Will Obama Butcher Health Care As the Democrats Have Butchered Education?

Larwyn just forwarded a Hugh Hewitt Town Hall post that quotes Barack Obama's expression of delight in "creative" education at a charter school in Colorado:

"When you start working with teachers, tapping into their creativity, then you start designing curriculums that tap into the childrens' creativity. I was at a wonderful charter school in Colorado, ah, that had designed the entire school year --each year was designed around a theme-- and this is a majority Hispanic school, but the theme that year, they called it "Passages." And it was all about the African American experience.And so they incorporated music, you know, ah tracing sort of the history of African music through blues through jazz to modern times, along with history, along with literature, and these kids last year, ah, the year before they started this charter school, about 50% of the kids had dropped out, and now a 100% of them are graduating, a 100% of them are going to college because they were engaged in a curriculum that was interesting to them and seemed relevant to them, ah, and they incorporated art and music to make school interesting."

Barack Obama's delight in failed "creative" or "progressive education" approaches is not surprising, because his associate, William Ayers, advocates them. In her landmark book Left Back: A History of Battles over School Reform Diane Ravitch outlines how the quack educationist establishment has rendered America an increasingly illiterate nation through its advocacy of the "progressive" approaches in which Mr. Obama takes delight. The Democratic Party, the chief ally of the educationist establishment, has butchered the education of American children.

Do the Democrats aim to similarly butcher the health care of American patients? Throughout the debate about the need for health reform, none of the advocates has questioned the ability of state-influenced health care to eliminate the need for rationing, and none has explained how the quality of care will be affected by reform. Michael Moore, in his film Sicko, uses Cuba as an example of the kind of care that Americans can expect from a public system. Cuba spends $250 per year per citizen on health care. In comparison, America currently spends better than $3,000 per year per citizen on health care.

Does Mr. Obama aim to butcher patients on a governmentally-dominated operating table much as the Democrats have butchered American childrens' education?

The Federalist Number 8 and the Second Amendment

The Federalist No. 8, attributed to Hamilton, sheds some light on the Second Amendment debate. As many have pointed out, the Second Amendment refers to the citizens' and the states' ability to resist a federal standing army. As such, it would seem that a robust interpretation as to the right to keep and bear arms is condign. In the Federalist Number 8 Hamilton argues that the threat of a standing army to liberty will not be great since the country, under the Constitution, would not ordinarily need to worry about military threats and so the federal army would not need to be large. He adds that because of the rarity of internal invasions:

"The smallness of the army renders the natural strength of the community an overmatch for it; and the citizens not habituated to look up to the military power for protection, or to submit to its oppressions, neither love nor fear the soldiery; they view them with a spirit of jealous acquiescence in a necessary evil and stand ready to resist a power which they suppose may be exerted to the prejudice of their rights.

"The army under such circumstances may usefully aid the magistrate to suppress a small faction, or an occasional mob, or insurrection; but it will be unable to enforce encroachments against the united efforts of the great body of people."

The Second Amendment reads:

"A well regulated militia, being necessary to the security of a free state, the right of the people to keep and bear arms shall not be infringed."

It seems evident that the Second Amendment, like Hamilton, refers to the public's and the states' ability to resist military incursions on liberty. Gun ownership in this light is not only an individual right, but an individual responsibility. Far from limiting the right to bear arms, the phrase "a well regulated militia" suggests that all Americans ought to bear arms as a defense against a standing army and suppression of the citizenry. Would that the European victims of nazism and communism had taken the advice of the Bill of Rights and formed a well-regulated militia.

John Dewey's The Public and Its Problems

John Dewey. The Public and Its Problems. Athens, Ohio: Swallow Press-Ohio University Press. Originally Published New York: H. Holt, 1927. 236 pages. Available at Amazon.com for $13.95, used and new from $5.00.

