U.S. History 1302 Lessons.docx - U.S History 1302 Lessons Tim Sullivan 2012 2013 2014 2015 Introduction From 1877 to 1890 the political debates

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Unformatted text preview: U.S. History 1302 Lessons Tim Sullivan © 2012, 2013, 2014, 2015 Introduction From 1877 to 1890 the political debates throughout the United States remained constant in their issues and constant in the passions they aroused. Geographically, the North and Northeast were generally aligned against the South and the West. In business, management and labor were involved in hundreds of violent confrontations. In commerce, bankers and financial lenders were pitted against the borrowers. In monetary policies, the supporters of the “Gold Standard” - those who wanted the U.S. dollar to be backed only by gold - were battling the “Silverites” – those who wanted the U.S. dollar to be backed by both silver and gold. For those unfamiliar with the concept, for centuries any country’s currency was to be backed by gold. Any U.S. dollar, therefore, was to have a dollar’s worth of gold held in reserve. The Gold Standard certainly has its backers and critics today, but it did restrain the government from creating, with just the click of a button, trillions of dollars that have no intrinsic value. Finally, until 1896 the Democratic Party was the party that stood for a small federal government. It was the Republican Party that was the big government party. Populists The Homestead Act of 1862 opened up the farm lands of the Great Plains states. For a few years, the farmers of Kansas, Nebraska, and the Dakotas did well as they raised crops in the rich soil that had never before been farmed. Unfortunately, the productivity of western farmers drove down the price of food resulting in more individual farmers planting more corn and wheat to make up the for falling prices. Prices fell even more. Wheat that had sold for $1.50 a bushel in 1865, sold for 85¢ a bushel in 1891, and 49¢ a bushel in 1894. Southern cotton farmers, mostly sharecroppers, produced large annual harvests of cotton in an effort to compete with Indian and Egyptian cotton and the surplus of cotton drove that commodity’s price down. Alliances were formed between white farmers in the west (farmers who were ex-Union soldiers in the Civil War) with former white confederate soldiers and former black slaves from the South. The world’s gold supply and, consequently, the country’s money supply had not kept pace with the rise in population and productivity. The net result was an economic development known as deflation. If the money supply remains constant while the population grows, there will be fewer dollars for each individual. Deflation is good for the lenders of money and hurtful to those who have to borrow. Farmers were the borrowers. The western farmers were in a no-win situation. They had to buy machinery to stay competitive and the only way they could buy the machinery was to borrow money. But with deflation, the farmers’ monthly payments stayed the same as their annual income shrank. To make matters worse, the farmers were forced to sell their crop immediately after harvest. With all the farmers selling at the same time, the prices were inevitably driven down. The farmers were at the losing end of their two principal transactions. They did not set the price of grain when they sold it – the buyers set the price – and they did not set the price of machinery when they bought it – the sellers set the price. To make matters worse, the farmers were at the mercy of the railroad companies. The railroads and grain elevator companies were local monopolies whose rates were seen as too high by most farmers. They farmers could not exist without the railroads but this dependence made the farmers vulnerable. To fight back, the farmers began organizing. The farmers turned to direct political action in the early 1890s, bringing farmers’ alliances in the North and Tim Sullivan © 2012, 2013, 2014, 2015 1 South together as the People’s Party (Populists) was created in 1892 at their convention in Omaha, Nebraska. Ignatius Donnelly of Minnesota wrote the party’s platform. Donnelly believed there was a vast conspiracy against the farmers, and “mankind” and called for government intervention. The Populists wanted government storage of grain so the grain would not have to be sold right after harvest but could be stored until prices went up. The farmers would be allowed to borrow against their grain at a low interest rate – about 1% - until the grain was sold. The platform called for at least $50 of currency in circulation per person and for federal ownership of telegraphs and railroads. To increase the money supply, the Populists called for an unlimited coinage of silver at a 16:1 ratio to gold (about twice the going rate). Congress had passed a law in 1873 not to monetize silver – by 1892 it was called “the Crime of ’73” – and farmers now pointed to that as the date when their money problems began. While gold