Murica and Libmerica: The United States of Plutocracy

In the wake of the election of Donald Trump, people are reacting with shock or elation depending on their political affiliation. Explanations abound, particularly for the anomaly of Trump being elected, a media-driven celebrity having no experience in elected office. Rather than engage within the typical bipartisan framework, according to which I inhabit the categorical box of “liberal” or “democrat”, I prefer to take a bird’s-eye view of our political system and the plutocratic mechanisms that drive it.

Let’s go back eight years to Obama’s first election. Bush was disliked intensely by most people, had extremely low approval ratings, had served two full terms. It doesn’t take a political science degree to see that even a mediocre democrat was likely to win in 2008. Obama is good public speaker and was certainly refreshing, given his inarticulate and incompetent predecessor. Generally speaking, of course,  within the Murica and Libmerica binary scheme, presidents generally get two terms at the most (sometimes one) and then the other political party gets a turn. Overall, the true scheme is the incumbent party is running against the change party. Neither party actually accomplishes all it claims or promises and, over time, the plutocratic mechanisms (of, by, and for the 1%) that dominate government policies guarantee that over time people’s dissatisfaction with plutocratic governance. Whatever party is in office has its deficiencies exposed over time within the bipartisan media talking point framework. Depth of analysis does not yield ratings. But the war between political parties does produce ratings. The puppet-masters fund the elected officials, dictate policies for these officials, and employ lobbyists who write laws that serve the puppet-masters rather than the voters. This is how a plutocracy, a government of, by, and for the 1% works. The essential mechanisms remain intact as people express satisfaction or dissatisfaction within the bipartisan scheme, which serves people who join parties like members of a tribe or sports team. The mainstream media aid and abet this tribalization and “sportsification” of bipartisan politics.

The true rulers of our government and media, as many of us acknowledge, are wealthy corporate oligarchs, corporate executives actively exploiting their lofty societal positions to determine media content to get us to love Trump or Hillary, or, in this particularly venomous political year, they inspire hatred for both candidates and this lights up people’s limbic systems and ratings too. When someone outside the typical scheme, a democratic socialist, Bernie Sanders, enters the picture and upsets the predicted Hillary-vs-Trump polarity, then he is found guilty by the plutocrat puppet-masters as upsetting the binary scheme. Whether he supported Hillary or continued to fight on, Libmerica would have been split. This split inspires heated animosity of liberals against liberals. This particular issue I leave to others to discuss. My focus here is on the larger plutocratization process and political tribalization and sportsification processes.

Clearly, the liberal side of our nation’s tribalization was more divided than the conservative side, even with Trump’s huge pile of “deplorable” attributes and ludicrous adolescent-level improvised “policies”. Yes, we should have a more sophisticated, more nuanced system of multiple viable political parties, and perhaps this fact, above all else, gave the election to Trump. The electoral college seems to benefit Murica and its republican voters who are spread out wider than the Libmerica coastal zones and small Great Lakes zone. Swing states like Pennsylvania, Ohio, and North Carolina tilted to Trump based on rural white conservatives voting more than urban liberals. Murica extended its reach into what been Obama’s Libmerica. After eight years, more Muricans voted for “change” in these “purple states” to flip them to Trump, even though Hillary piled up huge vote totals in California in the Northeast that gave her a greater popular vote total than Trump.

Focusing on large-scale political dynamics, I look at the media and our two-party system, which create an incumbent-vs-change dynamic. People typically don’t think deeply about why they are either satisfied or dissatisfied. If you’re satisfied, you generally stick with the incumbent party. If you’re dissatisfied you vote for “change”. This short-term focus is a huge problem because the two parties have been “plutocratized” or moved to the right over the past 36 years or more. From 1968 to 1992, republicans succeeded in changing the political climate and cultural war climate whereby “big government” became an epithet and snobbish “liberal elites” were used by republicans to recruit the “Joe Lunchbuckets” who had voted for democratic presidential candidates before. The only democratic president between 1968 and 1992 was Jimmy Carter, remembered for gas lines, high inflation, and the Iran hostage crisis. Reagan came along and hearkened to 1950’s nostalgia and “the shining city on a hill”. Democrats produced such illustrious candidates as Walter Mondale in 1984 and Michael Dukakis in 1988. So Bill Clinton decided to run as a centrist. The old liberal democratic party basically had to be killed because the new formula was established when George Bush Sr overcame Dukakis’s 17-point lead in the polls by attacking him as a “liberal”. Bush was the ideology candidate and Dukakis was the competence candidate. Plus the attack ads pummeled the American psyche. African American furloughed murderer Willie Horton was featured. He was let out on a weekend pass by Dukakis. The basic political advertising methodology has changed little since then.

I am not saying the two parties are equally plutocratized. It is a matter of degree and the republicans use their austerity-for-the-99% and welfare-for-the-1% formula for huge plutocratic domination. With the democratic party, certain “special interests” like big banks, telecoms, drug companies, health insurance companies, etc. find certain receptive democratic receptacles (candidates) and they use more compassionate talking points and set themselves as opponents to the republicans’ trickle-down and anti-big-government rhetoric. Sad to say, the power of the binary two-party framework meant that socialist pioneer candidate had to defer to the democratic political establishment and Libmerica (blue state America) was not as solid as Murica, where Trump had no conservative rivals for his admiration within his Murica realm.

This political system has its media lapdogs write drama for the 2 major party presidential candidates. Add to this layers of social media drivel and our heads starving for useful knowledge are polluted with a confusing melange of superficial blather, interviews of ill-informed people supporting their chosen candidate, tweets du jour, scandals du jour, and smaller amounts of policy positions. The menu of candidates is not adequate and the process of choosing from this menu is seriously screwed up.

So what are we the people going to do? What emotions, what political tribal affiliations, what level of knowledge of plutocracy’s domination over politics–will influence what we do as we prepare for Trump’s presidency?

Personal Feeling Politics as the U.S. is Trumped

So we liberals have inflicted wounds on the self-esteem of Trump supporters? Let’s see: I’ve been called a “democrap”, “libtard”, been told that I am exactly like all other liberals in wanting “big government to control my life and give me free stuff” as if that’s the totality of my liberal psyche or worldview. I’ve been told I drink mocha lattes at Starbucks, watch Oprah, wage a “war on Christmas” and do various and sundry liberal-snob types of things.

The really amazing thing to me is how effective rightwing portrayals of liberals as some mythical homogenous snobbish group have been. This really gets the water cooler discussions and twitterfests going. Kinda like gossiping at your neighbor’s fence in the old days.

Now discussing specific policies government does, what works and what does not work, that’s too intellectual, that’s for eggheads and academics. These people are snobs and think too much and want to impose the commie NWO on ya. So let’s stick with the conservative talking points and stick with trickle-down policies, more tax cuts for rich people, more tax shelters for corporations, more freedom for corporations to regulate themselves and offshore jobs and pollute for profit. These policies are so effective for helping poor people pull themselves up by their own bootstraps. And look at the burgeoning middle class created by these policies. Oooooh. Our middle class is disappearing? Older people can’t afford their meds and have to work along with receiving social security. The single income middle class family of 40 years ago now needs two breadwinners. How did these things happen? Let me think…..I have a headache now. Oh yeah, it’s Obama’s fault.

Republican Racism in Presidential Politics: Trump Continues Racebaiting Rooted in Jim Crow

Racism continues to play a major role in politics, especially in presidential races. Amidst a global economic meltdown that had begun on George W. Bush’s watch,  Obama began his presidency with Tea Party activists dominating airtime on Fox and filtering down to all the cable networks. Right-wing media blowhards claimed he was born in Kenya, was a marxist, and  a “secret Muslim”. The disasters created by Dubya’s policies seemed to disappear before the spectre of a black president.

Donald Trump took advantage of this wave of racist sentiment aimed at Obama. In 2011, mulling over a presidential run, he launched a public pursuit of Obama’s birth certificate, announcing that he had sent private investigators to Hawaii. When Obama released the long-form version of his birth certificate in response to the uproar that Trump had caused, the braggart said that he was “proud of myself because I’ve accomplished something nobody has been able to accomplish.”

In recent days, Trump is following the Fox News script of voter fraud. He bloviates about the impending election being “rigged” or “stolen” while ignoring the fact that the republican party has made rigging elections a core priority through massive voter suppression policies, to prevent people of color from voting. Republican-controlled state legislatures’ recent attempts (some successful, some not) to pass voter-ID laws were designed to prevent minority voters from voting. Trump has also offered an answer for this fake voter problem: Supporters should monitor the polls and look for “suspicious” behavior, singling out cities like Philadelphia, Chicago and St. Louis. All have large African-American populations.

Trump’s racism against Mexicans and hispanics in general is perhaps even better known and more clearly articulated, e.g., his comments on Mexican “criminals and rapists” entering the United States and his criticism of a hispanic judge. The “change” Trump seeks to “make America great again” is to make it white or whiter again. The nostalgia he evokes is a restoration of white privilege lost as America has become an ethnically rainbow culture.

Analyzing racism in presidential politics starts with the South, which was solidly democratic for presidents in the twentieth century until president Truman came along. He concluded that segregation and racial segregation had to go. The United States emerged the most powerful World War II victor. It would be the height of hypocrisy, therefore, to command credibility as the Free World’s policeman and the righteous guardian of freedom-loving people everywhere — an essential if the U.S. ever hoped to win hearts and minds. Many agree that Truman was the first president since Abraham Lincoln to act explicitly on behalf of African Americans. The 1947 Committee on Civil Rights and its recommendations became epic. More important, the national party’s endorsement of Truman’s program would precipitate the famous walkout of Alabama and Mississippi delegates from the 1948 Democratic Convention.

