Decentralization, Banking and the Two Party System

The American party system has changed four times, and three of the changes were linked to money and banking. Moreover, three of the changes were linked to the issue of decentralization and states' rights. The current tremors surrounding monetary policy and the Federal Reserve Bank coincide with increasing questioning of why the Democrats and Republicans have failed to question the subsidization of investment and commercial banks and the recent Federal Reserve Bank inflation of the monetary base. One key difference between the current crisis in the American party system and past crises is the absence of a competent press or media. These were central to political debate in America until the 1930s. However, the transition from passive to active electronic media has reinvented, downsized and in a sense traditionalized the press from the centralized mainstream media that was prevalent in the 1950s to websites and blogs that are reminiscent of early newspapers.

The changes in the American party system were as follows. First, the establishment of the Federalist and Democratic Republican parties in response to Alexander Hamilton's advocacy of the First Bank and federal subsidies to manufacturing. Second, the split between the National Republicans and the Democratic Republicans, which became the split between the Whigs and the Democrats in 1836 specifically in response to Andrew Jackson's removal of federal assets from the Second Bank and his veto of the Second Bank. Note that decentralization played a role both in the Federalist-Democratic division in the 1790s and the Whig-Democratic division of 1836. Both the Federalists and the Whigs were elitist centralizers and the Democrats were decentralizers, pale copiers of the earlier anti-Federalists.

The third party formation was of course in the 1850s, the formation of the Republican Party, the centralizing party that inherited Whig elitism but reformulated its ideology to combine (a) surface advocacy of laissez faire, in imitation of Jackson with (b) the traditional Whig advocacy of centralization. The Civil War was fought not over banking but slavery. It was here that the centralization issue came to the fore.

The fourth party formation occurred in 1896, when William Jennings Bryan reinvented the Democratic Party as the party of inflation and free silver. Many of the subsequent centralizing ideas of Franklin D. Roosevelt were included in Bryan's philosophy. In 1896 the debate between centralizers and decentralizers died. Although the southern Democrats continued to advocate decentralization, the majority of the two major parties became committed to reform on a centralized basis.

This transformation was reinforced in the 1930s, when Roosevelt accelerated the Democrats' insistence on centralization.

Of the four changes, only the establishment of the Republican Party did not involve banking. However, the Republicans' insistence on intensification of centralization, not only concerning the Union but also the National Banking Act, led to establishment of the Federal Reserve Bank five decades later.

The development of American politics, then, has been toward centralization. But in management, business, economics and political theory, centralization was increasingly shown to be an inferior solution during the past eight decades.

One of the pivotal moments in American politics was Andrew Jackson's formulation of the Democratic Party. Until then, parties barely existed in America. Jackson identified the special interest of privilege linked to paper money and held that the formation of an organized party of common Americans was necessary to forestall privilege and banking interests. He was not certain that the average American was capable of withstanding the onslaught of paper money advocacy and privilege associated with central banking. The power of Jackson's vision was great, and the powerful party organization of the nineteenth century and the public's commitment to sound money permitted survival of the Jacksonian system for nearly eight decades.

However, the ideas of Fabian socialism, Bismarck's social democracy and Progressivism provided American elites with new ammunition that the Jacksonian model could not contemplate. These included the use of pretense of supporting the common man in the name of elite privilege as a tool to wrest control of banking and money in favor of economic elites. This was accomplished in the context of modest reform in areas such as workers' compensation and then in the 1930s minimum wages and social security, all with dubious value to the average American.

Nor was Jacksonian democracy itself free of special interest characteristics. There have been wrinkles and overlap in all of the American party formulations. The Jacksonian Democrats were cruel racists. Jackson oversaw the Trail of Tears march and the insistent American racism traces its resonance to Jacksonian Democracy. Jacksonian Democracy itself was a form of special interest formulation, of the common white male identifying himself as superior to blacks and native Americans.

As Louis Hartz correctly points out, the brilliance of the Whigs was the use of the Lockean imagery in the interest of mercantilist philosophy. This has been the artifice of the Republicans since the Civil War. But all of American party ideologies have been self-contradictory, and the Republican is as well. Jackson claimed to be a democrat, yet he forestalled South Carolinian nullification. He claim to be for states' rights, yet he created rigid national party organization.

Today, the Republicans claim to be for free markets yet institute socialism. Much like the Democratic Republicans in 1836, the Republicans are at the breaking point.

Four Party System?

Given the failure of the two party system, a number of Jacksonian conservatives are anticipating a split in the Republican Party. In an e-mail sent (courtesy of Larwyn) AJAcksonian argues that:

"two parties will not exist as they are within 4-6 years.

"The divisions in the D party and R party are present and clearly seen, and a maximum of four parties, but most likely three will be a result.

