Conservapedia:American History Lecture Seven
On the SAT II, about 20% of the test concerns economic history. Out of 90-95 questions, that means there could be as many as 19 questions about economics. Those 19 questions are where most students have the most difficulty. But this lecture will make those 19 questions some of the easiest ones for you.
First, some review: Reconstruction. Using your imagination you can figure out what happened. The South is destroyed and needs to be rebuilt economically and politically. Much prejudice is going to remain. There is going to be a great deal of animosity lingering between the North and South. Some are going to favor compromise, some are going to be harsher. An Amnesty Act will be necessary (one passed in 1872 to restore voting rights to most ex-Confederates).
Use your imagination to think of the issues: What conditions will the North require before readmitting the South into the Union? (Must ratify 13th Am to ban slavery)? What do with Confederate officers? (Most were immediately pardoned.) How to govern the South? (Divide it into five military districts.) Congress is going to fight with the new President from Tennessee (Andrew Johnson). Congress says that President Johnson cannot remove anyone from Lincoln’s Cabinet (Tenure of Office Act). Johnson says that Congress cannot tell him what to do and removes the Secretary of War (now “Defense”) William Stanton anyway. The House impeaches Johnson for it, but the Senate falls one vote short of convicting and removing him from office.
Meanwhile, the South interfered with voting by former slaves and the 15th Amendment is passed to protect that right. The 14th Amendment was passed earlier to protect other rights of former slaves and give Congress special powers to protect them further, which Congress does in the Civil Rights Act of 1875, which prohibited racial discrimination in hotels, theaters, public transit, employment and other public places, and establishes right of former slaves to serve on juries. But later the Supreme Court held the Civil Rights Act to be unconstitutional.
How would Reconstruction end? When Republicans lost power, which almost happened in the 1876 presidential election and the Republicans had to promise to end Reconstruction in order to resolve the dispute and induct President Rutherford B. Hayes. He was a one-termer (after Grant served two terms). Afterwards the Northern Republicans did not do much in the South, and did not protect former slaves any further.
Wars are expensive. Remember the French and Indian War and how Britain taxed us afterwards? Somebody has to pay all the bills from a war, the hospitals, the weapons, the food, the transportation, and the meager wages for soldiers. The revenue from tariffs was not enough. Lincoln started an income tax for the first time (expired in 1872). He suspended the payment by the government to citizens in gold and silver, to protect its reserves. He taxed manufacturers and the public through sales taxes. But most of all, Lincoln financed the Civil War by issuing greenbacks, similar to our green dollar bills today. This was a change from monetary practices under Alexander Hamilton, when all currency was backed by gold or silver. Lincoln’s greenbacks were not backed by anything at all. The government simply printed and distributed them.
When the government increases the amount of money out there, it causes inflation. Everyone starts to realize that the money is not worth as much anymore because the government is printing more of it. So inflation increased during the Civil War. What cost $100 when the War started in 1861 cost about $170 after it was over. That’s 70% inflation in just a few years, which is terrible if you have money in the bank. Your savings are then worth only a little more than half what it was before the war. Guess how much that $100 cost in 1861 would be today. (About $2054!)
You can compare inflation between any two years with this website: http://www.westegg.com/inflation/
Now, recall our ongoing struggle between debtors (farmers) and creditors (bankers). Which side likes inflation? (The farmers.) There income increases because eggs, meat, milk, etc., are all increasing in prices. Meanwhile, the money the farmers own the bank does not increase; it is still the same loan as when they initially borrowed the money from the bank to set up their farm. So farmers love inflation, and bankers dislike it. Whether to have more inflation, or less inflation, became the single biggest issue between the Civil War and 1900. This conflict manifested itself in many different ways.
The first issue arose just after the War: what should the government do about all the greenbacks? The farmers loved them, but the bankers did not. The bankers, who were powerful within the Republican Party (and, before that, the Whig Party), demanded that the government stop issuing money unless it is backed by gold. Many people still feel the same way today, but for a different reason: preventing the government from printing more money helps limit government power. The less the government can print and spend, the less power it has.
Then the financial Panic of 1873 hit. Like the Panic of 1837, this financial panic caused many railroads to shut down. Unemployment increased. Just as political party goes in cycles, the economy goes in cycles also. Prosperity alternates with recessions or depressions. Good times alternate with bad times. Republicans blamed the financial panic on too much speculation in railroads, and passed a law limiting the availability of money for everyone, including speculators. Republicans did this by making gold (and not silver) the only monetary standard of United States currency. This ended Alexander Hamilton’s policy of “bimetallism”, which set both gold and silver as standards of currency in a 15:1 ratio of silver to gold.
Recall that President Jackson had issued the “Specie Circular” in 1836 in response to inflation and land speculation resultant from the increase in paper money at that time. Jackson’s Specie Circular provided that only gold and silver (and sometimes Virginia land scrip) would be accepted by the government for payment for public lands. After the Panic of 1837, Jackson’s Specie Circular was repealed in 1838.