Southern Democrats had become increasingly disturbed over President Truman’s support of civil rights, particularly following his executive order racially integrating the U.S. armed forces and a civil rights message he sent to Congress in February 1948.  At the 1948 Democratic National Convention, Truman endorsed a strong civil rights platform, confirming the shift of the Democratic party from a Southern, white supremacist organization to a predominantly Northern, liberal party. Southern Democrats (self-termed as Dixiecrats) were so offended by the integration of the party that some walked out of the convention, led by Strom Thurmond. Though Truman was limited in his actual support of blacks, he strongly believed that the role of the federal government was to protect its citizens, of all races. Southern democrats objected strongly to Truman’s anti-racist stance and started their own political party,  the States’ Rights Democratic Party, commonly known as the Dixiecrats, the party’s main goal was continuing the policy of  racial segregation in the South and the Jim Crow laws that sustained it. Governor Strom Thurmond became the party’s presidential nominee and won Louisiana, Mississippi, Alabama, and South Carolina and thus creating a split between northern and southern democrats, and eventually southern democrats defected to the republican party. The States’ Rights Democratic Party dissolved after the 1948 election, as Truman, the Democratic National Committee, and the New Deal Southern Democrats acted to ensure that the Dixiecrat movement would not return in the 1952 presidential election.

But the Dixiecrat movement did not really die. Republican Trent Lott spoke on December 5, 2002 at the 100th birthday party of Sen. Strom Thurmond.  Lott said: “When Strom Thurmond ran for president, we voted for him. We’re proud of it. And if the rest of the country had followed our lead, we wouldn’t have had all these problems over the years, either.”  This unfiltered revelation of ugly ideological truth led to Lott’s resignation as Senate Republican Leader on Dec. 20, 2002.

In 1964, republican presidential candidate, Barry Goldwater, won five deep south states. He stated: “A good many, perhaps a majority of the party’s leadership, envision substantial political gold to be mined in the racial crisis by becoming in fact, though not in name, the White Man’s Party.” Executing this veiled strategy, Goldwater campaigned in the south using phrases like “State’s Rights,” which was code for the southern states’ right to resist integration. He talked about “freedom of association,” which was code for white business owners’ right to exclude blacks. He sought to earn votes through racial appeals that were not racial on the surface. Although crushed in the election, Goldwater won five deep-south states that had been dominated by die-hard democrats. These victories illustrated that dog whistle appeals could convince die-hard democrats to vote republican.

Ever since Goldwater paved the way in 1964, every winning electoral candidate before President Obama has used coded racial appeals. In 1968, Nixon employed the “Southern Strategy”, welcoming the segregationist white South into the Party of Lincoln. That same year, George Wallace created a 3rd party, The American Independent, to run as a segregationist. Wallace had a huge impact on the 1968 election where republican Richard Nixon barely edged out democrat Hubert Humphrey, 43.42% to 42.72%. In numerous states it can be argued that Wallace, who won 5 deep south states, tipped to electoral scale to Nixon.

By 1968 Southern whites had left the democratic party with only 10% voting for Hubert Humphrey. Nixon’s “southern strategy” was effective. Wallace’s pursuit of a perpetual Jim Crow South helped the southern white flight from the democratic party. Journalist John Anderson summarized Wallace’s impact from the 1968 campaign: “His startling appeal to millions of alienated white voters was not lost on Richard Nixon and other GOP strategists. First Nixon, then Ronald Reagan and finally George Bush, Sr. successfully adopted toned-down versions of Wallace’s anti-busing, anti-federal government platform to pry low- and middle-income whites from the Democratic New Deal coalition. Historian Dan Carter added: “George Wallace laid the foundation for the dominance of the Republican Party in American society through the manipulation of racial and social issues in the 1960’s and 1970’s He was the master teacher, and Richard Nixon and the Republican leadership that followed were his students.”

With Goldwater and Wallace having paved the way for the white southern flight from the democratic party, Nixon had a landslide victory in 1972 with a solid south joining the rest of the nation seeking conservative solace from the 1960’s countercultural revolution and ultra-liberal George McGovern.

In 1980, Reagan launched his official campaign at a county fair just outside Philadelphia, Mississippi, the town still notorious in the national imagination for the Klan lynching of civil rights volunteers James Chaney, Andrew Goodman, and Michael Schwerner 16 years earlier. As New York Times columnist Bob Herbert concludes, “Reagan may have been blessed with a Hollywood smile and an avuncular delivery, but he was elbow deep in the same old race-baiting Southern strategy of Goldwater and Nixon.” He spoke of the Cadillac-driving welfare mother and minorities on food stamps buying steaks at the grocery while a hardworking white person could only afford hamburger. Republican candidates have used dog whistles (coded language for racists to communicate with each other) to earn middle class votes, win elections, slash taxes for the rich, cut social services, and help the wealthy gain control of regulation.

In 1988, Dukakis had a 17-point lead in the polls over George Bush, Sr. Lee Atwater, political hatchet man, created the famous commercials, attack ads, featuring African-American Willie Horton, who committed murder while on a weekend pass. Atwater’s racism-based approach helped Bush Sr win the White House. His effective usage of white fear of black criminals helped to create the attack ad strategy that dominates political advertising to this day.

There is no doubt that racism has played an enormous role in republican presidential politics for many years. Racism is at the core of Trump’s presidential ambitions and strategies going back to 2011 when he played the birther card on Obama. Trump’s base is uneducated white people and, like any republican candidate, he needs the south and red states with the highest concentration of non-hispanic caucasians. His lack of policy details matters not to those sharing his desire to making America whiter again.

References:

The Great Melding: War, the Dixiecrat Rebellion, and the Southern Model for America’s New Conservatism by Glenn Feldman

http://abcnews.go.com/Politics/donald-trumps-history-raising-birther-questions-president-obama/story?id=33861832

https://en.wikipedia.org/wiki/Dixiecrat

http://blogs.mcgeorge.edu/lawandpolicy/2015/02/22/dog-whistle-politics-coded-racism-and-inequality-for-all/

http://www.reuters.com/article/us-election-debate-voting-commentary-idUSKCN12K0AQ

http://www.salon.com/2014/01/11/the_racism_at_the_heart_of_the_reagan_presidency/

wikipedia entries on the presidential elections from 1948 to 1980

The Welfare State Goes Corporate, Pt 3: Free Market Ideology

From 1933 to 1973 with the predominance of liberal “big government” the U.S. economy grew 600% and averaged 4.88% GDP growth per year. In the 42 years afterwards, 1973 to 2015, the economy grew 202% and averaged 2.77% per year. (These facts account for inflation, use real GDP figures). The notion that “big government” regulations and interventions in the economy failed is clearly false. The crises of the late 1960’s and early 1970’s led to ideological and policy changes that have proved a failure. In spite of this, a new conventional wisdom took root based on free-market, trickle-down economics, once called voodoo economics by George Bush, Sr. One reason for this odd situation is historical amnesia. People care about “What have you done for me lately?”. The 1970’s are in the distant past and the economic stagnation persists due to corporate welfare policies failing to trickle down to the non-wealthy. The prevailing system is the plutocracy run by corporate executives and their lobbyists who function as the de facto government. This system afflicts members of both political parties and they point their fingers at each other as the ineffectiveness of the system persists. The true nature of the problem and its historical causation get no coverage in the mainstream media. Instead, trite talking points are disseminated as if they were facts.

The recent past of the 2008 meltdown and the slow recovery sheds light on the persistence of hatred of “big government” intervention in the economy, which translates into slashing social programs while continuing to fund the military and corporate subsidies and tax breaks. The 2009 stimulus, Recovery and Reinvestment Act, had $288 billion in tax relief and a paltry $111 billion for infrastructure and science. Metaphorically speaking, a band-aid was put on an amputed limb. The meltdown got a fraction of the remedy it required for a robust recovery. But the prevailing message, particularly on conservative media, is that “big government” failed here.

This is in the same vein as underfunding the USDA so that there are a fraction of the meat inspectors necessary to safeguard our meat supply.  The conservative spin for this debacle is “failed government regulations”. The USDA is impaired to perform properly and then blamed by faux journalist corporate shills for this impairment.  The reality of inadequate regulation does not get air time. The many outbreaks of E Coli and other contaminants/bacteria are due to corporate profit-seeking prioritized over proper regulation.

The current STD epidemic has resulted from cutbacks in states’ health budgets. On October 19, 2016, it was revealed that “STD cases are at an all-time high in the US”

The uptick in the number of cases is caused by reduced access to STD testing and treatment, the CDC says. More than half of state and local STD programs have experienced budget cuts, the agency says, and more than 20 health department STD clinics closed in one year alone. Sexually transmitted infections cost the US health care system nearly $16 billion each year, according to the CDC.

“We have reached a decisive moment for the nation,” Jonathan Mermin, director of CDC’s National Center for HIV/AIDS, Viral Hepatitis, STD, and TB Prevention, said in a statement. “STD rates are rising, and many of the country’s systems for preventing STDs have eroded. We must mobilize, rebuild and expand services — or the human and economic burden will continue to grow.”

Contrast this prevalence of austerity and stagnation with a prior prosperous era. Post-World-War-II big government policies saw the mass movement of people from poverty into the middle class. Between 1945 and 1960, the median family income, adjusted for inflation, almost doubled. Rising income doubled the size of the middle class. Before the Great Depression of the 1930’s only one-third of Americans qualified as middle class, but in postwar America two-thirds did.

No boom period is perfect or lasts forever. The Bretton Woods system created in 1944, covered in my prior blog post, had flaws which led to its falling apart in the 1960’s. Add to this the plummeting of corporate profits from the mid 1960’s to the early 1970’s while wages kept climbing as they had before. This basic economic fact was piled on top of seismic shifts in the global economy, essentially globalization as Europe and Japan built their industrial economies, exported more than they imported from the U.S., piled up American surplus dollars, traded them in for gold, so that America’s gold supply was about to run out and Nixon had take the U.S. off gold and end the Bretton Woods system.

Other major events included the 1973 OPEC oil embargo and the ensuing quadrupling of oil prices, the ongoing devaluation of the dollar from 1971, crop failures, and stagflation, the combo of high inflation and high unemployment. The total set of seismic events and crises allowed free market economists like Milton Friedman (a monetarist who emphasized controlling the money supply) and Friedrich Hayek (an Austrian economist, author of The Road to Serfdom) to gain acclaim, get Nobel prizes in economics, and lay the blueprint for the “revolution from above”, that is, a corporate takeover of government policies. Welfare was refashioned to serve corporations, not poor or middle-class people. Taking the government off the back of corporations would enable the enhanced profits to trickle down to the lower echelons of society. This is what Americans have been told since free market ideologues like Friedman and Hayek became fashionable and eventually mainstream when Reagan took office.

