For a night book, Keyser is reading Flashback, but his exercise bike book (now sadly needed most days, as fall has hit with a vengeance) is Murray N. Rothbard’s A History of Money and Banking in the United States: The Colonial Era to World War II. This is a libertarian tract, which means that it takes a rather different tack from the usual run of histories of money and banking, which tend to be be pro-Federal Reserve Bank and to view the past through this perspective. For instance, traditional histories favor the first and second Banks of the United States as precursors of the supposedly moderating influence of the Fed, whereas in the revisionist version, that great enemy of the second Bank Andrew Jackson becomes a proto-libertarian in place of the savage madman that he’s usually portrayed as. Who knew?

Also, the book comes equipped with a forty-page introduction by someone else laying out the libertarian epistemology underlying the analysis. Turns out libertarian work is based on praxeology and thymology. Again, who knew? Perhaps we’ll have a post about this interpretative framework, but today’s post is narrower in its immediate focus, but has broader implications. Keyser read something in the book that was one of those “Oh, so that’s what’s going on!” moments of revelation. It’s always cool to come across a thought that makes you reconsider how you look at something you’re familiar with, or that at least makes you look at it in a new light.

First, we start with this passage (pp. 170-1) on the political context of the political debates about currency in the late nineteenth century:

First, the history of American political parties is one of successive “party systems.” Each party lasts several decades, with each particular party having a certain central character; in many cases, the name of the party can remain the same but its essential character can drastically change – in the so-called “critical elections.” In the nineteenth century the nation’s second party system (Whigs v. Democrats), lasting from about 1832 to 1854, was succeeded by the third system (Republicans v. Democrats), lasting from 1854 to 1896.

Characteristic of both party systems was that each party was committed to a distinctive ideology clashing with the other, and these conflicting worldviews made for fierce and close contests. Elections were particularly hard fought. Interest was high since the parties offered a “choice, not an echo [i.e., of each other],” and so the turnout rate was remarkably high, often reaching 80 to 90 percent of eligible voters. More remarkably, candidates did not, as we are used to in the twentieth century, fuzz their ideology during campaigns in order to appeal to a floating, ideologically indifferent, “independent voter.” There were very few independent voters. The way to win elections, therefore, was to bring out your vote, and the way to do that was to intensify and strengthen your ideology during campaigns. Any fuzzing over would lead the Republican or Democratic constituents to stay home in disgust, and the election would be lost. Very rarely would there be a crossover to the other, hated party.

Whoa, that totally doesn’t sound like modern elections, where candidates won’t tell you their party affiliations in commercials, and someone like Obama feels compelled to pretend that he’s a centrist. We’ll get to the modern implications of this passage later, but for now here’s an overview of what was going on 1854-1896.

This analysis is based on what was up-to-date scholarship in 1983 when the essay on banking from the colonial period to the overt official adoption of the gold in 1900 was written (it actually first appeared in a book edited by Ron Paul on the gold standard, but here is one of the five essays that comprise the book). If wishes were horses, Keyser would read the interesting-sounding works cited in fn. 156, but sadly they aren’t. Conceivably, these works have been superseded in the interim, but since the study of American history has recently consisted mostly of the “all those guys on Mt. Rushmore were a bunch of racists assholes” school of Howard Zinn and his ilk, they probably haven’t been. So here goes.

