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Unproductive Republican Economic Policies

April, 1865 witnessed the victory of Northern industrial capitalism over the conservative, agrarian South – no longer could Southern statesmen restrain the North in the halls of Congress. Post-1865 America saw the rise of corporations, the completion of Manifest Destiny and near-extermination of the Indians, and the gilded age of “evil robber barons.”

Bernhard Thuersam,


Unproductive Republican Economic Policies

“Historians have tended to treat the Civil War as a boon to industry and the American economy. Thomas C. Cochrane cites several prominent historians . . . who variously praised the impact of the conflict on wartime production and its stimulating effect on postwar economic and industrial development.

Cochrane . . . examined statistical data on industrial production and found that, in general, there was not a strong case for a positive impact and that the war had a retarding effect on industry and the economy. Cochrane also found little support for the claims of beneficial effects of the Civil War on postwar development. He concludes with this speculation:

“From most standpoints the Civil War was a national disaster, but Americans like to see their history in terms of optimism and progress. Perhaps the war was put in a perspective suited to the culture by seeing it as good because in addition to achieving freedom for the Negro it brought about industrial progress.”

[Charles and Mary] Beard’s claim that the Civil War was a spur to industry and the rise of the American economy is based on the lasses-faire philosophy of the Republican Party and its success in implementing its major policy goals, such as subsidies to the intercontinental railroads, the establishment of a national currency and the protective tariff.

The Republican’s economic philosophy was not truly laissez-fair. In fact, their policy agenda was the opposite . . . in that it advocated special treatment for big business and a much larger role for the federal government. This can be seen in Republican policies to subsidize railroads, provide protective tariffs [for select private industries], and increase government debt and government control over money and banking as well as in their attitude toward labor.

Their policies [of tariffs and subsidies] . . . are now considered economically wasteful . . . and considered nothing more than special interests seeking a handout from the taxpayer through the government. [That Republican policies were productive] ignores the negative effects on the agriculture, service and cultural sectors. The Republicans’ policy would be better labelled as mercantilist in that it facilitated rent-seeking behavior.

Capital diverted to railroad building would surely have been put to good use elsewhere in the economy . . . [and] Moreover, had railroads not been highly subsidized, a better built, lower cost, and more timely system could have been put in place.

Tariffs were a centerpiece of Republican policy. They reversed a relatively free-trade policy . . . [and] protectionism forced consumers to pay higher prices for both imported and domestically produced goods protected by the tariff – that is, they purchased fewer of these products, used less desirable substitutes, and had a lower standard of living.

On net, the losses to consumers and the overall economy are greater than the gains to the protected producers and the tax revenue that accrues to the government.”

(Tariffs, Blockades and Inflation, the Economics of the Civil War; Mark Thornton and Robert B. Ekelund, Jr., Scholarly Resources Books, 2004, excerpts, pp. 84-87)

Corporate Tricks and Devices

Few, if any, Gilded Age tycoons were expert economists – but all understood theories of supply and demand, the law of diminishing returns, and assumed that every man was motivated by the selfish love of gain. Most also believed in unfettered competition, theoretically, unless bribed government officials could be used to handicap competitors. U.S. Grant’s notorious administration of corrupt and bought politicians helped pave the way into the Gilded Age – the predictable outcome of Lincoln’s revolution.

Bernhard Thuersam,


Corporate Tricks and Devices

“Nobody expounded the folly of tampering with the laws of economics more eloquently than Yale’s great teacher of political economy, the dynamic William Graham Sumner. In his book What Social Classes Owe to Each Other, published in 1883, he had put the reformers to rout.

“The yearning after equality,” he had written, “”is the offspring of envy and covetousness, and there is no possible plan for satisfying that yearning which do aught else than rob A to give to B; consequently all such plans nourish some of the meanest vices of human nature, waste capital, and overthrow civilization.”

This emphatically did not mean that Sumner was opposed to a better life for everybody. On the contrary, as a man of high and generous principle – he had begun his working life as a clergyman – he was heartily in favor of it. But he believed in the wider extension of opportunity, not in changing the rules under which business was conducted. He argued that:

“[Instead] of endeavoring to redistribute acquisitions which have been made between the existing classes, our aim should be to increase, multiply, and extend the chances. Such is the work of civilization. Every improvement in education, science, art or government expands the chances of man on earth. Such expansion is no guarantee of equality. On the contrary, if there be liberty, some will profit by the chances eagerly and some will neglect them altogether. Therefore, the greater the chances, the more unequal will be the fortune of these two sets of men. So it ought to be, in all justice and right reason.”

Sumner would not have argued that there were not some ways in which legislation could protect the economically helpless. But he thought that most reform legislation was conceived in ignorance and drafted in folly.

“You need not think it necessary,” he would tell his Yale classes, “to have Washington exercise a political providence over the country. God has done that a good deal better by the laws of political economy.”

The irony of the situation lay in the fact that for generations men have been tinkering with economic law to their own advantage, and in the process had produced institutions which were emphatically not God’s work – as most of Sumner’s hearers presumably supposed them to be – but man’s.

The corporation, for instance, was not an invention of God’s. It was an invention of man’s. It was a creature of the state . . . [and] one of the great inventions of the nineteenth century . . . Yet be taking adroit advantage of the legislative acts which defined its privileges, one could play extraordinary tricks with it. Corporate devices could be used to permit A to rob B – or, let us say, more charitably, to permit A to drain off all the gravy in sight and leave none for B.

It was largely as a result of the discovery of tricks that could be played with corporations, and particularly with their capital stock, that the wealth produced in such a tremendous spate at the turn of the century flowed in large proportion into a few well-placed hands.”

(The Big Change, America Transforms Itself, 1900-1950, Frederick Lewis Allen, Harper & Brothers, 1952, pp. 67-69)