You can see the embryo of the current institutions. You can see how the things originated and what the causes were and what the consequences were.
So it's kind of like dealing with the microcosm of the current setup, of the current institutions and laws and agencies and all the rest of it.
We will focus on, not exclusively, we will focus on the relationship of government and the economy. That's what my major interest in this is.
We'll deal with other aspects too, but basically we'll deal with, the main thing we'll focus on is how does government intervene and what were the consequences and the causes of the intervention also.
Most historians, when they deal with government intervention in the economy, sort of deal with the record of it.
I mean, who did what? 1886, the Interstate Commerce Commission was passed, so forth and so on, but not dealing with the consequences, sort of like the Almanac, you know, sort of like looking at the Almanac saying, well, 1860, 1886, such-and-such law was passed.
Economic historians, if they know any economics, which is not always the case, the problem with economic historians is half of them are historians who don't know any economics, the other half are economists who don't know any history.
is one of the big problems in the discipline.
At any rate, if they know any economics, which some of them do, then they talk about the consequences.
What were the consequences of these government interventions, these actions, ICC or whatever?
What happened after that? What was the result? What were the consequences, the economic consequences?
We'll go into that. We'll also go into a third area, which even fewer people deal with.
Namely, why do these interventions, why were they passed?
Why do they come about? What were the motivations involved?
One of the problems that still goes on, by the way, is when they deal with government,
they deal with the president, historians, presidents, secretaries of state, secretaries of the treasury, whatever.
They talk about these guys as if they came up from outer space.
In other words, so-and-so became president in 1900, or so-and-so became head of the Interstate Commerce Commission,
as if this person had no past, no associations, no nothing.
and he just becomes there, Joe Zilch becomes president or becomes secretary of commerce or whatever
he does some things for six or eight years and he leaves, he drops out of existence
and that's the implicit assumption, most historical record of this stuff
they don't say who these people were, who were they before, what were they doing before they became president
before they became secretary of commerce, what did they do afterward? They had a life before and after
If you examine the lives of these people before and after, you find some interesting things which hook up, explain the motivations of many of these interventions, many of the actions they took in office.
The problem of motivation, for example, to give a very non-economic and a very simple reason here is this.
Most people do not, they have economic motivations. I'm not saying economic motivation is the only motivation in political action.
What I'm saying is, they tend to be hidden, they tend to be covered up. Historians have to work at finding out what they are.
For example, to give a very simple example from the news last week, before the Manus case happened, which of course is a big case in New York City politics,
just three days before that, the city council met and was supposed to have, the guy who was supposed to be the chairman of the city council,
Council, which is an open spot, was Peter Vallone of Queens. That was sort of the
traditional thing. Manhattan and Brooklyn got together, an unholy alliance,
whatever you want to call it, Brooklyn democracy, the Brooklyn Democratic
Party has been split wide open for many years. They got together for patronage
reasons on the side of the former alliance of Manhattan to depose
Vallone, not elect them, and elect Sam Horowitz of Brooklyn. It was a big
The big struggle was Manhattan and Brooklyn versus Queens and the Bronx, it was the titanic struggle for power.
Now if everybody stuck with their boroughs, the Manhattan-Brooklyn alliance would have won by one vote.
A half hour before the vote took place, they took a straw poll in the Manhattan delegation,
and the vote was unanimous in favor of the Manhattan-Brooklyn guy, Horowitz.
A half hour later they take the real vote and one guy, Robert Dreyfus in Manhattan shifts his position, votes for Belloni, and Belloni wins by one vote.
So then the press asked him, well, why did you change your vote?
What did he say? He didn't say he did it for patronage or committee chairmanship, which he was going to get and stuff like that.
He said, well, first of all, Stanley Friedman, the absolute boss of the Bronx Democratic Party, was asked,
how will you reward Dreyfus? And he said, with my love.
Dreyfus himself was asked, why did you change your vote? And he said, he's sweating, of course,
because nobody in the Manhattan delegation has still talked to him to this day.
He said, I did it because of my conscience and my duty to my God, God of my country.
Anybody who believes that, you know, has extraordinarily naive.
In other words, his official motive, what is he going to say?
He did it because he sold out his borough for committee chairmanship or other patronage.
He's not going to say that. He's going to say he did it for my conscience, for the public interest, the general wheel, the common good, all that crap.
which is what he said. This is an obvious example. It's not always that blatant, but an historian, if I were an historian, if somebody else is a historian writing history in New York City politics and came to this Dreyfus question, he would not simply take Dreyfus' word for it.
So Dreyfus said he did it for his God and country. Obviously he can investigate a little bit deeper. So this is something historians have to do in general when it comes to economic motivation. We will be doing that.
There's one basic text in this course and two paperbacks, supplementary paperbacks.
We had a problem with the text, this is typical by the way, the text I've been using for many
years has been, it was the best economic history book even though it was quite old, was being
kept in print because it was such a good book and all of a sudden as I was told it was in
I ordered it. In mid-January they called me up and said, gee, it's out of stock. Gone.
I had to fish around very quickly for a new textbook. I got one, but outside on things, I know the author is a friend of mine, never seen the book.
I think it's going to be very good. We lucked out. Also, it's there, I think it's there in the bookstore, I think.
This is Jonathan Hughes, it's called American Economic History
I forget the publisher, but it's a red cover, sort of a reddish-brownish red cover
That's the basic text
Start with, well, I'll explain in a minute
then there's two paperbacks
Weinstein
paperbacks
a corporate ideal and a liberal state
and Koko triumph of conservatism.
Koko and Weinstein both deal with a very important era, which I'll talk a lot about later on,
Einstein called it the Progressive Era, which essentially, there's some dispute about what the years were, but essentially 1900 and 1917, 1918, that period where most of the current government regulation was launched in almost every field you can think of.
and so this is the Progressive Era, Weinstein and Kogler both deal with that
Hughes deals with all of American history. We're going to start in the middle of the Civil War
and it doesn't
deals only a little bit with the Progressive Eras and it fits in nicely here
Civil War to World War I and then after that we'll get to
World War I and both Hughes and Weinstein and we'll see after that
You know, after that. Start with Hughes. So, don't read Winston and Coco until later in the course.
Until, I don't know, about half the course or something, maybe earlier than that.
Because that deals with the recipe. We're going to begin with the Civil War, which is 1861-65.
And start with Hughes, chapters 13 and 14.
13 I think is the Civil War, 14 is Railroads, which is the next thing after the war is the Civil War.
Basically what we're going to do is we're going to read Hughes chapters 13 and 22.