The 1830s saw a “peitistic” religious revival in the Protestant north. This meant that people came to believe that there personal salvation was dependent upon their actions, and an element in such salvation was the attempt to help one’s fellow man. Now, as any Mormon or Jehovah’s Witness can attest (or do JW’s only affirm?), door-to-door salvation work can be tiresome and thankless. The upshot is that rather than convince one’s fellow man to mend his ways, it was preferable to get the state to enforce laws to compel him to mend his ways. So these reformists were in favor of blue laws to get people to go to church on the Sabbath and not sully it with other activities. Another big hand-up of theirs was “demon liquor,” so prohibition was high on their agenda. Finally, people whose religious views allowed them to feel content with a liturgical rather than a pietistic form of religious expression didn’t really go for this sort of thing, and so were looked askance at by the pietists. These non-busy bodies were mostly high Lutherans and Catholics. While the pietistic gave up on adults of this variety, they thought their children could be “converted” away from this sort of view, and so they were strong proponents of public education and were hostile to private religious education. (As an aside, it’s sort of funny to see the Catholic Church, previously one of the most totalitarian, intolerant and repressive institutions, playing the role as stand-in for the libertarian seeking freedom of personal expression.)

So these ideas grow up from the 1830s on while the old Whig party decayed, and were eventually picked up by the new Republican Party. Now, Rothbard doesn’t make anything of the obvious connection of slavery, which is completely ignored in his analysis but was the very essence of the new party. Keyser can only assume that the abolition movement was another aspect of the drive to help one’s fellow man and (more importantly) use the power of the state to “make a better world.” That is, if pietism led people to seek to pass laws to make everyone behave themselves and slavery was seen as the highest form of man’s oppression of man (and an offense against God), then it would be natural for hostility to the conglomeration of such perceived sins to gravitate to one party.

In the interim, those opposed to such obtrusive morality in politics naturally gravitated to the other party, in this case the pre-existing Democrats, who already had a tradition of opposition to the pretensions of the central government since the days of Jefferson and Jackson. So the Democrats were the party of high Lutherans and Catholics, and opposed restrictions on immigration. They also maintained the traditional Democrat policies of hard currency, low tariffs, and opposition to loose banking.

According to Rothbard, the main arena for conflict along these lines were in state and local governments. The Federal government had at this point little affect on people’s private lives or economic affairs, and so the local conflicts were to some extent simply transferred to the national stage. Yet, in some areas, the split between the two parties at the local level were easily played out nationally. The Republicans wanted to restrict immigration to keep out the riff-raff (Lutherans and Catholics), whereas the Democrats favored free immigration of everybody (including their friends). As upholders of the power of the state for moral purposes, the Republicans also favored the use of monetary and tariff policies for the benefit of “society as a whole.” In particular, they wanted to keep out cheap foreign goods and cheap foreign labor (i.e., immigrants) as a way of maintaining higher prices (and theoretically higher wealth) for current residents.

A final element in this Republican program that is of particular concern to a libertarian study of banking and money was support of inflationary monetary policies. This took two forms. One was the post-war retention in circulation of the fiat currency issued as a stop-gap during the Civil War. Eventually, $450,000,000 of these “greenbacks” (properly United States Notes) were issued in three emissions during the war and contributed to driving gold out of circulation. There were some efforts to retire the stuff after the war, but there was a bit of backsliding and in the end $345,000,000 of the things remained in circulation. (As a historical aside, this monetized debt of the Civil War continued to circulate in the form of United States Notes for more than a century. These notes could be distinguished by their red seal in place of the green one on Federal Reserve Notes. The were finally withdrawn in 1971, when the final pretence that Federal Reserve Notes were anything but fiat money was abandoned, at which point the theoretical distinction between the two sorts of currencies ceased to mean anything, even theoretically.)

So, in the 1870s and 1880s there are lots of political squabbles about restoring the redeemability of US currency in gold (achieved in 1879) and the free coinage of overvalued silver. The details are actually very interesting, but need not detain us here. The more important point is how the Republicans, previously the party of inflation and proponents of an expansionary monetary policy involving fiat currency, came to be associated with gold, and how the old hard-money, gold-loving Democats, came to adopt a laxer attitude.