production had stagnated between 1865 and 1890, silver production had increased about 1,000% during same time period. It is important to remember that the value of the U.S. dollar was directly linked to the price of gold and it was the Populists’ call for a more “soft-money” policy that actually caused most Americans to ultimately reject the Populist Party. Any move away from the gold standard was seen as an invitation for economic disaster. Donnelly also wanted to attract industrial workers’ votes in order to strengthen the party. He called for an eight-hour workday for industrial workers and a ban on immigration to reduce the numbers of the workforce and possible strikebreakers. Despite Donnelly’s efforts, another reason the Populists eventually failed was because they were never able to overcome the gulf between farmers and industrial workers. In addition for a ban on immigration and a call for public ownership of the railroads and telegraphs companies, the Populists also supported direct election of senators and a graduated income tax. In fact, one of the great contradictions in the Populist movement that it was never able to reconcile its call for an increase of government intervention and, at the same time, it opposed the increase in the power and size of government institutions. The Populists were looking back to the times of Thomas Jefferson and Andrew Jackson believing that the Constitution had been betrayed. It was the Progressives of the early twentieth century that would incorporate most of the Populists’ ideals as they grew the size of government believing the Constitution was, in fact, outmoded. One more point should be noted about the Populist movement. It had an anti-Semitic theme and blamed the conspiracy against “mankind” on British and Yankee bankers, many of whom were Jewish. The world, according to some Populists, had been “Semitized” and the “Israelites (meaning the Jews) were key players in the conspiracy against mankind. There was no shortage of colorful populist leaders. Mary Elizabeth Lease, a.k.a. Mary Ellen or Mary “Yellin,” was an Irish immigrant whose two brothers were killed in the Civil War and whose father died in the notorious Confederate Andersonville Prison. The first woman lawyer in Kansas, Lease was a colorful, dynamic speaker. “Farmers should raise less corn and more hell,” and “The people are at bay, let the bloodhounds of money beware” are two of her more famous quotes. She is reputed to be the inspiration for Dorothy in the Wizard of Oz. The Populists’ presidential candidates in 1892 were James Weaver of Iowa for president, a Union veteran of the Civil War, and James Field of Virginian for vice-president, a confederate veteran. The Populists won one million votes and carried four states - Nevada, Colorado, Idaho, and Kansas. By 1896, however, the Populists Party would be swallowed up by the Democratic Party. William Jennings Bryan 2 Tim Sullivan © 2012, 2013, 2014, 2015 Soon after Democratic President Grover Cleveland was elected, a depression hit the United States that lasted from 1893-1897. It was the worst depression in the history of the U.S. until the Great Depression of the 1930s. Six hundred banks and 15,000 other businesses failed. Cleveland was unable to end the depression, giving new life to the Populist Party’s ideas and the political career of William Jennings Bryan. William Jennings Bryan was known as the “Boy Orator of the Platte (the Platte River in Nebraska).” The Democrats nominated Bryan as their candidate for the 1896 election as he electrified crowds with his “Cross of Gold” speech. “Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests, and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not crucify mankind upon a cross of gold.” As he finished his speech, he stretched his arms straight out, then let his arms fall to his sides and took a step back. Conservative Democrats were now a minority within their own party as the Populist movement gained control. The limited federal government party of Thomas Jefferson was transformed to the big government Democratic Party of today. The Populist Party met in St. Louis two weeks after the Democratic convention and they nominated Bryan for president. Although Bryan disavowed the Populists’ nomination he remained on their ticket. The Silver Republicans – or Silver Party – also nominated Bryan. Consequently, Bryan was the nominee of three parties. Since two tickets cannot be added together, theoretically, Bryan could have split his own vote and doomed his own electoral prospects. In the election of 1896, Bryan took the South and the West and William McKinley, the Republican nominee, won the Northeastern and Midwestern manufacturing belts. McKinley received 51.7% of the vote. Remarkably, it was the first time that the winning candidate had won a majority of the popular vote since Ulysses S. Grant had done it 24 years earlier. From1876 through 1892, no president had received over 48.6% of the vote. Two presidents were elected who had lost the