That's the couple hundred pages which deal, start with the Civil War and end with World War,
just before World War I or just before World War I.
That's the first block of the course, Hughes chapters 13 and 22.
Start with 13 and 14 and just keep going.
There's no specific assignment for a specific day.
Lectures are very important, a textbook is good for background and structure, lectures
are important, I don't require attendance but attendance is suggested because I talk
about one I think is important, obviously history is a huge area which you can deal
with almost anything.
The first thing to deal with here on the whole 19th century, the first thing I want to talk
about, the political party system, is something called the New Political History, which has
been going on now for about 20 years.
It's very interesting, it's not all in itself, but it's very interesting stuff, what it deals
with is something which other historians never dealt with, namely, how do people vote, why
Why do people vote the way they do? Analyzing voting is known as voting behavior. I don't
like the term, I just get stuck with it. Why do people vote? They try to correlate voting
with other factors, religious factors, economic factors, geographic. They try to figure out
why they vote for different parties. In the course of doing that, they found out different
interesting things. First of all, there are party systems. In other words, we think of
political parties, Republican, Democratic, that's about it. It's not just that. There
There are systems which last for about 30 years or 50 years, and then it changes, even if the labels of the party are the same, the nature of the party changes fairly suddenly and sharply into a new system.
So, for example, of course the problem is you don't know what system you're in when the system changes for quite a while afterward, because you don't know whether this is a temporary glitch in the system or whether it's an important one, so you have to use hindsight.
But the first, there are, I think, maybe five party systems in the period we're dealing
with here.
The first party system, usually the United States, two parties, probably because of the
way it's structured, the electoral laws, the fact we have a big country, we have to
have coalitions, whatever, mostly a two-party system, although there have been third parties
from time to time some importance. The first party system lasted from around 1796 to around
actually 1815. It was the Federalists, we'll see what they represented, and the Democrat-Republicans.
Then what happened was a very strange situation happened, not talked about much, from 1815
to about 1825 there was only one party in the United States, it's a pretty dangerous
situation to have only one party, it was the Democrat-Republican party, the Federalists
died out because they were against the war of 1812, they were considered traitors, etc.,
and they died out.
Then a new party develops, a Democratic party, and we have from about 1828 a second party
system, this is like one and a half in between I guess, second party system from about 1828
to about 1854, there's precise dating is a little difficult but it's not, it's around
that period, namely the Whigs, W-H-I-G-S, who essentially were successors of the Federalists
and the Democrats, essentially successors of the Democrat-Republicans with certain exceptions,
We'll get into what they meant, what the label meant 1854, the Whig Party dies out, the Republican Party comes in and we have a third party system which lasts from 1854 to 1896
and that was the Republicans and Democrats and even though the Republicans and Democrats are still around, the party system changed drastically around 1896-1900
1900 is something very different. I think we have about, let's see, the fourth party system, say from 1900 to 1932, some people say a little earlier, some people say later, around that, the fifth party system, 1932 to something, blank, 68, 80, most people think we're now in a sixth party system, a very confused situation, so this is
32 to 50, let's say 60 something, 54 or whatever. So, we're now something in the six party system.
One way of looking at the differences here, the third party system was very closely fought.
Most people had thought the Republicans were dominant. They weren't really dominant very much.
Only for the presidency, and even they were very close races.
There was almost no period where the Republicans won both houses of Congress and the presidency.
The fourth party system was a period of Republican dominance, except for Woodrow Wilson. The fifth party system was Democratic dominance, and right now it's sort of confused with a very high floating independent vote and Republicans winning most of the presidency and Democrats winning the House.
so that's something like that
one of the things that distinguishes all of this from the 20th century
all of the 19th century, the parties were fiercely ideological
in contrast to now, it's very difficult to figure out any ideology
the political parties were not just
ways of getting into office and getting patronage, of course they were that too, but they were also something else
they were organized around ideology and principle, and they were very fierce about it
Nowadays, of course, they claim to have principles. When you get to the campaign, they're trying to attract a big floating, independent vote. Everybody fuzzes up.
So by November 1st or something, you can't tell the difference between when they're all moving toward the center to find the floating vote.
In those days, there was no floating vote. There was no independent vote. Almost none.
Everybody was either a Democrat or a Republican. Everybody hated each other. The other party had guts.
A Democrat or a Republican was staunch. And you expected your nominees to be just as staunch.
This is a staunch. If they started waffling, you just didn't go out and vote. No Democrat would vote Republican or vice versa.
I mean, like voting for the enemy. What they do is they just wouldn't show up if this guy's waffling the hell with them.
And so, in other words, the political candidates had to be even more militant during a campaign than they were the other times.
They had to bring out the vote, because most votes for most races were close in most states, and Democrats had to be fiercely Democratic
and attack the Republicans bitterly and vice versa to get their people out.
There was always a lot more excitement, a lot more ideological differences, and a lot more excitement in 19th century campaigns that were worn out.
It's very difficult to figure out any differences.
So, the ideological differences were severe and tremendous.
And also, the parties are extremely important because they're a way for the average person to have an influence on public affairs.
In other words, in most cases, special interest groups take over.
Legislatures and Congress and Cabinet, whatever, special interest groups looking for their own boodle will tend to take over. The average person hasn't got the time
to get involved in this stuff. If you want to get, let's say you're in the sugar refining industry,
you have your lobbyist down there working 24 hours a day trying to get a subsidy or a tariff for sugar,
trying to subsidize sugar refining. The average consumer, you know the consumer will be screwed by this, the average consumer doesn't know anything about it,
hasn't got the time to invest in it, and so goes by the fall.
So in those days, what political parties were, they essentially mobilized the average person for an ideology, either to stop the special interests or to confirm them, either one way or the other, depending on what the ideology was.
So an ideological party meant there was some way to get around the special interests. It was a way for the average person to get involved in politics and realize, to know if you're voting for Joe Turkey, he's not just Turkey, he's advancing your ideological interests, whatever they are.
So it was an exciting time to be around, I think, in politics.
Okay, basically, this group here, and this had a similar ideology, economic ideologies especially,
all the way down to the 19th century, the Federalists, the Whigs and the Republicans had basically a similar ideological structure.
The Democrats had a similar ideological structure throughout with certain differences obviously,
but basically very hardcore considering their large parties trying to get an appeal to all sections and stuff like that.
and stuff like that. The Federalist Whig Republican Group, their vision of the world, well, let's start with something else before we get to the economic part.
