The cycle had come around again. While the last Great Crash is preserved in our history books, newspaper archives, and old film reels, very few people alive actually remember it, thus setting it up to happen again.
But just as Roosevelt had done in his first inaugural by saying, “The people of the United States have not failed,” President Obama inspired hope on that day of crisis.
“Today I say to you that the challenges we face are real, they are serious and they are many. They will not be met easily or in a short span of time,” he said. “But know this, America: They will be met.”
Those final four words brought an eruption of applause from many of the members of Congress, and a roar from the two million people stretching down the National Mall all the way to the Washington Monument. Reporters near me leaned forward in rapt attention.
Sounding like a modern-day Franklin Roosevelt, President Obama pressed on.
“The state of our economy calls for action: bold and swift. And we will act not only to create new jobs but to lay a new foundation for growth.
“We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.
“We will restore science to its rightful place and wield technology’s wonders to raise health care’s quality and lower its costs.
“We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age.
“All this we can do. All this we will do.”
The reality, however, remained the same. There were few still alive, when Obama was sworn in, who remembered Franklin D. Roosevelt’s response to the Great Depression.
And, thus, as soon as his speech was over, the president’s hopeful and idealistic rhetoric ran headfirst into the Great Forgetting, guaranteeing the Crash of 2016.
But what, exactly, is it that we collectively forget every fourth generation that repeatedly threatens the survival of the United States?
The Economic Royalists
After the last Great Crash, FDR understood he was up against more than an economic crisis. He was also up against a counterrevolution, which had caused the Great Crash and was unabashedly seeking to hang on to the power of our government and economy that they’d held for over two decades. They were America’s plutocracy—the wealthy bankers and industrialists who put their own personal enrichment ahead of the well-being of the nation with disastrous results.
In his First Inaugural in 1933, FDR alluded to the “rulers of the exchange of mankind’s goods” who had “failed.”
He told the nation, “Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.”
He added, “True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit, they have proposed only the lending of more money.
“Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence.
“They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.”
Roosevelt understood that while genuine kings and theocrats had been pushed to the fringes of the world in the century and a half since the American Revolution, the forces of plutocracy—economic rule by the very wealthy—hadn’t really gone anywhere. And they’d been running amok during the previous decade.
By 1936, Roosevelt had a name for them: the “Economic Royalists.” Eight years later, against the backdrop of World War II, FDR’s vice president, Henry Wallace, referred to these plutocratic forces as “Fascists.”
During our Revolution, they were called “Loyalists” and “Tories.” In the early days of our new nation, they eventually called themselves “Federalists” and were led by America’s second president, John Adams, and our first treasury secretary, Alexander Hamilton.
Early on, they were rather benign; the real cancer came as the nation became richer.
By the last half of the nineteenth century, during the Gilded Age in America, the newspapers called them the “Robber Barons.”
Today, these forces of the very wealthy are often simply referred to as “the 1 percent” (even though they actually represent a much smaller number than that—a tiny fraction of the top 1 percent of Americans, economically).
Regardless of their name, their rise to power has always been a harbinger of impending collapse.
Their greed made the War of Independence inevitable. They pulled the strings of both the North and South during the Civil War. And they provoked the stock market crash of 1929 triggering the Great Depression. In fact, our history is one of constant struggle against this cultural infection.
And while iconic figures and people’s movements have arisen throughout history to confront these Royalists, there always comes a crack in the struggle when the Great Forgetting takes hold and the Economic Royalists jump into this opening to take the reins of power and pillage the nation into collapse.
American history proves this point.
A Crash Starts a Nation
In 1776, Adam Smith’s Wealth of Nations was published and the US Declaration of Independence was signed. This was no coincidence: Both were reactions to a widespread economic depression that had begun in the previous decade. England reacted to its economic distress with a series of efforts to raise revenue—the Stamp Act, the Townshend Acts, and the Tea Act (among others).
Many people today think that the Tea Act—which led to the Boston Tea Party—was simply an increase in the taxes on tea paid by American colonists. That’s where the whole “taxation without representation” meme came from.
Instead, the purpose of the Tea Act was to give the East India Company full and unlimited access to the American tea trade and to exempt the company from having to pay taxes to Britain on tea exported to the American colonies. It even gave the company a tax refund on millions of pounds of tea that it was unable to sell and holding in inventory.
In other words, the Tea Act was the largest corporate tax break in the history of the world. And since, at the time, most of the British government and royalty were stockholders in the East India Tea Company, it was also a classic example of crony capitalism.
In response, the colonists dressed like Indians in the middle of the night, boarded ships, and commenced the dumping of hundreds of chests of tea overboard—an act that would eventually light the fuse to war.