Money then became scarcer, and inflation ended. Farmers were outraged, calling this the “Crime of 1873”. What cost $100 in 1872 only cost $77.82 by 1880. Deflation is devastating to farmers. Their prices on their goods fall but they still have to pay back their original loan.
So the farmers form a new political party in creation to the deflation and “Crime of 1873”: the Greenback Party. The so-called “Greenbackers” opposed the gold standard and opposed allowing people to turn in Greenback currency for gold. In 1878 and 1880 the Greenback Party won two dozen seats in Congress. But that was not enough, and the government went ahead with redeeming greenbacks in gold. So debtors and farmers turned to a new solution: silver.
From about 1878 to the end of the century there was strong pressure to return the nation’s economic standard to bimetallism by including silver along with gold. Two forces drove this pro-silver or “free silver” movement: Westerners had discovered silver mines so they wanted the silver to become more valuable, and farmers wanted more money in currency to cause inflation. Westerns and Southerners arranged for passage of the Bland-Allison Act in 1878, which required the government to purchase $2-4 million worth of silver each month. Also, a bill passed over President Hayes’ veto which allowed for the free and unlimited coinage by the government of silver, such as silver dollars, at a ratio of 16 to 1 relative to gold. The government began minting silver dollars that are collectors’ items today (and worth much more than one dollar now). But the price of silver fell as more was mined, and so the monthly government purchases declined also. Deflation continued for the next ten years. A $100 cost in 1878 was equivalent to only $84.43 in 1890.
The Westerners wanted more silver purchased, and the debtors and farmers wanted more inflation. They forced passage of the Sherman Silver Purchase Act in 1890, which required even greater purchases by the government of silver. The Silver Purchase Act required the government to issue notes (like large-denomination dollar bills) to purchase 4.4 million ounces of silver each month, regardless of its value in dollars. The bill passed in a compromise with the Northerners, who obtained the high tariff in the McKinley Tariff Bill.
But the notes used to buy the silver each month were redeemable in gold, which was more valuable than the increasingly plentiful silver. So pretty soon the public was demanding gold from the government in return for these new notes. This created a “run” on the gold reserves of our Nation, with its total supply falling below $100 million and headed quickly towards zero.
The Panic of 1893 hit just after Democrat Grover Cleveland became president for his second term. He persuaded Congress to repeal the Silver Purchase Act in order to stop the run on gold. A big Wall St. banker, J.P. Morgan, arranged for more gold to be imported from Europe to protect the government reserves. The “run” on our valuable gold reserves stopped.
There was a huge bestselling pamphlet called “Coin’s Financial School” which was published just after the economic depression of 1893. In this fictional work, professor Coin lectures gold-standard advocates on the benefits of monetizing silver at a 16:1 ratio. The pamphlet swept the country, much as Thomas Paine’s “Common Sense” did, and laid the foundation for William Jennings Bryan’s “Free Silver” presidential campaign in 1896 against pro-gold Republican William McKinley. Ultimately Bryan rocked the country with the most famous political speech in American history, his “Cross of Gold” speech to the Democratic nominating convention:
- “There are two ideas of government. There are those who believe that if you just legislate to make the well-to-do prosperous, that their prosperity will leak through on those below. The Democratic idea has been that if you legislate to make the masses prosperous their prosperity will find its way up and through every class that rests upon it. …
- If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”
Returning to 1875: from 1875-93, every year showed a budget surplus for the government. This was the “Gilded Age,” a term coined by the extremely successful writer from Missouri, Mark Twain (his real name was Samuel Clemens).
The era was “gilded” because it appeared golden, but beneath the shiny surface was greed and corruption according to Mark Twain, who wrote a novel by that name in which Washington, D.C. was run by greedy businessmen and corrupt government officials. (Mark Twain wrote several other influential novels, including “The Adventures of Huckleberry Finn” (a journey on a raft on the Mississippi and in life based on experiences)). The Gilded Age featured “robber barons,” who were people who became extremely wealthy through ruthless business practices. The worst “robber baron” was Jay Gould, a financier on Wall Street who committed rampant fraud by printing false stock certificates and even tried to corner the gold market in 1869. That led to a financial panic known as Black Friday, after Gould drove up the price of gold by hording it, President Grant learned of the scheme and started selling the government gold reserves on the market to cause the price to fall. The price of gold then fell sharply, and many lost everything they had. Gould, however, had sold out at the highest price!
In fact, this was the golden era of capitalism, when American business was phenomenally successful, huge fortunes were made, and government did not interfere. Businessmen like Andrew Carnegie, who immigrated from Scotland without any money and ended up with massive wealth from founding the Carnegie Steel Co. (later became U.S. Steel Co.), amassing a fortune that he then donated to build structures like Carnegie Hall, Carnegie-Mellon University, and the enormous New York Public Library (plus 2800 other public libraries). He wrote the “Gospel of Wealth” in 1900 to describe his vision of capitalism.
The Gilded Age was the golden era of the inventions, when freedom, capitalism and almost no government regulations unleashed fantastic inventions in a short period of time. In about ten years the United States produced these inventions: the telephone (1876), the record player (1877), the light bulb (1879), the electric power station (1882), and the motion picture camera (1889).