One of the things that I was puzzled at for a long time before I could figure, find out the new political history told me the answer to this,
I couldn't figure out this. The 19th century had a huge amount of interest on economic questions.
banking, central banking, tariffs, everybody and his brother are out there writing illiterate pamphlets
foreign against the tariff, foreign against gold and silver, foreign against the central bank
I can't get my own students interested in it, and you're a captive audience
why was everybody interested in economics? nobody's interested in economics now, almost none
unless they're unemployed or something, or big inflation, it's very difficult to get people interested
how come people are fascinated, but
tremendously interested in the economic question
and recondite obscure economic questions
and the answer I think was
given to us by the new political history, the so-called ethno-religious history
what they found was that the voting, the mass of the population
they didn't start off being interested in banking and the tarot, things like that, they started off being interested in
religious questions, local religious political issues
and they escalated from that to the economic
The economic question, the consciousness was broadened, so to speak, the economic. Here's the way it worked.
And here we have to get into religious history. All these things integrate.
Fascinating thing about history, everything meshes together.
What happens is that around 1830,
around that, 1820s, 1830s,
something crucial happened to American Protestantism.
The American Protestant religion was transformed
even though they kept the same word, Baptist, Methodist, etc., it totally transformed to something different
before that
it was essentially Calvinist
you obey, you join the church, you obey the Calvinist creed, the law
you obey God's law and presumably hopefully you'll be saved, or probably not
that was basically
a very simplified version of Calvinist credo. Something happens
Protestantism in the 1820s and 30s with a revival movement
with a revival movement, which we're now pretty familiar with, in those days
Nobody is familiar with something big, brand new. It was originally in Europe
and it comes to the United States
and people are rolling on the ground and getting born again and things like that,
getting converted
and they get a new religion, really basically a new religion. The new religion
basically is
Crees don't matter. It doesn't matter what church you belong to. That's the beginning of the
breaking up of American Protestant. Nobody cared. Nowadays most Protestants don't care if they join
Baptist, Methodist, Presbyterian. It doesn't make any difference. In the old days, it made a big difference.
Presbyterian, meant in your favor, you believe in the elect, general damnation, stuff like that
Now, from the 1830s on, it didn't make any difference what church you joined, creeds were unimportant
Everybody was a Protestant together
That's why the YMCA and the YWCA were founded about that period
Because we're all Christians, what difference does it make what creed you're in?
We're all Protestant Christians, I should say
And the basic view is this, everybody, in order to be saved
Joining a church or being baptized isn't enough. You have to do a new thing called the baptism of the Holy Spirit. You have to be born again.
You have to be born again through an emotional, mystical conversion experience. That's why you're rolling on the ground. It's often part of the conversion experience.
So each person goes through these revival conversion experiences, and then each person has a free will to be saved.
So this is a free will, each person has a theological free will, can either be saved or not
and you have to try to achieve this mystical state or emotional state of being born again, baptism of the Holy Spirit
and each individual is alone with God, there's no church, the church doesn't matter much here
so the next step was that each individual can easily not be saved because his free will is weak
So you have to have, if the church doesn't count much anymore, it doesn't matter about
creed or anything, it's all you and God, therefore the state has to step in, this happened very
early, the state, the government has to step in and stamp out temptation, try to get you
to be saved by eliminating, stamping out temptation, there are lots of temptations, stamp out sin
basically or occasions for sin.
These new Protestants, sin was everywhere, almost everything was sinful, any kind of enjoyment
with Sinful, Dancing with Sinful, Gambling with Sinful, all should be supposed to be outlawed
because each individual is weak to temptation and particularly and especially demon-run
liquor.
The hysteria about liquor among so-called fundamentalist new products is enormous, still
is.
It's kind of odd because Jesus himself drank wine.
It's kind of odd for protestants to drink grape juice, a communion.
The only way I can grasp this is because these people believe that in order to be saved you have to have free will
and in order to have free will your mind can't be clouded.
See, if you drink liquor your mind is clouded and your theological free will is taken away from you.
That's why these guys tended to be anti-slavery, not because they cared about slavery in the sense that most of us care about, liberty versus slavery.
of Slavery. They cared about the slave's theological free will to be saved and be interfered with.
So what clouds men's minds? Demon rum, liquor, preventing and therefore has to be outlawed,
and especially and particularly the Antichrist, literally considered the Antichrist, the Catholic
Church or the Pope in Rome. So the Catholic Church, the Pope was considered the Antichrist
and Catholicism is supposed to be stamped out as much as possible.
So we have then the local and state level.
These things have not hit the federal level, but on local and state politics, all of the
new Protestants, there are two divisions now of these new Protestants, the South, Southern
Protestants who tended to be salvationists, those who believed that everybody should try
to be saved and that's it.
They didn't have this fanatical zeal to stamp out sin.
the Yankee Protestants or the Northern Protestants did
called Evangelical Pietism
because part of the new creed in the North is
that you can't be saved unless you try your best to maximize everybody else's salvation
this goes beyond missionary work
the usual idea of missionary work is to go and present
the truth to everybody and hope they agree to it, this is very different
this idea is if you don't try your damnedest to stamp out sin and save everybody else, you yourself won't be saved
You have a tremendous zeal to stamp out sin.
So you have this, that's how we put it, crusading spirit.
The way they put it is, we have to achieve the kingdom of God on earth through these methods.
We have to stamp out sin, we have to make the world, make America holy and make the world holy.
This is the Messianic creed, the New Protestantism.
So, this was the new product. It focused on several things.
If they couldn't kick out the Catholics, if we had a free country, we try to keep out immigrants.
If you can't keep out Catholic immigrants, they tried to do that. If they can't keep out Catholic immigrants, then
Christianize, what they call it, Christianize the Catholics. We have to get the kids.
They consider Catholics as being heathen and followers of the antichrist.
Therefore, if there are any Catholics, unfortunately, we have to stamp them out by getting the kids and putting them into a Protestantized public school system.
The public school system in the 19th century was not secular, it was Protestant. They read the Protestant Bible.
In most jurisdictions, you had to be a member of a Protestant church in order to be a public school teacher.
The whole idea is to get the Catholic kids and convert them, save them, because otherwise you yourself won't be saved.
Stamp out liquor, outlaw liquor, this is going on since 1830
And stamp out Sunday enjoyment, Sabbath laws
Even in my day, when my wife was growing up in the South, you couldn't play baseball on Sunday, it was illegal
So up until World War II, this is still going on in the United States, Sabbath laws
Sabbath should be kept holy, should be able to do nothing on Sunday except go to church, period.
Anything else is sinful and monstrous.
Drinking on Sunday is the worst possible sin. It combines two of the great sins.
Drinking itself is sinful.