John Dewey wrote The Public and Its Problems in response to Walter Lippmann's Public Opinion, which I previously reviewed here. While Lippmann was among the first to notice cognitive limits to public deliberation especially with respect to the mass media's inability to represent issues meaningfully, and so implied a threat to the possibility of big government democracy, Dewey aims to present an argument as to why public opinion can be rationally derived. Dewey's arguments in favor of pragmatism are strong but his arguments in favor of the possibility of rational public deliberation do not resolve the barriers to deliberative mass democracy. As Dewey suggests, this weakness gives the reader pause as to whether we actually live in a democracy.

I am of two minds about The Public and Its Problems. As a pragmatist, Dewey provides an excellent basis for skepticism about political systems. His emphasis on the need for experimentation and the danger of excessive fascination with tradition suggest the need for flexibility in government. But this book contains the germs of early 21st century social democratic conservatism as well. As much as he criticizes Whigs and individualists for their commitment to liberal institutions, Dewey fetishizes state-based solutions. His Progressive ideology leads to his claim that the public can deliberate by hiring social scientists and allowing journalists free rein in painting of artistic portraits of the experts' observations for public consumption. This is not a pragmatic argument. It is nonsense. Nor is his treatment of Locke and the utilitarians pragmatic. It is precisely in the results of Lockean individualism that the individualist theory's advantages are evident. When (p. 105), Dewey emphasizes that all history involves association and that there is no such thing as a natural economy, he misses the point that such associations and transmission of culture and tools existed in primitive Middle Age and tribal economies as well as in the 19th and 20th centuries. What differentiated the latter was Lockean individualism. Hence, instead of looking for the reason that progress emanated from Lockean individualism, Dewey emphasizes institutional history. But the important difference between the modern and more primitive economies ensues not from adjustment to particular circumstances but rather from flexibility and incentives; from the ability of price to enable entrepreneurs to gauge demand; and from the ability of firms to allocate resources in response to price. As Dewey's Progressive ideas gained currency through the 20th century, the economy became less promising. Rather than revise Dewey's arguments, today's social democrats (formerly known as liberals) dug in their heels and insisted on the religious fetishization of government programs like Social Security and the Federal Reserve Bank.

On page 35 Dewey summarizes his argument that the state arises as a mechanism to deal with third parties' perceived effects (what economists call externalities) from private transactions:

"Associated action is a universal trait of the behavior of things. Such action has results. Some of the results of human collective action are perceived...Then there arise purposes, plans, measures and means to secure consequences which are liked and eliminate those which are found obnoxious. Thus perception generates a common interest; that is, those affected by the consequences are perforce concerned in conduct of all those who along with themselves share in bringing about the results...Those indirectly and seriously affected for good or for evil form a group distinctive enough to require recognition and a name. The name selected is the Public...Then and in so far, association adds to itself political organization, and something which may be government comes into being: the public is in a political state."

Thus, the public arises from the need to cope with externalities and the state, argues Dewey, is necessary to so cope. Unfortunately for Dewey, his argument is susceptible to the same criticism that he levies at other theories, namely, the exaggeration of human agency in the evolution of the state. This is true in three ways.

First, he does not make explicit how interests, perceptions and organization are actually implemented by his "Public". He assumes away the possibility of vested interests, asymmetries of information and power that are crucial to understanding the state and the inequities it causes. Dewey downplays the human agency necessary in the creation of law, and so supposes a naive public interest rationale for law (p. 57):

"the law as 'embodied reason' means a formulated generalization of means and procedures in behavior which are adapted to secure what is wanted."

Note the passive voice in this sentence. "What is wanted" by whom? For what end? Dewey describes the "primary problem of the public to achieve such recognition of itself as will give it weight in the selection of official representatives and in the definition of their responsibilities and rights" (p. 77) but this problem is but the tip of the iceberg. Which portions of the public are likely to be most successful in influencing public officials? Why do some economic interests become more powerful than others? These are questions that democracy has failed to resolve. Dewey suggests that these problems are necessary to solve in saying that public officials will always suffer conflicts, but he does not outline the structural asymmetries that skew democracy.

