Grover Cleveland, 22nd & 24th President Benjamin Harrison, 23rd President
In a recent New York Times column, David Brooks complains that members of the Obama administration have been comparing the present political and social environment to the Progressive era. The Progressives came to prominence early in the last century. The movement reached its apogee in the presidential election of 1912, when, as a third-party candidate, Theodore Roosevelt received 27% of the popular vote on a platform of reducing the outsized gap between rich and poor Americans. Brooks repudiates the comparison, pointing to the many differences between America in 1912 and 2012. One distinction he makes is that a century ago "the economy was in its adolescence," whereas now it is in middle-aged doldrums. But the real distinction is moral: A hundred years ago, America "still had a Victorian culture, with its rectitude and restrictions. Back then, there was a moral horror at the thought of debt… In the progressive era, there was an understanding that men who impregnated women should marry them." This is just Golden-Ageism, the notion that life was better in some favorite "good old days." In fact, in 1912-America prejudicial stereotypes of all sorts were taken for granted, capitalists routinely cooked their corporations' books, and violence against organized labor was supported by all three branches of government.
Still, I agree that with Brooks that the comparison of 2012 to 1912 is not especially apt. A more useful comparison is to 1888, when Republican Benjamin Harrison narrowly defeated Democrat Grover Cleveland for the presidency. One similarity between the campaigns of 1888 and 2012 is the role of corporate finance. The coming election marks a turning point in which corporate money, after years of at least partially successful limits, can now be spent with few restrictions on pro-business candidates. There were no political spending restrictions at all in the 19th Century. By 1888, the necessary preconditions of increased corporate wealth and improved nationwide transportation and communication were in place to make large-scale fund-raising possible. Of course business had contributed to campaigns before and would exercise a much greater influence in the years ahead, but 1888 was a turning point. In that year, Philadelphia department store magnate John Wanamaker toured the country, selling business groups with a pro-Republican pitch. He successfully lobbied for substantial campaign contributions by likening support for his party to buying insurance, "If you were confronted by from one to three years of general depression…what would you pay to be insured for a better year?"
But the essential similarity between 1888 and today is the disparity between the small number of the very rich and the large number of those for whom daily life is a financial struggle. Today, the battleground is whether to raise taxes on the highest earners. Then, the battle was over the tariff, which was the income tax equivalent of the day. Tariffs and excise taxes—that is, sin taxes on tobacco and alcohol—were the main sources of federal revenue from the country's founding until the First World War. Income taxes had been assessed briefly during the War of 1812 and in the Civil War, but a peace-time attempt to impose them was ruled unconstitutional in 1895. It took the 16th amendment to Constitution to validate them in 1913.
Tariffs are taxes on imported raw materials and manufactured products designed to raise their costs to consumers and thereby make domestic materials and products more competitive. The traditional rationale is that tariffs nurture "infant industries" until they are strong enough to hold their own in free markets. The Democrats of 1888 pointed out that US industries were no longer infants; indeed, our industrial might even in the 1880s, let alone 30 years later, was well past adolescence. Trusts, near monopolies that controlled all phases of the extraction, manufacture, and distribution of key commodities, ruled nearly all major fields of commerce. The steel industry was actually more competitive than most, yet the Carnegie Steel Company produced a quarter of the nation's steel. Its annual profits exceeded $40 million (something like $800 million in today's money), a fantastic sum back then.
The Democrats also pointed out that tariffs, far from protecting ordinary working people, were an extremely regressive tax. It's easy to see why. If the tariff on an imported product in everyday use caused its price to rise by 50%, a domestic manufacturer of the same product would simply raise his price to just under the foreign price. Moreover, the excess profit did not trickle down to the American workers who made it. An 1888 Bureau of Statistics report gave many examples of this sad fact. For instance, a pound of domestic sewing silk could be sold for $5.66 a pound. Thirty percent of the price ($1.69) was a result of simply coming close to the tariff-adjusted price of imported silk. American workers were paid just 85¢ a pound. In summary, the Democrats' position was that high tariffs enriched capital through windfall profits and impoverished ordinary citizens by raising their cost of living. Reducing tariffs would shift the economic burden from those who could least afford it and to those who could most afford it.
Republicans defended the tariff with equal fervor. Ohio representative William McKinley claimed that protective tariffs were a job-creation machine for American workers. "Every pound, every bushel, every ton, every yard of foreign product that comes into this country to compete with ours deprives American labor of what justly belongs to it." To the extent that tariffs reduced the influx of foreign goods, they strengthened American industries, provided markets for American producers, and work for American wage-earners. The Republicans argued that Democratic attacks on the tariff were no more than attempts to stir class warfare, designed to pit one group of Americans against another. Reducing tariffs would harm employers and thereby workers as well.
The denouement is instructive. The argument that Wealth should not be hampered in its mission to create jobs convinced enough laboring men to put Harrison across over the incumbent Cleveland. The Republicans emerged with small majorities in both the House and the Senate. A bill raising tariffs and named for its guiding spirit, McKinley, became law in 1890. Its effect could have been foretold—in fact, was foretold by the Democrats. Consumer prices soared, and disillusioned voters rolled back the Republicans' congressional majorities in the 1890 mid-term elections. Then, in 1892, Grover Cleveland became the first and only person to serve two non-sequential terms when he was elected the 24th President of the United States.
Unfortunately for Cleveland, his vindication soon turned bitter. Almost immediately, the economy plunged into the Panic of 1893. This catastrophe, called the Great Depression, until the 1930s, lasted all through Cleveland's term. He left office lamented by none, especially as prosperity returned soon after the inauguration of Cleveland's successor, William McKinley.
The notion that the well-to-do should be left relatively undisturbed by restrictions on their earnings dies hard. The common argument is that the American Dream, that everyone can get rich in our egalitarian society, makes even the non-rich resistant to steeply progressive tax rates. The Republican victory in 1888 did not usher in an era of high wages and cooperation between employers and employees. In fact, several of the bloodiest labor-management confrontations, including the Homestead steel strike and the Pullman strike, happened in the next few years. Lowering tariffs would not have been a panacea in 1888, and higher tax rates on incomes over $1 million won't eliminate the deficit in 2012. But policies of high tariffs then and low income taxes did nothing but exacerbate disparities in wealth. They benefited a small section of the economy for a while and hurt nearly everyone in the long run. Lincoln said, "You can fool some of the people all of the time." Will the same arguments that fooled people in 1888 work in 2012?