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Sunday, July 18, 2010

More echoes from the past

This morning I will pursue my parallel between today's politics and those of the Gilded Age--and specifically, of the Grant Administration. Ulysses Grant entered office in 1869, after four years of extraordinarily bloody civil war and four more years of political civil war between the Congress on the one hand and Andrew Johnson on the other. That crisis had also thoroughly disrupted the American economy because of the issuance of huge sums of paper money, which by the end of the war was trading at a substantial discount, to finance the Union war effort. A flood of cheap money had created a fertile field for speculation--sound familiar? And this, in turn, had huge political consequences. My principal source of this post is Henry Adams, who at the start of the Grant Administration had begun a career as a journalist for the The North American Review, writing long articles summarizing the results of each Congressional session. The two specific ones upon which I am drawing are "The New York Gold Conspiracy" and "The Session, 1869-70," both of which appear in a book that can be downloaded on line here.

These essays make for a rather depressing read, because what seemed at that time to be an extraordinary abuse now seems to have become normal practice--indeed, the very engine, such as it is, of American economic growth. The proliferation of cheap money in those days had grown out of a huge, unprecedented war, and within another twenty years the problem had been solved. Now the provision of endless cheap money has become the unchanging policy of the Federal Reserve, which was founded nearly one hundred years ago, ironically, to check wild speculation and prevent panic. Jay Gould's 1869 attempt to corner the gold market and drive up the price--the subject of Adams's first essay--seems to have been repeated at least twice in the last decade or so, once by Enron, which managed to manipulate the electricity market in California so as to drive a Democratic governor out of office, and once in 2007-8 when some one--we don't know who--managed to double the price of oil. Writing about Gould and Jim Fisk's stewardship of the Erie Railroad, a huge corporation which they milked for credit by issuing new stock, Adams noted that shares were being traded purely for speculation, not for profit--which seems to be about as accurate a description of our current economy as one could wish for. The use--indeed, the purchase--of entire corporations principally to use as security to borrow more money has become a very common strategy.

What distinguishes that age from this is the almost total absence of bureaucracy. There was no Fed, no SEC, and no network of Washington lobbyists--even though the influence of the Treasury Department, which had the resources to make or break any large-scale financial scheme, remained critical. That, presumably, was why no Administration has been so riddled with high-level personal corruption as Grant's. Thus, in preparing his attack on the gold market, Fisk used Axel Corbin, a wheeler-dealer who had married Grant's sister, to reach the President personally and arrange an introduction, and even to get him to write his Secretary of the Treasury, George Boutwell, to recommend against any fall in the price of gold, which Fisk was hoping to increase from $135 to $145 (in paper money.) To make sure of Corbin Gould sold him $1.5 million worth of gold to insure his own interest in a rising price. For a while, that worked. But Fisk ran into a determined group of bears, who bought his gold and sold it short as quickly as he could accumulate it. Eventually Grant realized what was up, told his brother-in-law Corbin to stop speculating. Gould realized the game was up and sold out, but did not inform his partner Fisk, who lost enormous sums. Widespread panic was averted for four more years, but when it came in 1873 it was devastating.

Henry Adams had an almost unique perspective on American politics, one which I can appreciate myself. He had heard about the American revolution at his grandfather John Quincy Adams's knee, and he had spent the Civil War working as his father Charles Francis Adams's secretary in London, where his father was Minister to the Court of St. James. His brief but extraordinary career as a professional historian lay ahead of him, but he already had the knack of seeing the day's events in historical perspective. At the conclusion of the essay Adams noted that the Erie Railway had survived, and looked forward to the restoration of a sound currency and to necessary political reforms. Yet, he added, "the history of the Erie corporation offers one point in regard to which modern society everywhere is directly interested. For the first time since the creation of these enormous corporate bodies, one of them has shown its power for mischief, and has proved itself able to override and trample on law, custom, decency, and every restraint known to society, without scruple, and as yet without check. The belief is common in America that the day is at hand when corporations far greater than the Erie--swaying power such as never in the world's history been trusted in the hands of private citizens. . . will ultimately succeed in directing government itself. . . .The national government, in order to deal with the corporations, must assume powers refused to it by its fundamental law,--and even then is exposed to the chance of forming an absolute central government which sooner or later is likely to fall into the hands it is struggling to escape, and thus destroy the limits of its power only in order to make corruption omnipotent. Nor is this danger confined to America alone. The corporation is in its nature a threat against the popular institutions spreading so rapidly over the whole world."