"I have my old Jacksonian Party concepts that I posted awhile ago, which are dry... outlines of a party, not a party. That starts with the fundamental understanding that Jacksonians are what they do following what they say so as to prove they mean it. That requires an Ethics Platform for candidates and those seeking office... not a Party Platform, but a clear and distinct way to demonstrate that running for office is not a sinecure and that each race is a whole, new race. Any new party *must* address the concentration of power in the US and its movement to Incumbistan. Those moves come from parties with 'plans' not 'policy' and as Jackson demonstrated, it is policy that matters and plans must be forthrightly derived from good policy, thus a new party must have people who clearly establish policy and will work out good plans to carry them forth and WORK (that dirty word in DC) to get them done.

"That is a reformulation of politics top to bottom, not a reform of it: those who do it that way will create something new under the sun and yet as old as the Republic.

"My ideas are highly idealistic, and truly I don't expect them to work on a reasonable basis - they serve as the basis to stir thinking to GET an idea of what a new party Should Do. It must cut off the basis for Party power and for individual power accumulation. It must be a structure that is defined by its members in common, yet with simple and easy to define ways to disagree and not turn into 'factions'...

"For all of that a new party must be simple, uncomplicated, basic in outlook and look to keep the simple means of accountable government as its touchstone. If it is not in the Constitution, government doesn't get it. No Teddy Roosevelt 'expansionist views' towards power are part of that...

"Thus, any new party must address the plurality of thoughts that coalesce upon the common understanding that more government is not 'good' government. That 'regulation' is not control. That 'governing' is not ruling.

"Today we adhere to the former and yet the latter is our foundation and salvation as a people.

"If we dare to believe in ourselves first... and keep government always accountable to us."

Larwyn On the Failure of the Two-Party System

Larwyn is known to all conservative bloggers. She compiles and then coordinates dozens of blogs, and sends the results in a compendium to all on her mailing list. Rarely, however, do we get the chance to learn of her own ideas. Recently, I was fortunate to receive her views on the failure of the two party system.

>"I'm praying, but not really certain what I am praying for as I do not trust McCain. I know that, in many ways, he can do much if not more harm than O!

"A third party is a long haul. I actually canvassed to collect signatures to get Perot on the ballot in PA, so I've dreamed of a third party for a long time.

"I think the FIRST BATTLE should be, as I wrote today...

"WE DON'T WANT NO INDEPENDENTS and /or DEMS VOTING IN OUR PRIMARIES!!!

"Before we take the long slough establishing a third party, let's demand the above to allow the registered REPUBS to battle it out. If the LIBERAL WING WINS, we would then have a polarized party a la the current PUMAS in the DEMS.

"Due to Indies and DEMS being permitted to vote in primaries in many states, we don't have that this time. We must get after the RNC to demand that states only allow registered REPUBS to vote in primaries. We can proceed from there. If they refuse to even address this, we've already lost and can then proceed with clear conscience. (Emphasis added).

"There is no doubt, in my mind, that we must make a stand. There is no other country in this world to run to or to send our grandchildren to, is there?

"Hope you saw the Treacher post in collection sent early this AM, so I'm not alone. And I don't have a day job, been reading blogs & following news ~16 hours a day for years now...sigh.

"Also in that one, Gateway on the NEW GRADE SCHOOL TEXTBOOK with 15 pages devoted to O! is terrifying. I am hoping that ANGRY PARENTS will be outside that school this morning. Just another reason why AYERS and the Annenberg Challenge/Hugo Chavez links are so important. Of course the truth here is that the LIBS aren't having children so they must indoctrinate ours while opening our borders to those with a natural SOCIALISTIC/CLASS WARFARE BENT.

"That is why I don't think taking back America will be bloodless, glad we are the side who celebrates manly men and manly virtues and the side that believes in the 2nd Amendment,when push comes to more than shoving.

God bless
Larwyn

The Social Democratic Fetishization of the State and In Praise of Reaction

Louis Hartz argues that the New Deal was pragmatic. The claim that the state solves problems is one that reverberates throughout the twentieth century and into the 21st. But is that so? Whiggery has often been a reaction to government initiatives. In the 18th century the Whigs were a reaction to the establishment of the Bank of England and what they saw as the corruption of the English court and Parliament by Sir Robert Walpole. In the Federalist era in America, the Jeffersonian Republicans were a reaction to the Federalism of Alexander Hamilton. The Jacksonian Democracy, which was more Whiggish than Jackson's opponents, who changed their name from the National Republican to the Whig Party, was similarly a reaction to the Bank of the United States. In general, freedom is not a cause that rallies support until it is violated. Hence, Whiggish or libertarian movements always have the quality of reaction.

