A Commercial Republic Roundtable: Entry 3 from Stewart Winger

A Commercial Republic: America’s Enduring Debate over Democratic Capitalism, reads like a very fine revised and extended write-up of a two-semester upper-level college lecture course of the same name.  O’Connor glosses the standard secondary literature and lines up most of the usual primary source suspects from Hamilton and Jefferson to Ayn Rand and Milton Friedman. With the glaring omission of the Civil War period, the book’s 250 pages are comprehensive, and I confess I found myself learning a good bit.  I was pleasantly reminded of even more I should never have forgotten. We are told that we should not criticize someone for not writing a different book.  This book expertly catalogs U.S. political economy from within the familiar mid-twentieth century liberal consensus paradigm, updated to account for more recent scholarship.  And graduate students will find such a grand tour especially helpful.  Nevertheless, in my view we need a new paradigm and a different book.

O’Connor wishes to challenge “the conclusion of the traditional conservative narrative – that before the Great Depression, the US government exerted little or no influence on the economy.”  “This,” he continues, “is not a justified interpretation of American history but a utopian conservative political ideal read backward into the past. . .the American experiment has consistently admitted of government economic intervention.” (7) Fair enough.  Dispelling misleading historical myths and paradigms is perhaps the chief business of a college history course.  Given human cognitive psychology, this is a remarkably difficult task.  Given our current political/economic predicament, it is hard to imagine a more urgent mission.  Had O’Connor followed through, this might have been the perfect textbook for revived courses on U.S. political economy, courses that sorely need revival.

But it is an odd and annoying irony that the myth of a stateless, libertarian, or laisses-faire American past has not just been a “utopian conservative political ideal read backward into the past.” (7) Since the Progressive Era, thinkers and voters on the left have been just as captive to its gravitational tug. America is the land of liberty, ergo either our virtues or our vices must somehow be found in that more or less libertarian past.  For the left, it has been our vices.  Thus one of our swiftest comets, Louis Hartz, quickly found himself reeled back into the orbit of a supposedly “liberal” America — in spite of his own earlier work detailing the “surprising” level of state involvement in the development of the American economy.  Contrary to much of his own evidence, O’Connor does not really escape this death star either.

Entirely predictably, no sooner does O’Connor articulate his thesis that American government has never been especially restrained from “intervening” in the economy, a thesis almost uniformly supported by scholarship in American political economy dating back to the Commonwealth School and beyond, then he steps back from it.  “Politicians, activists, and scholars have continually sought to justify and decry particular visions of federal economic stewardship and regulation.  As a result, the history of the United States is characterized by a long-standing and contentious exchange about the desirability, scope, attributes, and limitations of such plans.”  This thesis is far too anodyne. It is also far too kind to American “conservatives.”

O’Connor achieves this “he said, she said” cable news-style presentation, largely by avoiding or overlooking the actual economic past and presenting the economic conversation largely divorced from an examination of what actual policies were put in place, how those policies fared, and who was right.  In other words, he presents the rhetoric of political economy without paying much attention to underlying economic realities.  Even when presented with the chance to weigh in, O’Connor generally ducks the opportunity to compare rhetoric to reality, preferring instead to present each side on its own terms.  Conclusion: there has been a lot of debate.

Particularly in the early parts of the book, O’Connor conflates debates about economic policy with debates about whether economic policy itself was legitimate.  For the first hundred years of our national existence there simply was no debate about the legitimacy of government action in the economy.  Like so many, O’Connor has not fully divested himself of the view that America was the land of limited government, a myth that dates to the Gilded Age and Progressive Era, and one that prevents the left from accessing the founders and Lincoln to build a legitimating narrative for more egalitarian economic and social policy.  “This book seeks to demonstrate that the modern-day libertarian conception of the US political economy has served as only one perspective among many.” (8)  But libertarianism was not one idea among many.  Emerging as laissez-faire in the late 19^th century, libertarianism represented a betrayal of the American idea, and a sell-out to liberal British aristocratic thinking.