popular vote - Rutherford B. Hayes in 1876 and Benjamin Harrison in 1888. Grover Cleveland ran three times-won in 1884 with 48.5% and in 1892 with 46.1% the vote. Cleveland lost in 1888 when he received 48.6% of the vote, the highest percentage of votes he ever won in a presidential contest. Cleveland would be the last Democrat elected president until Woodrow Wilson was elected in 1912. As mentioned earlier, many of the Populists’ proposals were adopted into law. The federal income tax and direct election of senators became Constitutional amendments in 1913. The income tax is the 16th amendment and direct senatorial election is the 17th. Additionally, the federal government acquired more control over railroads with the Hepburn Act of 1906. Counter-Argument to Deflation Not to confuse anyone, but it should be mentioned that there are economists/historians who maintain that the traditional narrative concerning deflation is completely wrong. Two of the biggest names supporting this position are Lewis Lehrman and Ron Paul. Their views should be expressed in an effort to look at both sides of the argument. Followers of Lehrman ask the question: If William Jennings Bryan truly represented the people then why did he decisively lose three times in his presidential bids and why was his pro-silver position rejected as the country embraced the gold standard? To try to answer those questions we will start with the decade of 1869 to 1879. According to these economists, there was no real depression. The money supply actually increased by 2.7 percent per year along with productivity and the real national product. Their Tim Sullivan © 2012, 2013, 2014, 2015 3 point is that the economic gains may have been modest but that is not the same as an economic contraction. Prices did fall by 3.8 percent per annum but so did the costs of production. The net result was one of economic growth. The economy experienced much of the same results from 1879 to 1897as the real net national product grew along with the money supply. These decades actually saw the money supply increase by 6 percent per year as prices fell by 1 percent per annum due to the increasing rate or productivity and supply of products. If deflation, inflation, depressions were not the driving forces of late 19th century politics then what was? According to Lehrman and Paul (authors of The Case for Gold) the driving issues were much more local than national and much more complicated than normally portrayed. One of the lingering effects of the 2nd Great Awakening of the early 19th century was a desire to improve society and people believed (as some do now) that the State is the best tool to accomplish this task. It should be remembered that most of these political battles were fought on the local and state levels, not the national level. The largest obstacle – in those days - to the creation of a better society was not caffeine, sugar, or large sodas but rather alcohol. A drive for prohibition would begin in the 1830s and last for nearly a century. Another obstacle to be opposed was Roman Catholicism and any political control yielded by the Vatican. Supporters of these movements joined the original Republican Party and would later, as the Republican Party moderated its policies, join the Populist Party by 1896. Southerners who remained firmly committed to the Democratic Party after the Civil War found their political party being joined by newly arriving beer-loving German Lutherans and Irish Catholic immigrants settling in the North. These groups were not interested in voting for all powerful, controlling State. The Republicans saw themselves as a party of “great moral ideas” while the Democrats saw themselves as a party “of personal liberty.” The Republicans were the supporters of a big paternalistic government while the Democrats were trying to hold back the onrushing tidal wave of government mandates and control. By the 1890s the Republicans began to moderate their positions in order to attract more voters. In state after state the Republicans abandoned their stance on prohibition and softened their views on immigration. In state after state the Republican Party was moving more to the political center. Local political debates were forcing their way into national debates. The party who for decades has been opposed to “Rum, Romanism, and Rebellion” was changing. The Democrats also began to change. Southern Democrats began to embrace prohibition and western Democrats began to embrace silver and reject a purely gold based monetary system. The northern Lutheran and Catholics began to abandon their Democratic Party and flock to the Republican cause. In time the Democratic Party would itself become more centrists and the Populists Party embraced the causes of prohibition and sin. To many, the Populists were not a political party but “a religious revival, a crusade, a pentecost of politics in which a tongue of flame sat upon every man, and each spake as the spirit gave him utterance….” By 1900, with the Populists