In chapter three, "The Democratic State", he criticizes individualist democratic theory for ignoring the effects of large scale organization and implicitly the need for labor organizations. He asks (p. 98): "Why, then, was a movement which involved so much submerging of personal action in the overflowing consequences of remote and inaccessible collective actions reflected in a philosophy of individualism?" His answer is that workers were traditionally oppressed, and the real beneficiaries of individualism were owners, who were the only ones to experience individualism first hand. But this is short sighted. While it is true immigration flooded the American labor market in the late 19th century, facilitating large scale organization and eliminating the possibility of entrepreneurship for many Americans, it is also true that the philosophy of individual contract led to a flexibility in labor markets that facilitated the evolution of the American work force. A considerable portion of the public continued to be self employed, with the jobs in large firms becoming more desirable because of administered labor markets and high wages. Thus, self-employment did not remain the first choice for many Americans because the gains from employment in a large scale firm were greater than from self-employment. Americans abandoned farms because they could not provide a standard of living that was adequate by modern standards.

Second, historically the state did not evolve in the context of a pre-existing society where economic transactions caused externalities. Rather, the state in Europe and around the world was an offshoot of traditional tribal authority. The French state, for instance, evolved through violent overthrow of the monarchy, which in turn was derived from the tribal authority of Frankish kings, who were themselves descended from Frankish tribal leaders. As well, the Roman state was tribally derived. The idea that the state evolved from externalities is a more far fetched fiction than the Lockean thought experiment that results in the state's being derived to protect life, liberty and property.

Third, the idea that there is less intentionality in forming a state to protect against externalities than there is in forming a state to protect against incursions on life, liberty and property is unfounded. Dewey's fundamental premise is a non sequitor. He emphasizes the importance of interpersonal associations in human activity and concludes that (p.27):

"all modes of associated behavior may have extensive and enduring consequences which involve others beyond those directly engaged in them...For the essence of the consequences which call a public into being is the fact that they expand beyond those directly engaged in producing them."

Dewey presents a public interest theory of government in which the state comes into being full-blown from the excrescences of the Standard Oil Corporation, and experts like Henry Carter Adams and Herbert Knox Smith bear the public good via a state whose only reason for existence is to help the public address the evils that Standard Oil has caused.

That is, Dewey argues that the state evolves as the public recognizes its own existence from the externalities that private transactions cause. The public remains "inchoate" (p. 31) because past institutions impede an awareness of the public's (i.e., which is effected by externalities) own existence. He adds (p. 31):

"the state is the organization of the public effected through officials for the protection of the interests shared by its members."

But the book makes good points as well. Despite Dewey's questionable theory of what constitutes a state, he emphasizes the need for pragmatic experimentation (p. 33):

"The formation of states must be an experimental process. The trial process may go on with diverse degrees of blindness and accident, and at the cost of unregulated procedures of cut and try, of fumbling and groping, without insight for what men are after or clear knowledge of a good state even when it is achieved. Or it may proceed more intelligently, because guided by knowledge of the conditions which must be fulfilled. But it is still experimental...The belief in political fixity, of the sanctity of some form of state consecrated by the efforts of our fathers and hallowed by tradition, is one of the stumbling-blocks in the way of orderly and directed change."

Not only does the state need to change, but as well "diversity of political forms rather than uniformity is the rule" (p. 45) so that a range of possible alternatives is possible.

It is here that social democratic liberalism has failed Dewey rather than the other way around. For the programs that social democracy has advocated in the name of pragmatism have become fixed. They have lasted as long as the laissez faire world of Jacksonian democracy lasted, since the 1910s to 1930s, and they have not worked much better than Jacksonian democracy did. But instead of rising to the pragmatic challenge and thinking about structural change, social democrats (formerly known as liberals) defend every attempt to reform or change their programs as aggressively as any conservative attempted to defend 19th century liberal society from Progressive reform. Social democrats have become today's reactionaries, and in doing so have betrayed Dewey's pragmatism.