Immediately in his first chapter, O’Connor begins rebuilding the liberal myth by asserting that “Hamilton’s vision of economic intervention did not include the welfare state, the mitigation of economic inequalities, the regulation of business, or any of the other positions that frequently animate today’s advocates of government action.” (11) Yet only two pages later O’Connor points out that whereas earlier revolutionaries had welcomed a weak regulatory regime, Hamilton and Madison met in Philadelphia in 1787 to construct a new government structure that would address these and other difficulties.” (13)

Stop!  In other words, the U.S. Constitution was written largely to create a centralized economic regulatory authority.  Add to this that the US Bank was designed as a regulatory mechanism, it was backed by bonds, bonds which in turn were backed by taxation that deliberately targeted the wealthy via import tariffs and a carriage tax.  The framers in Philadelphia were on the less radical end of the revolutionary spectrum.  At this point there was no debate about the whether economic regulation, only its location, and it was decided in favor of the Federal Government over the states.  Ok.  Proceed.

O’Connor attributes Hamilton’s economic policies to his “nationalism,” but in addition to being a “nationalist,” Hamilton remained a revolutionary and a republican.  The radical historians of the 1970’s recovered for us the anti-aristocratic animus of the American Revolution and therewith, the previously overlooked socioeconomic component of American republicanism.   The Revolution meant not only independence from Britain, but personal independence as well.  It was the freedom not to have to doff one’s cap to one’s betters, the freedom to be self-employed, and to truly govern oneself in one’s day to day life.  As Gordon Wood acknowledged in his synthesis, The Radicalism of the American Revolution, the revolutionary generation sought to create a world of sole proprietors, partnerships, and family farms, un-beholden to inherited aristocratic wealth and privilege.   It was a class war and the aristocrats lost.

O’Connor does acknowledge much of this republican development, but he attributes republicanism exclusively to the party of Jefferson and Madison, (31-36) and not to Hamilton.  Glossing Drew McCoy, he claims Hamilton jettisoned the republican inheritance.  (Later O’Connor walks that back a bit.) (24)  Certainly, Jefferson’s opponents made room for shopkeepers, manufacturers, and even bankers.  But no less that the Democrats, they were caught up in a revolutionary enthusiasm for an anti-aristocratic vision of self-employed and therefore truly self-governing men.  Democrats were right that the privilege of banking is and was just that, a special privilege.  What they failed to grasp was the Hamiltonian argument that this privilege was a necessary precondition for a republican economy of equal opportunity and self-direction.  In the absence of banks, only the wealthy sons would ever be able to afford a farm or a stock of goods, or the equipment necessary to become self-employed.

Abraham Lincoln’s organ, the Sangamo Journal summed up the difference between the two parties in 1838:

 “If you have no money, according to their doctrines, you shall have no bread till you work and earn it – if you are a mechanic, you shall never start a shop of your own, until you have toiled by the day long enough to save, after supporting your self and family, a sum sufficient to buy a lot, put up a building, and purchase a stock, sufficient to compete with your wealth neighbor. . . You shall toil behind the counter of a wealthy master, from sunrise in the morning till nine o’clock at night, at the rate of twenty five dollars a month, till you accumulate ten thousand dollars to buy a stock of goods with, of you own: and then, and not till then, can you go into business.

The motto of the whig party is more liberal; it is this: “Encourage industry and reward virtue.”  If you are honest, industrious and virtuous, as above supposed, after you have finished your apprenticeship, in a workshop or store, you can procure the recommendation, or the name of some of your older and wealthier neighbors, which will assist you to a sum of money, or a stock of goods, that you could not earn in forty years.  Thus it will be perceived upon this principle, that with the exception of light interest, the poor industrious man is placed upon a footing with the wealthiest nabob of the land.  The tendency of the latter policy is to equalize wealth, to draw it from the coffers of the rich, where it is not used, and to place it in the hands of the industrious poor who want it.  The tendency of loco focoism is the reverse.[i]

Thus the differences in economic understandings while intense and often bitter, obscured an underlying consensus regarding the egalitarian goal of political economy.  Both sides believed in equality, not merely of opportunity, but as a general policy matter, equality of outcome as well. Certainly, individuals might become rich.  But the general tendency towards wealth inequality was to be resisted by fostering opportunity at the bottom.

