1896: THE TRANSFORMATION OF THE AMERICAN PARTY SYSTEM
Orthodox economic historians attribute the triumph of William Jennings Bryan in the Democratic Convention of 1896, and his later renominations for president, to a righteous rising up of the “people” demanding inflation over the “interests” holding out for gold. Friedman and Schwartz attribute the rise of Bryanism to the price contraction of the last three decades of the nineteenth century, and the triumph of gold and disappearance of the “money” issue to the price rise after 1896.155
This conventional analysis overlooks several problems. First, if Bryan represented the “people” versus the “interests,” why did Bryan lose and lose soundly, not once but three times? Why did gold triumph long before any price inflation became obvious, in fact at the depths of price contraction in 1896?
But the main neglect of the conventional analysis is the disregard of the highly illuminating insights provided in the past fifteen years by the “new political history” of nineteenth-century American politics and its political culture. The new political history began by going beyond national political issues (largely economic) and investigating state and local political contests.156 It also dug into the actual voting records of individual parishes, wards, and counties, and discovered how people voted and why they voted the way they did. The work of the new political history is truly interdisciplinary, for its methods range from sophisticated techniques for voting analysis to illuminating insights into American ethnic religious history.
In the following pages, we shall present a summary of the findings of the new political history on the American party structure of the late nineteenth century and after, and on the transformation of 1896 in particular.
First, the history of American political parties is one of successive “party systems.” Each party system lasts several decades, with each particular party having a certain central character; in many cases, the name of the party can remain the same but its essential character can drastically change—in the so-called “critical elections.” In the nineteenth century the nation’s second party system (Whigs v. Democrats), lasting from about 1832 to 1854, was succeeded by the third system (Republicans v. Democrats), lasting from 1854 to 1896.
Characteristic of both party systems was that each party was committed to a distinctive ideology clashing with the other, and these conflicting worldviews made for fierce and close contests. Elections were particularly hard fought. Interest was high since the parties offered a “choice, not an echo,” and so the turnout rate was remarkably high, often reaching 80 to 90 percent of eligible voters. More remarkably, candidates did not, as we are used to in the twentieth century, fuzz their ideology during campaigns in order to appeal to a floating, ideologically indifferent, “independent voter.” There were very few independent voters. The way to win elections, therefore, was to bring out your vote, and the way to do that was to intensify and strengthen your ideology during campaigns. Any fuzzing over would lead the Republican or Democratic constituents to stay home in disgust, and the election would be lost. Very rarely would there be a crossover to the other, hated party.
One problem that strikes anyone interested in nineteenth-century political history is: How come the average person exhibited such great and intense interest in such arcane economic topics as banking, gold and silver, and tariffs? Thousands of half-literate people wrote embattled tracts on these topics, and voters were intensely interested. Attributing the answer to inflation or depression, to seemingly economic interests, as do Marxists and other economic determinists, simply won’t do. The far greater depressions and inflations of the twentieth century have not educed nearly as much mass interest in economics as did the milder economic crises of the past century.
Only the findings of the new political historians have cleared up this puzzle. It turns out that the mass of the public was not necessarily interested in what the elites, or national politicians, were talking about. The most intense and direct interest of the voters was applied to local and state issues, and on these local levels the two parties waged an intense and furious political struggle that lasted from the 1830s to the 1890s.
