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Objective: To understand the areas of agreement and disagreement between Democrats and Republicans in the U.S. regarding politics and economics, to explore the history of American politics, and to help the reader determine their preferred political ideology.
(A.1) America's Socialist Roots
Believe it or not, the first government established by the Pilgrims was a socialist government. It sounds outlandish, I know, but it it true. They were probably inspired by the New Testament gospels and a sixteenth century book by Thomas More called Utopia. Fortunately, the Pilgrims soon recognized the incentive problems inherent in a socialist economy, and embraced an economic system which allowed for private property. The video below tells this story.
Video 1—America's Socialist Pilgrims
The Pilgrims initially liked the idea of no private property. In England, property resided solely in the hands of the rich and politically powerful—the same people the Pilgrims wanted to leave behind. Perhaps the Pilgrims associated private property with the rich landowners, and wanted none to do with either. This avoidance of private property is somewhat alive in America today, where our democratic system regularly passes laws which takes property through taxation and places limits on what can be done with property.
The Pilgrims didn't cross the Atlantic just to escape the rich, but an oppressive monarchy as well. They yearned to be self-governed, and this disapprovel for a powerful government is also alive today, for there are limits to which we will allow government to grow. The desire for a socialist colony where all property was shared emanated from their feelings of community among one another and an insistence that no one person will rule the others. They went too far though, for holding their property in common almost killed them.
However religious and devoted to one another the Pilgrims were, they still didn't want to work hard for others, especially if they saw others shirking their duty. Why harvest grain for others when they don't seem to be harvesting much for you? Once it became evident that communal property was dragging them into to starvation, they realized their error and began assigning households roughly equal amounts of private property. Knowing each person would receive the rewards of their hard work, they worked hard. They were also allowed to produce goods to sell and trade with others, and the Pilgrim community soon teemed with activity, good food, and a better life. Because each person had roughly the same amount of property, they could enhance their lives through hard work without having to worry about someone gaining enough power to take the fruits of their labor.
Colonists in America learned from their Pilgrim experience, and grew a strong fondness for property. So strong, in fact, that when Great Britain sought to confiscate its property by onerous taxation Americans decided to risk their lives in a bolt for independence. You know how that turned out (USA! USA! ...). This love of property and the individuals' right to make an honest profit thrives in America today, where both Democrats and Republicans approve of small business, free enterprise, and entrepreneurs. We should be grateful; from this blend of political ideologies emanates a society with a rather harmonious balance between the private and public sector, and from this, one of the most wealthy and free countries to ever exist.
Figure 1—The Political Ideologies of Contemporary Americans(N3)
 american political ideologies.jpg.gif)
(B.1) Big government, European style
From that small colony of Pilgrims arose modern America, where the government is roughly one-third of the economy, and most of that one-third devoted to transferring wealth from the working young and rich to the old and poor (but mostly the old), resulting in what many call a welfare state. Most Americans find that for every extra dollar they earn 40% goes to a federal or local government, and for many Californians that percentage is 60%.(P2) Think of that! When a Californian makes a dollar, the government takes more than half of it! In addition to transferring large amounts of money between citizens, the government attempts to enforce around 160,000 rules and regulations each year—and that's just from the federal government! So many new rules are passed by federal, state, and local governments that the American Bar Association says it can't eaven count all the laws currently in place.(S1)
Yet, despite this Leviathon of a government, people around the world are trying to enter the United States, where they expect to earn more money, possess more freedoms, and live in a more tolerant society. Every day, people are risking their lives to enter our great nation. Perhaps this big government is actually good for its citizens?
It is also an economy where the richest one percent of Americans controls around 35% of the nations wealth. How did that egalitarian, free society of Pilgrims because a nation of big government and powerfully wealthy people? Let's answer the government question first.
Perhaps surprisingly, the welfare state began with war-loving Prussians of the nineteenth century, who were ruled by a Kaiser (German, for "Caesar") and his Prime Minister, Otto von Bismarck (yes, that Bismarck). Even a Kaiser needed the support of his people, and Bismarck concluded the best way to win the people's loyalty was to give them money. Thus began a system of providing direct government payments to the poor, the elderly, and the unemployed. Bismarck had foresight, as he recognized the growing power of unions and socialists. He figured the they were becoming popular due to their promises to give people money, so he elected to take their power by fulfilling those promises himself. The Russian Tsars made no such efforts to help their people, and the Communists repaid the Tsars in 1917 by murdering Tsar Nicholas II and his family, thereby ending the Romanov dynasty that had lasted over 300 years. The Kaisers at least hung on until World War I.
Video 2—Bismarck Creates the Welfare State in 19th Century Germany
(Note: the bald guy is Prime Minister Bismarck)
(As depicted by 1974 mini-series Fall of Eagles)
(Watch and comment at Critical Commons)
As World War I ended, many nations ended their monarchy (or made the monarch irrelevant, as in the UK) and replaced it with a mixture of democracy, capitalism, and socialism. At times it stumbled (e.g., the Weimer Republic Germany) and did not always bring stability, but after the worldwide depression of the 1930's and World War II the free world adopted democratic governments overseeing a vast welfare state.
