Although the state capitalism of the twentieth century (as opposed to the earlier misnamed "laissez faire" variant, in which the statist character of the system was largely disguised as a "neutral" legal framework) had its roots in the mid-nineteenth century, it received great impetus as an elite ideology during the depression of the 1890s. From that time on, the problems of overproduction and over-accumulation, the danger of domestic class warfare, and the need for the state to solve them, figured large in the perception of the corporate elite. The unregulated market was increasingly viewed as destructive and inefficient. The shift in elite consensus in the 1890s (toward corporate liberalism and foreign commercial expansion) was as profound as that of the 1970s, when reaction to wildcat strikes, the "crisis of governability," and the looming "capital shortage" led the power elite to abandon corporate liberalism in favor of neo-liberalism.

Martin Sklar commented that the "corporate reconstruction of American capitalism" that arose out of the Depression of the 1890s was as fundamental a revolution in American life as had been the Civil War and Reconstruction.

The answer to Sklar's question, in my opinion, is that the corporate reconstruction of the 1890s took place without violent political transformation precisely because the "civil war and revolution" of 1861-77 had already established all the political prerequisites for a peaceful corporate reconstruction of the economy. The withdrawal and subsequent political transformation of the South, followed by the ascendancy of the "redeemers," with their national-capitalist orientation, gave the Republicans uncontested political terrain and a free hand to impose the full Whig economic agenda. The corporate economy was made possible by high industrial tariffs and the full-scale subsidy of "internal improvements"--along with corporate personhood, "substantive due process," and the rest of the legal regime growing out of the Fourteenth Amendment. The creation of the latter legal regime was analogous, on a smaller scale, to the legal regime of Bretton Woods and GATT that provided a political structure for global capitalism after WWII.

The rise of an economy dominated by firms operating on a continental scale, and of industries in which a relative few firms predominated, was not an outgrowth of the 1890s. It evolved over the previous two or three decades, as a result of the Whig-Republican triumph of 1861-77. And the economic crises of the 1890s, to which full-blown corporatism was a response, were themselves a result of the destabilizing tendencies of the previous corporate evolution. The growing geographic scale, centralization, and levels of accumulation characteristic of American business organization during the previous decades culminated in the full-blown crisis of over-accumulation and under-consumption of the 1890s.

As Martin Sklar himself pointed out, the process of "industrial concentration," which he distinguished from corporate reconstruction, had been going on for some time before the 1890s. And the 1880s were a decade of unprecedented accumulation that continued into the crisis decade of the '90s.² The crisis of the 1890s was the outcome of this concentration and over-accumulation; but they, in turn, were the result of the Whig-Republican state capitalist intervention, and not of the "unregulated" or "competitive" market.

The American ruling class, therefore, was wrong in seeing the crises of overproduction and surplus capital as "natural or inevitable outgrowths of a market society."³ Nevertheless, from the Depression of the 1890s onward, through most of the Twentieth Century, corporatist solutions to these crisis tendencies dominated the state's economic policy. But every subsequent corporatist measure, adopted to solve the previous problems of over-accumulation, itself further exacerbated the problems of over-accumulation.

The ultimate result was a spiral into further statism, culminating in the corporatism of the New Deal and the permanent war economy of WWII and the Cold War.

In the realm of foreign policy, the problem of over-accumulation and under-consumption led to the regime known as "export-dependent monopoly capitalism," relying on what William A. Williams called a policy of "Open Door Empire." We will study the history of monopoly capitalism as it affected U.S. foreign policy in Chapter 7.

The state's remedies to the crisis of over-accumulation and under-consumption (primarily Keynesian demand-management, corporatist labor policy and the welfare state) themselves lead to opposing crisis tendencies: the crisis of under-accumulation and the fiscal crisis of the state. The ways in which these conflicting crisis tendencies interact, and their likely final outcome, are the subject of Chapter 8.

The primary subject matter of this chapter is the rise of monopoly capitalism itself, and the state's policies for cartelizing the economy. The effects of the state's subsidies and regulations are 1) to encourage creation of production facilities on such a large scale that they are not viable in a free market, and cannot dispose of their full product domestically; 2) to promote monopoly prices above market clearing levels; and 3) to set up market entry barriers and put new or smaller firms at a competitive disadvantage, so as to deny adequate domestic outlets for investment capital. The result is a crisis of overproduction and surplus capital, and a spiraling process of increasing statism as politically connected corporate interests act through the state to resolve the crisis. The best single analysis of this process I am aware of is Joseph Stromberg's in "The Role of State Monopoly Capitalism in the American Empire"⁵