Hamilton was right to see the Bank and the dollar as essential to the American republican project.  Not surprisingly, after destroying banks, Democrats inevitably found themselves refounding them again, more or less in harmony with the business cycle.[ii]  As O’Connor himself notes, most of Hamilton’s program eventually became a part of American capitalism, while Jefferson and Madison were eventually forced to reverse themselves on nearly every point having to do with the economy. (46) Hamilton was no less a republican revolutionary than Jefferson and Madison; he was just better informed.

James Huston makes two essential points that deserve to be taken on board.  First, the arguments of both sides in the early Republic were carried out entirely within the confines of the revolutionary republican view of political economy.  And second, the phrase, “the fruits of labor” deserves to be listed with “no taxation without representation” and “independence” as guiding principles of the American Revolution.  For Huston, revolutionary republicanism relied on the labor theory of value that operated on a moral and political level as a test of economic outcomes.  By right, one person’s labor could create only so much value, and thus large inequalities suggested the presence of aristocratic economic policy, especially but not limited to primogeniture and entail.  In a world of viva voce voting, aristocrats could also subvert republicanism by controlling the votes of their employees. And perhaps most crucially in an overwhelmingly rural America throughout most of the 19^th Century, republicans (lower case) feared aristocratic engrossment of land in large estates, foreclosing the opportunity for independence to others and forcing them into wage-labor status.  Finally, revolutionary republicans, especially Jeffersonians who unlike Hamilton failed to grasp the potentials for division of labor and market segmentation, also feared population growth would inevitably lead to inequality. (7)  Huston rues that the founders did not press the case for equality with greater consistency. (7, 379-85) But it is not the case, as O’Connor asserts, that Hamilton, or any other revolutionary American leader, was not interested in substantive equality. (11)  Certainly through Lincoln, the labor theory of value led American politicians to search for policies especially regarding land and interest rates that favored substantive equality: preemption, low land prices, and eventually the Homestead Act.

As Gordon Wood argues, rough equality was essential for the republicanism of the revolution.[iii] James Huston later added that for revolutionary republicans, gross wealth disparity proceeded not from natural economy, but from specific aristocratic regulatory structures, such as primogeniture, entail, property engrossment, and taxation that fell more heavily on working people than on the wealthy.[iv] The revolutionary republicans were right about that.  Certainly, Madison sought in Federalist 10 to preserve inequalities that resulted from differing talents.  On the relatively conservative side of a revolution more truly radical than he was, Madison sought to forestall a “rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project.”  For Madison, wealth disparity originated “From the protection of different and unequal faculties of acquiring property.”  “The protection of these faculties is the first object of government.”   Certainly, the modern Tea Party can take some comfort from his words.

But these were the self-serving sentiments of a relatively wealthy petty aristocrat in fear of his state legislature.  As Wood narrates, the stream of American revolutionary republicans overwhelmed such feeble attempt of the Federalists to establish a superior position for the “natural aristocracy.”  Findley pointed out to Madison that his policy preferences did not proceed from “disinterested” natural reason, but from Madison’s class position as a creditor.[v] Thus, the majority was well within its rights to demand looser credit.  Behind the scenes, Hamilton was quietly working out an enormously expansionary paper money scheme that would create the U.S. Dollar.  Glossing Elkins and McKitrick O’Connor acknowledges that Hamilton’s policies were technically correct and in the public interest.  But like them he privileges Jefferson and Madison’s primitive economic understandings as the more genuinely “republican.”  Yet it is surely worth noting that Hamilton favored precisely the expansionary and egalitarian monetary policy Madison so feared Federalist 10.  Nowhere except perhaps in the slavery debates was Hamilton’s superior republicanism more evident.

The prevailing bipartisan consensus from the Revolution through most of the 19^th Century assumed that wealth distribution was dictated by politics.  As Huston sums up the revolutionary republican tradition, republican policies would result in a republican world of relative equals working on their own behalves, and aristocratic policies would result in land engrossment, such as the plantation South or Britain.[vi]  A “neutral” government remained unimagined. Americans understood that one way or the other, government shaped the economy. In other words, they did not work from the modern liberal paradigm that imagines the economy as a natural system operating apart from a government that only occasionally “intervened.”  Under the Common Law and under State and Local Statute, economic activity was guided by a public purpose through licensing laws, concessions, and blizzards of regulations.  Thus through to the late 19^th Century, laissez-faire was seen as the opposite of “the American system.” It was a British aristocratic plot against republican government, against equality, and against American “independence.”  In his first annual message, Lincoln cast the battle for republican self-employment (and its extension to Blacks) as the entire purpose of the Civil War.  And it is seldom if ever remarked, that Gettysburg Address ended with a paean, not to limited government, but to equality, and to republican government itself.