The term “neoliberalism” is applied to government policies marketed by free market economists. David Harvey offers his definition:

 The theory takes the view that individual liberty and freedom are the high point of civilization and then goes on to argue that individual liberty and freedom can best be protected and achieved by an institutional structure, made up of strong private property rights, free markets, and free trade: a world in which individual initiative can flourish.  The implication of that is that the state should not be involved in the economy too much, but it should use its power to preserve private property rights and the institutions of the market and promote those on the global stage if necessary. The original liberalism on which neoliberalism is based goes back to the late 1700’s with enlightenment philosophers like Adam Smith, David Hume, and John Locke who touted limited constitutional government, where life, liberty, and private property were protected.

In her classic book, The Shock Doctrine, Naomi Klein explains Milton Friedman’s neoliberal policies. He asserted governments must remove all rules and regulations standing in the way of the accumulation of profits. Second, they should sell off any assets they own that the corporations could be running at a profit. Third, they should dramatically cut back funding of all social programs. Within the three-part formula of deregulation, privatization, and cutbacks, Friedman had plenty of specifics. Taxes, when they they exist, should be low, and rich and poor should be taxed at the same rate. Corporations should be free to sell their products anywhere in the world and governments should make no effort to protect local industries or local ownership. All prices, including the price of labor, should be determined by the market. There should be no minimum wage. Friedman wanted to privatize health care, the post office, education, retirement pensions, and even the national parks. He was calling for the dismantling of the New Deal — that uneasy truce between the state, labor, and corporations that had prevented a popular revolt during and after the Great Depression. Whatever protections the workers had managed to win, whatever services the state now provided to soften the edges of the market, the Chicago counterrevolution wanted them back.

Friedman rose in stature as the experts stumbled to come up with a viable alternative to Bretton Woods. The dollar, which had been overvalued for decades, naturally had to be devalued, which means inflation. Plus, quadrupling the price of oil ripples through the whole economy. Add to this major crop failures and the associate price hikes. Inflation is made much worse. These crises, not big government, created the downtrodden inflation-plagued 1970’s. But a person blessed with eloquence speaking axioms about free enterprise and the virtues of entrepreneurs and capitalism in general, namely Milton Friedman, can grab the spotlight, win over the public and help dictate government policies.

The next blog installment digs into the details of Friedman and others who ushered in the neoliberal era which persists to this day.

References:

http://www.multpl.com/us-gdp-inflation-adjusted/table

 On Neoliberalism: An Interview with David Harvey
by Sasha Lilley

The Shock Doctrine by Naomi Klein

http://www.ucsusa.org/news/press_release/study-finds-usda-woefully-underfunding-research-needed-to-spur-better-farming-practices-0635#.WA4rEPkrLqA

http://www.theverge.com/2016/10/19/13331854/sexually-transmitted-infections-chlamydia-gonorrhea-syphilis-increasing

https://en.wikipedia.org/wiki/American_Recovery_and_Reinvestment_Act_of_2009

http://www.countriesquest.com/north_america/usa/history/a_world_of_plenty/the_middle_class_expands.htm

The Welfare State Goes Corporate, Pt II: The U.S. Bretton Woods World Order Unravels

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The series of events and crises that transformed America from a welfare-for-all state to a welfare-for-the-wealthy state happened over many years. The year 1973, however, seems to be a turning point with the OPEC oil embargo, oil crisis, the recession that ensued, and the beginning of stagnation of wages. Even as productivity kept increasing, wages stagnated. The wage stagnation has persisted ever since that turning point. In 1973, median earnings for men who worked full-time, year-round were $51,670 in inflation-adjusted 2012 dollars. The median earnings of men who work full-time year-round have never been that high again.

Contrast the dismal 1970’s with America’s golden era. America the Superpower was unveiled during World War II. Even before Germany and Japan were defeated, the U.S. worked with its mentor empire, Britain, to forge a new political and institutional settlement to stabilize global capitalism, curbing its most self-destructive tendencies and consolidating international peace with the help of newly formed United Nations, headquartered in New York City. New institutions within this new global system were the International Monetary Fund and The World Bank both headquartered in Washington, DC. This new system was called Bretton Woods for the New Hampshire town holding the 1944 meeting. The industrial nations participating were to have full employment, economic security, and social protection from this new system. The new phase of capitalism that was ushered in has been called “regulated capitalism” with theoretical grounding by economist John M. Keynes and the policies of president Franklin Roosevelt and those of social democratic European nations.

When World War II came to an end in May-August 1945, the United States was at the peak of its relative industrial and financial power. The United States had three-fourths of the world’s invested capital. In 1940, the U.S. had two-thirds of the world’s oil reserves, while the Middle East had only 5 percent. The better part of agricultural production was also located in the United States. The U.S. GDP was five times that of the United Kingdom, the second most powerful imperialist country. The U.S. also had two-thirds of the world’s gold reserves, and that’s not counting the portion of European gold reserves that were kept in the United States for “safekeeping.” In 1945, U.S. domination was solidly rooted in the sphere of material production, military power and finance.

In 1944, with the defeat of Germany and Japan clearly in sight, an international conference of the victorious “allied” powers was held in Bretton Woods, New Hampshire. Given the emerging balance of military and thus political power, it was inevitable that the United States would dominate the post-World War II monetary system even more thoroughly than Great Britain had dominated the classical international gold standard in the decades preceding World War I.

Not surprisingly, the new international monetary system that emerged out of the Bretton Woods conference was essentially an international extension of Roosevelt’s Depression-era reforms of the U.S. domestic monetary system. As was the case under the classical gold standard, the U.S. dollar was defined in terms of a given weight of gold bullion, namely 1/35th of a fine troy ounce of gold. However, under the Bretton Woods System, contrary to the classical gold standard, the U.S. did not coin gold. Other currencies were defined in terms of their exchange rates with the U.S. dollar. These rates were fixed but were subject to renegotiation either down against the dollar—devaluation—or up against the dollar—revaluation. There was, however, no provision to change the quantity of gold bullion measured in terms of weight that was defined as a dollar.

The U.S. Treasury promised to redeem every $35 presented to it by either foreign governments or central banks in one troy ounce of fine gold bullion. For this system to work, the price of gold bullion on the London-based international gold market had to be kept near $35 an ounce. If it were allowed to rise significantly above $35 an ounce for a prolonged period of time, governments and central banks would have every incentive to exercise their rights to cash in their dollars for gold at the $35 an ounce rate and either sell it at the higher dollar price on the international gold market or simply hang on to the gold.

The general postwar trend was the U.S. moving from trade surpluses to trade deficits. Its position as global money hegemon allowed it to live beyond its means. The U.S. could import foreign merchandise, acquire foreign companies, and engage in foreign military adventures all at the same time. In France, the Bretton Woods System was called “America’s exorbitant privilege” as it resulted in an “asymmetric financial system” where non-US citizens “see themselves supporting American living standards and subsidizing American multinationals”.  Throughout the 1950’s and 1960’s the U.S. ran trade surpluses, except for 1959 until 1971.

Yanis Varoufakis found that as early as 1960 the writing was on the wall. In spite of America’s shining postwar image, flaws in Bretton Woods appeared. One morning, a young Chase Manhattan banker was startled when an aide stormed into his office with terrible news: “Gold rose to 40 dollars!”. In a world made in America’s image where gold was supposedly fixed ad infinitum at $35 an ounce, the news struck Paul Volcker, the young banker, as apocalyptic. On that day, Volcker got it: The Bretton Woods system was on its way out. Would American postwar hegemony perish with it? Not necessarily, he surmised.

This sudden panic buying of gold (manifested by the price rise to $40 an ounce) led to a meeting between the Bank of England and the US Federal Reserve, that the Bank of England should make available for market substantial supply to reduce and stabilize the price. As the Kennedy administration began the US had made it clear that it wanted to stop the drain on its own gold reserves. Newly-appointed Under-Secretary of the US Treasury Robert Roosa and officials of the Federal Reserve suggested that the U.S., the Bank of England and the central banks of the West Germany, France, Switzerland, Italy, Belgium, the Netherlands, and Luxembourg should set up a sales consortium to prevent the market price of Gold from exceeding $US 35.20 per oz.

Under this “London Gold Pool” arrangement, member banks provided a quota of gold into a central pool, with the Federal Reserve matching the combined contributions on a one to one basis. During a time of rising prices, the Bank of England, the agent, could draw on the gold from the pool and sell into the market to cap or lower prices. In the fall of 1961, London gold prices again began to creep up. In November, with the scheme now up and running, prices were once more stabilized in the $35 – $35.20 range.

In January 1965, France’s president De Gaulle ordered 25,900 bars of gold be transported from the basement of the New York Federal Reserve to Paris. This news led several European companies and various European central banks to demand gold from the American authorities in exchange for their stockpiled euro-dollars. Speculators sniffed blood and borrowed oodles of dollars to buy gold and, thus, the unofficial price of gold rose to more than $70 an ounce, when the United States was still legally bound to sell gold at only $35 an ounce. To add insult to injury, De Gaulle also pulled France’s military forces from NATO, demanding the removal at once for all NATO facilities from French soil.

German bankers were also dissatisfied with the Bretton Woods American dominance. They were forced to print more deutsche marks because speculators were betting on the mark’s increasing value against the dollar and franc. They loathed Chancellor Ludwig Erhard and considered him Washington’s man, a politician who cared more about helping America stabilize Bretton Woods than the Bundesbank’s (Germany’s central bank) crusade to keep the lid on German prices which they feared would escalate if they printed more money. In a move reminiscent of a banana republic rather than a European democracy, the Bundesbank engineered a sharp recession to oust the Erhard regime. The Bundesbank president, Karl Blessing, admitted to this years later. With a smidgeon of regret he said “we had to use brute force to put things in order”. The new regime, a coalition of rightwing Christian democrats and leftwing social democrats created the recession recovery of wage restraint and increased exports. German exports flooded Britain, France, and the United States, throwing off the trade balance and further destabilizing Bretton Woods.