The beginning of the century-long struggle began with the profound transformation of American Protestantism in the 1830s. This transformation swept like wildfire across the Northern states, particularly Yankee territory, during the 1830s, leaving the South virtually untouched. The transformation found particular root among Yankee culture, with its aggressive and domineering spirit.157
This new Protestantism—called “pietism”—was born in the fires of Charles Finney and the great revival movement of the 1830s. Its credo was roughly as follows: Each individual is responsible for his own salvation, and it must come in an emotional moment of being “born again.” Each person can achieve salvation; each person must do his best to save everyone else. This compulsion to save others was more than simple missionary work; it meant that one would go to hell unless he did his best to save others. But since each person is alone and facing the temptation to sin, this role can only be done by the use of the State. The role of the State was to stamp out sin and create a new Jerusalem on Earth.158, 159
The pietists defined sin very broadly. In particular, the most important politically was “demon rum,” which clouded men’s minds and therefore robbed them of their theological free will. In the 1830s, the evangelical pietists launched a determined and indefatigable prohibitionist crusade on the state and local level that lasted a century. Second was any activity on Sunday except going to church, which led to a drive for Sabbatarian blue laws. Drinking on Sunday was of course a double sin, and hence was particularly heinous. Another vital thrust of the new Yankee pietism was to try to extirpate Roman Catholicism, which robs communicants of their theological free will by subjecting them to the dictates of priests who are agents of the Vatican. If Roman Catholics could not be prohibited per se, their immigration could be slowed down or stopped. And since their adults were irrevocably steeped in sin, it became vital for crusading pietists to try to establish public schools as compulsory forces for Protestantizing society or, as the pietists liked to put it, to “Christianize the Catholics.” If the adults are hopeless, the children must be saved by the public school and compulsory attendance laws.
Such was the political program of Yankee pietism. Not all immigrants were scorned. British, Norwegian, or other immigrants who belonged to pietist churches (whether nominally Calvinist or Lutheran or not) were welcomed as “true Americans.” The Northern pietists found their home, almost to a man, first in the Whig Party, and then in the Republican Party. And they did so, too, among the Greenback and Populist parties, as we shall see further below.
There came to this country during the century an increasing number of Catholic and Lutheran immigrants, especially from Ireland and Germany. The Catholics and High Lutherans, who have been called “ritualists” or “liturgicals,” had a very different kind of religious culture. Each person is not responsible for his own salvation directly; if he is to be saved, he joins the church and obeys its liturgy and sacraments. In a profound sense, then, the church is responsible for one’s salvation, and there was no need for the State to stamp out temptation. These churches, then, especially the Lutheran, had a laissez-faire attitude toward the State and morality. Furthermore, their definitions of “sin” were not nearly as broad as the pietists’. Liquor is fine in moderation; and drinking beer with the family in beer parlors on Sunday after church was a cherished German (Catholic and Lutheran) tradition; and parochial schools were vital in transmitting religious values to their children in a country where they were in a minority.
Virtually to a man, Catholics and High Lutherans160 found their home during the nineteenth century in the Democratic Party. It is no wonder that the Republicans gloried in calling themselves throughout this period “the party of great moral ideas,” while the Democrats declared themselves to be “the party of personal liberty.” For nearly a century, the bemused liturgical Democrats
fought a defensive struggle against people whom they considered “pietist-fanatics” constantly swooping down trying to outlaw their liquor, their Sunday beer parlors, and their parochial schools.
How did all this relate to the economic issues of the day? Simply that the leaders of each party went to their voting constituents and “raised their consciousness” to get them vitally interested in national economic questions. Thus, the Republican leaders would go to their rank and file and say: “Just as we need Big Paternalistic Government on the local and state level to stamp out sin and compel morality, so we need Big Government on the national level to increase everyone’s purchasing power through inflation, keeping out cheap foreign goods (tariffs), or keeping out cheap foreign labor (immigration restrictions).”
And for their part, the Democratic leaders would go to their constituents and say: “Just as the Republican fanatics are trying to take away your liquor, your beer parlors, and your parochial schools, so the same people are trying to keep out cheap foreign goods (tariffs), and trying to destroy the value of your savings through inflation. Paternalistic government on the federal level is just as evil as it is at home.”
So statism and libertarianism were expanded to other issues and other levels. Each side infused its economic issues with a moral fervor and passion stemming from deeply held religious values. The mystery of the passionate interest of Americans in economic issues in the epoch is solved.
