The Daily Reckoning
Paris, France
Wednesday, 7 April 2004
The Daily Reckoning PRESENTS: Were it not for Woodrow
Wilson, what sort of world would we be living in today?
Without Wilson's legacy of "federal credit, national debt,
a large centralized government, and an imperious... moral
ideology built and financed thereon," argues Byron King,
would we recognize our own times?
WILSON'S DESTINY, Part II
By Byron King
Yesterday, we began to explore the impact President Woodrow
Wilson has had on the international system. The world, we
wrote, still spins on a Wilsonian axis. Yet how did one man
manage to impart such a lasting legacy - one that has
shaped national and world events ever since?
Wilson clearly could not have achieved what he did without
the help of a few key tools. The first year of his
presidency say the advent of three elements which would, as
Wilson put it, greatly assist him in putting government "at
the service of humanity." Today, we look at how Wilson used
these tools... and how his actions have shaped the world we
know today.
Wilson was an activist in expanding the federal role in the
economy, pushing through such legislation as the
establishment of the Federal Trade Commission (1914) and
the Federal Farm Loan Act (1916). Both of these laws
brought the federal government into the daily lives of
Americans, in a way that would have been incomprehensible
to the Founding Fathers.
On the international front, during his first term Wilson
embroiled the U.S. in Mexico's civil war, up to and
including invading Mexico, a bone of contention between the
two nations ever since. (In his second term, Wilson would
send U.S. troops into Russia to oppose the Bolshevik
Revolution, but this gets ahead of the story.)
When the Great War broke out in Europe in 1914, Wilson's
administration of U.S. international trade and monetary
policy was decidedly lopsided, and certainly lacking in a
sense of balanced neutrality towards all belligerents. The
Wilson administration forbade "loans" by U.S. banks to the
warring powers. Yet Wilson's administration permitted U.S.
banks to extend massive "credits" to the French and
British, thus creating an economic situation in which the
U.S. bankrolled their conduct of the Great War.
Without U.S. "credit" to fund their purchases in 1914 and
1915, such credit extended into the economy by the U.S.
Federal Reserve and its "elastic currency," it is quite
likely that Britain and France would have run out of cash
after a few months of fighting. In all likelihood, Britain
and France would have had to make some accommodation for
peace with Germany, and bring the War to a relatively swift
conclusion. But absent peace imposed by the pocketbook, the
European war went on and on, sucking more nations into the
fray and wrecking the lives and cultures of many peoples.
It cannot be overstated that, during Wilson's first term in
office, European combat was funded and supported on the
Allied side by U.S. money, its elastic currency, and U.S.
materiel. Meanwhile, Germany, a militaristic culture
lacking any real internal political process that would
sanction failure of its armed forces to prevail, had little
choice but to dig deeper into its economy and fight on.
In essence, Wilson's economic and trade policies, abetted
by the Federal Reserve, perpetuated the European War. They
also led to (and even required, from a military standpoint)
German submarine warfare on the high seas. That is, with
submarine technology at its disposal, German military
strategy had no other option but to sink ships carrying war
materiel to Britain and France. So long as U.S. "credit"
paid for the materiel, the ships would sail and the
cargoes, once landed, would threaten Germany.
There was deeply rooted opposition in the U.S. electorate
to any direct American participation in the European War.
However, the nation enjoyed the economic boom times caused
by the war-related orders pouring in from Britain and
France. Mines, mills, factories and farms all posted and
received premium prices for their wares, courtesy of U.S.
"credits" to the Allies and the newly created Federal
Reserve and its elastic currency. The economic myth was
that the Allies were supporting the booming U.S. economy
with their purchases of war materiel. The reality was that
the Allied purchases were based on U.S. credits, supplied
ultimately by Wilson's new creation, the Federal Reserve.
Thus, the war boom was at root simply inflation created by
the FED.
Running for his second term in 1916, Wilson's campaign
slogan was "He kept us out of war." This was not quite
correct, because by 1916 the U.S. was deeply invested in
the British and French role in the fighting. After Wilson
was safely re-elected for a second term, his obstinate
pursuit of his otherwise failed economic and trade policies
favorable to Britain and France led to a point where German
submarine warfare became an American cassus belli. Less
than ninety days after beginning his second term, Wilson
called upon Congress for a declaration of war against
Germany.