Figure 2—Humorous Excerpt from Stephen Colbert's Book America Again
 Colbert hitler.jpg)
At the same time Germany began its welfare state the Industrial Revolution was in full-steam. Many workers found themselves cramped together in factories, working in terrible conditions for low wages. Masses of workers toiled for a few very wealthy gentleman, who to the workers seemed more powerful than the U.S. President (and in many ways, they were). These capitalists did not feel themselves fortunate for their riches, but entitled to them, and felt little guilt for horrid working conditions in their factories. Even the middle class Americans tended to blame poverty on personal defects of the poor, rather than luck.
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Yet the belief persisted among many Americans that the needy, new poor and old poor alike, were personally culpable for their plight, sinners against the social order, reprobates and ne'er-do-wells, spongers, and bums with no legitimate claim on the public's sympathy.
—David M. Kenneddy. 1999. Freedom From Fear. Oxford University Press: NY, NY. Page 172.
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(B.2) Rising wages and rising labor unrest
These were the years when Karl Marx was still a new figure and becoming a champion of the poor and the working class. When observing the repugnant conditions in which the poor—let us not forget the children of the poor—worked it is easy to forget that the Industrial Revolution crushed some people but increased the wealth of the average person in Holland, Britain, and the U.S. At one point in his life Marx documented the trend in wages, expecting to find declining wages and use it as evidence of capitalism's failings. Instead, he discovered wages were rising! He kept this to himself, for it did not fit within his story of oppression,(N1) but increasing wages were a fact, and they continued to rise from the days of Marx until today.
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Average growth rates for about one and a half millennia before the Industrial Revolution are estimated to have been approximately zero, and, although there was undoubtedly some growth starting around the tenth century, it proceeded at a snail’s pace by modern standards. Even the most well-off consumers in pre-Industrial Revolution society had virtually no goods at their disposal that had not been available in ancient Rome…. In contrast, in the past 150 years, per capita incomes in a typical free-market economy have risen by amounts ranging from several hundred to several thousand percent.
—Baumol, William. 2002. The Free-Market Innovation Machine. Page 3.
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Video 3—The Misery of the Industrial Revolution's Working Poor(B2)
(must use Internet Explorer)
(Watch the entire episode on YouTube)
The capitalists created a bounty of wealth never seen before, and the Middle Class was making noticeable gains in living standards, but factory workers really were treated like serfs. The video above gives insights into England's poor, but is also a valid description of the lives for many poor Americans. Some politicians saw opportunity in the poor and working folk, and began a new political movement based on the voting power of the lower and middle class. These politicians told the poor their poverty was caused by the greed of the rich. It was the rich people who rigged the game against them. No working person could ever get ahead when politicians were so rich they could write whatever laws the liked, and sometimes, didn't even have to stop for red lights!
Video 4—Jesse Lauriston Livermore Didn't Have to Stop for Red Lights!(C1)
(must use Internet Explorer)
(watch and comment at Critical Commons)
Meanwhile, the workplace became tense environment, as capitalists and workers developed a more intense dislike for one another. The workers united would be strong, but uniting was hard, as the factory owners used both manipulation and brute force to prevent them from unionizing. The workers experienced many failures in their attempt to exert political influence and to unionize. They persisted, almost entirely through democratic means—they were not Communists, after all. Even in the worst days of the Great Depression the U.S. Communist Party struggled to survive. The fear of revolution was present, and it was this fear that forced politicians to side more with the working class and less with the rich. So while extreme groups like fascists and communists held little direct influence, the fear that they might become more popular was real and earned the working class more political power. This fear almost became manifested in reality when the The Jungle and Bonus Army occupied National Mall in 1932 (see Video 5).
Video 5—The March of the Bonus Army
Around 43,000 veterans of World War I march on Capital Hill demanding their cash-payment redemption immediately, instead of the scheduled date of 1945. The depression was bad. Without some help in 1932 they stood little chance of surviving till 1945. They didn't just march, but they stayed, establishing tent cities and even small homes. Think of Occupy Wall Street in D.C., but on steroids. Americans sympathized with and the Bonus Army and the politicians feared them, rightly recognizing them to be the seeds of worker revolutions like the recent revolution in Russia. Once it became obvious they were not leaving without their money, the military entered to exile them from the the Mall. The Bonus Army didn't put up much resistance, but the lesson was clear: if the government did not respond more earnestly to the needs of the poor, the poor would force them to. The next time, they might even fight back against the military.
What is important to recognize about the March of the Bonus Army is that, until 1932, the working poor had been in violent conflict with capitalists for decades, but now the poor turned on the government. The March ended peacefully, but many of the struggles against the capitalists did not. Scenes from the movie Hoffa (see Video 6) are realistic depictions of worker struggles even decades before Jimmy Hoffa, and many strikes were far more violent.
From the turn of the century until World War II the steady increase in attention given by politicians towards the working poor is referred to as the the Progressive Movement, and it elected Teddy Roosevelt, Woodrow Wilson, and Franklin Roosevelt—politicians who were willing to oppose the wealthy. While the movement was fueled by many events, two are especially important for agricultural economics students to understand: the 1906 novel The Jungle and the Triangle Fire of 1911.
