of them were occupationally closer to the upper ranks of the working class, while a few made it to the lower ranks of the capitalist class.33

All these occupational differences among Klansmen, MacLean writes, “mask the underlying commonalities” that justified considering the petty bourgeoisie as a distinct class. On the basis of her class analysis of the Klan in Athens, which she viewed as representative of the organization nationally, Maclean explains how the class character of the petty bourgeoisie was shaped by its relation to the means of production and the class struggle. Its “structural position,” she argues, “helps account for the characteristic ambivalence of the lower middle class vis-à-vis the capitalists above them and the unskilled workers beneath them in the social order.” For sure, big capitalists and small proprietors alike were vested in private ownership. Yet, unlike the actual capitalist bourgeoisie, members of the petty bourgeoisie lived and operated mainly as family members. This made them suspicious of big capitalists who employed many more workers and with whom they could not possibly compete. Thus the small proprietor, manufacturer, artisan, or salaried employee always felt vulnerable and subject to the greater resources of large capitalist enterprise. MacLean cautions that the political volatility that inheres in the petty bourgeoisie can at times bring it into an alliance with the working class and make them anti-capitalist. But this is only temporary since complications arise from the fact that supporting the working class undermines its own interests as small owners who are being threatened by the increasing concentration and centralization of big business.34

“In short,” MacLean writes, “the very placement of the petit bourgeoisie means that it is perennially pulled and pushed in two directions: towards capital and against labor, towards labor and against capital.” But the push and pull and the extent of its magnitude depends on the state of the capitalist system at any moment, that is, whether or not it is functioning reasonably or in crisis:

In trying times, this buffeting tends to become particularly pronounced. Economic crisis and intense struggle between labor and capital aggravate the ambivalence imbedded in the structural position of petit-bourgeois people. Faced with the prospect of disaster, they can feel pushed first from one direction, then the next, shuffled back and forth by forces beyond their control.³⁵

MacLean follows closely the broader theoretical analysis of another historian, Arno Mayer, who observed “the vague sense of negative commonality” of the petty-bourgeois consciousness that is “neither bourgeois nor worker” and which becomes heightened when subject to various “economic, social, and cultural identities.” In such times, Mayer said, the petty bourgeoisie “loses self-confidence and becomes prey to anxieties and fears which may well predispose it to rally to a politics of anger, scapegoating, and atavistic millenarianism.” MacLean adds that no one can know for sure how “this Janus-faced perspective will be resolved in any particular case.” But it was clear in the early 1920s as far as labor was concerned. “Thinly based, internally divided, and sorely defeated in the postwar contest with employers,” she writes, “it had lost the momentum that might have enabled it to attract those wavering in the middle.”³⁶

Still, the Klan’s mix of classical liberalism and republicanism wrapped in a vision of a True American society was grounded in the class consciousness of the petty bourgeoisie. As such, it did not contradict Thomas Nixon Carver’s idea of a capitalist utopia made from hardworking laborers becoming capitalists who personified the ideals of 100 percent Americanism. Both visions were implicitly grounded in a petty-bourgeois worldview of nativist and racist thought that contained within it a virulent form of reactionary populism. True to Carver’s outlook as well was the Klan’s method of recruitment and organization, which in connecting Protestant congregations with fraternal organizations revealed a business approach consistent with petty-bourgeois entrepreneurship.

Meanwhile—and this may be the most important matter yet to be examined—the small proprietor by day must have felt some discomfort and worry for competing with giant corporations to sell commodities that extolled the virtues of a modern cosmopolitanism, knowing that he would condemn them at a meeting of his Klavern that night.