Without knowing it, Adams had sketched out some of the critical historical developments of the next 140 years. Corporate and financial power remained a concern for the rest of his life, until 1917, and by then a new war was raging, one which destroyed the foundations of currency in continental Europe and opened the way for further economic and political convulsions. Then in the 1930s the New Deal, with some success, took up the task of taming corporate power, and its work endured into the 1970s (by which time another war had administered a big shock to financial stability.) The last three decades have seen the fulfillment of another part of Adams's prophecy, as the national government has become the enabler, if not the servant, of the biggest financial institutions, whose leaders commonly occupy leading economic policy positions in Washington. And now we face the rather pathetic spectacle of our government trying to look as though it were once again assuming enough power to control these institutions, while an army of lobbyists makes sure that the results will be merely cosmetic. (My friend Jamie Galbraith has just sketched out what a real attack on financial power would look like in The New Republic.. I do not expect to see it come to pass. The Civil War, it turned out, had drained the crusading energy out of the country, leaving it without spiritual resources to deal with the corporate threat. In our own time, the culture wars and the arguments over our Middle Eastern empire may have done the same thing.


Now Am Found! said...

today I was sent an email that's been circulating and presented as a great truth. Luckily for me, I already knew who you were!

Anonymous said...

Masterful historical analysis. What disturbs me, after some further thought is that you seem to miss a critical point of the Generational Theory of Strauss and Howe as they do not state it explicitly. You and most people would assume that the theory is purely cyclical, as in a sine wave, like the yearly seasons, i.e. that it reflects a closed system mechanic.

However the Strauss and Howe theory is that of an open system. According to Ilya Prigogine, Nobel prize winner in physics a system grows under increasing stress until it reaches a critical point, where it either collapses or attains a higher state of order. I am sure you recognize this as the Fourth Turning. There is no inevitable return from winter to summer type of thing in an open system, so that a mere comparison with identical attitudes of the past, as in this weeks’ analysis does not suffice to prove that we are at exactly that comparative point in the “sine wave / season” of a previous “year”.

We could compare such a phase in USA as a middle aged man in decline chasing young women recklessly, whereas the post civil war phase was that of a teenager chasing girls recklessly. America was in a massive growth phase then and mistakes could be excused by nature itself. Inputs were abundant in cheap immigration and resources, “Go West Young Man “ attitudes. Now even the water tables (Ogalalla) and oil fields and coal deposits are declining rapidly. Internally as well as externally America has overextended. The current recklessness you describe as being similar to Grant years cannot be sustained through a whole new cycle. I believe we must recognize that to survive this cycle repeating our adolescence is insufficient, that will kill us by heart attack. A massive change in attitude has to take place, in terms of conservation, etc. a “green cycle” must take place with low birth rates, etc. Otherwise the USA will come into conflict with other countries like China (resource wars) and the rich banking elite with America’s poor (possible revolution). This is what is meant by learning from the past and the key to “Growth/learning” in terms of Prigogine/Strauss and Howe.

Bruce Post said...

David, you concluded your post with this observation/speculation:

"The Civil War, it turned out, had drained the crusading energy out of the country, leaving it without spiritual resources to deal with the corporate threat. In our own time, the culture wars and the arguments over our Middle Eastern empire may have done the same thing."

I agree that our American culture is "drained" and "without spiritual resources to deal with the corporate threat." Yet, you seem to imply that this state of affairs is situational (and, perhaps, temporary), related to contemporary events. My own sense is that the vapidness of our civic culture and milieu is chronic, endemic and systemic.

I recommend to you this book: "A Failure of Nerve: Leadership in the Age of the Quick Fix," by Edwin Friedman, now deceased, who was a rabbi who worked for LBJ, a therapist and consultant. It is not necessarily an easy or traditional read, but his diagnosis of our current societal condition is both provocative and, in my mind, accurate.

Also, I want to leave you with a passage from Neil Postman's book "Amusing Ourselves to Death: Public Discourse in the Age of Show Business." Postman, who taught communications at NYU, wrote about the effect of television on culture. His contrast of Orwell's "1984" and Huxley's "Brave New World" trenchantly spotlighted what we face today:

"Orwell warns that we will be overcome by an externally imposed oppression. But in Huxley's vision, no Big Brother is required to deprive people of their autonomy, maturity and history. As he saw it, people will come to love their oppression, to adore the technologies that undo their capacities to think. ... As Huxley remarked in Brave New World Revisited, the civil libertarians and rationalists who are ever on the alert to oppose tyranny "failed to take into account man's almost infinite appetite for distractions". In 1984, Huxley added, people are controlled by inflicting pain. In Brave New World, they are controlled by inflicting pleasure. In short, Orwell feared that what we hate will ruin us. Huxley feared that what we love will ruin us.