Video 6—The Labor-Capital Conflict as depicted in Hoffa
(must use Internet Explorer)
(watch and comment at Critical Commons)
Can you imagine a self-proclaimed socialist being elected Governor of California? It almost happened during the Great Depression, and the candidate was Upton Sinclair, whose fame can be traced to his 1906 novel, The Jungle. In this work of fiction Sinclair depicted the Chicago meatpacking industry as a place where the lives of ordinary people are chopped up much like the pigs they slaughtered, all for the benefit of a few rich men. The main characters are a family of Lithuanian immigrants who move to Chicago in search of good jobs, and find it at the packing plants. It goes downhill fast, and becomes a tear-jerker. In every page this family is tricked, oppressed, cornered, cheated, or intimidated by a consortium of businessmen and politicians. Profits in Chicago, the book suggests, are made only by oppressing the working class. The businessmen get away with this because they not only own the packing plants but the politicians and judges as well.
The Jungle is different from most books because its clear purpose is to promote socialism, but the reader isn't made aware of this until the end. Sinclair was a socialist and he wanted America to become socialist, too. Ostensibly the book is based on his journalistic work in Chicago, but it is almost certain that he greatly exaggerated the bad things he saw. It reflects some of the things he saw, but is nevertheless a work of fiction.
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It seemed as if every time you met a person from a new department, you heard of new swindles and new crimes. There was, for instance, a Lithuanian who was a cattle butcher for the plant where Marija had worked, which killed meat for canning only; and to hear this man describe the animals which came to his place would have been worthwhile for a Dante or a Zola. It seemed that they must have agencies all over the country, to hunt out old and crippled and diseased cattle to be canned. There were cattle which had been fed on "whisky-malt," the refuse of the breweries, and had become what the men called "steerly"— which means covered with boils. It was a nasty job killing these, for when you plunged your knife into them they would burst and splash foul-smelling stuff into your face; and when a man's sleeves were smeared with blood, and his hands steeped in it, how was he ever to wipe his face, or to clear his eyes so that he could see? It was stuff such as this that made the "embalmed beef" that had killed several times as many United States soldiers as all the bullets of the Spaniards; only the army beef, besides, was not fresh canned, it was old stuff that had been lying for years in the cellars.
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Worst of any, however, were the fertilizer men, and those who served in the cooking rooms. These people could not be shown to the visitor,— for the odor of a fertilizer man would scare any ordinary visitor at a hundred yards, and as for the other men, who worked in tank rooms full of steam, and in some of which there were open vats near the level of the floor, their peculiar trouble was that they fell into the vats; and when they were fished out, there was never enough of them left to be worth exhibiting,— sometimes they would be overlooked for days, till all but the bones of them had gone out to the world as Durham's Pure Leaf Lard!
—Upton Sinclair. 1906. The Jungle.
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The book was a huge success, but not exactly in the way Sinclair planned. Americans may have agreed with the need for a more active government but they thought socialism was too extreme. What attracted Americans to the book was Sinclair's descriptions of how meatpacking plants were operated. Any time the packing plants could sacrifice nutrition and safety for larger profits, they did so. Sinclair even suggested that some foods contained human parts! For the first time, Americans became truly concerned about the food they were eating, for in The Jungle, packing plants cut every conceivable corner for a buck, and the food they sold was akin to poison. Instead of making money by providing value to others, they made money by harming people through the sale of unsafe food. The meatpackers got away with this because every policeman and every politician was under their control. In reaction to public concerns, President Theodore Roosevelt and Congress passed a series of food regulations that serve as the foundation to the food regulation system in place today.
For a better appreciation of the impact of Upton Sinclair without having to read a book, I encourage you to listen to this Planet Money podcast about lard .(P1)
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Theodore Roosevelt, to whom...Sinclair had sent copies of The Jungle, also read the novel with care. On March 9, he wrote to Sinclair, suggesting that he get in touch with his commissioner of corporations to discuss the charges he had made against the meatpackers...Roosevelt agreed entirely that action was needed to soften the pernicious effects of the arrogant and greedy meatpackers. But Sinclair was wrong about socialism.
—Arthur, Anthony. 1906. Radical Innocent: Upton Sinclair. Random House: NY, NY.
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When Sinclair reflected on his book he remarked, "I aimed at the public's heart and by accident hit its stomach." That is certainly the case. But it should also be said that when the Triangle Fire occurred (see next section), readers of The Jungle were not surprised that 146 women would die due to a factory owner's greed.
The misery of the working poor in The Jungle is felt by fictional characters, but their misery became real in the Triangle Fire of 1911.
(B.4) The 1911 Triangle Fire
Everyone knew factory owners were harsh towards their workers in 1911, but the extent to which they devalued workers' lives became especially obvious in the 1911 fire at the Triangle Shirtwaist Factory in New York. It was a large building where many garment workers put in long days at low-paying, menial jobs. On most days the job was tedious and boring, but not the day a fire started. When it did, there was a rush to escape. Some were able to escape through fire-escapes, elevators, or stairs, but some were unable to exit through doors because—in an effort to prevent worker theft—the factory owners had locked it. Trapped inside the factory, 146 garment workers died in what became the deadliest industrial accident in New York at the time.