The Progressives confounded reaction to their policies with opposition to progress. Reaction to change can can be progressive if an initiative does harm. Progress means improvement toward a goal, so if change impedes improvement, reaction and removal of the change is progressive. There is no necessary conflict between reactionary and progressive ideas. American politics became overly rigid because of the equation of change and progress. Change is progressive if it improves human beings, if it does not cause harm and if society is better off because of it. Most change is complex and has unforeseen effects. The minimum wage, for instance, may cause unemployment and it may forestall the poorest segment of society from gaining work experience that in turn prevents the development of work habits and so leads to dependency and a welfare culture. This may be true even if the unemployment rate is not visibly raised following an increase in the minimum wage because employers may reduce training and other fringe benefits that are difficult to discern. On the other hand, a low minimum wage may not have these effects. If demand for labor is wage inelastic, then a small increase in the minimum wage may have little effect on employment or working conditions and cause a significant improvement in the welfare of low-wage workers. This is a question that is fairly simple to conceptualize, but there is no way to resolve it scientifically because the effects of the real wage on employment decisions are not completely measurable. There is no debate that a large increase in the minimum wage will reduce employment. In nations with high minimum wages and work standards unemployment is consistently higher than in more competitive nations. Similarly, union contracts may improve the wage level and introduce greater job security and employee "say" into the workplace, but it may also cause spillover effects under which lower employment levels in unionized plants cause higher unemployment and lower wages in non-union plants. The reverse may also be true, that the high wages that unions cause may threaten non-union employers to offer higher wages so that their employees will not unionize.

The effects of state intervention are difficult if not impossible to predict. The assessment of such effects takes many years, perhaps five decades. One would expect a pragmatic advocacy of New Deal policies to be open to such assessment.

In general, most ideas fail. Inventors find that they must fail many times before coming up with a single success. Four fifths of new product innovations in large firms fail, and the same percentage of business start ups fail. Yet, social democrats seem to feel that the programs that they advocate never fail. There was some welfare reform under the Democratic Clinton administration, but the left opposed this reform and continues to do so despite empirical evidence that it has worked. Welfare was certainly a hot button issue until Clinton initiated the reform, and it is something of an exception. Few other government programs have been revised, adjusted for quality reasons or terminated outright.

If government managers and politicians are no smarter than entrepreneurs, then we would expect four fifths of government programs to be terminated. Yet, few government programs die once initiated. Rather, they create a vested interest group that economically depends on the program (teachers, professors, government employees, health workers, police officers and the like) and the reactionary interest group radically opposes the program.

This may be viewed as a kind of fetishization. New Deal social democrats fetishize government policies and view them as sacred, much as a tribal culture views a totem as sacred. This religious fixation on government programs likely has religious roots in early America. The Whig Party, for instance, believed that social concerns commingled with economic concerns. Protestantism saw a link between social morality and economic success. Later in the nineteenth century, the Social Gospel held that there was a religious motivation for socialistic reform. The laissez-faire conservatism of late nineteenth century Republicanism that led to today's Republicans being associated with free market and conservative ideas was a deviation from the earlier association. The Federalists and the Whigs, the first two conservative parties that represented wealthy interests, were big government parties. They were also the more religious parties in comparison with the Jeffersonian Democratic Republicans and the Jacksonian Democrats. Thus, until the Civil War, big government and imposition of social morality was associated with the economic elite. It was not until American business began to mature in the late nineteenth century that the Whigs' descendants, the Republicans, began to adopt laissez-faire positions. But even these laissez-faire positions were heavily qualified. In particular, as the late nineteenth century Republicans had begun to adopt professions, they began to advocate government intervention on behalf of the professions. Thus, a new constellation of professional interests began to evolve. By education, these professionals advocated laissez-faire, and it was not for two generations that the advocates of the professions were to dispense with laissez-faire in the interest of Progressivism and then the New Deal. Of course, Progressivism and the New Deal had the incidental effect of stimulating demand for the professions and enforcing professional standards.

The social democratic fetishization of the state, then, has its roots in elitism and in a communitarian interpretation of religion associated with the early evangelicals. There is therefore considerable tension within the Republican Party. There is no necessary connection between laissez-faire economics and religion. In fact, for much of American history the evangelical Protestants believed in big government. The Democratic Party has always been the more diverse of the parties, but it has only since 1932 been the more social democratic of the parties. Thus, the Democratic Party has increasingly become the party of the professions, of academics, lawyers and physicians. The Republicans have retained the support of the evangelical Protestants, but have done so through an uneasy alliance of the remnant of the individualist liberals and with big business Progressives, i.e., Rockefeller Republicans, who in many ways have more in common with the Democratic professional interests than with the evangelicals or the individualist liberals.

How do these views correspond with those of Americans? It would seem that they capture some of the viewpoints of most Americans. However, given the range of cultural orientations, it would be difficult for the Republicans to consistently capture the portion of the country that is primarily individualist-oriented in its voting, since big business and individualist interests are in conflict. At best, only some of the time can the Republicans represent each of the three orientations in its fold, the individualist, the Progressive and the religious. It is true that religious orientation can be combined with the others, as it has, but the individualist and big business interests are almost necessarily in conflict.