Doing anything, going to church on Sunday is sinful.
Drinking on Sunday is like the double sin.
I drove the pietas wild. These we can call the pietas.
Now most of the people who took to this sort of fanatical deal were the so-called Yankees
who already, even before this happened, what some call cultural imperialists, they try to shape everybody up
this sort of people want to shape everybody up by force
so the Yankees took to this like a duck takes the water
hey, this is great, now what are Yankees? Yankees don't mean just northerners
and the southerners used to say damn Yankees, they're much more specific than that
They meant Yankee ethnic group or cultural group, essentially who started out, they were of course English descent,
they started out in rural New England, not so much Boston, but rural Massachusetts, rural Connecticut,
and then emigrated, they were big migrants, they emigrated, they populated most of the northeast.
In other words, everybody in upstate New York, almost without exception, especially western New York, Buffalo,
That whole area, the whole area, Genesee Valley, all that sort of deserted area, that whole area there.
Plus northern Ohio, northern Indiana, northern Illinois, southern Wisconsin.
That whole area was Yankee. In other words, when you say Yankee, it means everything from rural outside of Boston,
not so much the city, but outside of Boston, west to around Chicago and so forth.
Okay, that's Yankee. And so Yankees took to this, I'd say, like a buck takes a mortar.
New England's stuck. The same thing is going on as fights are going on in California.
It turns out that all the pro-public school people are Yankees. They were born in New England and immigrated.
So, the idea of the public school is to shape up the Catholics, get the kids and convert them.
So this is one group. The group, the party, there's almost a one-to-one correlation here
The political party these people supported, almost to a man, were first the Federal, after 1830, the Whigs and then the Republicans.
In other words, the Whig party and then the Republican party were essentially the WASP pietist party.
Well, certainly, obviously a few exceptions here and there, but basically with mass voting behavior, if you were a pietist, a Yankee pietist, you were a Republican.
Conversely, what happens then is, originally the Democrat Republicans were not the Yankees,
the Yankees were the Federalists, the Democrat Republicans were the Dutch types, the Scotch-Irish,
whatever.
Later on, what happens is, the other big religious group now, coming into the United States,
were Roman Catholics and high Lutherans, the Lutherans were split, there were low Lutherans,
Piatists Lutherans, Scandinavian Lutherans, very much like Yankee Piatists, and German Lutherans and mostly High Church.
The High Church Lutherans and Roman Catholics come to the United States with a very different creed.
There are no holy rollers there, except for nowadays this little shot.
Catholic Church is not what it used to be. I'm talking about, of course, before the 1930s or 1950s.
At any rate, Catholic Church and High Lutheran Church, basically the idea is you achieve salvation through entering the church, through baptism and keeping the sacraments.
The church takes care of salvation. You don't need the state to stamp out sin.
So in other words, you have a much more libertarian basis right away.
Second of all, sin is not everything enjoyable. The Catholic position and the High Lutheran position always has been.
Obviously, if you're drunk a lot, this is sinful. On the other hand, if you're drinking in moderation, there's nothing wrong with it.
So what? Much more rational view.
Okay, so the Catholics and the High Church of Ludwig come to the United States
and they don't worry about sin because they think a little church takes care of that.
All of a sudden they'd be set by craze that they consider crazies.
Rushing in to destroy bars, destroy liquor,
trying to force their kids into a public school system.
parochial schools, they can transmit their religious values to their kids
who are these fanatics, who are these crazy, wasp crazies coming in and chopping up the bar
are these for example, particularly the Germans, a very lovable group
both German Catholics and German Lutherans
in German culture
you go to, the whole family goes to church and then they prepare to a beer garden
charming beer garden, they play a brass band plays
having a lot of quiet fun, all of a sudden the wasp crazy, the cary nation types come in with hatchets and chop up
destroy the beer
Sin! Sin! You have a total religious culture clash.
So what we had for a hundred years, for ninety years,
in the local and state level, constantly, because they were pests, the wasps were pests,
because they believed that in order for them to be saved, they had to try to save everybody else.
So they were constantly trying to outlaw liquor, constantly trying to outlaw parochial schools,
and constantly trying to outlaw Sunday activity.
Also, outlaw teaching in the German language, a special dig, say.
Outlaw German schools altogether.
So, the Roman Catholics and the High Lutherans,
one-to-one, almost man-for-man, voted Democratic.
So, what you had then,
is that the Whigs and the Republicans were the pietist parties,
the Democratic party, the Catholics,
We call them liturgical groups. These are the pietists.
And the other groups are called liturgicals. We emphasize liturgy.
Liturgicals are almost all voted democratic. Some very interesting studies have been made in the different Lutheran synods.
Lutherans are split into different, very high church Lutherans and moderately and then very low church, very pietist.
And the voting record is such that the stuff is done on Midwestern voting.
It turns out the highest church, the highest synod, which is the Wisconsin synod,
Missouri Senate, almost all voted like 90% Democratic, 95% Democratic
The Scandinavian Senate, which is all very low-church, voted like 10% Democratic, 90% Republican
So you have, in other words, the pietist groups voting almost completely Republican
The Catholics and Lutherans voting almost completely Democratic
The Democrats were known, except for the slavery question, it's obviously a separate situation
The Democrats were known as the party of personal liberty
And the Republicans were known as the party of great moral ideas.
Great moral ideas like stamping out liquor, stamping out sin, outlawing sin, things like
that.
The party of great moral ideas versus the party of personal liberty.
So this is going on on the state and local level.
This is what people are interested in in their gut.
They're more interested in this than in economic questions.
They were interested in having the church, or having their school, or outlawing somebody else's school, and having their liquor, having their liquor outlawed.
This is gut stuff. Fierce fighting going on for a hundred years.
So how did the economic picture come in? The economic picture came in this way.
The, sorry, personal liberty, economically, I started to say this, I'll get back to this now, economically, the Federalists, the Whigs of the Republicans were statists, in other words they believed in big government,
I'm going to go into different aspects of this in the next hour, and the Democrats were libertarian.
They believed in minimal government, minimal free trade, laissez-faire, hard money, no
government intervention, etc.
So the interesting thing is how did the Democratic leadership, who were interested in the economic
question, when they went to their local people, how did they convert local people to interest
in economics and similar Republicans or Whigs?
They did it by taking the religious issues and widening the consciousness of their constituents
to the economic. In other words, Republicans or the Whigs would go to their people and say look,
just as we need big government, local level, stamp out the sin, right?
Right. We need paternalism at the local level, okay?
