Grover Cleveland: A model for President Obama?

[From Mercatornet.com] The latter part of the 19th century was a period of appalling economic crisis in America. 1873-1896 was known as “The Great Depression” long before the 1930s came along. Farmers faced falling prices, workers toiled in massive new factories for low wages and went home to seedy slums if they weren’t killed in industrial accidents; politics was explosive and fears or hopes of revolution were everywhere. It was also the most rapid economic growth the nation ever experienced. Because back then governments knew how not to do dumb stuff.

The statistics on economic growth in the period are extraordinary. Economic output quadrupled; manufacturing output increased six-fold. Railway track in operation rose from 53,000 miles in 1870 to almost 200,000 in 1900 and ton-miles of freight hauled increased ten times just from 1870 to 1890. By 1894 the United States was the world’s leading manufacturing nation, on its way to producing one third of the world’s manufactures by the start of World War I.

A few mores statistics if you’ll indulge me. On the eve of the Civil War total power available in the U.S. was round 13 million horsepower, two-thirds of it more or less literally, that is, produced by animals. By 1880 steam exceeded animal power; by 1900 steam engines accounted for two-thirds of the 65 million horsepower available. And while the 1880 census didn’t even mention electric power, by 1900 it was gaining fast on steam.

It wasn’t just quantity: This was the era of the phonograph, refrigeration, food canning, typewriters, the telegraph and telephone and the motion picture. In short, an era of unparalleled economic progress.

Also apparently unparalleled misery. History professor Scott Reynolds Nelson recently wrote (in The Chronicle Review) that his own grandmother, who found the 1930s trying, insisted to him that it was nothing compared to what her grandparents went through in the late 19th century. And he cited scary statistics about bank closures, factories failing, unemployment rates of 25 per cent in major cities, riots and strike-related gun battles.

As one would expect, such a climate produced a great many foolish political proposals, from abolishing capitalism to simple dopey inflation: two decades of falling prices, especially for farm products, led to a mighty campaign for “Free Silver”, first from the major insurgent Populist Party and then from one of the two mainstream parties, with the 1896 nomination of William Jennings Bryan by the Democrats. The idea, to fiddle the money supply by basing the dollar on gold and silver simultaneously, was both technically unworkable, and built on the philosophical sand of a belief that if only the government printed more money people would have more of it and thus would be richer. But these proposals were all rejected, often with great difficulty, and the economy seems to have been far better for it.

Among those who stood against the foolishness, earning the opprobrium of his party, much of the electorate and liberal professors since was Democratic president Grover Cleveland. The only man to serve non-consecutive terms as chief executive (1885-89 and 1893-97), Cleveland was an unshakable advocate of sound money and of minimal government. With the federal government tiny by modern standards, raising most of its money from tariffs and spending much of it on pensions for Union Army veterans and their families plus river and harbour projects, Cleveland went so far as to veto an 1887 bill providing $10,000 in seed for drought-stricken Texas farmers because the Constitution made no provision for expending public money to benefit a particular segment of the public. And in doing so he said “the lesson should be constantly enforced that though the people support the Government the Government should not support the people.... Federal aid in such cases encourages the expectation of paternal care on the part of the Government and weakens the sturdiness of our national character.” If that’s not weird enough by contemporary standards, he went on to say that government aid might reduce “that kindly sentiment and conduct which strengthens the bond of a common brotherhood.” So he challenged private citizens to come forward. And here’s perhaps the weirdest part: They responded. A number of newspapers adopted the relief campaign and in the end Americans donated not $10,000 but $100,000 to the afflicted farmers.

A lot of things went wrong in the late 19th century. A lot of things always go wrong. Agriculture suffered terribly; the growth of industry created slums, dangerous working conditions and alarming new social and economic entities. But cheap food was good for workers if bad for those who produced it and in any case it was the inevitable result of the incredible success of American farmers in opening up new land and increasing yields with superior methods and equipment. And if industrial work was difficult, dirty and dangerous, it was a lot better than the lot that awaited many, especially immigrant workers, if they had not come to America’s cities.

The promise of industrialization was that it would relieve man’s estate by relieving material want, and if the first part was overdone the second, in late 19th century America, was not. Even with substantial population growth, real per capita income at least doubled during this “Great Depression.” And that’s because while many things went wrong, a major thing that went right was that the American government did not engage in wildly expensive attempts to prop up and preserve what was not working at the expense of what was, to freeze capital and labour resources in unproductive uses. The process of adjustment was painful, even brutal at times, but the cost of stagnation would have been far higher.

Too many people are proposing that we should deal with hard times today as they did in the Johnny-come-lately Great Depression of the 1930s, by introducing massive public spending and welfare programs. How we’re meant to start doing something we’ve been doing for 70 years that didn’t even prevent the trouble has not been adequately explained. But with the U.S. government already running gargantuan deficits while spending 41 per cent of its money on health care and old age pensions, and with states including California staring at bankruptcy through insanely lavish social spending even in good times, it’s not at all clear that such a program could be carried out even if it were a good idea.

In the late 19th century politicians from both parties largely fended off daffy proposals. And while the details vary, the basic impulse to make bad situations worse by not allowing people to liquidate unsound arrangements and put the resources in question to better use remains very much in force. Modern tariff policy is, to be sure, an improvement. But contemporary proposals to pump liquidity into the economy by propping up bad loans and bankrupt financial institutions would warm the heart of any old “Free Silver” enthusiast and today there’s not much opposition.

The Grover Cleveland fan club is not, I believe, a large one. But maybe it’s time to start enrolling new members.

[First published on Mercatornet.com]