Dewey wrote in a context where laissez faire capitalism had been only moderately regulated. Thus, Dewey anticipated a flexibility in the action of state functions that has not materialized. He concludes (p. 54) that:

"rules of law are in fact the institution of conditions under which persons make their arrangements with one another. They are structures which canalize action; they are active forces only as are banks which confine the flow of a stream and are commands only in the sense in which the banks command the current."

In this, Dewey's progressivism retains a strong taste of liberalism. He assumes that the state is one derived from classical liberal principles even as he attacks the basis of the classical liberal state, i.e., its limited nature and purpose. Dewey anticipates the the totalitarian state, but he explains it away (p. 73) by arguing that his theory is "neutral as to any general, sweeping implications as to how far state activity may extend." In a totalitarian state, law does not canalize human action but dams it up. In fact, Dewey's claim that state action primarily serves public interests was tragically contradicted in subsequent decades, and Dewey does not anticipate nor does his theory explain how the totalitarian state evolved from the Bismarckian welfare state, a state which likely served as a model for his own ideas.

In chapter III Dewey discusses the democratic state. All politicians have conflicting public and private interests and (pp. 77-82)

"the primary problem of the public (is to) achieve such recognition of itself as will give it weight in the selection of official representatives and in the definition of their responsibilities and rights...the same causes which have led men to utilize concentrated political power to serve private purposes will continue to act to induce men to employ concentrated economic power in behalf of non-public aims."

In discussing the utilitarian and individualist theory of rights Dewey quotes James Mill's (p. 93) "classic formulation of the nature of political democracy", namely, popular election, short terms of office and frequent elections and argues (p. 95) that classical liberal democracy over-rated individualism. Rather, "Today, the everyday relationships of men are largely with great impersonal concerns, with organizations not with individuals."

Yet, Dewey's emphasis on the importance of large scale organizations overstates the importance of scale and understates the importance of flexibility, a fallacy characteristic of the Progressives. They could not have known that flexibility would be more important than scale. It took the Japanese automobile industry to hammer this home in the 1950s (as well as the Austrian economists in the mid 20th century). Nor did Dewey grasp that institutionalization of special interests would lead to impediments to economic growth as the special interests pushed for regulation, licensure, taxation and other impediments to growth.

In chapter 5, "The Eclipse of the Public", Dewey notes that increasing scale and public apathy have been coupled with increasing big business power and homogenization of the American public (pp. 116-23):

"In spite of attained integration, or rather perhaps because of its nature, the Public seems to be lost; it is certainly bewildered...Those still more inclined to generalization assert that the whole apparatus of political activities is a kind of protective coloration to conceal the fact that big business rules the governmental roost...Is the public a myth?."

He further notes that (p. 126-31):

"The machine age has so enormously expanded, multiplied, identified and complicated the scope of indirect consequences, has formed such immense and consolidated unions in action, on an impersonal rather than a community basis, that the resultant public cannot identify and distinguish itself...There are too many publics and too much of public concern for our existing resources to cope with...the Great Society has invaded and partially disintegrated small communities of former times without generating a Great Community...The local face-to-face community has been invaded by forces so vast, so remote in initiation, so far-reaching in scope and so complexly indirect in operation that they are from the standpoint of the members of local social units, unknown."

Moreover:

"Aside from business corporations which have a direct interest in it and some engineers, how many citizens have the data or the ability to secure and estimate the facts involved...But the very size, heterogeneity and nobility of urban populations, the vast capital required, the technical characterization of the engineering problems involved soon tire the attention of the average voter."

And (p. 131-46)

"The increase in the number, variety and cheapness of amusements represents a powerful diversion of political concern. The members of an inchoate public have too many ways of enjoyment, as well as of work, to give much thought to organization into an effective public...Access to amusement has been rendered easy and cheap beyond anything known in the past."

In chapter 5, "Search for the Great Community", Dewey points out that the transition from family and dynastic government was the result of technology rather than ideology. Ideology has served primarily the role of "war cries" but not of hypotheses meant for experimentation. History has not borne him out. The classical liberal ideas that he deprecates have been associated with far better economic performance than socialist ones. Ideology rather than technology differentiated the American and Soviet economies. Thus, by his own pragmatism Dewey's diminution of the importance of ideology failed.