THE MARCH OF EMPIRE

While the plight of the middle class was clear from the start, it was obvious that the ruling capitalist class reaped rewards and riches greater than ever. For one thing, three Republicans in the White House who believed that the business of America was business itself welcomed all the healthy tax cuts to the wealthy. After all, Andrew Mellon, one of the richest men in the world and Treasury secretary for Harding, Coolidge, and Hoover, made it happen. It was Mellon who coined the term “trickle-down economics.” Cutting taxes for wealthy Americans and corporations was justified on the claim that it would stimulate further investment in industrial and commercial enterprises, thereby creating more jobs in manufacturing and the growing service economy. The wealth generated at the top would then flow down to small businesses and local economies. That did not happen. By the end of the decade, the Mellon tax policy had helped 60,000 families at the top of the economic ladder to gather assets equal to the 25 million Americans at the bottom. Income from stock dividends rose 65 percent, indicating that the wealth rescued from taxes was not trickling down but being swept up into the stock market and the bank vaults. According to historian Alan Lawson, Mellon became so obsessed with his doctrine that he ordered the Internal Revenue Service to provide him with an expert to determine how he could eliminate his own personal taxes.37

As leading capitalists and their partners in government tightened their grip over American society, they also looked to expand their power and influence abroad. Already the leading industrial power in the world capitalist system, the United States had now become its banker. To sustain further growth in industry and finance required an expanding global reach for the U.S. economy. This was not easy given the official isolationist foreign policy during the 1920s. When he became president, Harding appeared willing to play along with the chorus of Old Guard isolationists who had rejected the internationalist agenda of his White House predecessor Woodrow Wilson. But Harding was no isolationist, and all his talk about “normalcy” was geared to giving the industrialists and bankers what they needed. Under Harding, the United States embarked on an imperialist agenda facilitated by able capitalist modernizers in his cabinet, men who understood that continued prosperity in the domestic economy depended on gaining control over natural resources required for industrial output and establishing new markets for the goods it produced.

More important, the modernizers saw the key to all of this in the increasing flow of U.S. capital into foreign markets in the form of direct investment and loans, which often required walking the tightrope between isolationism and engagement. To get around this, Harding, and Coolidge after him, delegated much of the actual policymaking to leading bankers who, with a clear sense of purpose and vigor, defined spheres of influence for the expansion of U.S. interests vital to the health of domestic business. The results were impressive. Foreign investment doubled during the war years and left the nation a net creditor by more than $3 billion.³⁸ But then it doubled again from 1919 to 1930, when investment in overseas projects rose from $7 billion to $17.2 billion.39 During the prosperous 1920s, the United States furnished two-thirds of all new long-term foreign investment, nearly $9 billion since the war ended.⁴⁰ From 1919 to 1926, J. P. Morgan & Company alone issued loans totaling $1.5 billion to more than a half-dozen European nations, Australia, Chile, Cuba, and Japan.⁴¹ In all these ventures, government and business acted in concert to establish U.S. financial hegemony over the European and much of the global economy.

As president, Coolidge’s support for the expansion of U.S. finance capital abroad was clearly evident in the crucial loan package to Germany put together by New York bankers in 1924. The Dawes Plan, led by Charles Dawes, who would soon become vice president, sent $2.5 billion to Germany for the purpose of ending a crippling inflationary crisis caused by the Weimar government’s attempt to make reparation payments to its former enemies.⁴² In effect, the injection of U.S. capital turned the caretaker Weimar government from imminent collapse to overseer of a dynamic though short-lived recovery. Coolidge and other political and business leaders had drummed up public support for the plan, while the Federal Reserve did its part by lowering interest rates that made high-yield foreign bonds more attractive. The Dawes initiative was unprecedented, bringing together a nationwide syndicate of 400 banks and 800 bond houses, all of whom saw nothing but green. Of greater significance, the Dawes Plan made German capital peripheral to and dependent on the United States. A rush “to the trough of American capital” by German local governments and corporations stabilized the national economy. Until American bankers called in their loans following the 1929 Wall Street crash, there was no better example of an advanced capitalist country’s peripheral dependence on the centrality of American capital. Between 1924 and the onset of the crisis five years later, German public credit institutions got 80 percent of the loans they received from American investors, while the amount given to local governments and large corporations was almost as high, 75 and 56 percent respectively.⁴³

