This is the first part of Chapter 3. A Brief History of the Development of American Capitalism of my book Let's Do What Works and Call it Capitalism. Footnotes omitted.
"Capitalism, as an economic system, resting on the organisation of legally free wage-earners, for the purpose of pecuniary profit, by the owner of capital or his agents, and setting its stamp on every aspect of society, is a modern phenomenon...
… for it involved a code of economic conduct and a system of human relations which were sharply at variance with venerable conventions, with the accepted scheme of social ethics, and with the law, both of the church and of most European states."
- R.H. Tawney, Foreword, The Protestant Ethic and the Spirit of Capitalism
I consider, then, the power to annul a law of the United States, assumed by one State, incompatible with the existence of the Union, contradicted expressly by the letter of the Constitution, unauthorized by its spirit, inconsistent with every principle on which It was founded, and destructive of the great object for which it was formed....Part A.
...To say that any State may at pleasure secede from the Union, is to say that the United States are not a nation.
- President Andrew Jackson, 1832
The Beginnings of American Capitalism & The Age of Jackson:
Expanding the Presidency, Stifling Secession, Removing the Indians, Breaking the Bank, Setting the Stage for Enormous Growth.
In spite of the inequities, cruelties, and the history of corruption that capitalism possesses, no other economic system is compatible with our culture, history and politics, or acceptable to the American people. Programs designed to restore the middle class have to be compatible with American capitalism, a hybrid economic system that has evolved over time.
How did this capitalistic system develop? There is no mention in the Constitution of any economic system. The term, “capitalism” did not exist in the 18th Century. There were no conflicts over the “ideology” of commerce because there were no competing ideas. What did exist was a system of free enterprise, of small merchants and traders, craftsmen and small scale manufacturing, mills, iron smelting, some mining and others. England controlled most of the significant manufacturing in its Empire. It practiced "mercantilism," underwhich it imported raw materials from its colonies and exported finished products to them. The steady, positive, trade balance this system generated was a major source of the increasing wealth of portions of the British upper class, including the royal family, as well as the industrial and merchant classes. England was so protective of its advantage in this system that it outlawed certain types of manufacturing in its colonies, one of the underlying causes of the eventual rebellion by the Americans.
The first Industrial Revolution developed in the late 18th and early 19th Centuries as steam and water power enabled the establishment of much larger manufacturing facilities employing many more workers, as well as new forms of transportation and communications. The railroads and the telegraph companies became the first modern industrial corporations. It wasn't until the middle of the 19th Century that the name "capitalism" was attached to this new economic system. The word, “capitalism” first appeared in English in William Makepeace Thackeray's 1854 novel, The Newcomes. Karl Marx, in Das Kapital, and other writings, gave the term greater definition.
Weber wrote that the distinguishing characteristic of modern capitalism was that it made the earning and accumulation of money an end in itself, not just as a way of supporting one's life and family, and it provided the means to do so. Virtually every one of the creators of the great American fortunes in the 19th Century was obsessed with the making of money, at the expense of everything else in life. Most were miserable misers, the living examples of characters out of Dickens novels, like Ebenezer Scrooge. Myers relates that when John Jacob Astor, who had built the first great fortune of more than $150 million, was on his death bed in 1848, he still was reading his account books and fretting about an unpaid rent of a few dollars from a poor widow.
Weber described how traditional small factory and handcrafting enterprises that had successfully supported the owners and the workers and their families for generations were turned upside down by the new capitalist business managers of the 19th Century. These new managers brought in automation and sought to make their enterprises far more profitable for the owners, but not for the workers. The nature of work for most people changed in the second half of the 19th Century with the development interchangeable parts and machinery that automated many manufacturing processes.
Small to medium-sized woolen factories, tanneries, shoemakers, and metal fabricators, powered by water or steam, rapidly developed after the War oif 1812, almost entirely in the region from Baltimore north, and heavily concentrated in New England. The most modern factory in the United States in the early 19th Century was one operated for, and by, the U.S. Army, the Springfield Armory in Massachusetts, where methods developed by military officers for the manufacture of weapons became the model for the modern American manufacturing plant.