Most of these inventions were by the “Wizard of Menlo Park” Thomas Edison, who was by the far the greatest inventor in the history of mankind and ranked as the number one most influential person of the past 1000 years by Life magazine. He was homechooled, having flunked out of regular school. He was a failure as an employee of companies. He was mostly deaf. Out of money and lacking any other options, he eventually went into business for himself in New Jersey.
Self-employed, he then created one marvelous invention after another, acquiring more than 1300 U.S. and foreign patents throughout his life. He invented the record player (phonograph), the light bulb, the electric power station, the mimeograph machine (copier), a telephone transmitter device for the mouthpiece (Alexander Graham Bell invented the telephone itself), electric power generator, and many other remarkable items. The wealth generated by Edison’s work (and capitalism) is astronomical.
But Mark Twain saw much political corruption during this time. At the top of the list of corrupt governments was in New York City, where “Tammany Hall” ruled from 1805 to 1871, until its leader “Boss Tweed” was imprisoned for taking tens of millions of dollars from the city and his opponents won the election in November 1871. His famous quote when caught stealing was, “What are you going to do about it?”
In the New York City elections of 1868, Tammany Hall worked to steal the outcome by giving this advice:
- "'When you've voted 'em with their whiskers on, you take 'em to a barber and scrape off the chin fringe. Then you vote 'em again with the side lilacs and a mustache. Then to a barber again, off comes the sides and you vote 'em a third time with the mustache. If that ain't enough and the box can stand a few more ballots, clean off the mustache and vote 'em plain face. That makes every one of 'em good for four votes.'"
When Boss Tweed was eventually arrested, robber baron Jay Gould posted a multi-million dollar bail for him. A decade later, in 1886, Tammany Hall regained power, and ran New York City politics until 1932, when Fiorello La Guardia was elected. La Guardia airport is named after him.)
“Tammany Hall” was the name used to describe the Democratic Party organization in New York County, which operated like a machine in how it elected people, gave out jobs, and even stole money from the City. Eventually, it was the New York Times and American’s most famous cartoonist, Thomas Nast, who wrote public scorn to Boss Tweed and his imprisonment. Nast cheered Tweed’s humiliation.
The “spoils systems” was an important part of these political machines, and even the Republican Party U.S. Senator from New York, Roscoe Conkling, supported it. Under the “spoils system” or “patronage system”, the winner of an election gets to hand out government jobs to his supporters. “To the victors go the spoils,” is the famous saying. The “Stalwarts” in the Republican Party favored this system, which insured that holdovers who disagreed with the winner would be fired and everyone in the new administration would agree with the new leader. Against the Stalwarts were moderates who wanted a civil service system where a government employee would keep his job even after a new leader is elected. They sought “reform” of the spoils system.
Congressman James Garfield was nominated by the Republican Party for president in 1880 as a compromise between the stalwarts and the moderates. Garfield picked a Stalwart, Chester Arthur, as his Vice President. Then a deranged Stalwart assassinated Garfield soon after he was elected, so that fellow Stalwart Chester Arthur could become president. This discredited the movement and Arthur promoted a civil service system whereby the victors cannot fire and replace government workers with his supporters.
John D. Rockefeller monopolized the oil industry at this time, becoming perhaps the wealthiest person ever. After he formed the Standard Oil Trust of Ohio in 1881 to run his empire, it became a goal of government to break his empire up. Meanwhile, other industries began to follow his example, as large industrial companies began to form to control sugar, lead, beef and even whiskey. Rockefeller, in turn, allegedly bribed public officials to advance his business goals. Congress ultimately passed the Sherman Antitrust Act to prohibit “restraint of trade” or interference with competition, in 1890, named after Senator John Sherman of Ohio (General William Sherman’s brother). Rockefeller’s oil company was ultimately broken up by the courts. The Sherman Antitrust Act is a big area of the law today.
Monopolies are a topic that divides free enterprise thinkers. Some advocate that the free market will deal with monopolies adequately. Others say that monopolies are an opponent to the free market and should be broken up. In sum: economic issues dominate the period after Reconstruction (1877) through 1900. It’s a period of great economic growth in our Nation, when our “gross domestic product” increased greatly. “Gross domestic product” is the total output (in dollars) of all the good and services produced by labor and property located our country. It is basically how much our entire country is producing, valued in dollars. When we are prosperous it increases, and when we are in a depression it goes down or does not increase as much.
Slavery was no longer an issue from the end of Reconstruction through 1900. With the exception of one politician (Democrat Grover Cleveland, who looked like a Republican because he was from New York, favored the gold standard and opposed unions by sending in troops to put down the Pullman Strike in Chicago in 1894), Republicans controlled the White House. During the Gilded Age, there were business scandals and there were political scandals. But there was also tremendous prosperity.
Debate: Mexican War.
Debate: it wasn’t the “Gilded Age”, it was the “Golden Age”.
Debate: caveat emptor, or government regulation of monopolies and robber barons?
Debate: spoils system.
- A. Callow, The Tweed Ring 210 (1966) (quoting M. Werner, Tammany Hall 439 (1928)).