American banks opened a large number of branches overseas, penetrating the monopoly British capital had always enjoyed in financing U.S. traders. By 1926, eight American banks had 107 branches or subsidiaries in foreign countries. The stability of the dollar and its acceptance as the currency of exchange was advantageous to U.S. business, since foreign entrepreneurs who stockpiled dollars tended to spend them on American commodities rather than on those of America’s rivals. This promoted the expansion of American production beyond U.S. borders. Throughout the 1920s, American companies extended their operations worldwide and with incredible speed. Companies such as General Motors, International Harvester, United Fruit, IT&T, Ford, and General Electric purchased existing plants or built new ones in dozens of countries. “American utilities took over vast chunks of the Latin American market, and American aviation—a new industry—set up a virtual world monopoly.” The rate of investment was impressive across the board: in Europe about $5 billion before 1930, $5.6 billion in Latin America, and $4 billion in Canada. By the end of the 1920s, American holdings abroad, which had been only one-sixth of Britain’s in 1913, were now nearly equal.44

The significance of this postwar surge in American economic power was clear to Louis Hacker in 1938 when he wrote that the United States had embarked on a truly imperialist course during the 1920s. “This new American imperialism,” Hacker recalled, “meant an awareness of the fact that the domestic economy of the nation was inextricably tied up with world economy: that our movements and our decisions were being affected, sometimes to a very marked degree, by events taking place in remote corners of the earth.”⁴⁵ The rate of growth in monopoly-finance capitalist enterprise had raised the bar on it imperatives. America’s continued economic success hinged on three great challenges: to secure raw materials not found within its territorial borders or in short supply; to establish new foreign markets to absorb the surpluses of goods manufactured domestically; and to export capital for profitable investment. Consequently, American business needed much more than the Open Door principle articulated by Secretary of State John Hay in 1899 when he warned Europe and Japan that it needed unfettered access to Chinese markets. U.S. capital now depended on open and direct access to the entire world market which, for Hacker, had surely occurred during the 1920s. By the end of the decade, America’s private long-term investments were about equally divided between direct investments (ownership of factories, mines, sales agencies, etc.) and portfolio investments (ownership of foreign securities, both public and private).46 U.S. investors had reaped immense profits at home and abroad—a fifth of direct investment had gone to foreign manufacturing enterprises competing with American industries worked by American labor. For American capitalists, both were win-win scenarios. Whatever they could not make at home they did abroad since direct investments, as Hacker put it, enabled them “to tunnel under the high protective tariff walls” of foreign governments.⁴⁷

In Hacker, we find no better observer of a Pax Americana in the making. As direct foreign investments increased, so did the political and military arm of American power whenever possible. This was well known to others like him who understood the significance of it all. In 1940, two Marxist writers, Bruce Minton and John Stuart, provided a concise overview of an ascendant empire seeking to extend and defend its commercial and banking interests in Europe, Latin America, and the Orient. Harding and Coolidge relied heavily on cabinet officials to carve out imperialist agendas that operated in subtle conformance with the government’s explicit policies of non-engagement. Under Secretary of State Charles Hughes, the Harding administration crafted an imperialist foreign policy that, in the words of Minton and Stuart, “methodically and shrewdly set about winning world outlets for the masters—the great exporters and financiers who were looking beyond the borders of the United States for markets to conquer and exploit.” Hughes and company got much help from Herbert Hoover, who had turned the Commerce Department into a “sales bureau for American economic aggression.” According to Minton and Stuart:

The monopolists were offered advice and incentive. Throughout the world, American consuls compiled tables of commercial opportunities in the countries where they were stationed, investigating credits and arranging terms of sales advantageous to American firms. Each month the Department of Commerce issued a bulletin on available supplies of raw materials, the trend of prices, the rates of production, the volume of sales.

