Destructive Creation. Mark R. Wilson
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discover some remarkable improprieties connected with the privatization of the Navy oil fields, which have gone down in history under the name of the “Teapot Dome” scandal. Perhaps the most sensational finding was that Edward L. Doheny, with whom Fall had negotiated a lease on one of the California reserves, had engaged his son to give Fall a small black bag containing $100,000 in cash. Fall received similar “loans” from his friend Harry Sinclair, who had received the Teapot Dome leases. One of the men hurt most by the investigation, ironically, was William McAdoo, whose law firm had assisted with some of Doheny’s business in Mexico. Although this connection had no direct relation to the Navy reserve leases, it may have helped prevent McAdoo from becoming the Democrats’ candidate for president in 1924. Instead, the party chose the more business-friendly John W. Davis. This decision encouraged Robert M. La Follette, Jr. to run as a third-party candidate, under the banner of the Progressive Party. Both were crushed in 1924 by Coolidge, who had managed to prevent Teapot Dome from damaging his campaign.61
Although the Teapot Dome scandal offered sensational evidence of corruption practiced by a single government official, it should be understood as part of the wider struggle over the economic legacies of the Great War. Even before Fall’s bribe-taking was revealed, Daniels and his progressive allies—including La Follette in the Senate and Gifford Pinchot, the conservationist governor of Pennsylvania—were attacking the leases as evidence of the excesses of postwar privatization under the new Republican administration. In most fields, the progressives in the early 1920s lacked the political power to prevent this reassertion of private authority in the American economy. But in this case, thanks in part to Fall’s crimes, they prevailed: the reserves were returned to the Navy.
There was another closely watched struggle over postwar privatization in which progressives managed to wield surprising influence during the 1920s, even without a dramatic corruption scandal. This was the Muscle Shoals controversy, which, after many twists and turns, ended with the establishment of one of the most important public enterprises in American history, the Tennessee Valley Authority (TVA).
The Muscle Shoals dispute originated with the War Department’s massive efforts in 1917–18 to ramp up the nation’s capacity to produce explosives. In December 1917, the War Department contracted with the American Cyanamid Company to build and run a large GOCO nitrates plant at Muscle Shoals, Alabama. This complex, built at a cost of $68 million, was slated to produce forty thousand tons of nitrates a year, which would help free the United States from its dependence on Chilean nitrates. To provide electricity for the plant, the War Department started to build a large new dam, which would take advantage of the natural waterfalls at Muscle Shoals. The nitrates plant was finished in October 1918, too late to make a contribution to the war effort. Construction on the dam, which, at the time, represented the biggest hydropower project ever undertaken in the United States, was still far from complete.62
During the 1920s, the fate of the big GOCO explosives plant and hydroelectric power project at Muscle Shoals became the subject of intense public debate. At first, it seemed certain that the facility would be leased or sold to the private sector. The most prominent of the early bidders was Henry Ford, the auto industry titan, who suggested that he was interested in using Muscle Shoals as the foundation for a new Detroit—a major manufacturing center for the South. “The destiny of our country, agriculturally and industrially,” Ford proclaimed in early 1922 as he discussed terms with Secretary of War John W. Weeks, “lies at Muscle Shoals.”63 Ford appeared to be the choice of President Coolidge, who recommended in a December 1923 speech that Muscle Shoals be sold.
Resistance to such a sale proved unexpectedly potent. The growing Teapot Dome scandal encouraged critics of the proposed deal with Ford. They were led in Congress by Senator Norris, a champion of public ownership of electric power. One of Norris’s allies, Congressman Fiorello H. La Guardia (D-NY), warned in March 1924 that privatization of the costly Muscle Shoals facilities could become an even bigger Teapot Dome. Such opposition helped delay any action before the 1924 elections. Frustrated, Ford withdrew his offer in October of that year. Although the progressives still had not won over a majority in Congress, they had succeeded, by the time Wilson Dam was finished in 1925, in keeping Muscle Shoals in government hands.64
During the late 1920s, Norris and his allies gained even more ground, thanks to public concerns about the organization of the American electricutility industry, dominated by large holding companies. These entities, most of which were controlled by the J. P. Morgan financial empire and Chicago utility titan Samuel Insull, were criticized by progressives as a monopolistic “power trust” that harmed the public interest. In 1928, a Federal Trade Commission investigation of the industry noted that the holding companies had been lobbying against the creation of a public utility at Muscle Shoals. Senator Norris, backed by the League of Women Voters and a variety of other groups, had been working on a bill that would make Muscle Shoals the center of a large utility and waterways management system in the South. Norris managed to get Congress to pass one such bill in 1928, but President Coolidge vetoed it. In 1931, President Hoover vetoed a similar bill.65
Hoover’s opposition to public power at Muscle Shoals suggests how much he differed from his former colleagues in Wilson’s cabinet and from the New Dealers who would soon set up shop in Washington. Hoover’s work to promote government-business cooperation, which he pursued especially during his tenure as secretary of commerce in the 1920s, is sometimes described as “progressive” and distinct from the approach of traditional free-market business conservatives.66 And as president, Hoover continued to favor some policies that would make government bigger, not smaller.67 But on the Muscle Shoals question, Hoover had no interest in compromising with progressives. During the 1928 campaign, he dismissed the Norris scheme as “state socialism.” In his 1931 veto message, Hoover explained that the Norris bill “raises one of the most important issues confronting our people.” For Hoover, there was only one acceptable position to take on this critical question. “I am firmly opposed,” he announced, “to the Government entering into any business the major purpose of which is competition with our citizens.”68
Hoover’s opponent in 1932, Franklin Roosevelt, was well acquainted with the concept of public enterprise from his days in the Navy Department. In 1929, as governor of New York, Roosevelt called for public power projects at Muscle Shoals, Boulder Dam, and along the Saint Lawrence River. During the 1932 campaign, in a major speech in Portland, Oregon, he added a Columbia River project to this list. As Roosevelt explained it in 1932, among the benefits of these public power projects was their function as yardsticks with which the public could evaluate the claims of private utility companies about costs and proper rates to the public. They also served as “birch rods”—evidence that government could, in effect, punish the private sector if it failed to work in the public interest, by entering directly into the industrial field.69
After Roosevelt won the election, Norris’s dreams were realized. The TVA was launched in early 1933, along with the rest of the early New Deal. According to Roosevelt, this was “the widest experiment ever conducted by a government.”70 Using the dam at Muscle Shoals as its foundation, the TVA would create a major government-owned, government-operated electric power enterprise.
This experiment was not welcomed by the private utilities. Nor did it please the leading national business associations, which had spent the past fifteen years fighting to keep government out of industrial operations. The creation of the TVA, as one of its leading historians once put it, precipitated “a battle between government and business as intense as any in American history.”71
To the dismay of many businessmen, the TVA empowered a new generation of enthusiasts for public enterprise, including David Lilienthal, who would lead the agency. Lilienthal and his allies were most worrisome to private electric-utility executives in the South, where the TVA promised to compete directly with for-profit utilities. Many of those were controlled by the Commonwealth & Southern Corporation, led by Wendell Willkie. In the mid-1930s, Willkie became a prominent spokesman against what he and others regarded as the unfair use of federal authority to subsidize public power. After federal courts refused to find the TVA unconstitutional, Willkie was forced to compromise. In August 1939, he agreed to sell the Tennessee Electric & Power Company, one of the largest pieces of Commonwealth