Why did the owners place the workers' lives in jeopardy, locking them in an inferno to prevent minor theft (a theft probably motivated by severe poverty)? To make larger profits, was the answer by Americans, and that is what caused such severe anger. Outrage over these unnecessary deaths led to a series of regulations, but more importantly, a change in American's attitudes. This was a pivotal moment in American history, and it is so well-known that writers of The Simpsons made a parody of it, where Mr. Burns (the plant owner) saves a few dollars but not providing an emergency exit.
Video 7—The 1911 Triangle Shirtwaist Factory Fire (With a The Simpsons Parody)
(must use Internet Explorer)
(watch and comment at Critical Commons)
Many of our food safety laws began with Sinclair's The Jungle, and many of our worker safety laws began with the Triangle Fire. The number of labor regulations since then is remarkable (and to many people, excessive) but many countries today resemble the America of 1911. Anyone familiar with the Triangle Fire reflected upon it when they saw an almost identical tragedy take place in 2012 Bangledesh.
Video 8—The 2012 Garment Factory Fire in Banglesesh (From The Daily Show, November 11, 2012)
(must use Internet Explorer)
(watch and comment at Critical Commons)
The idea of cruel factory owners and oppressed factory workers is so well known that writers for It's Always Sunny In Philadelphia could easily make their own parody of it. It is easy to let the Triangle Fire digress into an argument between Republicans and Democrats on whether the employers were really greedy or just careless. Were they being especially cruel, or were they behaving just like all other employers, and even having trouble remaining profitable. This debate is really unnecessary though.
We have to ask ourselves, did the owners of the Triangle factory really make more money by locking the fire-escape door? No. Their factory burned down and they were sued. Had they treated their employees with more respect and kindness they would have become wealthier. This suggests we should not view the profit-motive as lacking of virtue—not always, at least. We should not confuse self-interest with selfishness, or foolishness. Often, the impulsive, greedy, and selfish are not really self-interested at all, for they harm themselves in their rapacious pursuit of wealth. If you want to be rich, don't rob banks, because on average crime does not pay.(E1)
Video 9—It's Always Sunny In Philadelphia Does a Parody of the Labor-Capital Conflicts of the Past
(must use Internet Explorer)
(watch and comment at Critical Commons)
The Triangle Fire was so important because it elevated the level of worker disgust with the capitalists and increased their willingness to fight employers for better treatment. It also earned workers the sympathy of the American public. In an effort to calm matters, Politicians sought to pass laws that workers would accept but wouldn't excessively harm employers. Thus began a steady stream of labor laws that eventually became one of the regular responsibilities of the federal governments. The laws have brought benefits, but are so vast that they may even be harming workers.
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The Triangle Fire and its aftermath had given powerful impetus to the progressive-era movement for governmental supervision of industry, and its lessons were seared into the minds of many New Dealers...Certainly the Triangle Fire episode shaped Frances Perkin's lifelong approach to such issues. It deepened her conviction that many employers, left to their own devices, could not be counted upon to deal squarely with their employees.
—David M. Kenneddy. 1999. Freedom From Fear. Oxford University Press: NY, NY. Page 270.
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The Americans With Disabilities Act sets so many rules on how employers treat disabled people that employers are going out of their way not to hire disabled people. In fact, according to Mr. Stossel (video below) less disabled people were employed after the Act passed than before. Let's be clear, the Act certainly helped some disabled people, and may provide more benefits than costs, but if an employer believes they might be sued if they hired a disabled person (for example, by unintentionally not meeting every single rule of the Act) they are less inclined to hire the disabled, even if the employer is herself disabled. Just because a government intends to help a group doesn't mean they do help the group.
Video 10—John Stossel on the Americans With Disabilities Act
(Note: this video is meant to provide a perspective, and is not meant to suggest that Dr. Norwood
agrees with Mr. Stossel.)
The Progressive movement was not limited to America. Throughout Europe revolutionaries demanded bigger governments. They went by the terms social democrats, socialists, communists, and the like. This desire for government help went too far in some countries, resulting in totalitarian governments: Hitler in Germany and Mussolini in Italy. In Russia, they first toppled then killed their Tsar, replacing him with the Bolsheviks, ushering in a Communist system that would remain until 1991.
Americans did not follow Europe into the extreme, as the Progressive Movement continued to work within the confines of the American Republic, preserving the American democratic system while also accommodating a much larger federal government. Socialists like Upton Sinclair and his numerous European counterparts wanted a centrally planned economy, where a strong federal government made many of the decisions about what America would produce, how it would produce it, where the goods would be distributed, and how much each person was paid. Russia, Germany, and Italy certainly attempted such an economy, but America preserved its decentralized economic system even when that system led to persistent unemployment rates of 20%. Americans did not necessarily yearn for big government; they mainly wanted a government big enough to protect them from [what they thought were oppressive] businesses, and a little more security in their lives.
Like America, other countries experienced a Progressive Movement but stayed a free country. Labor unions came to dominate sectors of England and France, but government still needed the blessing from its citizenry to act. In America, the Progressive Movement was tempered, allowing Americans to preserve their individual rights. This is perhaps due to our Bill of Rights, which makes the conveyance of complete power to a few politicians difficult. Still, the Progressives' influence was undeniable, and would eventually be manifested in FDR's New Deal, and later, Lyndon Johnson's Great Society.