Domestic opposition to Wilson's policies was intense,
particularly within the large Irish and German populations
in the U.S. But Wilson, the learned scholar of Government
and former President of Princeton, was prepared to control
this dissent with some of the most sweeping laws ever
passed to limit free speech and political dissent. And
Wilson's Federal Reserve and newly enacted national income
tax funded the war effort, all the while giving Wilson the
resources he needed to expand his domestic vision of a
powerful central government that literally took over many
elements of U.S. industry.
According to historian Robert Nisbet, "The blunt fact is
that when (under Wilson) America was introduced to the War
State in 1917, it was introduced also to what would later
be known as the total, or totalitarian, state."
As if the foregoing accomplishments would not be enough for
any president, whether or not "ordained" by God to govern,
another of Wilson's enduring legacies was a direct
outgrowth of U.S. participation in the Great War. This was
Wilson's effort to shape the peace and his remarkable turn
of phrase, to "make the world safe for democracy." This
term, and its underlying panglossian concept of remaking
the world in a Princeton-honed image of American
participatory government, has haunted U.S. policy ever
since it was uttered. Nine decades later, U.S. foreign
policy is fundamentally Wilsonian. The concept of a world
"safe for democracy" has such Jovian gravity as to be
inescapable, and essentially all modern political debate in
the Western world is framed in its terms.
But a "world safe for democracy" requires certain
underlying assumptions of power and price, which are the
key elements in "making" anything happen anywhere, and
certainly in "making the world safe for democracy." Whether
he understood the implications or not, Wilson had a Federal
Reserve, an elastic currency, and a national income tax
with which to do his bidding. Not all peoples, races and
nations are so fortunate.
Had Woodrow Wilson never been president, would the U.S. and
the world have had a far different 20th Century? Or was
Wilson just one man in a particular time of great change, a
man who articulated concepts that were beneath the surface
and waiting to be revealed? When Wilson walked into the
White House in 1913, Germany and Italy had already spent 40
years creating and building centralized, debt-financed
governments. In this regard, Wilson was an imitator, not an
inventor. So did Wilson make history, or perhaps give it a
shove in a particular direction, or was he merely governed
by historical forces whose time had come?
These types of questions are endless, and just asking them
certainly gives one thoughts of a world far different from
this one in which we live. Absent Wilson, would there have
been a U.S. central bank, the Federal Reserve, to fund the
type of world economy that has evolved? Absent Wilson, what
would U.S. politics have done with the 16th Amendment, the
income tax amendment? How did Wilson's presidency effect
the direction of the national income tax? And absent the
tax revenue, what would have happened with the early growth
under Wilson of centralized federal power in the U.S.?
Absent Wilson's inept neutrality, his biased diplomacy and
willingness to throw U.S. dollars into the Great War on the
side of Britain and France, would the U.S. have become
involved in what was later named World War I? Would the
Great War have lasted so long and caused so much damage to
the fabric of European civilization and colonial influence?
Would the world ever have heard, just a few years later, of
war veterans such as Herr Hitler and Signor Mussolini?
Absent U.S. participation in the European War, would a
pedestrian lawyer, and middling state-level politician
named Franklin Delano Roosevelt have found his first
federal job as Assistant Secretary of the Navy? Would the
U.S. ever have bred such soldiers as Douglas MacArthur and
Harry Truman, and most of the rest of the list of future
political-military leaders of mid-century?
Absent events put into motion by Wilson, would the Great
War have lasted so long as to cause Russia to break up and
descend into a Bolshevik Revolution? Absent Wilson, would
U.S. troops have gone ashore in Russia to take sides in the
matter? In another region of the world, absent Wilson,
would the Ottoman Empire have dissolved, to spawn the
modern politics of the Middle East? And absent Wilson,
would the concept of League of Nations/world governance
ever have gained the traction it did?
Woodrow Wilson said that he wanted to put government "at
the service of humanity." But when you distill things to a
basic essence, Wilson bequeathed his nation, the world, and
"humanity" the legacy of federal credit, national debt, a
large centralized government, and an imperious, if not
crusading, international moral ideology built and financed
thereon.
What is more, Wilson's legacy has lasted for nine decades
and today seems immutable. None who are alive have
experienced anything different from a Wilsonian world. No
one can remember or recall first hand any time when this
world of ours worked otherwise. And when things change, and
change they certainly will, most people will be trapped in
a Wilsonian paradigm and not understand what is happening.
Regards,
Byron King
for The Daily Reckoning
Editor's Note: Byron King has been engaged in the private
practice of law for 14 years and currently serves as an
attorney in Pittsburgh, Pennsylvania. He received his Juris
Doctor from the University of Pittsburgh School of Law in
1981 and is a cum laude graduate of Harvard University.