Dewey believes that the trend has been toward greater democracy (p. 146) but I do not think that history has borne out this belief. There has never been a solution to his question:

"The prime difficulty, as we have seen, is that of discovering the means by which a scattered, mobile and manifold public may so recognize itself as to define and express its interests."

Dewey suggests as a solution, enhanced participation in pluralistic groups. Democracy is the idea of community life (p. 148). Associations become communities when they are infused with morality supported by signs or symbols (p. 152). "The young have to be brought within the traditions, outlook and interests which characterize a community by means of education: by unremitting instruction and by learning in connection with the phenomena of overt association."

Meaning and communication can influence the technological and economic change that creates the "Great Society". To transform the Great Society into the Great Community social transmission of knowledge, tools and habits are needed (p. 158-9). Habit is fundamental to institutions. Mere freedom from constraint does not create intellectual freedom. The "agencies of publicity which exist in such abundance are utilized in...advertising, propaganda, invasion of private life" and therefore obstruct the "circulation of facts and ideas" (p 169). "We seem to approaching a state of government by hired promoters of opinion...Men have got used to an experimental method in physical and technical matters. They are still afraid of it in human concerns." Social knowledge is backward and people are excessively conservative and loyal to established institutions. "Only continuous inquiry, continuous in the sense of being connected as well as persistent, can provide the material of enduring opinion about public matters" (p. 178). Much of news is trivial and sensational (p. 180). Social science must be integrated with news. Instead, pecuniary interests manipulate the news. Presentation of news is "fundamentally important" (p. 188). "The freeing of the artist in literary presentation, in other words, is as much a precondition of the desirable creation of adequate opinion on public matters as is the freeing of social inquiry."

As Dewey notes in chapter 6, The Problem of Method, the reader is left with a considerable sense of denial of the possibility of these conditions occurring. Dewey goes on to argue that abstract theory is not important, but rather the consequences of theories are what should be considered (p. 193). "The problem of exercising 'social control' over individuals is in its reality that of regulating the doings and results of some individuals in order that a larger number of individuals may have a fuller and deeper experience...Even professedly empirical philosophies have assumed a certain finality and foreverness in their theories which may be expresse dby saying that they have been non-historical in character."

Subsequent generations of social democrats (formerly known as liberals) have betrayed this perspective. Dewey's Progressivism was founded on pragmatism. Today's social democrats resent any tinkering with the solutions that were put forward in Dewey's day. They are as conservative with respect to Social Security, the Federal Reserve Bank and the income tax as early twentieth century conservatives were, only in reverse. As Dewey points out (p. 202) "The person who holds the doctrine of individualism or collectivism has his program determined for him in advance." Today's liberals hold their collectivism tightly, and resent and resist any attempt to reform failure in their many programs, to include urban renewal and planning, education and monetary policy. The solution ought to be a new technology of public management, not a new ideology. As Dewey points out, ideological debates are sterile, and American politicians lack the knowledge or courage to experiment.

Social Democratic Liberalism Came to Serve Corruption

Americans' acceptance of the Keynesian ideology, often called social democracy or post-war liberalism, had its roots in Hamiltonian Federalism. Hamilton, a follower of Hume's economic ideas, had advocated federal expansion of credit and concentration of its availability to business interests. This was to be accomplished by federal assumption of the Revolutionary War debt and establishment of a central bank. Hume had argued that if credit is made available to merchants, then the merchants' smart investment decisions would allocate resources into their most productive uses. Thus, the public might become richer by the artifical creation of money, in Hume's view. Hume assumed that it is a good bet for the public to bear investment risk. But there is certainly risk. Hume believed that the risk would pay off, but this is an apriori argument, not an empirical fact. Moreover, this argument rested on particular facts that were true in the 18th century and ceased to be true by the late nineteenth, in particular merchants' personal assumption of risk.