Business inquiries multiplied as the department became a major vehicle for U.S. imperialist expansion. This made Hoover its “patron saint.”48

Minton and Stuart pointed to the increased use of military force to protect American business interests directly or, in some cases, to support a political strongman who would willingly do the bidding of U.S. businessmen. This was especially true in the small countries of Central America and the Caribbean where Wall Street financiers held huge investments in oil or mineral deposits, agricultural goods, and other commercial enterprises. When a putsch government in Guatemala guaranteed American capitalists special privileges in 1922, Hughes “precipitously recognized the most reactionary and malodorous regime” in Central America. Here, recognition required armed protection by American troops for the president and his supporters against the majority of the Guatemalans who opposed him. U.S. Marines occupied the Dominican Republic to supervise elections and ensure the election of a government that would be responsible for protecting U.S. interests. They occupied Nicaragua for the same reasons. Haiti, which became a U.S. protectorate in 1916, saw its parliament suspended during Harding’s presidency and replaced by a bureaucracy of 250 Americans who directed the so-called republic’s finances, public works, police force, health services, legal activities, and agriculture. A U.S. ambassador told Cuba what laws to pass; Puerto Rico was run by a commission in Washington that ruled with an iron hand.49

BIG BUSINESS LOVES MUSSOLINI

After some initial apprehensions following Benito Mussolini’s famous March on Rome in October 1922, the Harding, Coolidge, and Hoover administrations gave almost unqualified support to Italian fascism throughout the rest of the decade. American business leaders jumped on board, as did many of the leading newspapers like the New York Times and popular magazines, especially the Saturday Evening Post. For top American businessmen, Mussolini’s leadership in a moment of crisis had turned back the threat of socialist revolution. It then charted a course toward a newfound political stability that offered an exemplary model to American capitalists throughout the New Era. Mussolini was a leader they respected and admired. This was crucial to the architects of foreign policy in both nations who recognized their respective and mutual interests as the basis for a sound partnership in U.S-European relations. As Italy sought strong ties with the United States, knowing that it needed capital investment, U.S. bankers deemed it vital to make Italy a partner in consolidating its position in Europe. In an address to the National Association of Manufacturers in 1923, John A. Emery likened Mussolini’s conversion from radical socialist to “the lightning stroke of intelligence” that struck “Saul of Tarsus from his horse” and made it possible for the fascist leader to ride through the streets and unite “a great body of citizens who were determined to restore its institutional government.”⁵⁰ Emery hoped that Americans would see something encouraging and uplifting in Mussolini’s ascension.

According to a New York Times report on March 9, 1923, two hundred American delegates to the Second Congress of the International Chamber of Commerce had agreed with Emery. As the largest contingent in the 1,000-strong delegation, the Americans joined their peers from other nations to cheer Mussolini when he entered the Congress accompanied by a platoon of Blackshirts. In what might have been a direct message to the Americans, Mussolini seemed to echo President Harding’s position on the future of U.S. politics when he said that fascism “offers to the world the best proof that the Italian nation is rapidly regaining normalcy in its political and economic life.” For a fascist dictator in the making, Mussolini had other words of assurance to the guardians of American capitalism in the New Era when he talked about the resilience of the free market and the need for individual initiative. Some American business luminaries in the audience returned home convinced that fascism was a good thing for Italy—and perhaps for America as well. Julius Barnes, president of the U.S. Chamber of Commerce, saw “the beginning of a new era in Italy.” William Booth, a vice president for the Guaranty Trust Company, praised Mussolini for lifting the country “out of the slough of despair into the bright realm of promise.” Lewis Pierson, chairman of the board of the Irving National Bank of New York who represented the American Bankers Association (ABA) at the Congress told the Merchants Association of New York in a speech that Mussolini was restoring “the ideals of individualism” and pledging Italy to respect the “inviolable rights of property and contract.” For Pierson, “progress” in Italy under Mussolini would come through “thrift and hard work.”51