To what extent is labor oppressed today? Obviously opinions vary, but labor in slaughtering houses is still much as they were in The Jungle. Many agribusiness students today work for corporations that operate factories and manage unskilled labor. They will have to deal with laborers who feel oppressed and stubborn unions who wish to help them. I encourage students interested in labor issues to first read The Jungle, and then listen to this podcast from The Story about two workers in a modern chicken plant. The Triangle Fire happened a century ago but labor disputes, like the poor, will always be with us. Those who want an almost unbelievable story of modern-day slavery in Florida citrus fields should see this other podcast from The Story. An excerpt of the transcript is as follows.
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Conan [host]: ...And, Amy, when we say slavery, the image that comes to most of our minds is, you know Antebellum cotton plantations. Is this the same kind of thing?
Ms. Williams [guest]: Not entirely. They're not cotton plantations. They are sometimes citrus groves or tomato fields. The most recent high profile case was of a group of 12 or so men who were taken by their captors to harvest tomatoes in the fields of South Florida. What it does have in common with the Antebellum pictures is that, certainly, a lot of these cases involve debt bondage. But this particular case involved all of the mechanisms of restraint and abuse that we associate with pre-Civil War slavery (unintelligible).
Conan [host]: Chains, that sort of thing?
Ms. Williams [guest]: Yeah. Chains, they were shackled to posts. They were beaten. They were locked up at night in quarters, essentially U-haul trucks with no bathrooms, so they had to use the corners. Sometimes, their captors made them fight each other - all of - and certainly this, coupled with an insurmountable debt. The way that they escaped, finally, was one man noticed that the truck had a little piece of rust and he could see some light through it. So he punched his way out, squeezed out and made his way to safety.
Conan [host]: And were the employers arrested
Ms. Williams [guest]: Yes, they certainly were. And they were prosecuted in federal court here...
—The Story. December 10, 2012. "Indentured Servitude Persists in Florida's Fields." National Public Radio. Accessed December 6, 2012 at http://www.npr.org/templates/story/story.php?storyId=120576412.
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(C.1) FDR (Franklin Delano Roosevelt) says no deflation, and so does Ben Bernanke
When most people think of FDR they think of World War II and the New Deal. His contribution to how government works was not just to make it bigger by spending more money, but by also printing more money.
Roosevelt frankly had little idea how to respond to the Great Depression. He promised voters he would actively experiment, and that he did, but his experiments were often contradictory and without a clear purpose. We think of FDR creating the FDIC bank insurance (next time you are in the bank, notice all the stickers advertising the FDIC) and being a free-spender of government money, but in reality he opposed FDIC and was often more concerned with balancing the budget than spending money. His campaign against Herbert Hoover promised to be a different President, but in many ways he simply proceeded with what Hoover was already doing, with the novelty of also doing other things that contradicted it.
There were two, but only two goals of FDR's presidency. One was the idea of promoting security, consisting of programs like Social Security and unemployment insurance. His only other consistent objective was his desire for inflation, not for inflation itself, but to counteract deflation. Leading up to the stock market crash of 1929, farmers were locked into loans requiring them to pay the same number of dollar bills each year while the price they received for their crops declined. Deflation (where the general price level of goods and services falls) was bankrupting farm after farm.
Consider some numbers. In the 1920's there was basically no inflation, meaning the inflation rate was zero. In 1929, when farmers and lenders negotiated interest rates which would specify the number of dollar bills farmers would pay each year for a number of years, they did so thinking the value of the dollar would be about the same in 1935 as it was in 1929. They were wrong. Between 1930 and 1933 prices in general were falling by about 8% each year, for an annual inflation rate of -8%. This means each dollar could purchase more in 1933 than it could in 1930. Meanwhile, farmers were receiving lower prices for their crops. At the same time they earned less dollars farming, each dollar the farmers paid on their loans was valued much higher, which means in reality farmers paying a much higher interest rate than they planned. Farmers who thought they would pay a 4% interest rate between 1930 and 1933 actually ended up paying a real rate of 13%. This was too much for many farmers, causing them to go bankrupt, leading to an exodus of farm families much like those you read about in The Grapes of Wrath.
Roosevelt wanted inflation, hoping that it could cause crop and livestock prices to rise along with everything else, giving farmers more dollar bills to repay their debts. He knew inflation would occur if there were more dollar bills floating around. The problem was that the U.S. was on a Gold Standard, where all money was backed by a certain amount of gold, and FDR could not create more gold. His response, then, was to go off the Gold Standard in 1933—not completely; a dollar bill not backed by any gold wouldn't take place until 1971.
Roosevelt decided that for now on he would be in charge of determining the amount of gold each dollar bill would represent (if you think this is arrogant, don't forget that Ben Bernanke is in charge of setting interest rates today!). In that past this price was fixed, and agreed upon by a collection of nations. Now Roosevelt would decide the price of gold himself, often over breakfast and with no real justification other than his whims. These whims generally implied a higher price of gold, though, which meant that the same amount of gold owned by the U.S. Treasury could now support more dollar bills. This allowed more dollar bills to circulate, hoping to achieve the inflation that would increase crop prices.(K1)
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One morning, FDR told his group he was thinking of raising the gold price by twenty-one cents. Why that figure? his entourage asked. “It’s a lucky number,” Roosevelt said. “because it’s three times seven.” As Morgenthau later wrote, “If anybody knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened.
