Let me focus in this post on the United States, being cast nowadays as the model of the unplanned economy. In fact, like many other issues, the U.S. is not exactly what the rightwing represents it to be.
Adam Smith published the Wealth of Nations in 1776, the year of American Independence. By the time the constitution was framed 11 years later, the founding fathers were deeply influenced by Smith's ideas, which constituted a reasoned abhorrence of trade monopoly and government policy in restricting trade. What Smith abhorred most was a policy known as Mercantilism which was practiced by all major powers a the time. Its necessary to bear in mind Smith's notion of the limitation of government action was exclusively related to Mercantilist issues of trade restraint. Smith never advocated the tolerance of governemnt to trade restraint whether by other governemnts or by big busisness monopolies.
A central aim of Mercantilism was to insure that a nation's export remained higher in value than its imports, the surplus in that era being paid only in specie money (gold-backed as opposed to fiat money). This trade surplus in gold permitted the surplus country, such as England, to invest in more factories to manufacture more for export, thus bringing home more gold. The importing regions, such as the American colonies, not only found the gold reserves backing their currency depleted, causing free fall devaluation (not unlike that faced by current Asian currencies), but also wanting in surplus capital for building factories for export. So despite plentiful iron ore in America, only pig iron was exported to England in return for English finished iron goods. In 1795, when the Americans began finally to wake up to their disadvantaged trade relationship and began to raise European (mostly French and Dutch) capital to start a manufacturing industry, England decreed the Iron Act, forbidding the manufacture of iron goods in America, which caused great dissatisfaction among the propering colonials. Smith favored an opposite government policy toward economic production and trade, a policy that came to be known as "laissez faire" (because the English, having nothing to do with such heretical ideas, refuse to give it an English name.) Laissez faire, notwithstanding its literal meaning of leave alone, meant nothing of the sort. It meant an activist government policy to counteract Mercantilism. Right-wing economists are just bad historians, among their other defective characteristics, when they propagandize "laissez faire" as no government in trade affairs. Another interesting item about Adam Smith was that he advocated, in 1776, a graduated income tax, "the time of payment, the manner of payment, and the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person." Reaganites should put that in their hats and eat it.
After the ratification of the Constitution, among the first acts of Congress was to adopt, on September 2, 1789, a motion by James Madison, to establish a Treasury Department, and to instruct the future Secretary to "digest and prepare plans for the improvement of the revenue and for the support of the public credit." This instruction led Hamilton to establish the first Bank of the Unites States in 1791, which after many transformations, ended up as the Federal Reserve system of today. Hamilton also engineered the first government bail-out of private investors in American history by making the government buy from investors/speculators, at face value, all the market-discounted debt instruments and paper money various state governments as well as the federal government had issued during the War of Independence. Since one of the causes for independence had been the right to manufacture, Hamiltan launched a national plan to develop manufacturing that included government subsidies (called bounties). He also instituted protective tariffs on imports, and committed massive public investment in infrastructure. It was the first industrial policy in American history, a classic national planning measure.
Thomas Jefferson was directly involved in land planning for political puposes in contrast to economic efficiency. He believed that his notion of democratic government could be safeguarded by the widespread ownership of land by small farmers. He would fail in this aim, as 80% of the land in American today is still in government hands. (I recently pointed the fact out on another list in support of a proposition that the U.S. is really a socialist nation by definition, and was flamed hysterically by some American economist.) Jefferson was influenced by the economic doctrines of the French Physiocrats which claimed that the ultimate source of wealth was land. Jefferson, as president, bought from Napoleon the Louisiana Purchase in 1803, doubling the land area (and the intrinsic wealth) of the nation. It was an act of national planning of heroic dimension. Jefferson singlehandedly contributed half of America's socialist heritage. (OK, don't waste you time, no flames).