Just as we need big government, local level, stamp out the sin, so we need big government on the federal level
to increase everybody's purchasing power to keep out cheap foreign goods,
effective tariff, increase purchasing power through inflation, through paper money,
cheap credit for big public works, we need a whole big government structure
so in other words, the Republicans say, yes, yes, of course
so in other words, they show the application of the religious values of the public
to economic questions. The democratic leadership did the same thing for their part
they said, look, you see these WASP SOBs are trying to eliminate our liquor
and eliminate our churches, our schools, etc., yes?
These same guys want to have big government on the federal level to keep out cheap goods, to try to have monopoly privileges to their people, to different corporations or whatever, and they're trying to keep out, they're trying to have inflation which will rob the value of your purchasing power, they're trying to have government intervention, trying to have big taxes and so forth, the same way they're trying to have big government on the local level. So they widen the consciousness of their people, it will integrate it. So libertarianism on the local level meant libertarianism
Stateism and economics, laissez-faire and economics, the same way, stateism on local
level was translated into, Republicans into, stateism on the economic federal level.
So that's what you had in the 19th century, you had a consistent, two consistent parties,
consistent ideologies, both on local religious, social issues, such as liquor and school systems
and things like that, versus a consistent libertarian position, and so minimal government on local social and religious questions was translated to minimal government on economic questions and vice versa for minimal government, maximal government, so to speak, on social and religious questions to the economic question, so that's why the people got interested and that solved my long-term question on this thing, how they got interested in money and banking and all that,
Okay, so that was the two parties, that was the two ideologies, that was the two ethno-religious bases.
In the Civil War, we had almost a one-party Congress. In other words, the South was almost all Democratic,
or getting almost all Democratic, and the South, they were not Catholic, with the exception of the Southerners, they were not fanatics.
Okay, so they were part of the Democratic coalition. When they left, when they seceded from the Union,
it meant we had almost a one-party Congress, I mean, a total Republican Congress.
At that point, the Republican Party used the opportunity, heaven-sent opportunity, so to speak,
to put through their entire economic program, which they couldn't put through before.
One of the things, the interesting thing that happened here is, that twice in the 19th century,
once in around the 1830s, 1840s, and next time around the 1890s,
The Democratic Party was becoming slowly but surely the majority party.
We'll see in the 1890s.
One reason is because
maybe libertarianism was more attractive to the public. The second reason is that
the demographics were such that Catholics were getting stronger relative to Protestants.
There were more Catholic immigrants than there were Protestant immigrants, and the Catholics had a
higher birth rate, as you probably all know.
So the result of all this,
of Higher Immigration and Higher Birth Rate is the Catholic Lutheran, High Church Lutheran
were gradually becoming a majority.
The first time this happened in the 1840s, we almost had, we're getting to have a solid
democratic majority and then what happened is, of course, the split over slavery and
the whole thing goes up the chute.
Democratic parties split wide open on the slavery question and then we have the civil
wars.
That killed that.
The next time, we'll see later on, it happened in the early and middle 1890s, the Democratic
Okay, let's take a 10-minute break or so and come back to the second hour.
The Republicans did, when the Civil War started, was to put through, since the Democrats had
been more or less the majority, and as a matter of fact, the Democrats had won every presidential
election signed from 1840 for about 20 or 30 years. With the Civil War, with a one-party
Congress, the Republicans used the opportunity to push through their entire national status
economic program. And first of all, of course, big government, very high spending and all
and all that, an income tax for the first time in American history, a high protective tariff, which is one of the big Republican planks,
Wigan, Republican, yeah
Civil War
precisely it
income tax
and protective tariffs
to
pay for the war effort and to build up a big machine
also to pay for the war effort
and also as part of the economic program, irredeemable paper money, in other words, before that we had a gold standard,
gold and silver, really gold standard, hard money policy, to allow inflationary cheap money, paper money, the greenbacks were issued, also by the South,
the South also did the same thing, but the North did it with ideological fervor, so-called greenbacks, meaning the green paper money we've got right now, right?
The gold coins, of course, were gold color. Greenbacks are green.
Also, in addition for allegedly financing the war effort, and also for its own sake, a high public debt, heavy deficit finance.
The first part of the war was financed by greenbacks, but then the greenbacks began to depreciate.
In other words, we got to the point after about two, three years of the war that one paper dollar is worth about 50 cents in gold coins.
The dollar began to depreciate because it was inflationary.
So in other words, if you went to buy a loaf of bread, if it was a dollar, in terms of gold coins, it was two bucks in terms of paper.
So since the green banks were getting to the point of getting worthless, they had to shift to a public debt.
Also, a national banking system, which we'll go into more detail a little bit later, which
essentially outlawed state banknotes.
Part of the Republican creed was a centralization, put everything in the hands of a central government
as much as possible.
With the Democrats, the idea is to have as little as possible in the hands of the federal
government and then devolve on the states and have pretty limited state government also.
And most of the stuff done by the public, by the people themselves.
If you have anything done by government, it should be a state and local level, with almost
nothing in the federal government.
The republic is just the opposite.
So we have national banks, national banking system, which means outlawing state banks
and pyramid on top of a few Wall Street banks.
We'll see that.
We'll get to that later.
I'm not going to spend too much time on banking, it's pretty technical, but it's important.
And huge subsidies to railroads, which we'll get into next after we talk about the Civil
Civil War, huge land-grant subsidies to railroads, giving away the public domain of railroads,
huge privileged railroads.
High excise taxes for the first time, there was some in the war of 1812, but mostly high
excise taxes on two things in particular which continued on forever since then, namely, notice
So what does the pietist note now? Liquor and tobacco. Two enjoyable occupations. Don't forget, nobody knew about lung cancer in those days.
They were against tobacco because it was enjoyable, therefore sinful. As H. L. Mencken, my favorite writer, once wrote, defining Puritanism, he said,
Puritanism is a person with a haunting fear that somebody somewhere might be happy.
Okay, so, these high excise taxes still exist. You can't imagine how cheap liquor was before the Civil War. It was incredible.
A gallon of top scotch was like, you know, 80 cents or something like that.
And it wasn't just the prices. Of course, the price of the dollar is worth more than it is now, but most of it is due to the goddamn taxes.
Huge excise taxes on liquor, which continue on. This contains permanent part of the American heritage.
So if they couldn't outlaw liquor, they could at least slap a high tax on it. That's the point.
And for the first time really in American history, certainly in the national level, conscription, the draft.
And cracking down on dissenters, the suspension of habeas corpus, one of the basic parts of Anglo-Saxon law and also libertarian law, nobody can be jailed without being charged with something, with some crime, and then be tried for it.
