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.