By 1965 the pool was increasingly unable to balance the outflow of gold reserves with buybacks. Excessive inflation of the US money supply, in part to fund the Vietnam War, led to the US no longer being able to redeem foreign-held dollars into gold, as the world’s gold reserves had not grown in relation, and the payment deficit had grown to $3 billion. Thus, the London Gold Pool came under increased pressures of failure, causing France to announce in June 1967 a withdrawal from the agreements and moving large amounts of gold from New York to Paris. The 1967 devaluation of the British currency, followed by another run on gold and an attack on the pound sterling, was one of the final triggers for the collapse of the pooling arrangements. By spring 1968, “the international financial system was moving toward a crisis more dangerous than any since 1931”.

With accelerating inflation in the U.S.  and gold flooding out to trading partners. In 1971 Belgium and the Netherlands traded in their dollars for gold, Germany said it would do the same, and France demanded gold for dollars to make repayment to the IMF.  Gold reserves were now at there lowest since 1938. The last straw came when Britain requested gold. The American “gold window” was soon closed.

The impudent challenges to America’s management of global capitalism gave Nixon’s Treasury Secretary John Connally and his under-secretary, Paul Volcker, the opportunity to impress upon the president there was no alternative: He had to ditch the international monetary system, Bretton Woods, and he had to dump Europe along with it.

Speaking on television on August 15, the Sunday before the markets opened, Nixon ended Bretton Woods and the gold standard. He said:

The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

In the past 7 years, there has been an average of one international monetary crisis every year…

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

Now, what is this action — which is very technical — what does it mean for you?

Let me lay to rest the bugaboo of what is called devaluation.

If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

The effect of this action, in other words, will be to stabilize the dollar

Nixon’s actions announced that day, sometimes called The Nixon Shock, marked the beginning of a new chaotic era. The detachment of the dollar from gold caused devaluation and is intimately connected to the spike in OPEC oil prices 3 years later. Capitalist oligarchs and free market ideologues joined forces, as we shall see, to transform the welfare state into a corpo-welfare state. For example, Lewis Powell and Milton Friedman. Stay tuned.

References: 

Men Who Work Full-Time Earn Less Than 40 Years Ago by Terence P. Jeffrey (CNSnews article, Apr 28, 2014)

The Rise and Fall of Neoliberal Capitalism by David M. Kotz  

Cold War and Global Hegemony, 1945-1991 by Melvin P. Leffler

Pivotal Decade: How the U.S. Traded Factories for Finance in the 1970’s by Judith Stein

A Superpower Transformed: The Remaking of American Foreign Relations in the 1970’s by Daniel L. Sargent

Critique of Crisis Theory blog (by Sam Williams), posts: 1) The American Empire and the Evolution of the International Monetary System; 2) The Industrial Cycle and Collapse of the London Gold Pool in March 1968

The Financial Tsunami, Part II: The Financial Foundations of the American Century by William F. Engdahl

And the Weak Suffer What They Must by Yanis Varoufakis    

The Nixon Shock: wikipedia entry

 

Global Imbalances and The Lessons of Bretton Woods by Barry Eichengreen 

Lessons from the London Gold Pool by Philip Judge

The Welfare State Goes Corporate, Pt I: The 1973 Oil Crisis

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This is the first of a series of blog posts about the U.S. corporate welfare state or plutocracy we live in now and how it came about.

Historical background: We begin with the Great Depression of the 1930’s. The U.S. gets up off the canvass and soars economically for about 4 decades. The consumer society takes off like a rocket. Blue-collar factory jobs pay enough for a single breadwinner to buy a home in the suburbs and send the kids to college. The U.S. is a superpower and can afford to rebuild Europe and Japan after WWII, so these countries grow even faster than the U.S. The postwar boom period, like all booms, can’t last forever. The stability starts falling apart with cultural upheavals and “revolutions” ranging from civil rights to war protests to feminism. The Bretton Woods global economic system with the U.S. starring as global hegemon starts to unravel. As the civil unrest carries Americans into the 1970’s, the economic and political shit really hits the fan. Lots of crises pile up and the 1973 OPEC oil embargo is just one among many crises of this period. The basic “big government” support of the economy gets hammered by the collective pile of these crises (Bretton Woods collapse, stock market plunge, surging inflation and unemployment, crop failures, increased dependence on OPEC oil). Thus, the old liberal “big government” philosophy becomes passé and the “free market” philosophy as espoused by ideologues like Milton Friedman and Friedrich Hayek takes center stage in the 1970’s. Even before Reagan, the political and economic tide turns and the big corporations start assembling their own welfare state and dis-assembling the welfare state that has been battered by those crises.

43 years ago, on October 6, 1973, Syria and Egypt, with support from other Arab nations, launched a surprise attack on Israel, on Yom Kippur. For the first three days it seemed to Israeli leaders that their worst fears were coming true, to be overrun by the Arab nations surrounding them. Egypt’s president, Anwar Sadat, had met with Saudi Arabia’s King Faisal on August 23 and was rumored to have told him he intended to attack Israel. Immediately after Sadat departed, Faisal warned the U.S. that Saudi Arabia would limit its oil supplies, declaring: “America’s complete support of Zionism against the Arabs makes it extremely difficult for us to continue to supply the U.S. with oil or even to remain its friend”.

The big U.S. oil companies, So-Cal, Texaco, Mobil, and Exxon still owned Saudi Arabia’s major oil company, Aramco at this time. They were afraid of losing their access to the Saudis’ oil and chose sides. Texaco, So-Cal, and Mobil publicly demanded that the U.S. government change its Middle East policy to oppose Israel. President Nixon disagreed, authorized Operation Nickel Glass, a strategic airlift to deliver weapons and supplies to Israel, after the Soviet Union began sending arms to Syria and Egypt.

On October 16 OPEC raised the price of oil 70% to $5.11 a barrel in response to American aid to Israel. The next day OPEC announced oil production would be cut 5% a month until Israel withdrew from all occuppied territories. On October 18, Saudi Arabia ordered a 10% cut in its oil production.  On October 19, Nixon requested Congress to appropriate $2.2 billion in emergency aid to Israel, including $1.5 billion in outright grants. This $2.2 billion decision triggered a collective OPEC response. Libya immediately announced it would embargo oil shipments to the United States. Saudi Arabia and the other Arab oil-producing states joined the embargo on October 20, 1973. OPEC blocked all oil deliveries to the U.S. as a “principal hostile country”. In December OPEC set the oil price at $11.65 a barrel, a 468% increase over the 1970 price. The embargo hurt the American and global economy, but not the oil companies. In the case of Saudi Arabia it was the U.S. oil companies that acceded to the Saudis’ wishes. Plus, these oil companies did not accept lower profits but complied with the price hikes and passed these on to American consumers by raising gas prices. In an incredibly short period of time, control over arguably the most important resource in the world changed hands from the oil companies to the oil nations.

The larger significance of The 1973 Oil Crisis is that it marks the ending of what some scholars call “The Golden Age of Capitalism”, the post-World-War-II boom period where the U.S. was the sole major player in WWII not left in rubble and able to fund the rebuilding of Europe and Japan after the war. Ironically, author Neil Davidson notes that the “Great Boom between 1948 and 1974” was a “time of deep frustration for multinational capital”. The New Deal and Great Society programs in the U.S. and welfare states of Europe apparently frustrated the capitalist ruling class (bourgeosie) and the neoliberalism era was ushered in. The term “neoliberalism” indicates the free market philosophy favoring freedom from government intervention in the economy. But the unmentioned aspect of this is the government intervention on behalf of the corporations like tax breaks and subsidies and removal of laws helping workers, consumers, and the environment. The postwar boom period is more accurately described as regulated capitalism and this regulation allowed the non-wealthy to prosper and increase their standard of living along with the wealthy.

In the postwar 1947-1973 period the U.S. had the fastest and most widely shared economic growth of any long period in U.S. history.  The postwar real family income growth (inflation taken into account) was shared among all income strata: The top 5% increased 86.7%, the top income quintile- 99.6%, 2nd highest quintile- 112.6%, middle quintile- 108.6%, Second lowest- 103.0%, Lowest- 131.4%.  The economic growth from 1979 to 2007 was 74.0% for the top 5%, 51.7% for the top quintile, 28.2% for the 2nd highest quintile, 18.0% for the middle quintile, 11.0% for the 2nd lowest, and 0.6% for the lowest quintile. From 1933 to 1973, the overall economy (GDP, Gross Domestic Product) grew 600% with an average annual growth rate of 4.88%. From 1973 to 2015 the U.S. GDP grew 202% with an average growth rate of 2.77%.

In 1973, the median male worker earned just over $49,000 when adjusted for inflation, while in 2010 that worker made about $1,500 less. Yet, in the same period, the output of the economy has more than doubled, and the productivity of workers has risen steadily. Statistics for income typically include female workers under the rubric “family income” which obscures the fact that over a 40+ year period the median male income decreased beginning in 1973.

The confluence of early 1970’s crises marked the transition from a social welfare focus of the U.S. government to corporate welfare. In response to these crises, the major corporations revolted and started building the plutocracy we have now, with profits flowing up and austerity flowing down. The 1973 Oil Crisis was just blow among many against the American economy.  At the same time the Stock Market was crashing. The Dow Jones had peaked at 1, 051.70 on Jan. 11, 1973 and plummeted to 577.60 by Dec. 1974. Measured in constant dollars the Dow Jones was below its early 1950’s level. Corporations at that time were in a profit trough were profits averaged 0.1% from 1966 to 1979 while wages and salaries rose 3.0% annually.

In 1974 and 1975 the American economy was mired in a deep recession, the severity of which was exceeded only by The Great Depression of the 1930’s. The 600 percent increase in the price of oil was translated into an inflation rate of 10%, a post-World-War-II high; and unemployment was 8.5%, the highest since 1941, a major drop in the GNP (gross national product), and an oil import bill that shot up more than 300% from $7 billion in 1973 to $23.4 billion in 1974. Industrial production fell for 21 consecutive months, accounting for a drop of 13%. Contributing to these economic woes was the 1972-3 agricultural price explosion.  Wholesale agricultural prices rose 18.8% from November 1971 to December 1972, having been exempted from Nixon’s price controls.   The Soviet Union suffered a massive disaster in grain production, leading to a huge increase in imports from the U.S. Farm crises continued as the U.S. soybean crop was damaged by wet weather in Spring 1974. With the explosion of embargo-induced oil prices, the effects rippled through the whole economy and inflation topped 10% during the final phase of Nixon’s wage and price and controls. All the adverse events and attempts to remediate them created chaos and despair for Americans.