Both in the second and third party systems, however, the Whigs and then the Republicans had a grave problem. Partly because of demographics—greater immigration and higher birth rates—the Democratic-liturgicals were slowly but surely becoming the majority party in the country. The Democrats were split asunder by the slavery question in the 1840s and ‘50s. But now, by 1890, the Republicans saw the handwriting on the wall. The Democratic victory in the congressional races in 1890, followed by the unprecedented landslide victory of Grover Cleveland carrying both houses of Congress in 1892, indicated to the Republicans that they were becoming doomed to be a permanent minority.
To remedy the problem, the Republicans, in the early 1890s, led by Ohio Republicans William McKinley and Mark Hanna, launched a shrewd campaign of reconstruction. In particular, in state after state, they ditched the prohibitionists, who were becoming an embarrassment and losing the Republicans large numbers of German Lutheran votes. Also, they modified their hostility to immigration. By the mid-1890s, the Republicans had moved rapidly toward the center, toward fuzzing over their political pietism.
In the meanwhile, an upheaval was beginning to occur in the Democratic Party. The South, by now a one-party Democratic region, was having its own pietism transformed by the 1890s. Quiet pietists were now becoming evangelical, and Southern Protestant organizations began to call for prohibition. Then the new, sparsely settled Mountain states, many of them with silver mines, were also largely pietist. Moreover, a power vacuum, which would ordinarily have been temporary, had been created in the national Democratic Party. Poor Grover Cleveland, a hard-money laissez-faire Democrat, was blamed for the panic of 1893, and many leading Cleveland Democrats lost their gubernatorial and senatorial posts in the 1894 elections. The Cleveland Democrats were temporarily weak, and the Southern-Mountain coalition was ready to hand. Seeing this opportunity, William Jennings Bryan and his pietist coalition seized control of the Democratic Party at the momentous convention of 1896. The Democratic Party was never to be the same again.161
The Catholics, Lutherans, and laissez-faire Cleveland Democrats were in mortal shock. The “party of our fathers” was lost. The Republicans, who had been moderating their stance anyway, saw the opportunity of a lifetime. At the Republican convention, Representative Henry Cabot Lodge, representing the Morgans and the pro-gold-standard Boston financial interests, told McKinley and Hanna: Pledge yourself to the gold standard—the basic Cleveland economic issue—and drop your silverite and greenback tendencies, and we will all back you. Refuse, and we will support Bryan or a third party. McKinley struck the deal, and from then on, the Republicans, in nineteenth-century terms, were a centrist party. Their principles were now high tariffs and the gold standard, and prohibition was quietly forgotten.
What would the poor liturgicals do? Many of them stayed home in droves, and indeed the election of 1896 marks the beginning of the great slide downward in voter turnout rates that continues to the present day. Some of them, in anguish at the pietist, inflationist, and prohibitionist Bryanites, actually conquered their anguish and voted Republican for the first time in their lives. The Republicans, after all, had dropped the hated prohibitionists and adopted gold.
The election of 1896 inaugurated the fourth party system in America. From a third party system of closely fought, seesawing races between a pietist-statist Republican Party vs. a liturgical-libertarian Democratic Party, the fourth party system consisted of a majority centrist Republican Party as against a minority pietist Democratic Party. After a few years, the Democrats lost their pietist nature, and they too became a centrist, though usually minority party, with a moderately statist ideology scarcely distinguishable from the Republicans. So went the fourth party system until 1932.