Jeffersonian philosophy opposed the use of the funds of the federal government for "internal improvements," primarily roads and bridges. The most significant economic activity by any American government in the early years of the 19th Century was the construction of the Erie Canal. The 360-mile canal was built with public funds by the state of New York between 1817 and 1825. At the time, it was the largest public works project in modern history. It connected the Great Lakes, and the Midwest grain and meat suppliers with the east coast, and was singularly responsible for making New York City the nation's largest city, and for the creation of considerable wealth. However, no private interests benefited from the tolls collected on the canal. Some publicly owned canals also were built by Pennsylvania, Maryland and Ohio.
The economy of the United States in the early 1800s operated under a system that came into being after the Revolution, but was similar in many ways to what existed prior to the war. What was new is that the eastern banks controlled commerce through their control of the money supply because the only medium of exchange that existed other than coins ("specie") minted by the government were demand notes issued by banks in return for a deposit, usually specie or another bank note. The issuing bank guaranteed the notes, which usually could be redeemed for specie. However, in general practice the notes circulated as money, transferring from one holder to another.
However, if the bank failed, and many did, the note became worthless, but those who held it and transferred could be held liable for its value. For example, if bank notes were used to purchase land, and the bank that issued them failed, the land could be repossessed from the buyer. Because of a situation like this, Andrew Jackson lost his home when he was a young man, and he never trusted banks again.
By the 1820s, the dominant bank was the Philadelphia-based Bank of the United States, which was partially owned by the federal government but operated by a Board of Directors controlled by private investors. The BUS essentially controlled the paper money supply by regulating the amounts of bank notes in circulation through its many branches and its relationships with other banks. The eastern "establishment" thus controlled the economy and as well as the government.
Until 1828, only two Presidents had been elected who did not come from Virginia, and they were both named Adams and were from Massachusetts, John in 1796, and his son, John Quincy in 1824. The struggle between the Federalists and the Anti-Federalists had dissolved during the Jefferson Presidency and his philosophy of small government, and a rural culture prevailed. James Monroe, the last of the "Founders" to serve as President, was re-elected in 1820 without opposition.
In 1824, there were four candidates and it was the first election featuring real political party politics. The Democratic Party candidate was Andrew Jackson, a Tennessee lawyer, judge, land speculator, slave-owner and military leader, who was famous for leading American forces to victory over the British at New Orleans in the War of 1812, for his Indian-fighting, for his killing of a number of men in duels, as well as carrying some bullets in his body from them, and for forcing the Spanish to relinquish Florida to the United States. He won the most popular and electoral votes, but not a majority of either. John Quincy Adams, with the help from Henry Clay, who was a life-long enemy of Jackson and one of the other two candidates, was elected by a vote of the House of Representatives.
The 1824 election is the first election for which there are any reliable numbers available of the popular vote, and because in most states only white men who owned property could vote, the total vote was only about 355,000 out of a population of more than 10 million. However, property qualifications were not required in the rapidly growing new states in the west, and by 1828 many eastern states had repealed property qualifications for voting. In the 1828 election, when Jackson won, the voter turnout was more than 1.1 million.
No President's standing and importance has been more disputed among historians than Jackson's. Among the multitude of biographies of him, three won Pulitzer Prizes, and another won a National Book Award, making biographies of him the biggest award winners among Presidential biographies. There still is no consensus, but recent works have been more favorable than those of a generation ago, at least partly due to discoveries of troves of papers of his and of his family members that have provided more information about the secretive Jackson than was available to earlier biographers.
Once considered among the greatest of American Presidents, Jackson's standing declined precipitously in the second half of the 20th Century. A highly critical essay in 1948 by Richard Hofstadter in The American Political Tradition - a required college and high school text for many years - counteracted the esteem with which he was treated by Arthur Schlesinger, Jr. in his 1945 Pulitzer Prize-winning classic, The Age of Jackson. Hofstader also was very critical of Theodore Roosevelt. In a new Preface to the 1967 edition, Hofstader recanted some of his harsh treatment of Roosevelt, but not his treatment of Jackson.