The American Revolution began with an act of corporate vandalism.
But independence from Britain didn’t defeat the Royalists at home.
Our nation’s second President John Adams was sympathetic to their cause (although a man of modest means himself).
John Adams and his Federalists were wary of the common person (whom Adams referred to as “the rabble”), and many subscribed to the Calvinist notion that wealth was a sign of certification or blessing from above and proved a certain minimum level of morality.
As second president of the United States, Adams notoriously passed the Alien and Sedition Acts to lock up political dissenters, and moved the country in a more authoritarian and monarchical direction. As Daniel Sisson documents in his incredible book The American Revolution of 1800, there were genuine fears among Americans that these early Royalists would blow up the American experiment of democracy and not cede power to Jefferson and the more egalitarian Democratic Republicans in the election of 1800.
Jefferson himself later said, “The Revolution of 1800 was as real a revolution in the principles of our government as that of 1776 was in form.”18
Jefferson was Adams’s chief political rival, and a champion of a democracy responsive to the people and not the wealthy elite. On October 28, 1813, in a letter to his old rival, Jefferson commented on his distrust of that wealthy elite—in particular in th
e Senate, which was not democratically elected by the people.
Referring to the “cabal in the Senate of the United States,” Jefferson wrote, “You think it best to put the pseudo-aristoi into a separate chamber of legislation [the Senate], where they may be hindered from doing mischief by their coordinate branches, and where, also, they may be a protection to wealth against the agrarian and plundering enterprises of the majority of the people.”19
Then Jefferson countered in the letter, writing, “I [don’t] believe them necessary to protect the wealthy; because enough of these will find their way into every branch of the legislation, to protect themselves.”
Instead, Jefferson said, “I think the best remedy is exactly that provided by all our constitutions, to leave to the citizens the free election… In general they will elect the really good and wise. In some instances, wealth may corrupt, and birth blind them; but not in sufficient degree to endanger the society.”
And in a final warning about the largely Federalist “cabal in the Senate,” Jefferson wrote, “The artificial aristocracy is a mischievous ingredient in government, and provision should be made to prevent its ascendancy… I think that to give them power in order to prevent them from doing mischief, is arming them for it, and increasing instead of remedying the evil.”
In a 1786 letter, Jefferson gave his most explicit warning about this threat from plutocracy within, and advocated unwavering vigilance against it.
“Tho’ the day may be at some distance beyond the reach of our lives perhaps, yet it will certainly come,” he wrote, “when a single fibre left of this institution will produce an hereditary aristocracy, which will change the form of our government from the best to the worst in the world.”20
He added, “I shall think little [of] longevity unless this germ of destruction be taken out.”
With the election of Jefferson in 1800, and a civil war averted, the Economic Royalists were held at bay, but they were never defeated. By the 1820s they’d returned, and this time it was Andrew Jackson who stood up to push them back. Jackson campaigned on a platform of overthrowing the banksters.
In 1832, he vetoed a renewal of the charter of the Second Bank of the United States, defending the first fundamental in his veto message by writing, “It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes,”21 but that he would put an end to that by taking on and humbling the bankers. He was the people’s hero for doing so.
The Next Cycle: The Civil War
The Founding generation, who in 1776 had pushed back against the Royalists supporting King George III, and the Economic Royalists of the East India Company, who largely controlled all economic life in America, were all long-dead fourscore years later.
That’s when Abraham Lincoln was a lawyer in private practice, working for the railroads. On August 12, 1857, he was paid $4,800 in a check, which he deposited and then converted to cash on August 31. That was fortunate for Lincoln, because just over a month later, in the Great Panic of October 1857, both the bank and the railroad were “forced to suspend payment.”22
Of the sixty-six banks in Illinois, the Central Illinois Gazette (Champaign) reported that by the following April, twenty-seven of them had gone into liquidation. It was a depression so vast that the Chicago Democratic Press declared at its start, the week of September 30, 1857, “The financial pressure now prevailing in the country has no parallel in our business history.”
The crash highlighted the enormous economic struggle under way between the North’s and the South’s Economic Royalists.
As the Southern plantation/slave economy was turned on its head with the invention of the cotton gin and calls to end slavery, the Royalists were rising up once again. In the North, too, Economic Royalists were amassing power with booming textile factories and little in the way of protections for workers. Ultimately, in a battle for supremacy over the national economy, the Royalists in the North and South tore the union apart in a bloody Civil War.
Even though the scourge of slavery was defeated in the Civil War, the Royalists, who supported both sides, didn’t lose the fight. For the next forty years, they ran roughshod over the American economy, prompting Grover Cleveland, the only Democratic elected president during the era, to proclaim in his 1888 State of the Union Address, “The gulf between employers and the employed is constantly widening, and classes are rapidly forming, one comprising the very rich and powerful, while in another are found the toiling poor.”