There were of course constitutional debates about states’ rights versus nationalism, about strict construction versus implied powers, and about under what sets of conditions the federal government could and could not sponsor “internal improvements.”  But no one denied that states could and should build roads, bridges, canals and railroads.   O’Connor implies Jacksonians opposed internal improvements. (70)  But northwestern Democrats wanted internal improvements at federal expense and Southern Democrats wanted them mostly, but not exclusively, at state expense.  This helped divide the Party in 1848.  Everyone, including John C. Calhoun and even James K. Polk believed that one of the governments should support them. Democrats were prickly about special privilege, but contrary to O’Connor’s gloss of Hovenkamp, (60) they did not oppose government market intervention.

Actual economic debates centered on the legitimacy of special privileges of incorporation, the legitimacy of banks, and whether a tariff or free trade would result in greater opportunities to achieve independence.  All of these debates had at their core a shared concern for economic independence, and nowhere was the argument about aggregate economic output, overall wealth maximization, or freedom from republican government.  Van Buren’s subtreasury plan is perhaps O’Connor’s best case for a kind of libertarianism in antebellum America.  But as he sums up himself, “even more damaging to the Jacksonian project of separating federal functions from those of the private economy, however, was that a growing number of Americans did, in fact, want the government to help them sell their corn and flour, and they saw no philosophical contradiction in asking it to do so.” (81)  It was an exception that very quickly proved the rule.  Even more to the point, Van Buren’s fear of banks stemmed not from a belief in the superiority of the private sector.  He thought banks would always overextend themselves.  Again, as Lincoln gleefully pointed out, the Subtreasury represented a state takeover and raised even greater questions about state favoritism than well-regulated banking.

American state support for transportation infrastructure fit well within the range of other earliest industrial development in other countries.  The practical result, as Colleen Dunlavy writes, was that “the American state (that is, the state governments and to a lesser extent the federal government) intervened more extensively and more effectively during the 1830’s and 1840’s than the Vormärz Prussian state did.”[vii]  The numbers can be shocking for Americans raised on certain versions of American exceptionalism and the myth of American statelessness.[viii] Dunlavy found a spectrum from Baden and Belgium, where the state built and operated railroads, to liberal Britain, where the government remained least engaged.   France lay just to the right of Belgium (politically rather than geographically speaking), with the state building the railroads but not running them, while the United States and Prussia fell between France and England with the Prussian state far closer to liberal English model than the United States, providing only 7% of railroad capital and the United States closer to the French model.  “By the late 1840’s, the state governments alone had contributed nearly 45 percent of the capital invested in American railroads. . . Investment by state and local governments still accounted for an estimated 25 to 30 percent of the more than $1 billion invested in railroads before the Civil War.[ix]

Radical republicanism blossomed into the self-made man ideal of Henry Clay, Abraham Lincoln, and Frederick Douglass. This meant, in Lincoln’s words, that unless he be of a “dependent nature,” every adult male should be his own boss.  Huston adduces statistics that fully bear out Lincolns perceptions.  “The ration of firms and farms to the number of persons employed actually rose from .209 to .243 between 1850 and 1880,” not counting mercantile and financial firms.[x]  In other words, for adult white men over 30, independency was “a common condition of economic endeavor throughout most of the 19^th century.” If one were to exclude immigrants who were disproportionately shuttled in to wage labor, the numbers would appear even higher.

For nearly all Democrats and many Whigs, this vision only applied to white males, but we should not let our fully legitimate current concerns about race and gender equality blind us to the radicalism of the American revolutionary heritage.  The consensus was republican.  And especially in the North, republicanism meant that powerful self-governments with plenary regulatory authority would prevent the wealthy from dominating the working man by forestalling the development of any system of permanent wage labor.  This was also the concern of federal land policy.  Due to progressive era emphases on the rise of large-scale industry, it remains underappreciated just how well American republicanism had succeeded through 1880, at creating a relatively egalitarian world of sole-proprietors, partners, and family farms.  Yet the remnants of this world are clearly visible in flyover country to this day.