dwindling in number and influence, the country had two statist political parties trying to govern from the center. With no clear differences and the heated political campaigns of the 19th century a thing of the past, voter turnout began to dwindle Railroads It is almost impossible to overstate the importance of the railroad industry in the late nineteenth-century United States. The federal government took at active role in the construction of the nation’s railroads as the politicians and most railroad companies profited handsomely from the mutually beneficial arrangements. The government paid the railroad companies for every mile of track they laid. Railroad companies were paid Tim Sullivan © 2012, 2013, 2014, 2015 4 $16,000 for each mile of track laid on flat land, $32,000 for hilly terrain, and $48,000 for tracks build in the mountains. Consequently, the railroads were more concerned with the quantity of tracks laid than with their quality. Often tracks that were built over ice and snow in the winter had to be rebuilt with the spring thaws. Railroad companies profited twice. As government money poured into the railroad companies, the railroad companies made sure that railroad stock was made available to the politicians who provided the money in the first place. Dishonest politicians combined with poor financial policies always result in economic chaos. The waste and inefficiency of the railroad companies helped fuel consumer anger, which gave rise to government regulations. The new regulations helped push railroad companies into bankruptcy. The Financial Panic of 1873 was started when the Northern Pacific Railroad went broke due to its poor business practices. Thousands of banks and businesses who had invested in the railroad also went broke. The Great Railroad Strike of 1877 led to a nationwide strike. In Pittsburgh a steel plant was burned down and the state militia killed twenty-six strikers in a pitched battle. The Depression of 1893 was, in part, caused by the bankruptcy of the Reading Railroad, Union Pacific, and others. That cutback in railroad orders led to the Pullman Strike. Pullman cars were the luxury cars of the railroads and a decrease of sales led to a bloody labor confrontation in 1894. In fact, in 1894, 750,000 workers went on strike while another 3 million people were unemployed. There was one railroad magnate who distinguished himself from the other railroad tycoons of the age: James J. Hill. Hill did not accept government money. He chose to build his company on sound business practices. Hill took over the failed Northern Pacific Railroad and built the Great Northern Railroad. It was the only transcontinental railroad company that never declared bankruptcy. In 1894, when other major railroad lines were declaring bankruptcy, Hill was cutting his costs and prospering. Who knew a company could prosper without government bailouts? Hill was able to offer cheaper rates to his customers, including the farmers, but when the Interstate Commerce Commission (ICC) was created in response to consumer demands, it became illegal for railroad companies to charge different rates to different customers. Hill was forced to raise his rates. Hill later got into the shipping industry, exporting U.S. goods to Asia. Once again he was successful and once again he was able to offer lower rates. And once again the government made him to raise his rates in order to be in line with his government-connected rivals. This time it was the Hepburn Act of 1906 that outlawed rate discounts. All this was done, of course, with the expressed purpose of “protecting” the consumer, but with American exports to Japan and China dropping by 40 percent from 1905 to 1907 one as to wonder how well the American consumer was protected. Putting the negative repercussions aside, what must be noted is the major impact the railroads had on American society. Supporters of the subsidized railroads point out that all the money that was given to the railroad companies was eventually paid back. The fact that the government made the railroad companies pay back the money is overlooked along with the fact the companies raised their rates in order to pay back the money. What is important, we are told is that total amount was $63,000,000 in principal, and $104,770,000 in interest were paid. From a financial point of view it was a success. Steel production rose from 1,700 tons a year to over 7,000,000 tons a year by 1897. The U.S. outstripped Germany and Great Britain in steel production. This would have a huge significant impact with the arrival of World War I. For all its problems, the U.S. transcontinental railroad was built in seven years. Canada had a government-run transcontinental system that was more corrupt than that of the United States and it took the Canadians 20 years to complete their railroad. Russia had its own corruption problems as it took 40 years to complete its trans-Siberian railroad. Secondly, the thousands of mile...
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