In his excellent study of America and its relations with fascist Italy, historian John Diggins describes how American businessmen congratulated Mussolini for doing what they had already done in the United States by electing Harding. Fascism had established law and order in Italy and revived the economy on the basis of efficient, “private” management in industries. It had ended the strike wave and prevented the communists from gaining political ground. Fascist ideology served to revitalize Italian nationalism and patriotism while holding up the doctrine of hard work. The president of the New York Stock Exchange, E. H. H. Simmons, told Italian bankers that Mussolini’s fascist victory over communism, that “evil disease from the Orient,” and the marvelous achievements he was piling up, had captured the imagination of American businessmen. Business publications such as Barron’s and Nation’s Business, the official organ of the U.S. Chamber of Commerce, among others, heaped praise on Il Duce and Italian fascism. “The list of outspoken business admirers reads like a Wall Street ‘Who’s Who,’” Diggins wrote. Among the luminaries were Otto Kahn of Kuhn, Loeb and Company, who touted Mussolini’s leadership and those of his able assistants. Ivy Lee, the public relations genius, interviewed Mussolini in 1923 and recorded his encouraging ideas on balanced budgets, stable government, and American investment opportunities. Elbert H. Gary, chairman of the United States Steel Corporation, exclaimed that the entire world needed strong, honest men like those in Italy from whom Americans could learn much. Julius Barnes, president of the U.S. Chamber, referred to him as “without question a great man.”52 Barnes told the Executive Council of the ABA:

Today he is the one real living force, not only in Italy, but in all Europe, and the conversion of that man with his strength and his following to the principle of the so-called capitalistic system that we believe in is the most extraordinary encouragement to us who want to see and hear sound and sane economics put into play.⁵³

But the American business leader who most vigorously patronized the cause of Italian fascism in the mid-1920s was Thomas W. Lamont, head of the J. P. Morgan banking network, and who served as a business consultant for Mussolini’s government. Lamont’s praise for fascist Italy, Diggins wrote, was “as mundane as a cost analysis,” because a “‘modus vivendi’ had been worked out between capital and labor” that returned industry to private enterprise, reduced the national debt, and curbed inflation.⁵⁴

Even Mussolini’s life story appealed to the New Era’s ethos that success was possible for everyone through hard work and sacrifice. The son of a blacksmith, Mussolini was living proof of the self-made man who became a pragmatic statesman. Here, Diggins says, “was the ‘practical’ leader who rejected the unusable democratic dogmas of the past and the unworkable moral principles of the present.” For these reasons, the conservative Commerce and Finance and the liberal New Republic both praised Mussolini for his realism and pragmatism. Conservative American businessmen admired the rationalizing of the Italian economy, which provided moral imperatives for business success.55 In an editorial titled “That Man Mussolini!” in the Nation’s Business, Merle Thorpe explained why American businessmen were inspired by the fascist leader:

I can understand why a business man would admire Mussolini and his methods. They are essentially those of successful business. Executive action; deeds, not words.… The impression you get of [Mussolini] is that he is a fine type of business executive. He cuts through…. Not fine-spoken theories; not plans; not speeches he is going to make. None of these. Things done! And that is your successful American executive.⁵⁶

Mussolini’s popularity in the United States was fueled by the press. While most newspapers, magazines, and literary journals took a critical or skeptical view of fascist developments in Italy, some publications seemed to give full backing to Mussolini’s fascist experiment. None was more approving than the most highly respected daily in the country, the New York Times. Its regular team of correspondents covering Italy wrote favorably about fascism and Mussolini. One of them, Walter Littlefield, was even decorated by the Italian government. A few other notable publications were even more openly pro-fascist. None topped the Saturday Evening Post. One of its regular writers, Isaac F. Marcosson, said Mussolini had saved Italy because he had prevented a “Red terror” and had demonstrated his genius for economics by engineering a “commercial revolution.” Some of its contributors joined in the accolades. For example, the celebrated humorist Will Rogers interviewed Mussolini only to come away with a highly favorable impression and wrote that dictatorship “is the greatest form of government; that is, if you have the right Dictator.”57

In his fine study published in 1980 but only recently translated into English, Gian Giacomo Migone mentions Andrew Mellon’s support for the important role Mussolini played in helping to stabilize the economic and political situation in postwar Europe—and being favorable for U.S. investments. In a campaign speech for Coolidge in October 1924, Mellon recalled how a strong hand had saved Italy from socialist revolution and then established a government that was freeing industry from regulation, lowering corporate taxes, and producing a nearly balanced budget. According to Migone, Mellon considered Mussolini a “principal exemplar” for laissez-faire economics because it was the very thing Mellon was directing at Treasury.⁵⁸