The 1973 crises mark the turning point where the traditional Keynesian “big government” policies could be blamed and the free market trickle-down philosophy could gain political momentum. The fact remains that all boom periods have an ending and that no government tinkering with the economy is flawless. Many mistakes were made, especially by the Nixon administration, and these came on the tail of the collapsing Bretton Woods system created in 1944, that also had flaws (to be described in later blog posts). The crises caused the political shift from “big government” to free market policies whereby the U.S. morphed into a crony capitalist welfare state, where big corporations get representation in government, tax breaks, subsidies, and the pretense of this corporate welfare trickling down to the non-wealthy seems to justify this dysfunction. The former United States of the postwar era with all strata of society experiencing unprecedented economic growth cannot seem to escape the epithets of “big government” or “nanny state” proclaimed by devotees of free market capitalism (as if the “free market” actually existed outside the imaginations of Austrian/neoclassical economists). The key distinction I see is between welfare for all the citizens or just the welfare for the wealthy citizens. The dismantling of the 1933-to-1973 social democracy and its replacement by a plutocracy has been a lengthy complex process.

There are many other factors, cultural, economic, and geopolitical that contributed to the American shift from social democracy (welfare for all) to plutocracy (welfare for the wealthy). The Yom Kippur War beginning on Oct. 6, 1973 and the ensuing OPEC embargo and oil crisis are key events to begin an examination of how the welfare of all collapsed and was replaced by welfare for the wealthy. The other factors will be discussed in more blog posts on “The Welfare State Goes Corporate”.

References: How Revolutionary Were the Bourgeois Revolutions by Neil Davidson

The Shock Doctrine by Naomi Klein

Economics: The User’s Guide by Ha-Joon Chang

Invisible Hands: The Making of the Conservative Movement from the New Deal to Reagan

Masters of the Universe: Hayek, Friedman and The Birth of Neoliberal Politics by Daniel Stedman Jones

The Tyranny of Oil by Antonia Juhasz

The Rise and Fall of Neoliberal Capitalism by David M Kotz

The Strange Non-death of Neoliberalism by Colin Crouch

The American House of Saud by Steven Emerson

The Oil Kings by Andrew Scott Cooper 

The Supply-Shock Explanation of the Great Stagflation Revisited by Alan S. Blinder & Jeremy B. Rudd, National Bureau of Economic Research

 

Jefferson and Hamilton: The Rivalry that Forged a Nation, Part I

Thomas Jefferson is a beloved American founding father and is quoted far more often than his formidable adversary, Alexander Hamilton. But Hamilton, to some people’s delight and to others’ chagrin, was instrumental in kickstarting America’s state-based capitalism that transformed this agrarian country into a global imperialist superpower. Studying the bitter rivalry between Jefferson and Hamilton serves as a good shortcut into politics, economics, and how political parties are formed. The phrase “Rivalry that Forged a Nation” comes from John Ferling, author of Jefferson and Hamilton: The Rivalry That Forged a Nation.

Biographer Alf J. Mapp, Jr wrote Thomas Jefferson: A Strange Case of Mistaken Identity, which provides colorful details in the lengthy chapter, Struggle of Titans:

Thomas Jefferson received a letter from George Washington in late November 1789. Before he broke the seal, Jefferson knew of course that it was a formal request that he accept the post of Secretary of State. The domestic duties of the office, he learned, would include administration of all business in that category except war and finance. He was confident in foreign policy, but he thought the domestic burden would be formidable as replied in a December 15 written reply, but he did not flatly refuse to serve: “It is not for an individual to choose his post… you are to marshal us as may be best for the public good.”

Jefferson had just returned back to Virginia and to his Monticello home, having served as Minister Plenipotentiary (Ambassador) of France for 4 years. He was contemplating retirement. James Madison visited him at Monticello soon after his friend had returned from overseas and added his persuasive voice to Washington’s urgency.Jefferson feared that his new post would involve more domestic than foreign affairs. Again, Washington wrote his chosen appointee: ” the consider the successful administration of the general government as an object of almost infinite consequence to the present and future happiness of the the United States. I consider the office of Secretary for the Department of State as very important on many accounts, and I know of no person, in my judgment, could better execute the duties of it than yourself”. From New York, Madison wrote of the “universal anxiety” with which his decision was awaited. The master of Monticello sent Washington his acceptance.

Besides Jefferson, the department heads were Henry Knox, Secretary of War; Alexander Hamilton, Secretary of the Treasury; Edmund Randolph, Attorney General; and Samuel Osgood, Postmaster General. All these men were vital to the new government, but Jefferson and Hamilton were the giants alongside Washington in his new administration. Devoted to the ideal of democratic government without factionalism, Washington did not suspect that these two magnetic Secretaries would become the focuses of political polarization. Of  course, he could never foresee that popular opinion for generations would make them the simplistic symbols of opposing philosophies so that through history they would ride a seesaw of public esteem.

Jefferson found himself a worthy antagonist in Alexander Hamilton who was contemptuous of the common man, and certainly he himself was far from ordinary. Almost everything about him was, for better or worse, superior, exotic, or at least different. Of course, there were those who thought his aristocratic sympathies incongruous. John Adams once described him as the “bastard son of a Scotch peddler” in contrast to Hamilton’s self-description as the son of a West India merchant “of respectable connection in Scotland”. There was truth in both versions. His mother had been jailed for being “twice guilt, but his largey of adultery” before going to live with James Hamilton XV, whom she did not marry. James, an unsuccessful merchant who had sprung from a branch of the ducal family of Hamilton, was the grandson of Sir Robert Pollock, “created Baronet of Nova Scotia by Queen Anne in 1702”. Biographer Mapp has many more details, too many to fit into a blog post (but would help fill out future blog posts), so I rely on http://teachinghistory.org/history-content/ask-a-historian/24094 to succinctly answer the question: “How did the debate between Jefferson and Hamilton shape the political system of the United States?”

In George Washington’s Farewell Address (1796), he warned that the creation of political factions, “sharpened by the spirit of revenge,” would most certainly lead to “formal and permanent despotism.” Despite Washington’s cautionary words, two of his closest advisors, Thomas Jefferson and Alexander Hamilton, helped to form the factions that led to the dual party system under which the U.S. operates today. Other men, most notably James Madison and John Adams, also contributed to the formation of political parties, but Hamilton and Jefferson came to represent the divisions that shaped the early national political landscape.

Although both men had been active in the Revolutionary effort and in the founding of the United States, Jefferson and Hamilton did not work together until Washington appointed Jefferson the first secretary of State and Hamilton the first secretary of the Treasury. From the beginning, the two men harbored opposing visions of the nation’s path. Jefferson believed that America’s success lay in its agrarian tradition. Hamilton’s economic plan hinged on the promotion of manufactures and commerce. While Hamilton distrusted popular will and believed that the federal government should wield considerable power in order steer a successful course, Jefferson placed his trust in the people as governors. Perhaps because of their differences of opinion, Washington made these men his closest advisors. When George Washington’s administration began, the two camps that formed during the Constitutional ratification debates – those groups known as the Federalists and Anti-Federalists – had not yet solidified into parties. But, disagreements over the nation’s direction were already eroding any hope of political unity. In May of 1792, Jefferson expressed his fear to Washington about Hamilton’s policies, calling Hamilton’s allies in Congress a “corrupt squadron.” He expressed fear that Hamilton wished to move away from the Constitution’s republican structure, toward a monarchy modeled after the English constitution. That same month, Hamilton confided to a friend that “Mr. Madison cooperating with Mr. Jefferson is at the head of a faction decidedly hostile to me and my administration, and . . . dangerous to the union, peace and happiness of the Country.”

Hamilton’s economic plan for the nation included establishing a national bank like that in England to maintain public credit; consolidating the states’ debts under the federal government; and enacting protective tariffs and government subsidies to encourage American manufactures. All of these measures strengthened the federal government’s power at the expense of the states. Jefferson and his political allies opposed these reforms. Francophile Jefferson feared that the Bank of the United States represented too much English influence, and he argued that the Constitution did not give Congress the power to establish a bank. He did not believe that promoting manufactures was as important as supporting the already-established agrarian base. Jefferson deemed “those who labour in the earth” the “chosen people of God . . . whose breasts he has made his peculiar deposit for substantial and genuine virtue.” He advised his countrymen to “let our work-shops remain in Europe.”

When George Washington’s administration began, the two camps that formed during the Constitutional ratification debates – those groups known as the Federalists and Anti-Federalists – had not yet solidified into parties. But, disagreements over the nation’s direction were already eroding any hope of political unity. In May of 1792, Jefferson expressed his fear to Washington about Hamilton’s policies, calling Hamilton’s allies in Congress a “corrupt squadron.” He expressed fear that Hamilton wished to move away from the Constitution’s republican structure, toward a monarchy modeled after the English constitution. That same month, Hamilton confided to a friend that “Mr. Madison cooperating with Mr. Jefferson is at the head of a faction decidedly hostile to me and my administration, and . . . dangerous to the union, peace and happiness of the Country.”

By the time Jefferson and John Adams vied for the presidency in 1796, political factions had formed under the labels “Republicans” and “Federalists.” In fact, by 1804 the advent of political parties necessitated a constitutional amendment that changed the electoral process to allow president/vice president tickets on the ballot. The Federalists dominated the national government through the end of the 18th century. Despite President Washington’s efforts at unity, political differences proved to be too deep to promote consensus. The Republican Party emerged as organized opposition to Federalist policies, and despite Jefferson’s assurances in his first inaugural address that Americans were “all republicans” and “all federalists,” faction had solidified into party.