—Shales, Amity. 2007. The Forgotten Man. Harper Perennial: NY, NY.
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Roosevelt's action was fervently opposed by many, but he stuck to his guns and consistently sought more inflation by allowing more dollar bills to circulate throughout the economy. It worked. The graph below shows the CPI during the Great Depression, where a falling CPI represents deflation and a rising CPI signifies inflation. The CPI fell from 1930 to 1933, then once off the gold standard, it began to rise, allowing farmers to pay back loans in devalued dollars, thus paying back loans at a lower real interest rate (to the chagrin of lenders). What is important to recognize is that it wasn't so much inflation that FDR wanted but to avoid deflation, and all the farm bankruptcies that accompanies deflation.
Figure 3—The CPI During The Great Depression (A1)
(The Consumer Price Index (CPI) measures the general level of prices in the economy)
cpi.jpg)
This created a new responsibility for government that has maintained to this day: setting the number of dollar bills that can circulate. When the U.S. government encountered the Financial Crisis of 2008, one of the first thing the government did was print tons and tons of money, and the major goal was to prevent deflation. As such, FDR's only consistent objective became one of the most revolutionary changes in how the government operates. The President is no longer in charge of determining the money supply. That is now the Federal Reserve's job, an agency which in 2008 was run by Ben Bernanke, but the President still gets to pick who runs the Fed. The number of dollar bills in existence is referred to formally as the Federal Reserve's Balance Sheet, and the number of bills it created out of thin air since 2008 is astonishing, as shown below.
Figure 4—Printing Money in 2008-2012
 fed in 2008.jpg)
(D.1) I'm from the government, and I'm here to help
This large government helped people in many ways but it also became obvious that politicians spent less time trying to help the working people and more time raising money for political campaigns. When FDR's New Deal (a money distribution machine) started doling money to people in the Great Depression many politicians tried to decipher Roosevelt's formula for deciding who gets the money (in order to get more for their constituents). They didn't like what they found. Basically, Roosevelt was using most of the money in swing-states, distributing less in the regions that would definitely or definitely not vote for him, and more money to the regions who were potential, but not definite, supporters.(K1)
There had always existed a segment of Americans who disapproved of a strong central government. Many students were taught about the debates between Thomas Jefferson and Alexander Hamilton, and Jefferson's famous phrase, "A government big enough to give you everything you want is strong enough to take everything you have." So it should not be surprising that this new leviathan of a federal government, one that often seemed to serve only its own interests, was and still is opposed by much of the population.
(D.2) I'm from the government, and I'm here to help sugar producers
Video 11—Why Is There Corn In Your Coke?
What is it about a big government that alarms people? If it is a democratic government who must receive society's stamp of approval, how can it not promote the interest of society at-large? The answer is economic in nature: politicians win elections not so much by doing good for society but by raising large amounts of campaign contributions. It achieves this largely by taking small amounts of money from each of the masses (small enough the individual doesn't notice it) and gives it in large amounts to a few people. The benefactors are understandably gracious, and show their gratitude by large checks to political campaigns. When politicians give you things, then, that is just an indirect way or tricking you into supporting their campaign. That is a perfect description for the U.S. sugar industry.
Video 12—A Corrupt Sugar Industry
(D.3) Hi, I'm the federal government, and I have a spending problem
When the government makes sugar prices high so that a few sugar producers make lots of money, that's the politicians way of raising money. When the government takes a little from everyone and gives it all to the elderly (think Social Security and Medicare) that is because the elderly vote in droves and actively support campaigns. Young people are too busy with their social lives to vote. When government forces you to use gasoline blended with ethanol, they do so because farm organizations and ethanol corporations are big donors, not because ethanol is environmentally friendly (it isn't). Name everything the government spends money on, and I can show you a generous campaign contributor. This is why politicians can't seem to cut government spending—cutting spending is identical to receiving less campaign contributions!
Video 13—Why Politicians Don't Cut Spending
(D.4) Bribe, bribe me, do
We often view politics as a system where lobbyists bribe politicians, but we fail to realize the degree to which politicians want to be bribed! In fact, politicians spend more time raising money and begging to sell political influence than they do reading and writing legislation.
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Jacob: Alex, you’ve been doing these pieces on lobbying for a while now, and what’s been illuminating to me is how much the Congress people themselves need these fundraisers. They need this constant flow of money to get reelected.
Alex: Yeh, you know a lot of people think of all these lobbyists, that they’re bum-rushing Congress, throwing money at them and trying to corrupt them with their money, but [lobbyist] Jimmy Williams says it’s the other way around: Congress people were constantly pestering him. They were constantly calling, and a lot of time it was Congressmen whose votes he didn’t even need.
—Planet Money podcast. “A Former Lobbyist Tells All.” January 27, 2012.