A charming anecdote, told us by Richard Jensen, sums up much of the 1896 election. The heavily German city of Milwaukee had been mainly Democratic for years. The German Lutherans and Catholics in America were devoted, in particular, to the gold standard and were bitter enemies of inflation. The Democratic nomination for Congress in Milwaukee had been obtained by a Populist-Democrat, Richard Schilling. Sounding for all the world like modern monetarists or Keynesians, Schilling tried to explain to the assembled Germans of Milwaukee in a campaign speech that it didn’t really matter what commodity was chosen as money, that “gold, silver, copper, paper, sauerkraut or sausages” would do equally well as money. At that point, the German masses of Milwaukee laughed Schilling off the stage, and the shrewdly opportunistic Republicans adopted as their campaign slogan, “Schilling and Sauerkraut” and swept Milwaukee. 162
The Greenbackers and later the pro-silver, inflationist, Bryanite Populist Party were not “agrarian parties”; they were collections of pietists aiming to stamp out personal and political sin. Thus, as Kleppner points out, “The Greenback Party was less an amalgamation of economic pressure groups than an ad hoc coalition of ‘True Believers,’ ‘ideologues,’ who launched their party as a ‘quasi-religious’ movement that bore the indelible hallmark of ‘a transfiguring faith.’” The Greenbackers perceived their movement as the “religion of the Master in motion among men.” And the Populists described their 1890 free-silver contest in Kansas not as a “political campaign,” but as “a religious revival, a crusade, a pentecost of politics in which a tongue of flame sat upon every man, and each spake as the spirit gave him utterance.” The people had “heard the word and could preach the gospel of Populism.” It was no accident, we see now, that the Greenbackers almost invariably endorsed prohibition, compulsory public schooling, and crushing of parochial schools. Or that Populists in many states “declared unequivocally for prohibition” or entered various forms of fusion with the Prohibition Party.163
The Transformation of 1896 and the death of the third party system meant the end of America’s great laissez-faire, hard-money libertarian party. The Democratic Party was no longer the party of Jefferson, Jackson, and Cleveland. With no further political embodiment for laissez-faire in existence, and with both parties offering “an echo not a choice,” public interest in politics steadily declined. A power vacuum was left in American politics for the new corporate statist ideology of progressivism, which swept both parties (and created a short-lived Progressive Party) in America after 1900. The Progressive Era of 1900–1918 fastened a welfare-warfare state on America which has set the mold for the rest of the twentieth century. Statism arrived after 1900 not because of inflation or deflation, but because a unique set of conditions had destroyed the Democrats as a laissez-faire party and left a power vacuum for the triumph of the new ideolog
y of compulsory cartelization through a partnership of big government, business, unions, technocrats, and intellectuals.
Part 2
THE ORIGINS OF THE FEDERAL RESERVE
THE ORIGINS OF THE FEDERAL RESERVE
THE PROGRESSIVE MOVEMENT
The Federal Reserve Act of December 23, 1913, was part and parcel of the wave of Progressive legislation, on local, state, and federal levels of government, that began about 1900. Progressivism was a bipartisan movement which, in the course of the first two decades of the twentieth century, transformed the American economy and society from one of roughly laissez-faire to one of centralized statism.
Until the 1960s, historians had established the myth that Progressivism was a virtual uprising of workers and farmers who, guided by a new generation of altruistic experts and intellectuals, surmounted fierce big business opposition in order to curb, regulate, and control what had been a system of accelerating monopoly in the late nineteenth century. A generation of research and scholarship, however, has now exploded that myth for all parts of the American polity, and it has become all too clear that the truth is the reverse of this well-worn fable. In contrast, what actually happened was that business became increasingly competitive during the late nineteenth century, and that various big-business interests, led by the powerful financial house of J.P. Morgan and Company, had tried desperately to establish successful cartels on the free market. The first wave of such cartels was in the first large-scale business, railroads, and in every case, the attempt to increase profits, by cutting sales with a quota system and thereby to raise prices or rates, collapsed quickly from internal competition within the cartel and from external competition by new competitors eager to undercut the cartel. During the 1890s, in the new field of large-scale industrial corporations, big-business interests tried to establish high prices and reduced production via mergers, and again, in every case, the mergers collapsed from the winds of new competition. In both sets of cartel attempts, J.P. Morgan and Company had taken the lead, and in both sets of cases, the market, hampered though it was by high protective tariff walls, managed to nullify these attempts at voluntary cartelization.
A History of Money and Banking in the United States: The Colonial Era to World War II Page 15