Ron Chernow comments in his biography of Hamilton: Over the past two centuries, Hamilton’s reputation has waxed and waned as the country has glorified or debunked businessmen. Historian Gordon Wood wrote: “Although late-nineteenth-century Americans honored Hamilton as the creator of American capitalism, that honor became a liability through much of the twentieth century”. All the conflicting emotions stirred up by capitalism–its bountiful efficiency, its crass inequities–have adhered to Hamilton’s image. In a nation of self-made people, Hamilton became an emblematic figure because he believed that government ought to promote self-fulfillment, self-improvement, and self-reliance. As Treasury Secretary, he wanted to make room foe entrepreneurs, whom he regarded as the motive force of the economy. Like Franklin, he intuited America’s special genius for business: “As to whatever may depend on enterprise, we need not fear to be outdone by any people on earth. It may almost be said that enterprise is our element”. Chernow credits Hamilton with a life offering an “extraordinary object lesson in social mobility and his unstinting energy illustrated his devout belief in the salutary power of work to develop people’s minds and bodies. He adds that Hamilton did not create America’s market economy so much as foster the cultural and legal setting in which it flourished. One of his principal motives for promoting the Constitution (as he envisioned it) was to address “the abysmal failure of the Articles of Confederation”. Hamilton wrote: “It is known that the relaxed conduct of the state governments in regard to property and credit was one of the most serious diseases under which the body politic laboured prior to the adoption of our present constitution and was a material cause of that state of public opinion which led to its adoption”. He converted the new Constitution into a flexible instrument for creating the legal framework necessary for economic growth. He did this by activating three still amorphous clauses—the necessary and proper clause, the general-welfare clause, and the commerce clause—making them the basis for government activism in economics. Washington’s first term was devoted largely to the economic matters in which Hamilton excelled. Chernow, whom American libertarians might call a “statist”, goes on to malign federalist John Adams along with Jefferson and Madison as “among the well-intentioned men who were woefully backward in finance” while conceding they were “forward-looking in politics”. These three men “adhered to a static, archaic worldview that scorned banks, credit, and stock markets”. So Hamilton was the “progressive” of his era, says Chernow, and the 3 critics were the “conservatives”.

An opposing viewpoint comes from Thomas DiLorenzo, senior faculty member of the Mises Institute and adherent of the Austrian school of economics, and author of Hamilton’s Curse: How Jefferson’s Archenemy Betrayed the American Revolution. He debunks “the Hamiltonian myths perpetuated in recent admiring biographies”:Hamilton, first as a delegate to the Constitutional Convention and later as the nation’s first and most influential treasury secretary, masterfully promoted an agenda of nationalist glory and interventionist economics—–core beliefs that did not die with Hamilton in his fatal duel with Aaron Burr. Carried on through his political heirs, the Hamiltonian legacy:

• Wrested control into the hands of the federal government by inventing the myth of the Constitution’s “implied powers”

• Established the imperial presidency (Hamilton himself proposed a permanent president—–in other words, a king)

• Devised a national banking system that imposes boom-and-bust cycles on the American economy

• Saddled Americans with a massive national debt and oppressive taxation

• Inflated the role of the federal courts in order to eviscerate individual liberties and state sovereignty

• Pushed economic policies that lined the pockets of the wealthy and created a government system built on graft, spoils, and patronage

• Transformed state governments from Jeffersonian bulwarks of liberty to beggars for federal crumbs

My response to the diametrically opposed views of Chernow and DiLorenzo is that I see merits to both their views. Capitalism evolved historically with state involvement in England, Holland, and Sweden. Queen Elizabeth chartered the British East India Company in 1600.  In 1602 the Dutch East India Company was born along with the world’s first stock exchange, The Amsterdam Stock Exchange. Sweden is noteworthy for creating the world’s first and oldest central bank, Sveriges Riksbank, in 1668. The Bank of England followed in 1694. Capitalism was bound up with imperialism and mercantilism and a pristine stateless form is more an object for idealization and rumination for academic economists and political theorists than a tangible functioning reality.  On the other hand, Jefferson’s pearls of wisdom against tyrannical bankers and advocacy for “limited government” certainly are appealing when we look at the bloated bureaucratic crony-capitalist plutocracy into which modern America has metastasized where consent seems restricted to huge banks and corporations. The Jefferson-Hamilton rivalry is too huge a topic for a single blog post, so I will do a follow-up to this one.

Defining Liberalism

Words have histories and often change meaning, sometimes drastically, over time. The term “liberal” would probably make a good “Exhibit A” if you wanted to make a case for words that seem to have evolved into their own antonyms (opposites) over time. I decided to explore the formal political-philosophical category of “liberalism” to shed light on “liberal” semantically. I consulted the Webster’s Third New International Dictionary’s definition of liberalism:

1) the quality or state of being liberal as: (a) lack of strictness or rigor, (b) broad-mindedness, open-mindedness; (2) a movement in modern Protestantism emphasizing intellectual liberty and the spiritual and ethical content of Christianity; (3) a theory in economics emphasizing individual freedom from restraint esp. by government regulation in all economic activity and usu. based upon free competition, the self-regulating market, and the gold standard; (4) a political philosophy based on belief in progress, the essential goodness of man, and the autonomy of the individual and standing for tolerance and freedom of the individual from arbitrary authority in all spheres of life esp. by the protection of political and civil liberties and for government under law with the consent of the governed; (5) an attitude or philosophy favoring individual freedom for self-development and self-expression

One way to give some kind of clarity to these many meanings is to dichotomize liberalism as follows

1) Classical liberalism: a political ideology, a branch of liberalism which advocates civil liberties and political freedom with representative democracy under the rule of law and emphasizes economic freedom. Classical liberalism developed in the 19th century in Europe and the United States. Although classical liberalism built on ideas that had already developed by the end of the 18th century, it advocated a specific kind of society, government and public policy as a response to the Industrial Revolution and urbanization. Notable individuals whose ideas have contributed to classical liberalism include John Locke, Jean-Baptiste Say, Thomas Malthus and David Ricardo. It drew on the economics of Adam Smith and on a belief in natural law, utilitarianism, and progress.

http://en.wikipedia.org/wiki/Classical_liberalism

2) Social liberalism: a political ideology that seeks to find a balance between individual liberty and social justice like classical liberalism, social liberalism endorses a market economy and the expansion of civil and political rights and liberties, but differs in that it believes the legitimate role of the government includes addressing economic and social issues such as poverty, health care and education. Under social liberalism, the good of the community is viewed as harmonious with the freedom of the individual. Social liberal policies have been widely adopted in much of the capitalist world, particularly following World War II. Social liberal ideas and parties tend to be considered centrist or center-left. The term social liberalism is used to differentiate it from classical liberalism, which dominated political and economic thought for several centuries until social liberalism branched off from it around the Great Depression.

http://en.wikipedia.org/wiki/Social_liberalism

Actually social liberalism branched off way before the Great Depression and this branching off happened in Great Britain and was done by “new liberals” long before Franklin Delano Roosevelt and the Great Depression came along. Wikipedia’s entry on social liberalism goes on to note the historical change in Great Britain:

In the late nineteenth century and early twentieth century, a group of British thinkers, known as the New Liberals, made a case against laissez-faire classical liberalism and argued in favor of state intervention in social, economic, and cultural life. The New Liberals, which included intellectuals like T. H. Green, L. T. Hobhouse, and John A. Hobson, saw individual liberty as something achievable only under favorable social and economic circumstances. In their view, the poverty, squalor and ignorance in which many people lived made it impossible for freedom and individuality to flourish. New Liberals believed that these conditions could be ameliorated only through collective action coordinated by a strong, welfare-oriented and interventionist state.

I say history provides lessons showing us why words change meaning. The effects of the industrial revolution where workers worked in abusive horrific conditions illustrated that the “liberty” of the capitalist factory or mine owner was at the expense of the liberty of the laborers being abused. The world of industrial capitalism was vastly different from the predominantly agrarian world conceived of by classical liberals and populated by yeoman farmers, shopkeepers, artisans, and small businesses. John D. Rockefeller and his Robber Baron cohorts had new notions of “personal liberty” far beyond the ideas of classical liberals like John Locke or Thomas Jefferson.

Jefferson and Hamilton, Part III: The Prevalance of Partisanship, The Elusiveness of Objectivity

Recap: The rivalry between Thomas Jefferson and Alexander Hamilton was important enough to cause political parties to be formed in spite of the fact that these were considered “factions” at that time, a sign of grown men not being able to come together, govern, and get things done. The larger issue that engulfs the rivalry issue is the fact that partisan bias and historical revisionism afflict just about every biography written for either founding father. Yet another issue is how current American culture or “pop culture” views these men and how that influences a study of them and their rivalry. Any essay, article, or book on either of these American icons has to be decoded for partisan bias, historical revisionism, and pop culture clichés in the elusive search for “objective truth”.

Thomas Jefferson is the beneficiary of being the hero of American libertarians, fans of “limited government”, and this adoration augments an already much loved icon. Nevertheless, Hamilton is greatly admired by many biographers, such as Ron Chernow, and Darren Staloff. Chernow puts Hamilton on a pedestal while trashing Jefferson and his republican cohorts: “Washington’s first term was devoted largely to the economic matters in which Hamilton excelled and Woodrow Wilson justly observed  that ‘we think of Mr. Hamilton rather than of President Washington when we look back to the policy of the first administration’. Hamilton had a storehouse of information that nobody else could match. Since the ‘science’ of finance was new to America, Fisher Ames observed, ‘A gentleman may therefore propose the worst of measures with the best of intentions’. Among the well-intentioned men who were woefully backward in finance, if forward-looking in politics, were Hamilton’s three most savage critics of the 1790’s: Jefferson, Madison, and Adams. These founders adhered to a static. archaic worldview that scorned banks, credit, and stock markets. From this perspective, Hamilton was the progressive of the era, his critics the conservatives”.  Contrast this assessment with Jefferson’s affiliation with the classical liberalism of John Locke and Adam Smith and you have a founding father considered a “liberal” by some and a “conservative” by at least one author.

Partisan spin aside, the basic facts and accomplishments of Hamilton are the quintessential “rags to riches” story:

When Alexander Hamilton was 10, his father abandoned him. When he was around 12, his mother died of a fever in the bed next to his. He was adopted by a cousin, who promptly committed suicide. During those same years, his aunt, uncle and grandmother also died. A court in St. Croix seized all of his possessions, sold off his personal effects and gave the rest to his mother’s first husband. By the time he was a young teenager, he and his brother were orphaned, alone and destitute.