Similarly, there are likely a significant percentage of Democrats who differ from the left wing perspective and who are not supportive of the economic interests of medicine, law and academia. Thus, the Democratic Party has been fairly "conservative" under the Clinton administration but more governmentally expansive under earlier administrations. Due to simple arithmetic, at the national level the two party system cannot capture the ideological diversity of the American public.

Factionalism and the Two-Party System

Americans may stick to the two-party system as an artifact of the founding fathers' fear of faction. By limiting the number of parties to two Americans limit the number of explicit political divisions.

In Elkins and McKitrick's Age of Federalism* the authors emphasize the universal fear and dislike of faction among the public and the founding fathers in the 1790s and earlier. This came in part from the belief that competition among factions had divided and harmed democracies in antiquity. Madison and Hamilton wrote about this in the Federalist, but the discomfort with factions or private associations of any kind (other than religious ones) was widespread. One exception was the Sons of Liberty during the revolutionary period and another, which Elkins and McKitrick don't mention in their masterful work, was the Freemasons. Also, there were incipient labor unions in the 1790s. Labor courses don't typically discuss the dislike of labor unions evidenced in the famous Philadelphia Cordwainers case as associated with a broader distrust of associations of any kind, but that may have been the case. In the Cordwainers (shoemakers) case a Philadelphia court held the union to be a criminal conspiracy. The criminal conspiracy doctrine was changed in the 1830s under the means-end doctrine enunciated in the Commonwealth of Massachusetts v. Hunt. The point is, though, that the shift in attitudes toward unions coincided with a shift in attitudes toward associations more generally. Usually the shift is described as responding to greater power of workingmen in the 1830s associated with Jacksonian presidency.

But the point is that in general private associations of any kind were viewed with suspicion, and minor political parties may be sensed in this way.

During the 1790s, Elkins and McKitrick point out, there was the rise of an early association called the Democratic Societies. The purpose of these clubs was mild, basically to discuss political issues and oppose corruption in government. President Washington viewed these clubs with suspicion, calling them "self-created societies" as did many leading politicians. Two Democratic Societies in Washington Town and Mingo Creek, Pennsylvania were involved in the Whiskey Insurrection in western Pennsylvania in 1791-4 in which tax collectors were tarred and feathered; Inspector of the Excise John Neville's house was burned after an open battle; and as many as 6,000 armed Pennsylvania militia massed on August 1, 1794. President Washington handled the situation masterfully and ultimately sent militia to quell the revolt, but there was no violence beyond scattered incidents.

Elkins and McKitrick point out that Washington blamed the Democratic Societies for the insurrection (p. 484):

"If Washington ever had a fixed obsession, it was these societies, "self-created in the sense of having no sanction in popular authority, societies which had been up to nothing but mischief since the first ones were formed...He had felt very early that if they were not counteracted they would 'shake the government to its foundations'; and 'now if this uprising were not subdued, we could bid adieu to all government in this Country except Mob and Club Govt.'"

Washington wrote that (quoted on p.494, Elkins and McKitrick)

"all combinations and associations under whatever plausible character, with the real design to direct, control, counteract or awe the regular deliberation and action of the constituted authorities are destructive of this fundamental principle (of the duty of every individual to obey the established government)...They serve to organize faction; to give it an artificial and extraordinary force; to put in the place of the delegated will of the nation the will of a party, often a small but artful enterprising minority of the community, and, according to the alternate triumphs of different parties, to make the public administration the mirror of ill-concerted and incongruous projects of faction rather than the organ of consistent and wholesome plans, digested by common counsels and modified by mutual interests."

Elkins and McKitrick quote a Senate resolution recorded in the Annals of Congress:

"Our anxiety arising from the licentious and open resistance to the laws in the Western counties of Pennsylvania has been increased by the proceedings of certain self-created societies...proceedings in our apprehension founded in political error, calculated if not intended to disorganize our Government, and which...have been influential in misleading our fellow citizens in the scene of insurrection."

Might this early distrust of associations, which had disappeared by the time De Tocqueville published Democracy in America in 1835, be the source of the American commitment to the two-party system? While the conflict between the Republicans and the Federalists in the 1790s amounted to a battle between centralizers and decentralizers; proponents of government subsidy to business and proponents of Whiggish suspicion of centralized authority, and so was unavoidable, might the fear of more factionalization than the Federalist-Republican or later Democratic-Republican division be the distant remnant of this early American fear of faction?





*Stanley Elkins and Eric McKitrick, The Age of Federalism: The Early American Republic, 1788-1800. New York: Oxford University Press, 1993.