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Now we can see why Republicans do not approve of a large federal government, and why Ronald Reagan once said, "The most terrifying words in the English language are: I'm from the government and I'm here to help."Figure 5—How Politics Works (From a Cynical Point-Of-View)
 im from the government.jpg)
(E.1) Baby, You're a Rich Man
One thing about Figure 1 we have not yet explained is Republican's support for "big business." Republicans are more likely to view total wealth as something created by human action, whereas Democrats are more likely to view total wealth as something that is fixed an unchangeable, and the only decision to make is who gets what portion of that wealth.
If humans are alone on a island they can produce little, but they are highly productive when they are matched with machines and technology. Wealth is defined by the amount of goods and services we produce, and so we can only be wealthy if we are productive. Ordinary people today have so much more wealth than their grandparents because America can produce so much more stuff, and this is because we now pair humans and machines in such a way that workers are incredibly productive. Who bought those machines? Who bought the factory? Who gave Steve Jobs the money he needed to develop, produce, and market iPads? Who gave Monsanto the money they needed to develop pesticides and genetically modified organisms?
Some of the money used to buy capital (capital meaning the assets people use in the workplace, from computers to a welding machine) comes from the savings and investments of the middle-class, but most of it comes from rich people. Yes, the rich people fund the building of factories, machines, and equipment that increase our productivity at work, and thus allow us to earn higher incomes. What would happen if Republicans followed Democrats lead and disapproved of big business? We could go around confiscating the wealth of the wealthy and give it to the poor. We could be modern-day Robin Hoods. We would become wealthier now, but this type of confiscation would discourage the wealthy from investment the money in factories and machines, and without those two assets, we would become much poorer in the future.
In 1991 the Library of Congress surveyed Americans, asking them to name a book that had made a difference in their lives. The most cited book was the Bible. The second most cited book is Atlas Shrugged, by Ayn Rand. Recently made into a movie, this novel depicts an America where successful businesspeople find their businesses increasingly regulated and confiscated by the government. In protest, the capitalists exile themselves from society. Without the capitalists the world simply doesn't work. Factories are not built, maintained, or operated efficiently. The trains don't come on time, and they crash.
Rand's purpose in writing the book was to demonstrate that a business-person can only become wealthy by providing value for society, and if they are not allowed to make profits, then society loses, also. Rand would know. She emigrated from Russia, where she saw the communists confiscate her fathers pharmacy and destroy the nation.
Video 14—Opening scenes of movie Atlas Shrugged (Part 1), Based on Ayn Rand's Novel
(must use Internet Explorer)
(watch and comment at Critical Commons)
Indeed, fear of confiscation is one of the reasons the Great Depression was "Great." We have already seen how the Progressive Movement was a democratic movement seeking to constrain the wealthy and place them under, not above, the American citizenry. As labor battles became bloodier and the Depression harsher, many of America's wealthy feared a fascist or socialist (there's really little difference between the two) takeover of the country. Indeed, one group of businessmen actually sought to install a fascist dictator they could control (sounds outlandish, but I assure you it is true).(B1)
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As for private businessmen, they still hesitated to make new investments. Why, the president mused one night at dinner, did they lack confidence in the economy? Because, Eleanor replied tellingly, "They are afraid of you."
—David M. Kenneddy. 1999. Freedom From Fear. Oxford University Press: NY, NY. Page 363.
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A poll was conducted in 1941 asking business executives what they thought America would be like after the war was over. Around 40% of the executes said they thought America would become a semi-socialisted society with little room for the private sector.(H1)
It should not be surprising to learn, then, that one of the main obstacles to a recovery during the Depression was a lack of private investment. Business people simply did not have confidence they would be able to keep a factory they built, because the government would either seize the factory, would tax them into non-existence, or labor unions would gain control of the factory. If you think about it, if a factory is unionized then the factory can only hire through that union, which means the union can shut down the factory anytime they wish by calling a strike—this essentially gives the workers a partial ownership of the factory, ownership they took by force, not by payment.
Figure 6—Labor and Capital Need One another
 labor needs capital.jpg)
The point is that labor and capital need one another, and the wealthy do not necessarily take the wealth of others as they gain wealthier. If they act ethically, they give people like Bill Gates money to start Microsoft, that company creates world-changing products like Windows, and the whole world benefits from that product. Windows, iPads, these things would not exist if rich people were not allowed to invest their money in pursuit of more money, and nor would the jobs those inventions create. This is an economic fact that Republicans are more willing to admit than Democrats.
This belief that one can make the world a better place while one earns profits is relatively new in the history of humans. Prior to the eighteenth century the pursuit of profits through industry or trade was considered rather ignoble. The ancient Chinese class system put merchants at the very lowest class, below peasants and artisans. Jesus expressly said rich people would not get into heaven, so it is not surprising that Medieval merchants were thought to live a sinful life, or that Saint Francis of Assisi refused to touch money. There was only one society that respected merchants in the Medieval Age—Islamic society. This negative attitude towards business people was amplified once the communists assumed control over China, and herds of young revolutionaries would beat and kill people simply for owning a store (see video below).