Within three years he was a successful businessman. Within a decade he was effectively George Washington’s chief of staff, organizing the American revolutionary army and serving bravely in combat. Within two decades he was one of New York’s most successful lawyers and had written major portions of The Federalist Papers. Within three decades he had served as Treasury secretary and forged the modern financial and economic systems that are the basis for American might today. Within five decades he was dead at the hands of Aaron Burr.

Source: http://www.nytimes.com/2004/04/25/books/creating-capitalism.html

Darren Staloff, author of Hamilton, Adams, and Jefferson: The Politics of Enlightenment and the American Founding, has stellar praise for Hamilton:

“By almost any measure, Alexander Hamilton was the most important figure in the founding of the American republic. Soldier, statesman, legislator, constitutional theorist, political polemicist, and national administrator, Hamilton combined all the roles that were vital to American nation building. His vision of a strong  federal government with an independent judiciary and a vigorous executive has become second nature to most Americans. His goal of state-supported industrial and commercial development and modernization is the unstated desideratum of every successful American political movement in the last century. Indeed, in terms of political and economic practice, it is fair to say we are all Hamiltonians, whether Democrats or Republicans, progressives or conservatives, radicals or reactionaries.”

Staloff also notes that “Hamilton is perhaps the least loved founding father. No national or state holiday celebrates his life. No memorial commemorates his contributions to American life and ideals. His words are rarely quoted by politicians, and his writings are even less frequently cited by pundits. But for the ten-dollar bill, his face would be utterly unknown to the American people. Washington became the father of his nation, and Jefferson its most beloved spokesman. Hamilton has become its bastard, unrecognized and somehow illegitimate in the public mind. Various causes have been offered, such as Jefferson and his republican cohorts piling on condemnation, depicting him as an “embryo-Caesar” and a tool of the plutocratic elites. In this century, politicians of both parties—and writers sympathetic to them—have adopted Jefferson as their guiding light among among the founding generation. On both left and right, there have been few willing to defend the ambitious New Yorker. Progressive novelist John Dos Passos described him as a crypto-Napoleon who “consolidated property interests” and “inaugurated the authoritarian trend”

American libertarians, such as Thomas DiLorenzo find that Hamilton cursed the United States with an augmented federal government.

Hamilton’s Curse: How Jefferson’s Arch Enemy Betrayed the American Revolution–and What It Means For Americans Today

“Jefferson’s ideas have been entirely marginalized, while those of his arch rival Hamilton now form the backbone of the American political establishment. The Revolution of 1776 was a Jeffersonian Revolution to throw off the yoke of British mercantilist imperialism and install it its place a voluntary union of free and independent states. Hamilton and his acolytes, however — no matter how bravely and earnestly they fought against the Red Coats — wanted to import British mercantilism to America with the U.S. aristocracy (Hamilton and his Federalist buddies) on the receiving end of the mercantilist spoils system.” In fact, DiLorenzo argues that the Constitution itself was a virtual coup against the free republic of the Articles of Confederation for the purpose of increasing the authority of the central government — key to Hamilton’s plans.

It is worth noting that the same Darren Staloff who says Hamilton was the most important figure in America’s founding as a republic has also painted a rosy portrait of Jefferson, who was “much more than simply a revolutionary statesman and political theorist. The American Da Vinci, he truly was the universal man idealized by the Renaissance. The breadth of his mind was stunning, his intellectual appetite canine and omnivorous. In addition to political philosophy, Jefferson read widely in metaphysics, epistemology, and moral and aesthetic philosophy. One of the few early Americans who could actually do the calculus associated with Newton’s mechanics, he was an avid student of the sciences, conversant with the most recent developments in chemistry, biology, zoology, and botany, and he had more than a passing interest in meteorology. Widely read in classical and modern history, he was equally fascinated by the emerging sciences of political economy and sociology and proved himself a fairly accomplished amateur anthropologist. A devoted philologist, Jefferson’s expertise spanned both classical and modern Romance languages, and he devoted considerable study to the languages of the Amerindians and medieval Anglo-Saxons. An accomplished draftsman and violinist, he was a devotee of the theater and opera, a knowledgeable collector of artifacts, paintings, and statuary, and the greatest architectural genius of the early republic. Quite simply, Thomas Jefferson thought about more in one week than occurs to us mere mortals in a year. He was indeed an “extraordinary collection of talents.”

Biographer Joseph J. Ellis, whose American Sphinx: The Character of Thomas Jefferson won the 1997 National Book Award for Nonfiction, has a unique way of trying to twist Jefferson’s psychological abnormalities into political virtue:  “Given the political framework created by the constitutional settlement of 1788, which made the establishment of an ongoing political dialogue of some sort inevitable, and given the stigma that surrounded organized political parties, a premium was put on a distinctive form of intelligence that could adroitly navigate between the two imperatives. Crudely put, this meant creating a political party while claiming, in all sincerity, that you were doing nothing of the sort. As it turned out, this was a talent that Jefferson possessed in abundance. At certain points in the story the distinction between Jefferson’s genuine self-deception and outright duplicity is impossible to identify with any certainty. Putting the best face on his multiple misrepresentations arose it seems from the visceral urge to avoid all explicit forms of conflict. Biographer Dumas Malone found that Jefferson’s “boldness of mind was sheathed in a scabbard of politeness…. It would have been surprising if such a man did not occasionally cross the thin line between courtesy and deception”. Ellis manages to conclude that Jefferson’s mental abnormalities were also “mental agility” that enabled him to leap over the huge obstacles of the political culture of his time. Only a man with a psychological multiplicity “… who is accustomed to negotiating his many-chambered personality, playing hide-and-seek within himself, was psychologically prepared to function this modern world of party politics.”

Jon Meacham wrote his best-selling biography, Thomas Jefferson: The Art of Power in 2012, and advocates for Jefferson’s mixture of ideals and pragmatism without getting into American libertarian-style partisanship. Meacham attempts to mediate between partisan distortions of the great man and portray his greatness.

The historical tendency persists in encapsulating the competing traditions of the early American republic as a contest between Jefferson and Hamilton. For partisans of each man, it was then and has been ever since–convenient to caricature the other, with Hamilton as the scheming proto-Brit bent on monarchy and Jefferson as the naive proto-Frenchman intoxicated by visions of excessive democracy. Inevitably, such shorthand is incomplete. In the first hours of the decade and sporadically throughout, Jefferson sometimes found himself in agreement with Hamilton and sometimes with Washington or Adams. He was a working politician and diplomat who believed in an effective central government and was able himself to assert political power having been the governor of Virginia and experienced the years of the Articles of Confederation.

“There was, however, a foundational point on which Jefferson never compromised: a conviction that drove much of his political life from 1790 until his death. He feared monarchy or dictatorship, which is different from fearing a strong national government, though Jefferson is often thought to have believed them the same thing. One of the terms he used to describe his opponents—“Monocrats”—is telling, for the word means government by the one.”

“Jefferson fretted over the prospect of the return of a king in some form, either as an immensely powerful president unchecked by the Constitution of 1787 or in a more explicitly monarchical or dictatorial role. He did not oppose the wielding of power. He was a good-hearted, fair-minded student of how best to accumulate and use it. In romantic moments, he dreamed of a future of virtuous yeomen living in harmony. In realistic ones, he suspected the America of which he was an architect could be yet another short-lived chapter in the story of the tyranny of the few over the many. ‘We were educated in royalism: no wonder if some of us retain that idolatry still, ‘ Jefferson had once written to Madison.”

“The Jefferson of the cabinet, vice presidency, and presidency can be best understood by recalling that his passion for the people and his regard for republicanism belonged to a man who believed that there were forces afoot–forces visible and invisble, domestic and foreign–that sought to undermine the rights of man by re-establishing the role of priests, nobles, and kings. His opposition to John Adams and Alexander Hamilton, to the British and to the financial speculators, grew out of this fundamental concern.”

“Like significant politicians before and after him, Jefferson was devoted to an overarching vision, but governed according to circumstance. Committed to the broad republican creed, supported by allies in politics and in the public who believed him to be an unshakable advocate of liberty under the law, Jefferson felt himself free to maneuver in matters of detail. Where some saw hypocrisy, others saw political agility. As long as a political leader has some core strategic belief, which Jefferson did in the form of republicanism, then tactical flexibility can be a virtue. Even Alexander Hamilton recognized his commitment to the nation, no matter how deeply the two disagreed about the means: “To my mind, a true estimate of Mr J’s character warrants the expectation of a temporizing rather than a violent system”, said Hamilton in 1801. Even implacable foes such as the federalists and republicans agreed and cooperated from time to time, and who even in their hours of starkest hostility, served in the same cabinet, dined at the same tables, and moved through the same intimate American world of the late 18th century. Wars are indeed often fought between brothers. Jefferson’s decade of struggle with the Federalists shows there can can be no more brutal or bewildering battles than those that divide a family against itself.

The two factions or political parties are attached to two founding fathers who had different views as to what the United States was and how it was to be governed. Which side won? Both did. The two regions, north and south, represented respectively by Federalism and Republicanism, were enabled to function as they wished. Jefferson and Madison were both slave-owning planters representing Virginia and its mode of production, slave labor. Without saying directly they wanted to continue benefiting from slavery they railed against the money-men and stock-jobbers who wanted to impose federal tyranny over their way of life and livelihood.  Essentially, the Constitution provided for planters whose “property” of slaves each counted as 3/5 of a person. Therefore, their “property” gave them the representation in government they desired. Hamilton, the “tyrannical capitalist” was essentially setting up a mercantilist United States to promote trade and manufacturing. For him, the victory was that the United States could grow into a powerful nation as had Britain, whose model of global imperialism and mercantilism he studied. Historians focus on how Hamilton and the Federalists won in the 1790’s over Jefferson and Madison, the Republicans, and the tide turned in 1800, when Jefferson became president. Jefferson, Madison, and Monroe served 24 years as Democratic-Republicans. By 1818 the Democratic-Republicans had become the only active national party, yet its leaders incorporated major economic policies that had been favored by Federalists since the time of Alexander Hamilton. President Monroe continued the policies begun by Madison at the end of his presidency to build an American System of national economic development. These policies had three basic aspects: a national bank, protective tariffs to support American manufactures, and federally-funded internal improvements. Madison actually charted the Second Bank of the United States in 1816 and his successor, Monroe, is noted for presiding over “The Era of Good Feelings”. Essentially what happened is the one dominant party, The Democratic-Republican absorbed the Federalist party’s policies.

http://www.ushistory.org/us/23a.asp

The Jefferson-Hamilton rivalry was based on the two different ways of life and two different economies for the north and south in the aftermath of achieving independence from Britain. In a sense, both sides won, except for the slaves of course. Both sides fought to interpret the Constitution in terms of their regional needs. The United States was and never has been a perfectly homogeneous nation.