John Quincy Adam, in 1807, as senator, shepherded through Congress a resolution to direct the Treasury Secretary to draw up a plan for internal transportation. The ensuing Gallatin Plan, named after Secretary Albert Gallatin, aimed to connect the states on a north-south axis and to provide for transport from the West to the eastern seaboard. The railroads in America did not have the benefit of central planning except in land policy. But that did not mean the government was not involved. In encouraging its development for advancing the national interest, the government granted large tracts of public land to railroad companies to connect the Mid West and the Pacific. Twenty sq. miles of public land (alternative quarter-sections along the entire rail line) was granted to private railroad companies for every mile of track, and the feasibility norm for return on capital in the new industry was 200% annually, excessve by any measure. The lack of government supervision and regulation led to widespread political corruption and fraud against investors, and the rate fixing and price gouging resulted in reduced economic efficiency that eventualy destroyed the industry, except during periods of war planning. It was only when such abuses ran up against another powerful special interest: the shipping industry, that an Interstate Commerce Commission was formed to control the railroads, but still to little avail. The monopolistic pricing practices of the railraod were a key factor in the unethical formation of Rockefeller's oil empire. Between the Civil War and WWI, there were 3 major economic recessions: 1873, 1883, and 1907. In contrast to Adam Smith doctrines, during that period, "trusts" were organized to eliminate competition at the expense of small businesses, farmers, consumers and especially labor. As late as 1920, 12-hour days and 7-day weeks were common practice in the steel industry while industrial companies enjoyed protective tariffs from government and generous tax benefits such as accelerated depreciation for tax purposes, all government pro-business intevention measures. The Sherman Anti-Trust Act was adopted in 1890 to prohibit restraint of trade, a true classic Adam Smith measure. But the Act has had a history of difficult enforcement due to conservative regulatory and constitutional interpretation and circumventing devices such holding companies and interlocking directorates, that even the later Clayton Act of 1014 failed to effective curb. Whethter anti-trust measures belomg to the category of national planning depends on who is be busted and the attitude of the categorer towards planning. Conceptually they are planing measures pure and simple.
Social Darwinism, resurrected as a miracle cure in the 1990s, went briefly out of fashion in America in the 1920's. But in its place, conservatives peddled new arguments that economic planning for the collective good was beyond human capacity (the futility/unintended consequence argument), and as being alien to traditional America values, in denial of historical fact.
WWI forced America into war planning. The War Industries Board, the Food Administration, with a government-owned Grain Corporation, injected purposeful priority in resource allocation to maximize production efficiency, with guaranteed markets and price stabilizing measures. Labor standards were instituted, along with recognition of unions and the right to collective bargaining. Woman workers joined the labor force with the beginning of the principle of equal pay for equal work. The government-run Railroad Administration in 1018 handled 10 million ton-miles more than the private companies did under a free market in 1917. After the War, national economic planning advocates sought to continue planning under Theodore Roosevelt's pre-war campaign theme of New Nationalism, the so-called "Square Deal." An influential book by Herbert Croly: The Promise of American Life, argued for a Hamiltonian government interventionist approach towards Jeffersonian populist ends.
War and revolution being half brothers, the post-war vision of an ideal economic order came from socialists, syndicalists, guild socialists, and promoters of consumer cooperatives. Even the Catholics opposed the "servile state" and offered a program of "distributivism." Of course, the Church has 2,000 years of experience in institutional planning. Little if any of the liberal vision touched isolationist America, which was eager for a "return to normalcy", with wholesale abandonment of the progressive social regime that won the war. Labor standards suffered serious slippage, with minimum wage/maximum hours requirements and collective bargaining discarded as war-time anachronisms if not outright evils. A speculation/inflation spiral developed with the sudden end of war-time price control, fueled by easy credit for speculation. As much as one third of asset value was based on inflation anticipation. The collapse came quickly, in 1920-21, the sharpest recession in recent memory, with severe deflation, causing high unemployment (4.75 million), farm failures (453,000) and business bankruptcies (100,000). Yet the 1920-21 recession, though severe, was short. Prosperity returned, subject only to a slight dip in 1924 and again in 1927. Corporate profit rose at a annual rate of 9%. Stock prices rose at an annual rate of 14% by 1927, even before the start of the final bull market run that ended in the crash 2 years later. Workers and farmers who fared well under war-time planning, did not share in this post-war boom, the so-called Coolidge prosperity, also know in history as the New Era. Between 1919 and 1930, mergers and acquisitions eliminated 8,000 manufacturing and mining companies, 5,000 public utilities. Ultimately 10 holding companies controlled 72% of all electricity sales. By 1929, fewer than 200 companies owned half of the corporate assets and 20% of the national wealth. The concentration of ownership enabled the business owners to increase their income 3 times faster than their employees, which was not at all what Adam Smith had in mind.
The 1929 crash eventually forced Hoover, the engineer turned free enterprise businessman, to resort to planning by carrying out a campaign promise to aid farmers in the Agricultural Marketing Act which called for self-regulating producers cooperatives for each crop, with price control and government guaranteed markets. While the stock market crash was not the cause the Depression, it was one of the factors that intensified it. Every schoolboy was told that Hoover did not have a plan to counteract the Depression, except to wait idly for a return to prosperity around the corner. But in fact that was Hoover's plan, with full support from the business community, based on the assumption that the fundamentals of the economy were sound, and the only trouble was a speculative collapse of the stock market, and the plan was to insulate business against loss of confidence. He also mistakenly believed that private enterprise was the principle element of stability, instead of being a weak point of the economic structure and a destabilizing agent by nature of booms and busts. Hoover's plan called for an active collective denial, but unfortunately, events were unforgiving. Sounds very familiar to what going on in the linked economies of the world today.