Lincoln suspended habeas corpus for the entire war, just locked people up if they were against the war effort, if they were in favor of peace with the South, negotiated peace with the South, he locked them up.
There was an outlawing of dissent, which the Supreme Court said later on was unconstitutional.
Not that it did any good. It was after the war was over.
They said, metrospect, you had no right to do it.
Cracking down on old newspaper editors or writers or against a favorite piece of the South.
Okay, I think that's more or less it, that's more or less the entire bowl of wax.
There was a, they put in, not because they were favorable, but because it appeased the
western former types, the homestead law, and we'll get to that a little bit later.
This is the basic state of the economic program, it's all put through, the high tariff, the
high exercise taxes, inflationary and cheap money, public debt, nationalizing the banking
system, big, huge subsidies to railroads, all these things, the Democrats, the laissez-faire
party are against subsidies, they're against, in favor of minimal, no government intervention,
in favor of free market, free trade, the very low budget, very low taxes, no subsidies,
No Special Privileges etc. etc. So this is more or less a situation for the Civil War,
with some exceptions obviously, just looking at it broadly.
This is the Republican program.
Now most of it continued on, since the Republicans were fairly dominant until about the 1870s
because of the Civil War.
For about 10 or 15, 20 years after the Civil War, Republicans maintained their dominance
by what was called waving in the bloody shirt.
This was done by some guy, some Republican campaigner.
He waved a bloody shirt and as he said, beside the Democrats of the party of treason, the
party of the rebellion and treason, they waved the shirt of some soldier who died in the
northern cause.
Here's the, this is the shirt of Hiram Jones who died from, you know, local Illinois or
somewhere.
If you vote Democrat, you betray the Civil War and stuff like that.
This, you know, this worked for about 20 years.
By the 1870s it didn't work much anymore, but that was the, there was a famous phrase,
This, by the way, in 1884 campaign, when Cleveland won, Cleveland was the first Democrat to win
after the Civil War as president.
And when he won, a very close campaign, and the thing that probably switched it was about
a week before the election, a Republican law minister, actually being Republican, in New
York, Reverend Burchard, attacked a Democratic party and said the Democratic party is the
party of Rum, Romanism and Rebellion.
Now notice these three things.
This was essentially the pietist program, the republican program, summed up in one phrase.
A democratic party is a party of rum, in other words, evil demon rum, liquor clouds men's
minds so they can't get salvation, romanism, in other words, the roman catholic church,
and rebellion with the southern side of the civil war.
This is so angered, anybody who was sort of marginal type that had swung the election
election of Cleveland, so angrily any neutrals or any moderates, this is monstrous, it was
enough to turn enough votes against them to shift the election of Cleveland.
And how much this lasted, the national banking, we never got out of the national banking system,
we never achieved free banking as we had before the Civil War, Democrats were never able to
get rid of this, so this was a permanent heritage until we got the Federal Reserve system in
13. I'll get into that later. Essentially, as I say, outlawed state banknotes and left
centralized the banking system on a few Wall Street banks, basing their issues on reserves
on government bonds. We'll get into that later. We never got Jefferson and Jackson. Jackson
was the only president, I think, but Jefferson did, too, to pay off the federal debt. Paid
Jackson paid off the public debt. Jackson paid it off in his 1830s. The Republicans went under so much debt by the Civil War that it became impossible, of course, you know, it's happening now.
The protective tariff we ever got really rid of, the Republicans remained in power until the Wilson administration, Cleveland and Wilson, we never really got back down.
We reduced it to some extent. It took many decades to get rid of that. The income tax we only got rid of because it was unconstitutional, declared unconstitutional.
Greenbacks, they only got rid of by 1879, we finally got back to the gold standard
tough titanic struggle to do that
we never got rid of the high excise taxes on liquor and tobacco
so these were permanent legacies of the Civil War, huge land grants stopped in 1873
it started in 1862
lasted to 1873, by that time most of the land was given away, well most of the Transcontinental Railways were built
also they began to go bankrupt
So it was an orgy of ten years of huge subsidies for the railroads.
Conscription, of course, was over after the war, but it set a precedent for World War I and II.
And outlawing dissent, they never survived during World War I and II. Of course, it stops after the Civil War is over.
So much of this continues on as part of legacy to try to battle back from the tremendous increase of state power and status and the government intervention that took place during the Civil War period.
What's happening, as a matter of fact, in American history, what we usually have,
of course you can't really do this precisely, but if you could chart government intervention,
the degree of government intervention in the economy and the society,
starting with the 1780s,
it starts very low,
it pegs along more or less very low, then we get a war, we get the war of 1812, we get an increase.
It took about twenty years to wash out the intervention of the war of 1812, excise taxes,
inscription, banking mess-up, anyway, public debt, by the 1840s we get rid of that
and we get to the Civil War, we got a huge increase, we never really get rid of it, so it sloughs off a bit
and the 1900s increase, World War I, you have another big increase, World War II, another big one, that's about it
most of the increase, except for the 1900 period, which is the progressive era
most of the big increases in government eventually come in wartime
usually a big legacy continues after the war is over
okay the uh...
one of the big
one of the big uh...
as I said
we'll get into that in more detail later, one of the big interventions
chapter thirteen by the way
huge deals with
was the civil war, did the civil war promote industrialization? I'll get to that next Thursday
So one of the big programs of the government and Lincoln and Grant administration was huge subsidies to railroads
The subsidies began really a little bit, to some extent, in the 1850s
Railroads began in the 1850s. I want to take a... this gives you an idea of transfer
First of all, I have to realize the significance of railroads in general. I have to realize something, a key thing
Before, say, the 1830s or 1840s when railroads were first invented, before that, from the beginning of time until 1840
1940, means from the year 5000 B.C. or whatever, there was no land transportation, ever, ever.
You have to realize that, nobody moved on land, okay, you couldn't move on land, the
movement was all on water, ocean and rivers, and that's it, okay, and only, you'd only
live near an ocean or near a river, and so all the trade was going on, on ocean and river,
there's no such thing as overland transportation, no roads, yeah.
The point is, in any kind of a large scale, dirt roads, of course there's no automobiles, no trucks, and no railroads, so you've got dirt roads with carts and wagons and so forth, you can make it to the nearest river in good shape.
So, the advent of the railroad was a fantastic thing. It was a tremendous thing for the world.
It meant cheap land transportation for the first time. Cheap, efficient land transportation.
Of course, so everybody wanted to get a hold. Before that, there were canals.
I mean, if you couldn't have a river, you'd dig a canal from one river to the other.