Jefferson and Hamilton, Part 2: The 2 Party System

My sole source for this blog post is Joseph J. Ellis, a noted historian specializing in the Founding Fathers. His biography, American Sphinx: The Character of Thomas Jefferson, won the National Book award. His book, Founding Brothers: The Revolutionary Generation, won the Pulitzer Prize. I have used his book, American Creation: Triumphs and Tragedies at the Founding of the Republic for this blog post. I particularly like Ellis’s psychological explorations into the complex men who founded this nation.

 The Federalist party was led by Alexander Hamilton and the Democratic-Republican party was led by Thomas Jefferson. Now this system did not arise because of some harmonious arrangement of the founding fathers saying these political parties should be established. In fact, the creation of a 2-party system succeeded despite entrenched resistance by virtually all the founders to its very existence. Jefferson said: “The Fathers hoped to create not a system of party government under the Constitution but rather a Constitutional government that would check and control parties.” As the man primarily responsible for creating the first organized opposition party in the United States, Jefferson condemned his very creation: “If I could not go to heaven but with a party, I would not go there at all”.

 In a 1770 treatise Edmund Burke wrote that political parties were not only unavoidable products of representative government, but also performed valuable functions in orchestrating debate, much in the way that the adversarial system worked in legal trials. Adam Smith described the unhindered collision of selfish and ambitious interest groups as the dynamic, if dirty, secret of the capitalistic marketplace. Madison argued in Federalist 10 that the collision of poltical factions in an extended republic would produce greater stability, making size an asset rather than a liability. One could also argue that the contrived compromises reached at the Constitutional Convention, especially on the extent of executive power and the blurry line separating state and federal jurisdiction, created an inherently argumentative context that made the emergence of political parties virtually inevitable. Inevitable indeed.

Author Joseph J. Ellis noted that James Madison and Thomas Jefferson  were called respectively, “The General” and “The Generalissimo” of the emerging Republican party (Ellis does not use the term “democratic-republican” that most other historians use). Hamilton, the Federalist, serves primarily as the impetus for the party that opposed him and his party arises by reacting to his opponents. Ellis refers to Hamilton as “the fixed object against which Madison and Jefferson do their political version of isometric exercises”. Minor roles belong to Washington and Adams who did not apparently fathom the bickering of the major players and considered this bickering dissonant noise drowning out classical harmonies.

 Washington and Adams considered “parties” or “factions” as epithets conveying a disreputable commitment to a narrow and usually private agenda at he expense of the public interest. Their role model was Viscount Bolingbroke, a British opposition thinker much admired by America’s revolutionary generation for his endorsement of disinterested virtue as the hallmark of statesman ship, floating above factional squabbles and misguided popular surges, to act in the long-term interest of the nation regardless of the political cost at the moment.

This disdain for polls, popularity, and partisanship is the legacy left behind by such patriots as Washington and Adams, “the gold standard for our diluted political currency”. Washington and Adams were the last of a classical breed, and Jefferson was the first president to point the way to modernity as he avowed–though he was reluctant to admit it–leader of a political party. Ellis notes that in this historical period there was not political vocabulary to discuss political parties, just as there was only terminology about kings, courts, monarchies with which to assail those with whom one disagrees. Being regarded as a party leader in those days was a major stigma. Apparently, Jefferson possessed “a distinctive form of intelligence that could navigate between the two imperatives”, that is, expressing one’s party-affiliated ideas while disowning the fact one has instigated “factionizing”. To Jefferson Ellis attributes “a deep affinity for multiplicity” and the “possession of a many-chambered personality, playing hide-and-seek with himself” and therefore prepared psychologically to function within this “modern” world of party politics. Famed Jefferson biographer, Dumas Malone, said: “the boldness of his mind was sheathed in a scabbard of politeness… It would have been surprising if such a man did not occasionally cross the thin line between courtesy and deception”. Ellis credits Jefferson with “inventing the two-party system” which he meant he had the mental agility to leap over huge obstacles on the path of that very invention and thereby make possible “the politics of the future”

Founders like Washington and Adams did not understand different versions of truth could co-exist alongside one another and both claim, with considerable plausibility, to be true. Unlike math, politics did not encompass problem-solving by sheer logic and truth, but rather an ongoing and never-ending struggle between contested versions of the truth. The model for politics would be the Darwinian jungle rather than the Newtonian universe.

 We are already familiar with the milestone of Hamilton’s creation of the first Bank of the United States and this was among the topics of conversation for Jefferson and Madison as they cruised up the Hudson River in May 1791. These two men shared their mutual chagrin for “stock-jobbers”, “Tories”, “monocrats” who had triumphed with the passage of the bill creating the Bank of the United States. “All such despicable creatures”, observed Madison, “dabbled in federal filth”, presumably suggesting that all private investors in the bank were determined to make a private fortune at public expense. This anti-federalist tandem of Virginians held that the true impulses of the American Revolution were being highjacked by a conspiracy of northern bankers and “paper men” moving forward under the satanic leadership of Alexander Hamilton. The ultimate goal of this Federalist faction was to undermine the republican government and replace it with a monarchical state in which the presidency became a hereditary rather than elective office and “money men” became the new American aristocracy.

 To expose the “Federalist plot” Jefferson and Madison chose Philip Freneau to launch the National Gazette as the official voice of what became the Republican Party. Jefferson said Freneau’s real job would be to promote “the ancient Whig doctrine”, referring to the British Whigs opposed to the tyrannical Catholic king, James II and ultimately resulted in the Glorious Revolution of 1688 and the beginning of the Constitutional Monarchy officially ending absolutist monarchy in Britain. Freneau would be given exclusive access to all foreign intelligence passing through Jefferson’s office (as Secretary of State) and “the publication of all proclamations and public notices within my department”.

Ellis finds Jefferson and Madison to be sincere in their belief a Federalist plot was afoot. These anti-federalists were simply operating in the same ideological lens that hey had used when opposing King George III who had wanted to “enslave” American colonists. The villains of the Federalist plot were intimate acquaintances of Jefferson and Madison as Hamilton co-authored the Federalist papers with Madison. To Jefferson, Hamilton “was not only a monarchist, but for a monarchy bottomed on corruption” and his old friend Adams had lost the revolutionary faith and “been taken up by the monarchical federalists”. It would seem the monarchists, like the Communists of a later time, were everywhere. All the “Federalist plotters” were duly elected or appointed officials chosen by the citizenry in accord with the very Constitution Madison had done so much to shape. The actual legitimacy held by the so-called monarchists mattered little to the southern constituency of Virginians supporting Jefferson and Madison who used their regional vernacular denigrations like “stock-jobbers”, “money men”, and “monocrats” to great effect.

Madison’s turnabout was very much a symptom and consequence of the realignment of political power in Virginia after the narrow victory of the Federalists in the ratifying convention of 1788. The shift occurred in response to the debate over Hamilton’s financial plan in 1790-91, chiefly the federal assumption of state debts and the establishment of a national bank. These developments forced the planter class of Virginia to realize for the first time that their days as America’s premier political elite were numbered, soon to be replaced by the commercial and financial elite of New York and New England. Ellis notes the personal motivations behind most conspiracy theories where impersonal forces of unwelcomed change impact upon those persons ill-served by this change. British and Scottish creditors had been bleeding the Virginia planter class to death. Bankruptcy often arrived as a complete surprise on many Virginia plantations, a product of accounting legerdemain that many planters took considerable pride in not comprehending. Both Jefferson and Madison would die bankrupt. Hamilton’s financial plan for fiscal solvency galvanized all their pent-up frustrations, which were rendered even more passionate because the planters had not the dimmest understanding of what Hamilton was talking about.

The proverbial elephant in the living room could not be discussed as forbidden by the etiquette of Virginian political banter. Jefferson and Madison never mentioned slavery as a factor in their indictment of the Federalist agenda as it would have decimated their entire case. Their orchestrated silence on the slavery issue provides one of those rare occasions where the very absence of evidence is the most important piece of evidence of all. At one time, Madison had supported robust federal sovereignty as strongly as Hamilton, but he changed his mind in 1791 as did other staunch Virginia Federalists. One of the reasons for the shift floating silently above the demonized “money men” was the realization that, once the federal government assumed control over domestic policy, slavery was doomed.


In the spring of 1790, two Quaker petitions circulated, urged Congress to take up the question of the slave trade as well as the persistence of slavery itself in any self-respecting American republic. Ben Franklin signed one, making either impossible to ignore, thus producing the first open and fully recorded debate over slavery in the history of the U.S. Madison led the floor fight in the House of Representatives to black any extension of federal authority over slavery, arguing the Constitution specifically forbade any congressional limitation on the slave trade for 20 years and implicitly relegated any and all legislation regarding slavery itself to the state governments.

 In the debate over the U.S. national bank that raged throughout February 1791, the anti-federalist opponents led by Jefferson and Madison, based their opposition on its unconstitutionality, arguing that Congress possessed only enumerated powers, that the power to create a corporation (a bank) was not one of them, so the bank violated the 10th amendment, which reserved all powers to the states not specifically delegated to the federal government. But the winning argument proved to be Hamilton’s, which cited the “necessary and proper” clause of the Constitution (Article 1, Section 8) to sanction congressional authority as one of the implied powers of the Constitution. Hamilton quoted words from the Federalist 44: “No axiom is more established in law, or in reason, than that wherever a general power to do a thing is given, every particular power for doing it, is included. Madison was the author of Federalist 44. His earlier incarnation as an unbridled federalist was being thrown in his face.

There is a great deal more to this story and it will be continued in the next installment.