There was indeed a class component to American revolutionary republicanism, and Huston goes on to show that class conflict was a vital component of the Civil War as well, but on terms almost completely the reverse of the old progressive view.  It was the North that had achieved a remarkably republican egalitarianism and the South that had recreated a society dominated by large estates akin to aristocratic Britain.[xi]

It is certainly difficult to imagine a Hamiltonian objection to the bailout of Detroit or of the banking system in 2009.  Yet I live in a state besieged by a Governor who with the support of his party and in the name of a supposedly American tradition of limited government, seeks to destroy any opposition to the will and whim of those who like him, inherited stupendous fortunes.  For nothing else can explain his animus against the pathetic remnants of unionism in American life, except that, thank God, union won pension funds tend to hold vulture capitalists like Bruce Rauner on a short leash. Thus you will have to excuse me if this review has become a bit shrill.  My pension literally rides on the outcome of these intellectual battles. But these are not the ravings of some disappointed left-wing professor.  Hamilton was the chief architect of the Bank, the dollar, and the U.S. Treasury bond. Surely, it is a point worthy of greater emphasis that, as O’Connor notes, the principle architect of American Capitalism itself, thoroughly rejected the doctrine of laissez-faire suggesting even cash bounties for certain industries. (40)  O’Connor would reduce the Tea Party’s claim to the American heritage to “one among many.”  I would go further: in asserting that gross inequality proceeds naturally from the economy and not from specific public policies, the Tea Party is literally un-American. That should be the lesson of a textbook on American “democratic capitalism.”

The anomalies in two of our current paradigms regarding political economy have built up for over 100 years.  Huston offers a paradigmatic reversal of progressive scholarship, showing that far from being an industrial colossus and a betrayal of American republicanism, in fact the North, through the Civil War period rightfully saw itself as a successful republican society and the South as the aristocratic threat.  I propose two related but distinct new paradigms, neither of which is really new.

1. With the possible exception of since 1980, the United States has never been especially outside the parameters of normal state activity in its economy when compared to other countries.
2. The state does not “intervene” in the economy, because by its very nature, a market economy is a regulatory scheme of the state. For tremendous good and sometimes tremendous ill as well, a market economy is an incentive structure created, redeemed, and sustained by government.

This second paradigm shift is not the subject of this book and would need further elaboration.  I bring it up only because it reflects so decisively on the first one.  American economic history has been about government, because all economic history is about government.  A system of fines and bonuses might be clumsy, but it is in principle no less natural than monetizing an economy to the immediate benefit of some over others, developing rules of contract enforcement, property, multiple forms of bankruptcy protection, copy write, reserve requirements, insurance regulation, tort liability, LLCs and on and on.  Hamilton was willing to try both.

Thus whenever we catch ourselves speaking of the state “intervening,” in the market, as O’Connor does, we need to recognize that we are captive of an inadequate conceptual paradigm and have already ceded the playing field to the libertarians.  In reality, the state does not “intervene;” it just changes its mind.  In a republic, we, the people, change our minds.   The question is not the whether of regulation, only the how.  There is no neutral state position.  A state cannot engage in redistribution, only re-redistribution.

It is all well and good for neo-classical economists to hypothesize government out of the thought experiment. But Milton Friedman notwithstanding, capitalisms cannot have been about freedom negatively construed as the absence of fiat government. For the last hundred years, actual Economic and Business History, to say nothing of Legal History, have tripped over government literally at every turn. This has to mean something.

Markets can only be about freedom in the positive sense. Market economies either create opportunities for self-actualization by “empowering” people to take command of their own lives on a day to day, hour by hour basis, or they render people subservient to the will of others. They generally do good bit of both.  As the founders, John Quincy Adams, and Abraham Lincoln understood it, political economy is not in the first instance about freedom from government, but about republican versus aristocratic government, and about power.  In John Quincy Adams’s words, “freedom is power.” It is time to take a cue from our republican heritage and put autonomy, power, and government back into the center of economic analysis.  We need to return to “political economy.”