He added, “As we view the achievements of aggregated capital, we discover the existence of trusts, combinations, and monopolies, while the citizen is struggling far in the rear or is trampled to death beneath an iron heel.
“Corporations, which should be the carefully restrained creatures of the law and the servants of the people, are fast becoming the people’s masters.”23
But those who remembered the previous Great Crash and ensuing Civil War were either all dead or had, at least, passed out of power by 1920, when a nation exhausted by World War I elected Warren Harding president on a platform of “more business in government, less government in business,” putting an abrupt end to the Progressive Era that had seen two decades of trust-busting, union-organizing, and anticorruption measures such as the Tillman Act of 1907, which banned all corporate contributions to all political candidates.
In his book Only Yesterday: An Informal History of the 1920’s, published in 1931, American historian Frederick Lewis Allen described the scene in Washington, DC, in 1921 when the Economic Royalists flocked back to the nation’s capital now that they had an ally in the White House with Warren G. Harding.
“Blowsy gentlemen with cigars stuck in their cheeks and rolls of very useful hundred-dollar bills in their pockets began to infest the Washington hotels,” Allen wrote. “The word ran about that you could do business with the government now—if you only fixed things up with the right man.”24
And Harding was the rightest of the right men. Harding’s secretary of treasury, Andrew Mellon, a wealthy industrialist and banker, promptly shepherded legislation through Congress that slashed taxes for the superwealthy in America from 73 percent down to 25 percent over the next few years, and the Harding administration followed through on its promise of “more business in government”25 by rolling back labor protections and financial-industry regulations.
After Harding died, two and a half years into his term, the Royalist agenda was advanced by the Coolidge administration, which coined the term “Coolidge Prosperity,” referring to the enormous wealth bubble caused by all the “hot” (low-taxed) money produced by Treasury Secretary Mellon’s tax cuts and deregulations.
That hot money inflated a real estate bubble that started down in Florida (but had spread nationwide) and popped when a hurricane wiped out Miami in 1926, pushing investors to move their money into the growing stock market bubble. That bubble popped in 1929, and Republican austerity-based responses triggered the Great Depression just as the third Republican president of the era, Herbert Hoover, was settling into the White House.
He later recounted Treasury Secretary Andrew Mellon’s advice during the crisis: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.”26 In other words, let everything go bankrupt.
Mellon’s friends knew what that meant. Once everything hit bottom, then those who understood the nature and causes of the crash—and why and how the Hoover administration had both prolonged it and let it bottom out—could walk into the devastation and buy up everything for cheap. The Royalists were not going to lose, and some of America’s greatest fortunes were made during the Great Depression using just this technique.
Within three years of the crash of 1929, almost one-in-four Americans was out of work, tens of thousands of military veterans, calling themselves the “Bonus Army,” were “occupying” the National Mall, and loud voices were variously calling for Fascism and Communism as a solution to our nation’s problems. It was a time of genuine cri
sis.
But FDR believed himself equal to the challenge. Being from the Economic Royalist class himself, he well knew that he had to save capitalism from itself, and in the process he could save the nation as well.
“The money changers have fled from their high seats in the temple of our civilization,” Roosevelt said in his First Inaugural Address. “We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.”
This crisis was also an opportunity for FDR.
FDR Wages War on the Royalists
In his famous “first hundred days,” fifteen major and dozens of minor pieces of legislation, all designed to restore the economic fundamentals necessary to put America back on track, made it through both houses of Congress and to his desk for signature.
They created the Federal Emergency Relief Administration, passing borrowed federal money out to the states to give both benefits and jobs to the unemployed. There was the Public Works Administration, which immediately set about building major projects such as power-generating plants, water and wastewater facilities, schools and hospitals.
People who’d seen their savings wiped out when their banks had gone bankrupt were reassured and brought back to using banks because of the Federal Deposit Insurance Corporation, which guaranteed that the little guy would never again lose his money.
Tens of thousands of young men were put to work immediately through the Civilian Conservation Corps, which threw together tent cities for workers across the nation and set about planting trees and reclaiming agriculture- and grazing-damaged land.
The Works Progress Administration undertook bigger projects—dams and roads—than the PWA had begun. FDR put into place systems that raised workers’ wages and improved working conditions; made collective bargaining possible; moved children out of the workplace; provided long-term, government-backed mortgages for underwater homeowners caught with short-term exploding mortgages; limited working hours; and dumped the gold standard, which had been a roadblock to such a rapid expansion of government spending.
The Crash of 2016 Page 3
