Protectionism vs. Free-Market Populism

What The Wall Street Journal’s editorial page learned from the 1920s and the 1980s.


Presidents Herbert Hoover and Ronald Reagan.
Presidents Herbert Hoover and Ronald Reagan. PHOTO: GETTY IMAGES (2)

With one unfortunate exception, The Wall Street Journal has always adhered to co-founder Charles Dow’s injunction against endorsing political candidates. The exception came in 1928 with an editorial, ordered up by the dying Dow Jones & Co. president, C.W. Barron, that endorsed Republican Herbert Hoover. Barron apparently feared that the election of Democratic New York Gov. Al Smith would undo the economic achievements of his good friend Calvin Coolidge.

What Barron didn’t seem to realize was that although Hoover was a Republican, he was not cut from the same cloth as Coolidge or William Howard Taft. His penchant for market interventions was almost as intense as what would later be displayed by the New Deal Democrats. Having endorsed Hoover, the Journal’s editorials were rather muted in offering criticisms of his performance, a timidity that vindicated Dow’s warning that a good newspaper should never tie itself to a politician of either party.

The Journal’s free-market principles were violated when Hoover bowed to heavy lobbying by farmers and industry and signed the notorious Hawley-Smoot Tariff Act of 1930, one of the greatest protective tariff increases in American history. When the nation’s trading partners retaliated in kind, Hawley-Smoot brought about a virtual shutdown in world trade, hitting American farmers, who accounted for a large share of American exports, hardest of all. That, along with the hapless Fed’s inability to arrest deflation, worsened the Depression. A petition signed by 1,028 leading economists urged Hoover to veto the measure, to no avail. Under heavy political pressure from protectionists, he ignored their advice.


Republicans were excessively committed to their efforts to “help” the farmer. A Journal editorial on April 15, 1930, probably written by Frederick Korsmeyer and titled “A Tariff Banquo,” attacked a proposed export subsidy for farmers that Sen. William Edgar Borah (R., Idaho) wanted in the Hawley-Smoot bill. The editorial likened the provision to Banquo’s ghost in that it popped up repeatedly in Congress and was hard to banish. The editorial calculated that for cotton alone, the provision would cost the Treasury $80 million a year, and the subsidy would also defeat efforts by the government to curb crop acreage to support prices of farm products. Farmers would respond by increasing their production with the “certainty of a future collapse making their condition worse than ever.”

More generally, the Journal said on April 1, 1930, that the “pending tariff bill has been constructed on the good old theory that this country can make its own living standards and let the rest of the world roll by.” The editorial challenged the popular idea (still existent today but more dangerous then) that an export surplus, enforced by high tariffs, is a good thing for the economy. It cited a book titled “America Looks Abroad” by banker-economist Paul Mazur about the fundamental inconsistency of that view.

Said the editorial: “America looks abroad, wrote Mazur, because she can’t help herself. She seeks an answer to the not altogether new question how she may continue to collect $1,000,000,000 of annual interest on foreign loans and still preserve a merchandise export balance of nearly as much. With due conditions and qualifications, Mr. Mazur’s conclusion is that it cannot be done.”

This editorial was not the first and would not be the last time that the Journal would have to point out that the flip side of an export surplus is a foreign investment deficit. Americans in the 1930s frequently grumbled over the failure of our European Allies to pay their World War I debts. Mazur and the Journal were pointing out that high tariffs made it difficult for the Europeans to earn the dollars to make those payments, even with the best of intentions.

The damage from Hawley-Smoot, which Hoover signed in June, wasn’t long in coming. A Journal editorial on Dec. 30, 1930, noted that exports of autos and parts for the 10 months ending in October had dropped to $249 million from $488 million in the like period a year earlier. “This is not an isolated instance but is only one of many of our export trade. When there is a great falling off of foreign demand for the products of labor, whether cotton or machinery, there must be a falling off in employment that reacts upon all industry and trade,” said the Journal.

The Journal was notably cool toward Hoover’s 1931 State of the Union address, criticizing him for a lack of leadership in signing Hawley-Smoot. An editorial said the message was “in fact disappointing,” betraying Hoover as “a man whose mental vision is apt to become focused on what he wishes to see.”

As the Depression deepened, the Journal’s support for Hoover waned further, and although it still leaned toward Hoover over Franklin D. Roosevelt in the 1932 presidential race, there were no more enthusiastic endorsements. The Journal’s editorial position was equivocal, deeming both parties to be, in effect, antibusiness. Indeed, an editorial on July 1, 1932, favored the Democrat platform plank as being the “most honest” on the repeal of Prohibition, which, even in the depths of a Depression, it described as the “most important issue facing the nation.”


The biggest thing we did in the 1970s and ’80s under editor Bob Bartley’s leadership was to provide a springboard for what later came to be called the “supply-side revolution” in economic thought. We didn’t know when we entered into this project that it would be the big deal it proved to be, transforming federal economic policy in a way that made the United States more prosperous and life better for many millions of Americans.