These are not matters for “he said” versus “she said.”  It was both analytically incorrect and a betrayal of the American Revolution for Milton Friedman to suggest that we had to choose between freedom and equality.  The lesson of federal land policy and the Homestead Act tells us that on a bipartisan basis, for the first 100 years, Americans preferred republican structures that promoted not merely greater financial equality, but equality of power as well.  That was the “independence,” for which the revolutionaries had fought.  We may not be able to return to a world of sole proprietorship and partnership, but seizing opportunities as they arise, we can do more to empower people and thus create a more truly liberating economy.

It is not only not un-American, it is the essence of the American idea to demand public policy that creates greater equality of economic opportunity, and to make the wealthy pay for it.  But the goal is morally deeper even then equality of opportunity.  If we want to claim to be true daughters and sons of the American Revolution, the goal should be “independence,” individual moral autonomy within the parameters of the public good.

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Notes

[i] “The Difference,” SJ, 10/13/1838.

[ii] William G. Shade, Banks Or no Banks: The Money Issue in Western Politics, 1832-1865 (Detroit: Detroit, Wayne State University Press, 1972).

[iii] Gordon S. Wood, The Radicalism of the American Revolution (New York: A.A. Knopf, 1992) 234.

[iv] James L. Huston, Securing the Fruits of Labor : The American Concept of Wealth Distribution, 1765-1900 (Baton Rouge: Louisiana State University Press, 1998) 37.

[v] Wood, The Radicalism of the American Revolution 257

[vi] Huston, Securing the Fruits of Labor : The American Concept of Wealth Distribution, 1765-1900 31

[vii] Colleen A. Dunlavy, Politics and Industrialization: Early Railroads in the United States and Prussia (United States of America: Princeton Univ. Press, 1994) 42.

[viii] William J. Novak, The People’s Welfare : Law and Regulation in Nineteenth-Century America (Chapel Hill: University of North Carolina Press, 1996).; Brian Balogh, A Government Out of Sight : The Mystery of National Authority in Nineteenth-Century America (Cambridge ; New York: Cambridge University Press, 2009).; William J. Novak, “The Myth of the “Weak” American State,” American Historical Review 113, no. 3 (06, 2008), 752.

[ix] Dunlavy, Politics and Industrialization: Early Railroads in the United States and Prussia (United States of America: Princeton Univ. Press, 1994) 49, 52.  Also cited in Daniel Walker Howe, What Hath God Wrought : The Transformation of America, 1815-1848 (New York: Oxford University Press, 2007) 564.

[x] James Lynn Huston, The Panic of 1857 and the Coming of the Civil War (Baton Rouge: Louisiana State University Press, 1987) 128-29.

[xi] James L. Huston, The British Gentry, the Southern Planter, and the Northern Family Farmer : Agriculture and Sectional Antagonism in North America (Baton Rouge: Louisiana State University Press, 2015).

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Bibliography

Balogh, Brian. A Government Out of Sight : The Mystery of National Authority in Nineteenth-Century America. Cambridge ; New York: Cambridge University Press, 2009.

Dunlavy, Colleen A. Politics and Industrialization: Early Railroads in the United States and Prussia. United States of America: Princeton Univ. Press, 1994.

Howe, Daniel Walker. What Hath God Wrought : The Transformation of America, 1815-1848. New York: Oxford University Press, 2007.

Huston, James L. The British Gentry, the Southern Planter, and the Northern Family Farmer : Agriculture and Sectional Antagonism in North America. Baton Rouge: Louisiana State University Press, 2015.

———. Securing the Fruits of Labor : The American Concept of Wealth Distribution, 1765-1900. Baton Rouge: Louisiana State University Press, 1998.

Huston, James Lynn. The Panic of 1857 and the Coming of the Civil War. Baton Rouge: Louisiana State University Press, 1987.

Novak, William J. “The Myth of the “Weak” American State.” American Historical Review 113, no. 3 (06, 2008): 752.

———. The People’s Welfare : Law and Regulation in Nineteenth-Century America. Chapel Hill: University of North Carolina Press, 1996.

Shade, William G. Banks Or no Banks: The Money Issue in Western Politics, 1832-1865. Detroit: Detroit, Wayne State University Press, 1972.

Wood, Gordon S. The Radicalism of the American Revolution. New York: A.A. Knopf, 1992.