The Smoot-Hawley Tariff Act was signed into law by Hoover in June 1930, despite a plea from 1,028 member of the American Economic Association (not Economics) to veto it. Import duties were raised to 59%, highest since 1830. Instead of saving America from the Depression, it plunged the world into a downward spiral which eventually led WWII. Meanwhile, early reports of successes in Soviet planning renewed calls from government, business organizations, academia, and labor unions in America for a more orderly development than the free-for-all ways that had led to the collapse of the New Era. It was a coalition between progressive ideology which was grudgingly accepted by business, and scientific management, which business enthusiastically endorsed. In 1928, the Soviet Union, under a new state planning commission called "Gosplan" worked out the First 5-year Plan , putting an end to Lenin's NEP. The first 5 year plan succeeded in rapidly developing capital industries but failed in reorganizing agriculture. Many American management engineers were recruited by the Soviet First 5-year Plan. Returning the U.S. in the depth of the Depression, they brought with them a fresh enthusiasm for national planning within the capitalistic system that excited public interest. In 1931, a book about Russian planning: New Russia's Primer, even made the Book-of-the-Month Club.
Franklin D. Roosevelt became President on March 4, 1933. Neither an economists nor a central planner, not even a businessman by virtue of being independently rich, FDR was dedicated to public service. He was assisted by his "brain trust", a group of progressives such as R.G Tugwell and Raymond Moley of Columbia, Henry Wallace, an agricultural reformer, Herbert Fei, Adolf Berle and Donald Richberg, experts in law an economics. FDR's administration marked the entrance of academics into government in the ancient Chinese tradition. But FDR, likening himself to a quarterback, called all the shots, some fundamentally contradictary with others. FDR faced urgent problems: a systemic banking crisis, farm bankruptcies and high unemployment. The first term of FDR was consumed with rescuing the capitalistic order from its structural faults, and not the establishment of a new system of central economic planning. Two days after he became President, FDR forbade the export of gold and directed banks not to pay out gold in exchange for currency. The Emergency Banking Act (March 9, 5 days after inauguration) authorized the Reconstruction Finance Corporation to buy bank preferred stocks, a backdoor nationalization measure. Of the 3 new agencies created in quick succession by first New Dealers: Agricultural Adjustment Administration (May 12, 1933), the Tennessee Valley Authority (May 18, 1933), the National Industrial Recovery Act (June 16, 1933) which authorized industrial planning, only TVA survived in its original form. The Supreme Court demolished most of NIRA in 1935 and parts of the AAA in 1936. The flurries of socio-economic legislation passed in the "first 100 days" were all interventionist. Despite the Economy Act (March 20, 1933) which pledged to hold down government expenditure and cutting federal salaries by 10%, FDR proposed with Congressional sanction, huge unemployment relief and other social projects such as the highly successful Civilian Conservation Corps, the first public environmental protection effort; the Federal Emergency Relief Administration; the Civil Works Administration; the Work Progress Administration; the Emergency Farm Mortgage Act and the Home-Owners' Loan Act. The most far-reaching was the Glass-Steagall Act (June 16, 1933) which separated commercial banks from investment banks on the ground of conflict of interest, the residual of which the RH10 bill pending in the House is designed to repeal.. The Railroad Coordination Act was passed on the same day as GS. On January 31, 1934, FDR by permission of Congress, devalued the dollar, reducing its gold content by 40%. It was a "beggar thy neighbor" devaluation policy opposed by Adam Smith. The first New Deal promoted economic planning in industry and agriculture in the Soviet style (some say the Italian Fascist style), and ran up against a reactionary Supreme Court. The second New Dealers, included Justice Brandeis whose fear of the stifling of free competition by big business is greater than his embrace of laissez faire, needed a respectable economic theory to support their spending program in an era of declining government revenue. They found him in Keynes through Felix Frankfurter who introduced Keynes to FDR. WWII war planning was well recognized as the most important contribution to victory. The Cold War gave planning a bad name, as it did anything else that had the slightest leftist association. Grants in support of planning stopped abruptly in academia. But corporate planning which strengthened the cooperate system institutionally and theoretically, flourished as management science. Just as the Church commandeered all talents in the middle ages in the name of God, and the monarchies established royal academies to captured all talents in the service of the King, post-war America monopolized all talents, including the whole discipline of planning, in the service of corporate market capitalism. Corporate planning flowered in shiny computerised corporate headquarters while national central planning withered in a neglected garden. But it does not follow that the latter is genetically inferior.
Henry C.K. Liu