Hume wrote at a time when corporations did not exist. Corporations did not take their present form until the late nineteenth century, as late as the 1890s. At the time that Hume wrote, merchants who assumed risk did so on their own account, and if they lost money they personally suffered. Thus, there was considerable motivation for rational, profit-maximizing behavior. When central banking was abolished, business needed alternative means to aggregate capital. Corporate organization did so, and it did so by shifting risk away from entrepreneurs and merchants onto investors. This is a more rational method for allocating risk than is central banking because it can reflect personal preferences for risk. Moreover, it permits reflection of a wide range of public preferences. Some people have considerable utility for money in the present because they prefer to consume. Consumers might prefer not to take risks with money but rather to spend it. In contrast, other people have greater utility for money in the future. Such investors can choose to invest more heavily in corporate ventures than a central bank's broad allocation of public resources to specific interests would permit.

Corporate organization might be viewed as an alternative form of capital aggregation to central banking. It is superior because the allocation of risk is explicit. Those who wish to take risks invest in the corporation, while those who do not wish to take risks do not invest. This contrasts with monetary creation by the central bank, which forces all citizens to participate in risky business decisions whether they choose to or not.

But the compounding of the corporate form with central banking might exaggerate risk taking and confound the Humean-Hamiltonian model. Merchants who are not personally at risk may not behave rationally. The result is a potential for corrpution. A corporate president who is granted dollops of credit artificially created by a central bank might be motivated to present false earnings reports, pay himself an exaggerated salary and then resign from the firm before it goes bankrupt, much as the officers of Enron and Bear Stearns did. There is no guarantee of rational behavior by corporate organizations staffed by self interested bureaurcrats. Thus, the subsequent adoption of Hamiltonian Federalism under the Keynesian moniker has gradually led to a crap shoot economy unbridled by rationality and propelled by self-seeking, incompetence and greed.

By 1830 it was evident to most workers that the Central Banking system was not beneficial to them. The Humean and Hamiltonian theory of credit had failed. In particular, banking monopolies led to depreciating currency which in turn led to resentment of the central bank, which President Andrew Jackson abolished in 1832 and 1833. Between 1833 and 1913 there was no central bank, and this was the period of greatest economic creativity in American history. It was also a period of slow business profit, which resulted in repeated complaints about "depressions". Every decade saw increasing real wages and every decade saw a "depression". By the end of the 19th century the average American was much better off, the American economy was the center of world innovation, immigrants flocked here by the millions, but business interests incessantly complained about "depression". Moreover, governmental subsidies to railroads engendered corruption and overexpansion. Post-Civil War monetary inflation facilitated speculation and created income inequality. This occurred at the same time that Jackson's spoils system led to political corruption in the cities.

Many observers felt that rationalization of the state through civil service would improve the economy. The traditional American belief that morality led to economic success was being tested by corruption associated with the railroads and political clubs in the cities. In 1883 Congress passed the Pendleton Act, which created a rudimentary civil service for the federal government. In turn, advocates of moral and limited government, to include the Mugwumps, argued for increased use of civil service, honesty in government, and the gold standard and reduced tariffs. The election of 1884, in which the Mugwumps bolted the Republican Party to support Grover Cleveland, led to Cleveland's election. At the same time, the corporate form of organization facilitated the expansion of industry.

During this period Bismarck in Germany was experimenting with social democracy. Bismarck implemented national health insurance, social security and other social programs. The German historical school of economics argued against the laissez faire economics of Charles Sumner and Adam Smith. Smith, like Hume, argued that there are general laws of economic development. In contrast, the German historical school argued that economic laws are specific to time and place and that generalization is impossible. Moreover, the German historical school assumed that it is possible to rationally guide an economy. This contrasts with Hume's belief that merchants are better equipped to assess investment opportunities than anyone else. It also contrasts with the Whiggish and Jeffersonian belief in countryside entrepreneurs as better equipped to assess investment opportunity than either central planners or elite merchants.