This book is about the possibility that Huxley, not Orwell, was right."

Shelterdog said...

Great stuff. I only wish you had also referred to his chapter about Grant in "The Education of Henry Adams," which, IMHO, is the best chapter in one of the best books in American literature. His comments on Grant are probably only a scenic detour from your main thesis, but nevertheless a scenic detour without parallel.

Shelterdog said...

Here's the part of Adams's discussion of Grant that I was referring to above:
Adams did not feel Grant as a hostile force; like Badeau he saw only an uncertain one. When in action he was superb and safe to follow; only when torpid he was dangerous. To deal with him one must stand near, like Rawlins, and practice more or less sympathetic habits. Simple-minded beyond the experience of Wall Street or State Street, he resorted, like most men of the same intellectual calibre, to commonplaces when at a loss for expression:—“Let us have peace!” or, “The best way to treat a bad law is to execute it”; or a score of such reversible sentences generally to be gauged by their sententiousness; but sometimes he made one doubt his good faith; as when he seriously remarked to a particularly bright young woman that Venice would be a fine city if it were drained. In Mark Twain, this suggestion would have taken rank among his best witticisms; in Grant it was a measure of simplicity not singular. Robert E. Lee betrayed the same intellectual commonplace, in a Virginian form, not to the same degree, but quite distinctly enough for one who knew the American. What worried Adams was not the commonplace; it was, as usual, his own education. Grant fretted and irritated him, like the Terebratula, as a defiance of first principles. He had no right to exist. He should have been extinct for ages. The idea that, as society grew older, it grew one-sided, upset evolution, and made of education a fraud. That, two thousand years after Alexander the Great and Julius C├Žsar, a man like Grant should be called—and should actually and truly be—the highest product of the most advanced evolution, made evolution ludicrous. One must be as common-place as Grant’s own common-places to maintain such an absurdity. The progress of evolution from President Washington to President Grant, was alone evidence enough to upset Darwin.

Bozon said...

Great post. I have only one somewhat extended remark, re the date.

The task of 'taming the corporations', it seems to me, did not endure, even into the 70s.

By the early 70s, already, they were firmly in the FDI driver's seat. It started, really, if you look at the history, not long after the start of the Marshall Plan itself (quite understandable).

The deal had already long been cut, apparently, by the 70s, that they were free to offshore domestic production, to (temporarily) cheaper venues, as the strategic trade concession needs of Cold War, and the resulting reduced tariff protection, had reduced, and would ultimately destroy their profit margins from strictly domestic production.

thanks for the post,

Anonymous said...

I ran across this piece at the Energy Bulletin concerning The Panarchy model, a systemic concept similar to Strauss and Howe (four sttage developmental model) coming from ecology and in the PDF article the concept is appled to the current economic downturn:


For both of these reasons, it usually takes multiple shocks to tip a well-developed
social system into the 'release' phase (Tainter, 1988). Such systems seek to prolong the
'conservation' phase as long as possible. One of the lessons from this analysis of the
global financial crisis is that it will be the next shocks, or even the ones after that,
which will conclusively shift the system towards the 'release' and 'reorganisation'
stages. It seems as likely to come from the energy system, or a change in values associated
with globalisation and the end of modernity, as from the banking system itself.
As mentioned above, one of the features of the panarchy model is that it allows
for relationships between nested systems, some moving more slowly than others. It
proposes that faster-moving systems are a source of innovation, while slower moving
levels conserve and stabilise.
One of the consequences of this is that transitions are irregular and uneven. There
is variation both between different systems, and within systems, which leads to interpretative
conflict – itself a sign that the 'conservation' phase is ending. An ecological
system which collapsed as comprehensively as the banking system did in 2007-08
would have moved decisively into the 'release' phase. Yet in late 2009, some actors
evidently still believe that the purpose of public intervention has been to haul their
businesses (and them) back to the opulence of the 'conservation' phase.
though, taking different perspectives, including the slower perspective of governance,
are increasingly talking as if 'reorganisation' is inevitable (Alessandri & Haldane,
2009; Turner, 2009).

Apparently a "seasonal" model is attractive in many areas. The authors in the quote above seem to indicate that holding back a big crash, which would renew the system is not possible but the governments and banks are attempting this to maintain the status quo ante.

Amit said...

I do not think there is any nation left speaking an Indo-European language that has conscription--truly an astonishing statistic.

This Wiki map suggests some Russian, German, Danish, Norwegian, Spanish, and Portuguese speaking countries still have conscription.