American Capitalism, American Government: The Business Roots of the Modern Administrative State

In the 1910s and 1920s, prominent corporate lawyers and financiers led a movement to increase the administrative capacity of the national government. Inspired by a Hamiltonian appreciation of the mutually constitutive relationship between business and government, leaders such as Elihu Root, Henry Stimson, John T. Pratt, and Paul Warburg saw that modern capitalism required a modern state to support it. They drew their ideas from their experience on Wall Street, and they believed that the nation would benefit if lessons from big business could be applied to the national government. They focused on two basic ideas drawn from corporate governance: (1) establishment of a modern budget system with central executive responsibility subject to shareholder oversight; and (2) creation of a functionally efficient administrative structure with a staff agency to enable the corporation to implement policy set by the executive. In their quest to remake the federal government, they hoped to emulate the first practice by promoting a “national budget system”; they sought to bring about the second by enacting “executive reorganization.” This agenda met with political resistance in the 1910s and 1920s, but it provided a framework for reforms that were eventually implemented in the 1930s, 1940s, and 1950s. Relying on extensive research in manuscript sources, this paper shows that the modern American administrative state was built, not only by progressive crusaders and academic experts, but also by elite reformers influenced by American business practice. This is an underappreciated aspect of the business-government relationship in U.S. history. Also, by focusing on resistance to elite reformers’ efforts in the 1910s and 1920s, this paper helps to illuminate the political forces—white supremacy, in particular—that continue to constrain the capacity of the American administrative state.