Jackson's reputation declined further with increased sensitivity about the treatment of Native Americans and slaves because he was chiefly responsible for the removal of nearly all the American Indians in the Southeast to west of the Mississippi, and was the owner of many slaves. There is even a popular children's book devoted to "Trail of Tears," when thousands of Cherokees lost their lives in a forced winter march from Georgia to Oklahoma, with Jackson, who was the author of the relocation plan, held to blame, even though "The Trail of Tears" happened after he left office and violated his intention to treat the Indians humanely.
Relocation of Indians from several southern states to west of the Mississippi had been going on for several years under a practice Jackson was instrumental in developing. However, a crisis developed in Georgia with the Cherokee, who occupied a large portion of the western part of the state under a treaty with the federal government. The Cherokee were more advanced in many respects than other Indian tribes - and in some ways more than the whites. They had rebuffed all efforts to buy their land, but whites continued to encroach on it, especially after gold was discovered in one area.
Georgia decided to force the Cherokee to relocate essentially by making an offer they couldn't refuse. They would be evicted by military force, if necessary, completely in violation of the treaty. The Indians appealed to the Supreme Court and won, but Georgia refused to accept the Court's decision. That was the decision that Jackson was alleged to have responded to by saying "John Marshall has made his decision, now let him enforce it." But it was Horace Greeley some years later who apparently invented that saying and ascribed it to Jackson.
In any case, that was the point. The highest court of the nation ruled that Georgia was violating a federal treaty. Under the Constitution the President has the duty to enforce the law. If the Court's decision was to be enforced, Jackson had to do it. But his problem was that while this was going on, South Carolina was threatening to secede if Jackson enforced the federal tariff that the state said was hurting their cotton export business. The South Carolina Legislature nullified the tariff and made it a crime for anyone to try to collect it in the state. The state also was preparing its militia to resist any federal effort to enforce the tariff with military action. As Jackson began to prepare for a military confrontation, Robert Remini recounted in Andrew Jackson. Vol. 3 The Course of American Democracy, 1833-1845:
"One serious complication that troubled him was the situation in Georgia. The state was prepared to defy the Supreme Court’s decision in the Worcester case over Cherokee Indian rights, and if Jackson enforced the court’s decision, Georgia was certain to join South Carolina in support of nullification. Bloody conflict would surely ensue."6There was little political support in Congress for action against Georgia. There also was no popular support for the Indians. Some of the Cherokees capitulated and agreed to a purchase offer from the federal government. The rest were effectively coerced because no one would come to their defense. The actual relocation did not come for several years, but the crisis with Georgia was averted and Jackson then could focus on South Carolina.
Jackson was a believer in States' Rights, but he was a much stronger believer in the Union and he made it plain when he threatened to occupy South Carolina with federal troops if the state seceded. He issued a Proclamation to the people of South Carolina in which in considerable detail he explained his position on nullification and secession. He was the first President to openly say that secession was unconstitutional and an act of treason. And he said that the Constitution imposed the duty on him to enforce the law and to punish traitors and that he would do it with force if he had to. He reineforced some federal forts in South Carolina and in the Charleston harbor. He ordered the assembling of stockpiles of weapons and he ordered General Winfield Scott, to move troops towards South Carolina.
Part of his Proclamation opens this chapter. The entire Proclamation is one of the best arguments ever made for the unity of the nation and against any state's right to nullify any federal act, or secede from the Union. Abraham Lincoln relied on parts of it for his response to the secession of Southern states in 1861. Jackson said, in part:
The people of the United States formed the Constitution, acting through the State legislatures, in making the compact, to meet and discuss its provisions, and acting in separate conventions when they ratified those provisions; but the terms used in its construction show it to be a government in which the people of all the States collectively are represented. We are ONE PEOPLE in the choice of the President and Vice President. Here the States have no other agency than to direct the mode in which the vote shall be given. The candidates having the majority of all the votes are chosen. The electors of a majority of States may have given their votes for one candidate, and yet another may be chosen. The people, then, and not the States, are represented in the executive branch....