And so, in England in the 18th century, for example, you had a big network of canals.
You could move from one place to the other inside the country.
I'll give you an idea of the railroad. Therefore, the first big business, the first large-scale capital, was railroads.
Manufacturing was never much of anything, it was not a big business until the 1890s.
The first corporations, the first corporations were banks, it doesn't really count, something different.
Governments were supposed to be a corporation, it doesn't count.
The first real corporations were railroad corporations, the first amassing of large-scale capital
so this is where you start with the railroads as the first big business
and
just to give you a little sketch statistic here
mileage, total mileage in the United States
canals
and railroads
total mileage all summed up
in 1840
There were 3.3 thousand miles of canals
and there were 3.3 thousand miles of railroads. In other words,
canals were just as important as railroads in 1840.
Then it changes. In 1840 there was a big change.
By 1850,
there were 3.7 thousand miles of canals, 8.9 thousand miles of railroads.
By 1860,
there were 30.6 thousand miles of railroads. There was a big railroad boom in the fifties.
We'll see later on why the industry in general took off in the fifties.
Railroads began to take off in the 1850s.
Canals began to die out, and if they stopped, if anything, it declined after that.
Railroads are basically cheaper, except of course, you know, when they're right there
in the Erie Canal or something. But basically, the railroad is a fantastic
reducer, tremendous reducer of transportation cost.
So at the beginning you have railroads from one teeny railroad to another, like Perth,
The railroad network started with Amboy to New York, a big railroad, 30 miles or something, and as time goes on, they learn more, there's more capital investment, they learn more technology, etc.
The railroads began to merge into a long line, so by the 1850s, certainly about the Civil War, the railroad network east of Mississippi was more or less built, and there was lots of mileage, and mostly merged into one long line.
So you start off with, say New York, Philadelphia would have originally eight railroads, one New York to Perth Amboy, and then of course they'd integrate and they'd merge into one much more efficient to have one line from New York to Philadelphia, things like that.
By the way, I forget now when this happened, I'll get to it a little later, but one interesting thing is, I bet you all of you think, it happened around 1879, 1880s or something, I bet you most of you think, where do these eastern standards, daylight savings, where do these eastern standards come from?
Standard Time come from. You probably think it was imposed by the government at one point.
The government, its wisdom, said, okay, we have Eastern Standard Time, we have
Midwestern, Central, Mountain and Pacific. It was not done by the government.
Originally there were about 80 different time zones.
Every 10 miles you had a different time zone.
Because nobody travels, nobody really gave a damn. If you couldn't travel,
it took you two weeks to get from here to Boston. It doesn't matter, you can adjust
So there are lots of times, every five miles, every ten miles you have a different time zone, like another ten minutes.
You see, if you want to do it, I guess, technically, there's no such thing as a time zone. You don't have one hour when you get to Chicago.
You know, when you get to Perth Amboy, you're adjusted by five minutes.
I mean, nobody ever knows what the hell time it is. Nobody cares if you never travel.
Everybody in Perth Amboy, here it's 4.30 and Perth Amboy might be 4.25. Nobody really cares.
But the railroads, when they started, the Transcontinental Railroad, they started going from one, they couldn't mess around with it, they had to have a timetable, they had to have a schedule, they couldn't have 80 time zones.
So the railroads got together in a convention, and they agreed on time zones, just arbitrarily, they said, okay, we'll have an eastern standard time, we'll have a western, central, and a mountain Pacific.
it was the railroads that did it, the government had nothing to do with it, the government didn't care
the railroads had an economic incentive to do something about it, they were losing money all the time
by worrying about when the thing came, what time table it was, impossible, total chaos
it was the railroads that brought order out of chaos on that
by the way, the daylight saving time, which I presume the railroads are not responsible for
it was a later invention of government
it's still a little peculiar because some of the
For example, Arizona is never going on daylight saving time, so that Arizona can never, you have to remember that they're still on standard time, things like that.
At any rate, it was much more chaotic in the old days, before the, whenever it was, the 1880s, when the railroads had the agreement.
Similarly, the railroads began to get together and say, look, we have to have a standard gauge.
We're going to go from, the car is going to go from one track to the other, and every gauge is different size, you ain't going to make it.
The railroad is on the other side of what the gauge should be, or again, in the interest of having an efficient, profitable and efficient railroad system.
One of the railroad subsidies began really in the mid-fifties or so with, first of all, every one-horse town wants to have its railroad.
Railroad, remember there's no roads, so every one horse town, gee we can't really prosper
unless we have a railroad, so they begin to have subsidies to get the railroad to come
through your town, beginning of over-building, it's one thing to have, don't forget in those
days there were lots of railroads, every one horse town had about five railroads going
through it, and so as a result of over-building of railroads there's a lot of subsidies on
local level, on the state level, and finally on the federal level, so if you have by about
In the late 1870s or so, you begin to have bankruptcies and collapses in the railroads, at any rate.
The biggest railroad before the Civil War, the Illinois Central, which I think went from Chicago to New Orleans, I believe,
was heavily subsidized and therefore politicized. In other words, the railroad was sort of a political railroad because they wanted subsidies.
Most of the eastern railroads didn't have subsidies. They made it without a free market.
And one of the subsidies began to buy politicians, so you begin to have a situation where
Senator so-and-so was an Illinois Central man
Was known as an Illinois Central person. This is what I meant before at the beginning of the two hours here
I was talking about you have to know who these guys are before they become senators or whatever
Stephen Douglas, for example, of the Democratic Party was an Illinois Central person. He was
Hipped deep in Illinois Central, he was a heavy stockholder. He also owned a lot of
There was a lot of real estate at the terminal in Chicago where the, he was a senator from Illinois, a democratic senator, where the Illinois Central was having its terminals.
He was selling, he would sell the real estate to the Illinois Central, very heavily personally involved, then he'd go out in the Senate and lobby.
So that was the, that was Douglas, I'm not going to go too much into him since he lost, he lost out for the presidency.
At any rate, another person who did not lose out, who was also an Illinois Central person basically, was Abraham Lincoln
Abraham Lincoln is known in the history books as a rail splitter
The image of him in addition to being like Raymond Massey and speaking like Raymond Massey
I don't know if he spoke like, not really spoke like Raymond Massey, he certainly looked like him
Anyway, you see a picture of him splitting, he never split rails, a lot of nonsense, it's like
it's like Reagan riding a horse on a ranch, that sort of thing, he never split rails
He was a railroad attorney, a pretty wealthy railroad attorney, matter of fact.
He was hired as a lobbyist by Illinois Central, for example, to get them their charter in
1850.