Video 15—Attitudes of 1960 Chinese Towards Capitalists, from the documentary, The Mao Years
(must use Internet Explorer)
For most of human history business people were not respected for their trade. Then something remarkable changed in eighteenth century Holland: for once, the earning of profits was deemed a virtuous activity. More people then pursued profits, and did so by building factories, learning better ways of producing products, and increasing trade. All of these activities increased the amount of goods and services produced, and in the processed increased Holland's wealth. This was the beginning of the Industrial Revolution, where for once, a successful factory owner was respected by society, not only for his wealth, but for how he acquired his wealth. Britain recognized Holland's success and copied it, then America copied Britain.(M1,M2)
Both Republicans and Democrats carry on the American culture of respecting the pursuit of an honest profits, but Democrats have their limits. A small business owner in the Middle Class is respected by most Democrats, but many Democrats have trouble believing "big business" is a contribution to society, and this you see their disapproval of big business in Figure 1.
(F) American political ideologiesThe purpose of tis article is to help students think deeply about the politics behind economic issues. Hopefully, a few found their political identity in these readings. I leave you with an editorial written in The Wall Street Journal, suggesting big government is here to stay, but America will still be a pleasant place so long as Republicans play their role of preventing government from growing too large and making government more efficient. I agree with the editorial, and hope that you can see a productive role as an involved citizen, regardless of your political affiliation.
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The first entrenched reality is that big government is here to stay. This is particularly important for libertarians to absorb. Over the last two hundred years, society and the economy in advanced industrial nations have undergone dramatic transformations. And for three-quarters of a century, the New Deal settlement has been reshaping Americans' expectations about the nation-state's reach and role.
Consequently, the U.S. federal government will continue to provide a social safety net, regulate the economy, and shoulder a substantial share of responsibility for safeguarding the social and economic bases of political equality. All signs are that a large majority of Americans will want it to continue to do so.
In these circumstances, conservatives must redouble their efforts to reform sloppy and incompetent government and resist government's inherent expansionist tendencies and progressivism's reflexive leveling proclivities. But to undertake to dismantle or even substantially roll back the welfare and regulatory state reflects a distinctly unconservative refusal to ground political goals in political realities.
Conservatives can and should focus on restraining spending, reducing regulation, reforming the tax code, and generally reining in our sprawling federal government. But conservatives should retire misleading talk of small government. Instead, they should think and speak in terms of limited government.
—Berkowitz, Peter. December 12, 2012. "Conservative Survival in a Progressive Age." The Wall Street Journal. A17.
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References(A1) Amerman, Daniel R. "Puncturing Deflation Myths, Part 1." Accessed December 14, 2012 at http://www.gold-eagle.com/editorials_08/amerman021209.html
(B1) Bakan, Joel. 2004. The Corporation. Free Press: NY, NY.
(B2) British Broadcasting Corporation. October 2, 2012. "Marx: Part 3 of 3." Masters of Money. Accessed December 13, 2012 at http://www.youtube.com/watch?v=hsxfMHbLubA
(C1) Director and Producer: Muffie Meyer & Ellen Hovde. Writer: Ronald H. Blumer. 2009. The American Experience: The Crash of 1929. Middlemarch Films.
(H1) Higgs, Robert [guest]. December 15, 2008. EconTalk [podcast]. "Higgs on the Great Depression." Library of Economics and Statistics.
(K1)Kennedy, David M. 1999. Freedom From Fear. Oxford University Press: NY, NY.
(N1) Nasar, Sylvia. 2011. The Grand Pursuit. Simon & Schuster: NY, NY.
(M1) McCloskey, Deirdre. 2006. The Bourgeois Virtues. Chicago University Press: Chicago, Il.
(M2) McCloskey, Deirdre. 2010. Bourgeois Dignity. Chicago University Press: Chicago, Il.
(N2) Berg, Nate. August 20, 2012. “Isolated and Under-Exposed: Why the Rich Don’t Give.” The Atlantic. Accessed August 22, 2012 at http://www.theatlanticcities.com/neighborhoods/2012/08/isolated-and-under-exposed-why-rich-dont-give/3002/. This article cites the following study: Gose, Ben and Emily Gipple. August 19, 2012. “Rich Enclaves Are Not as Generous as the Wealthy Living Elsewhere.” The Chronicle of Philanthropy. Accessed August 22, 2012 at http://philanthropy.com/article/Rich-Enclaves-Are-Not-as/133595/.
(N3) Newport, Frank. November 29, 2012. "Democrats, Republicans Diverge on Capitalism, Federal Gov't." GALLUP Politics. Accessed December 11, 2012 at http://www.gallup.com/poll/158978/democrats-republicans-diverge-capitalism-federal-gov.aspx.
(P1) Planet Money [podcast]. January 6, 2012. "Who Killed Lard?" National Public Radio. Available online at http://www.npr.org/blogs/money/2012/01/06/144806987/the-friday-podcast-who-killed-lard.
(P2) Prescott, Edward C. and Lee E. Ohanian. December 12, 2012. "Taxes Are Much Higher Than You Think." The Wall Street Journal. A19.
(S1) Stossel, John. March 14, 2012. "Complex Societies Need Simple Laws." John Stossel's Take [syndicated column]. Accessed December 12, 2012 at http://www.foxbusiness.com/on-air/stossel/blog/2012/03/14/complex-societies-need-simple-laws.