By about 1890, it was pretty clear to Republicans that the anti-immigration policy was a long-term loser. If Catholics were automatically Democrats, then the Republicans faced a demographic nightmare. (Hmm. WIth a few name changes, that sounds sort of familiar.) So, they tried to shed their past, and the first to be overboard (or under the bus, to use the modern image) were the prohibitionists. Meanwhile, the pietistic movement had hit the South, which was overwhelmingly Democratic (no one was going to vote for the party of Lincoln, a situation that make the Democrats schizophrenic nationally until the 1970s, when a new “shift in the party system” took place, but that’s neither here nor there for present purposes). So the Southerners and their peitistic friends in the mountain states (who also favored the free coinage of the silver mined in their states) seized advantage of a financial panic in the early 1890s that made the traditional hard-money Democrat president Grover Cleveland look bad to take over the Democratic Party during the 1896 convention, nominating William Jennings Bryan (later infamous for attacking the monkey teacher in the Scopes trial), who gave his famous “cross of gold” speech in defence of silver against the evil advocates of the gold standard. As for the Republicans, William McKinley was nominated, and in the process took up the cause of the gold standard in return for the support of the Eastern financial establishment.

At this point, the two parties became an “echo” of each other. Both upheld the power of the state, though the differed somewhat on the details. In particular, they both became caught up in the technocratic fallacies of the “Progressive era,” which imagined that a bunch of smart people could figure out the most efficient and effective management of major affairs, and should pass laws to implement this glorious future. This is a sort of colorless American version of socialism. This may be the topic of a future post, but we’ll basically leave this point for now, except to point out that this was the genesis of the Federal Reserve system, which probably also deserves a post of its own (Keyser’s been reading and thinking a lot about it and “fractional banking” of late). Let’s just leave this historical discussion with Rothbard’s depressing formulation that this change in the party system brought in “the triumph of the new ideology of compulsory cartelization through a partnership of big government, business, unions, technocrats, and intellectuals” (p. 179). Basically, the triumph of the smart-asses of the world.

Anwyay, let’s return to the initial quote. Democracy in later nineteenth-century America was characterized by intense interest in political affairs that started at the local level and then expanded into the national sphere, driving voting rates into the 80 and 90 percents. So far from trying to conceal their programs, the parties were very overt about what they were up to, and needed to emphasize their differences from each other in order to “stir up the base.” That’s clearly not the case today. Close to half the populace is pretty indifferent to politics, and a chunk of the rest don’t really understand the issues much. Furthermore, while there may be disagreements about the details, the official parties as manifested in Washington aren’t much different, despite “grass roots” efforts to change them. Just as a for instance, the Republicans who got kicked out in 2006 didn’t bear much resemblance to the newly elected Republicans of 1994, and can anyone perceive a substantive distinction between how Bush and Obama have dealt with the present economic crisis?

But let’s focus in on local politics. Surely, most local US political news is stultifyingly dull. Where in the US does the city government or state government show a vigorous two-party system? Keyser’s sense is that local politics is pretty much all Democrat or all Republican in a given place, and even if there is some competition, it’s basically a form of putting different thieves in charge. That is, whereas in the nineteenth-century, local governments didn’t do all that much and were basically venues for passing laws, now local government possesses a hugh infrastructure that has its own interests and special interest groups that want their share of the goodies, most obviously state employees, but also all the myriad of people who benefit personally from the expenditures of the state. So, local politics is not so much about ideological issues anymore as manipulation of the massive outlays of the state for the benefit of one group or another. In effect, everyone is out for a share of Leviathan’s largesse, and no one involved in politics really has any interest in curbing Leviathan’s appetite for lucre to distribute in this way. The personal benefits of those directly concerned have come to completely outweigh the not necessarily indifferent but nonetheless diffuse interest of the taxpayers as a whole not to be fleeced by the system.

So there no longer is room for the “hard-money, laissez-faire” Democrats such as Jefferson or Jackson. Instead, all politicians are ultimate servants of the beast, and most of the issues that supposedly differentiate them serve only to conceal the extent to which they hold the same basic principles. Truly, echo, not choice…