The Constitution of the United States, then, forms a government, not a league, and whether it be formed by compact between the States, or in any other manner, its character is the same. It is a government in which all the people are represented, which operates directly on the people individually, not upon the States; they retained all the power they did not grant. But each State having expressly parted with so many powers as to constitute jointly with the other States a single nation, cannot from that period possess any right to secede, because such secession does not break a league, but destroys the unity of a nation, and any injury to that unity is not only a breach which would result from the contravention of a compact, but it is an offense against the whole Union. To say that any State may at pleasure secede from the Union, is to say that the United States are not a nation...
The States severally have not retained their entire sovereignty. It has been shown that in becoming parts of a nation, not members of a league, they surrendered many of their essential parts of sovereignty. The right to make treaties, declare war, levy taxes, exercise exclusive judicial and legislative powers, were all functions of sovereign power. The States, then, for all these important purposes, were no longer sovereign. The allegiance of their citizens was transferred in the first instance to the government of the United States; they became American citizens, and owed obedience to the Constitution of the United States, and to laws made in conformity with the powers vested in Congress. This last position has not been, and cannot be, denied. How then, can that State be said to be sovereign and independent whose citizens owe obedience to laws not made by it, and whose magistrates are sworn to disregard those laws, when they come in conflict with those passed by another? What shows conclusively that the States cannot be said to have reserved an undivided sovereignty, is that they expressly ceded the right to punish treason-not treason against their separate power, but treason against the United States. Treason is an offense against sovereignty, and sovereignty must reside with the power to punish it. But the reserved rights of the States are not less sacred because they have for their common interest made the general government the depository of these powers. The unity of our political character (as has been shown for another purpose) commenced with its very existence. Under the royal government we had no separate character; our opposition to its oppression began as UNITED COLONIES. We were the UNITED STATES under the Confederation, and the name was perpetuated and the Union rendered more perfect by the federal Constitution. In none of these stages did we consider ourselves in any other light than as forming one nation...
The laws of the United States must be executed. I have no discretionary power on the subject-my duty is emphatically pronounced in the Constitution. Those who told you that you might peaceably prevent their execution, deceived you-they could not have been deceived themselves. They know that a forcible opposition could alone prevent the execution of the laws, and they know that such opposition must be repelled. Their object is disunion, but be not deceived by names; disunion, by armed force, is TREASON.Remini, whose three volume biography of Jackson is the most definitive modern work on Jackson, summed up Jackson's response to South Carolina and anyone else who believed in the right of secession, or the weakening of the Union:
Thus, by his words and deeds, Jackson continued to recast attitudes and perceptions of this nation and its operation. Republicanism was giving way to democracy, and Andrew Jackson was an important instrument in that change. Republicanism, with its emphasis on liberty, preached the need for strong states as a counterweight to the central government , but by the mid-1830s that philosophy could not accommodate the dynamics of an emerging industrial society. Protecting freedom in the modern world required a strong national government. Besides, the way to minimize the danger to individual rights was to fashion a government elected by all the people. In short, majority rule best protected freedom— not the states, and certainly not a hobbled or enfeebled central government.Jackson's ownership of slaves was consistent with his position as a substantial landowner in a slave-holding state, and with that of other men like him, including some of the previous Presidents. He did not oppose slavery, but he did see that it was going to be a problem in the future. After preventing South Carolina from seceding from the Union over the federal tariff he said, "the tariff was only the pretext, and disunion and southern confederacy the real object. The next pretext will be the negro, or slavery question."
One of the questions various historians raised about Jackson was whether he truly believed in what he did, including his advocacy of democracy and the people, or was just a political opportunist seeking material gain for himself and for his supporters. The discovery of many of his documents, and documents of family members, a few years ago at his estate, the Hermitage, sparked a surge of new biographies with information and insight that earlier biographers did not have. Notes among the documents recently found seem to indicate fairly clearly that he was genuine in his beliefs.
Whether he was sincere, or not, hardly matters now. What there is no doubt about is that he was the most important and influential figure in American politics between Jefferson and Lincoln. Jackson presided over or prompted one of the most tumultuous periods in American history, the early years of the huge expansion of the population and the country, and an explosion of industry, invention, literature and philosophy, and, most of all, democracy.