In the late nineteenth century young American academics such as Henry Carter Adams, Richard T. Ely and John R. Commons sought education in the German universities. This was linked to the late nineteenth century Mugwumps' interest in establishing professions. The Mugwumps not only believed in fighting corruption and establishing sound money, but they also had specific professional interests in mind. They wanted to establish standards in academia, law, medicine and other professions. These professional interests became the common thread of modern liberalism. If there is one constant theme from the Mugwumps to todays American Association of University Professors, it is the importance of a college education, professionalism and regulations to establish them. The Mugwumps did not believe in social democracy, but they did believe in rationalization. The German universities were the best in the world, and they thought that if Americans were trained in German universities that they could bring the best methods to bear on American problems. But in social science the German universities were not really so methodologically advanced. The German historical school's emphasis on state-based solutions was a form of romanticism. The Americans who studied in Germany brought some reform ideas to bear on American problems, but combined these with faith in the power the state to solve social problems.

At first the Mugwumps resented the ideas of Richard T. Ely and Henry Carter Adams. As Nancy Cohen points out, Ely, who founded the American Economics Association, was denied tenure and forced to conform to the Mugwumps' expectations. Henry Carter Adams left academia altogether. However, the long term effect was to stimulate support for Progressivism. Ely's student John R. Commons was a central figure in the reform-oriented Wisconsin school, for instance. Progressivism had a number of roots, to include Social Gospel Christianity and Populism, but it was also heavily influenced by Commons's academic theories. Progressivism should not be confused with socialism or social democracy. At times it had elements of these but it included reform ideas of varying kinds.

In 1913, Woodrow Wilson had established the Federal Reserve Bank in order to rationalize the credit markets. Wilson was a supporter of the gold standard and had voted for the Gold Democrats in 1896. He did not anticipate a return to Hamiltonian Federalism. Rather, he saw the Fed as a way to rationalize and professionalize financial management. However, by reestablishing a central bank, he reopened the door to Hamiltonian Federalism. Immediately after the Fed was founded, there was a serious inflation which in turn led to a depression. By 1920 the public had grown weary of the disruptions in economic life and elected Warren G. Harding and Calvin Coolidge. By 1920, after two decades of Progressivism, there was little memory of the laissez faire ideas of the late nineteenth century. Thus Harding and Coolidge, who succeeded Harding when he died three years into his term, nor Congress, were motivated to repeal the Progressive legislation of Roosevelt and Wilson. Part of the reason was that the more extreme socializing ideas that the Republicans under Roosevelt advocated had not come to pass. Instead, the more conservative approach of William Howard Taft and Woodrow Wilson had led to limited judicial enforcement of the Sherman Anti-trust Act, the Hepburn Act which established railroad rates, and the Federal Trade Commission Act. But these laws had limited effects. On the other hand, they turned out to be a stepping stone to a greater degree of governmental intervention in the economy within 12 years.

The compounding effect of the central bank and the corporate form of organization in generating economic inefficiency and corruption did not begin to be felt for a number of decades. This was accomplished by Franklin D. Roosevelt in the early 1930s. First, FDR abolished the gold standard in 1932. Second, he used the pretext of social democracy to strengthen the federal government, which in turn led to increased availability of credit. This was done through the expansion of the military along with the expansion of the welfare state. Government contracts became available as did increased credit. The stock market began to increase from 1937 onward, and after World War II it began an ascent from which it has never returned. In contrast, the financial markets did not increase from the 1880s until the 1930s. In effect, Roosevelt implemented the Hamiltonian system in full force, but he did so with a cloak. The cloak was that of social democracy. American politics became a debate between two statist visions, both derivative of Progressivism and Federalism. The Republican vision was one of state intervention on behalf of business and opposition to social democracy. The Democratic vision was one of state intervention to regulate business in the name of social democracy but to subsidize business through credit expansion just as Hamilton had suggested in the 1780s. Thus, modern American politics deteriorated into a debate between two Hamiltonian visions, both of which aimed to subsidize inefficient corporations at the expense of a bewildered public.