DURING THE 1920s, the success of the U.S. capitalist state in crushing the radical labor movement had established conditions for the dramatic expansion of American capital—perhaps the first economic takeoff in the rise of Pax Americana. From it came a torrent of new consumer goods in an ever-expanding marketplace that promised greater comfort and pleasure. All this fueled the ballyhoo of the Great Boom that drowned out whatever little was said about the fact that most of the population did not partake in the prosperity. Instead, the paradoxical character of capitalist progress made it difficult for enough Americans to recognize the steady widening of class divisions on a national scale. Whatever political legitimacy was required to sustain the Great Boom was supplied by three Republican presidents and their administrations whose domestic and foreign policies put more and more power in the hands of Big Business. For the affable conciliator Warren Harding, it was “normalcy.” For the puritanical Calvin Coolidge, it was praising capitalist elites as members of the “elect” whose sole purpose was to make the nation and themselves rich. And to Herbert Hoover, the Great Engineer, it was to constantly call on capitalists to recognize their civic duties and serve others in a great show of voluntarism. All this made possible a cultural milieu fecund with possibilities for capitalist enterprise and a mindset for acquisitiveness that permeated American society, both of which served the drive for capitalist accumulation and profit.

The rise of Pax Americana could not have happened unless the capitalist ruling class had subjugated domestic labor to its imperatives. Migone makes this clear in his study of U.S. relations with fascist Italy. “Right from the beginning,” he wrote, “most Americans saw and appreciated the Fascist coup d’état for one particular aspect: the Italian version of a return to normalcy” and a model for all other European countries in the turbulent early 1920s. The great desire for a return to order “squashed every other possible concern. One might expect that the destruction of that constitutional order which was supposed to be the hallmark of the liberal democratic order would elicit some reaction in the nation founded on one of the world’s great liberal revolutions.” As Migone so presciently stated in 1980:

The nearly unanimous consent to Fascism in the United States provokes serious questions on the nature and the limits of the American ideology and practice of democracy. At the same time it is important to observe that consent was also, if not exclusively, the product of a specific set of historical values, interests, and mindsets that characterized the United States of the Twenties. The desire for a return to normalcy, in a larger sense than merely economic productivity, was particularly strong…. The need for economic expansion and therefore for stable and friendly partners, was foremost in the minds of American elites, particularly financial elites; and was never more than in this historical period determinative of their political and ideological orientation, as well as that of a larger range of American public opinion.

Migone revealed the key feature in the future of American liberal capitalist democracy when he added that “approval of Fascism became a shared position among both isolationists and those who waited impatiently for the right conditions—the rise of stable and capable partners—to recommence internationalist politics.”59

At home, the ruling class had crushed the power of labor with the brute force of state power in 1919 and 1920 and then relied on its legal arm and the complicity of the AFL and the rest of organized labor. The result, as Mauritz Hallgren said, was a quiescent working class throughout much of the decade. The displacement of the middle class as the driving force of the American economy and progressive political change took an unmistakable direction toward the reverse—political reaction and extremism. All of this was the result of capitalist modernization fueled by Big Business in the name of progress.

But progress for whom? In serving Italian fascism as a linchpin of its economic power and political influence in Europe, liberal capitalist democracy in the United States revealed its own embryonic fascist processes in the epicenter of the world system.

The germ of American fascism lay in the drive for accumulation and thus was bound up with the modernizing processes of industrial and financial expansion that aimed at capitalist domination at all levels of political and social life. Put another way, fascist processes in the United States were primarily a political and ideological by-product of capitalist modernity in the capitalist epicenter of the world system and not a reaction to it. The reaction came instead from a middle class that clung to its fantasy of a democratic capitalism. This explains why the driving force for fascism in the United States came from the top of the social order in the 1920s and how the paradox of capitalist progress concealed a general crisis of capitalist society in the making—and with it the intensification of fascist ideas and processes that were peculiarly American. That the architects of capitalist prosperity succeeded so well explains why the onset of the crisis in 1929 shocked them, and why after futile efforts to prevent its deepening caused many in the ruling class to call for a form of American dictatorship just like Mussolini’s.