The early supply-siders of the 1970s advocated cutting rates in the highest-income tax brackets, in what was then an even more progressive system than now. As a worker’s earnings rose, he paid out ever-higher percentages of additional (marginal) income to the tax collector; thus, the system penalized the most productive and successful taxpayers. I was Bob’s deputy, and initially I was not sure that cutting rates on the highest incomes, as the supply-siders advocated, would create greater incentives to produce. I was concerned that they were simply offering a way to make the rich even richer, an argument that has not gone away even today.

But a better understanding of what the supply-siders were driving at revealed the logic of their arguments. Men and women will work harder to improve their status in life if the work effort they expend and the investment risks they take are not burdened with excessive taxation. In other words, supply-side measures were not meant to help the rich, but to foster the work effort and investment of time and money by people who want to become rich, or at least richer. In short, they were advocating measures to promote economic growth, which improves the lot of almost everyone.

It made sense to me because of the experience of my own family. Long before I was born, my father owned a farm on the eastern outskirts of Louisville, Ky. It was on the south bank of the mighty Ohio River, and every spring his land was inundated by Ohio’s annual flood. After the danger of flood had passed, my father cleared his land of debris and planted sweet corn. When it matured, he harvested the “roasting ears” and hauled them into Louisville to sell at the farmers’ market. It was a profitable business. Eventually, he saved enough money to buy a better farm in central Indiana and enjoy a measure of prosperity of the 1920s.

My father, beginning with very little capital, was able to build a profitable business through long hours of hard physical labor. There was no farm program to support him, but on the other hand he wasn’t overburdened with excessive taxes and regulation. He could use what he earned at the Louisville market to support his wife and six children (I was later to be the eighth and last) and still have savings left over for future investment in a better farm that wasn’t flooded every spring. Because of his productivity, he was able to earn a surplus by supplying a marketable commodity to the townspeople of Louisville.

Men like my father, questing for a better life and willing to work long, hard hours to achieve that end, supplied the productive energy that built the United States to the powerful engine it had become by the 1920s. The country’s reputation as a land of opportunity, where privileged elites could not keep a good man down, had drawn many millions of ambitious immigrants to America’s shores, and does to this day. There had to be demand in the marketplace for what they produced, of course, but it was their productive labor that drove the economy.

My father, along with millions of other Americans, demonstrated the simple principles that formed the foundation for supply-side economics. People produce so as to be able to consume, and they work harder and take more risks if there are few restrictions on their opportunity for gain.

Associate editor Jude Wanniski, Bob Bartley and I used to amuse ourselves imagining the guesses readers might be making—particularly our adversaries—about the backgrounds of the men who were writing Wall Street Journal editorials. The class-warfare barbs thrown at us by our critics on the left led us to believe that they thought we were pampered sons of New York billionaires. In fact, Bob’s father taught veterinary medicine at Iowa State; I grew up in a farm village in Indiana, the son of a farmer; and Jude was the son of a coal miner and grandson of an ardent Communist.

We were a rather proletarian lot to be promoting capitalism, but we were not at all out of step with the special brand of populism that had been made a tradition by our predecessor Journal editorial page writers. “Free people, free markets” was in our veins for the simple reason that those principles allowed upward mobility for individuals with energy and ambition—people like us. Business leaders, when they departed from those principles—as they often did—were as much fair game for our verbal arrows as statist politicians. We were not the “voice of big business,” as our critics glibly called us, but exponents of free-market capitalism, an economic system that allows any individual to build a business and compete with the big boys.

The two things are definitely not the same. We didn’t expect limousine liberals to love us for our proletarian origins. Distrust of self-made men is a fairly common attitude in those circles. A few of us were having lunch with former managing editor Barney Kilgore in Cleveland once when he offered what I thought was a particularly trenchant observation about rich liberals: “They’ve got theirs and they don’t want anyone else to get any.”

The fundamental importance of encouraging production was understood as well by Ronald Reagan, a poor boy from the Illinois sticks. Reagan defeated Jimmy Carter in 1980, partly because of the hash Carter had made of economic policy. After Reagan took office, tight money forced the nation into a sharp but short-lived recession, which gave rise to some carping, even among some supply-siders, that Reagan had misapplied their principles.

Whatever the right policy mix might have been, when the recession ended in 1983, the country came out of it with a dollar rehabilitated to relative soundness and a tax system that had restored incentives to work and invest. On that basis the United States would enjoy steady economic growth, with only two brief exceptions, well into the 21st century.

The supply-side formula had been proved correct. Ronald Reagan had pushed aside all the old class-warfare, soak-the-rich populism that had taken hold in the 1930s and had restored the kind of free-enterprise populism that had made the United States great.

Mr. Melloan is a former deputy editor of the Journal editorial page and author of “Free People, Free Markets: How the Wall Street Journal Opinion Pages Shaped America,” just out from Encounter, from which this article is adapted.

Appeared in the July 15, 2017, print edition.

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