What makes Jackson and his period of considerable interest today is that many of the divisions in the politics and among the people of the United States today first took form during that time. Jackson used rhetoric remarkably like that of the later populists. He reflected the growing resentment by farmers and small merchants of the eastern financial interests, the "Eastern elite," who controlled the money supply, and who frequently foreclosed on debtors at a time when debtor's prisons still existed. The rich were getting richer at the expense of the average person, and at a time when almost everyone was trying to get rich. This was the time when the first books about getting rich became popular.
This was a priod of intense foreign interest in America, the time when Alexis de Tocqueville made his famous visit, but so did many others who also recorded their impressions. "'No man in America is contented to be poor, or expects to continue so,' insisted another foreign traveler...in America everyone must improve himself and find a better life."
To Jackson, banks were deciding who could get rich, or richer, and who could not, and most of the time it was those already well to do who became even richer. The Bank of the United States and its system of control of the money supply and other banks caused a consolidation of wealth among the "Eastern elite," and iit made it harder for farmers and small merchants to make a go of it, and not just those in the West, but all of them throughout the country. Jackson's populist message struck a chord, which still resonates today:
It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth cannot be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratiuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of socity - the farmers, mechanics, and laborers - who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government."He broke that power of the "Eastern elite" - at least for a period of time - when he destroyed the Bank of the United States. What he did by preventing that bank's charter from being renewed in 1836 would be analogous today to the government closing down J.P. Morgan-Chase and several other megabanks. It was at least that significant - maybe more so because the banks today don't control the money supply.
The collapse of the central control of the monetary system, the Bank of the United States, which was performing the function the Federal Reserve does today, had a huge impact on the economy. The first thing that happened was that local banks throughout the country were free to issue many more banknotes and when they did it caused inflation, and bubbles in land values. Then there was a crash and a long depression, the worst the country had experienced to that time. The overall effect, however, was to spread control - such as there could be - of the economy over much more of the country and into the hands of many more people. There was chaos, but there also was an explosion of growth and a huge expansion of the economy.
Among the inventions of this period that had huge impacts were the McCormick Reaper, the Colt Revolver, the Goodyear Vulcanized rubber process, the telegraph, and aneshthesia, and there was widespread adoption of canning, and the beginnings of the use of some forms of refrigeration. Between 1820 and 1860 the population tripled as a result of a huge influx of immigrants. They were drawn by the virtual unlimited opportunities of this wild, wide-open, and rambunctious nation.
Jackson expanded the powers of the Presidency because he viewed the President as the peoples' representative and the one federal official who could act on behalf of everyone. However, he did not expand the federal government. He was the last President to pay off the National Debt. He opposed "internal improvements" and even canceled a portion of the national highway that was scheduled to go through Kentucky - although that may have been because it was the home state of his arch enemy, Henry Clay. But when the federal government ran a surplus, instead of spending it on projects, he proposed to return the money to the states.
With Jacksonian democracy came the donkey symbol of the Democratic Party, a party founded and organized by Martin Van Buren, with Jackson as its leader. In 1832 the Democratic Party held its first convention to nominate candidates for President and Vice President. Prior to that time candidates were selected by party leaders, not by party members. Jackson also had the first "kitchen cabinet," advisors who met informally with him in place of a number of official cabinet members he didn't trust. He tried repeatedly to get a Constitutional Amendment approved to abolish the Electoral College and have a direct popular vote for President and Vice President. He also introduced the "spoils system," with the intent of replacing "corrupt" public officials. As it turned out he replaced less than 20 percent, but that still was a dramatic change from the past.
Jackson was the most popular President the nation had, at least until Theodore Roosevelt, who admired and copied Jackson's assertion of his role as the representative of all the people. Franklin Roosevelt's New Deal was described by some as a revival of Jacksonian principles. Roosevelt's use of the Presidency certainly followed Jackson's concept of it, but New Deal programs were far from Jackson's concepts of federal government responsibilities.