So he was a top railroad lawyer and was also mostly an Illinois Central lawyer.
His wife's sister's father-in-law was a big shot president of the Louisville and
Nashville Railroad, which is another big railroad.
He was definitely a railroad person.
He was a dark horse candidate for the Republican nomination in the 1860s, Seward was supposed
to get it.
Seward was a connector of Wall Street law practice and New York State.
So nobody heard much about Lincoln.
His campaign manager, brilliant campaign manager, essentially won him a nomination with Norman
Judd, who was a Chicago lawyer, chairman of the Illinois Republican Party and a railroad
The famous Rock Island Line, which went from Chicago to Omaha at the top of the very important terminus because it's from Omaha to the famous Union Pacific, which would start moving pretty soon to the transcontinental, to the west.
The other guy who helped get on the nomination was Judge David Davis, an old friend of Lincoln,
who before he became a judge, or was he before he became a judge? Judges are not always just sitting on the bench, they're often pretty active politically.
He was a big shot at Illinois Central. He was a top person at Illinois Central.
He also sold a lot of acreage at Illinois Central, something like Stephen Douglas did.
So, what we have then is Lincoln himself, heavily involved in Illinois Central and also his two big campaign managers at the Republican Convention.
He was definitely a Western Railroad person.
The other interesting figure on the cabinet, I'm not going to go through the whole cabinet, the other interesting figure is the Secretary of Treasury.
This involves with banking and deficits and so forth.
The guy who was made Secretary of the Treasury, from Lincoln administration, Salmon P. Chase, a former Democrat, from Cincinnati.
For some reason, Chase was always heavily in debt. He always needed money. I guess lots of it needed money.
He needed a lot of money, even though his wife's father was one of the wealthiest landowners in Cincinnati.
He owned half of Cincinnati, but he always needed money, so Chase was, the two guys who got him into office, lobbied to get him to be Secretary of Treasury, because he was an ex-democrat, so he wasn't really in big favor, were the Cooke brothers, Jay Cooke, the first famous banker, his brother Henry Cooke was a big-shot newspaper editor at Cincinnati, whatever, so Henry Cooke
Jay Cooke was a banker in Philadelphia, went to Philadelphia, became a banker, sort of
a moderate-sized banker, not too great-shaped. As soon as Lincoln, well they poured a lot
of money into Chase's campaign, is estimated over the years, by 1864, in other words by
the end of the Lincoln administration, Jay Cooke personally invested $100,000 in Chase's
Chase's Campaign, Chase's political life, boodles, either subsidies, bribery, or campaign.
$100,000 in the 1860s is enormous, it's over a million now, more than a million now I think,
maybe more than five million or something like that.
Enormous amount of money poured in to Chase's campaign by Cooks, they have a very close
connection between Chase and Cook.
So Cook gets, Cook pours a lot of money into Chase's political stuff, he lobbies to get
Chase Dana, the Secretary of Treasury, and then what happens, the quid pro quo, after
the greenbacks begin to fade out because they're appreciating or inflated, Cook, they put out
a gimmick here, the National Banking Act, the gimmick is this, first of all, Cook gets
from the Treasury Department the monopoly on the underwriting of all government bonds,
huge amount of government bonds now pouring out to pay for the war effort. Cook gets the
monopoly on, in other words, Cook was the first investment banker. He sets up the House
The boss of Jay Cooke and Company in Philadelphia, Jay Cooke and Company, and he gets a contract
from the treasury that Cooke has a monopoly on all floating and government bonds for the
entire war.
And that's how it happened, continued on from then on until the 1870s, except for one
or two years, Cooke had a monopoly on all government bond issues, which is incredible.
So this means that Cooke gets a rake-off on every government bond that's sold.
That's the Chase-Cooke connection.
The way politics works. Cook pours $100,000 into Chase's political career. Chase becomes Secretary of Treasury and grants Cook a monopoly on all government bonds.
Cook is the first con man in finance. By con man, I mean this. You realize this is the days before the science of public relations had been invented.
No PR man, no professional PR man, no Madison Avenue. Cook was the first guy to say, I got all these bonds, how am I going to sell them? Who's going to buy this stuff?
He hires propagandists, he hires agents that comb the country, saying buy America and that
sort of stuff.
All this stuff, all these phony campaigns of government bond salesmen begin with Cook
hiring pamphleteers to talk about the glories of government bonds, how government bonds
are wonderful, how telling you can be wiped out by inflation, things like that.
It all starts with Cook.
So this is number one, and then Cook gets, Cook decides the way to fix up the banking
So the banking system is we outlaw state banknotes and we place, and that would create a national
banking system, which was done in 1863, I think, and say that only national banks can
issue banknotes.
In other words, other banks can now, can still have deposits.
You go to a checking account, you have a checking account, you still do that, but actual notes
like paper money.
In the old days, every bank used to issue paper money, say, they were payable in gold.
You go to the bank of Great Neck, you get $10 bank of Great Neck, which they would
have to pay gold on if you demanded it, and gold coins, or treasury notes, usually gold
coins, and that's it.
This is a free banking system, a free competitive banking system, which is pretty hard moneyish
because no bank could expand very much, couldn't inflate very much, because then they'd be
called upon then for redemption.
People from outside of Great Neck would start calling upon redemption, they wouldn't have
the money, they'd go bankrupt.
So it was a very tightly uninflated system, it was a very hard money system, which is
which is of course what the Democrats were in favor of.
Well now we have the Republicans come in, they've mainly created a system where state
banknotes are outlawed, only a new thing called national banks, which didn't exist before,
there were no national banks, every bank was chartered by the state government, some state
government.
Now we have new things called national banks chartered by the federal government, which
had to be very large, in other words, a few large banks, mostly on Wall Street, a few
New York, Philadelphia banks, half a dozen banks, they become the basis of the whole
The National Banking System, the banks now pyramid on top, before that we had individual
banks, you have gold, issue maybe three times as many bank notes, now they can't do that
because only a national bank can issue bank notes, the national banks, the state banks
have to have accounts of the national bank to try to get bank notes, so you have to pyramid
on top of the national bank, a few Wall Street banks, a few Philadelphia banks, these national
National banks pyramid on top of what? They pyramid on top of government bonds. In other
words, they can create credit, they can expand credit and money. Of course, how many government
bonds they buy? They buy a thousand dollars in government bonds, they have five thousand
dollars in bank credit, which the state banks then pyramid on top of. So in other words,
the more government bonds they buy, the more they can pyramid inflationary credit on top
of it. Okay, so the national banks, like, who do they get the bonds from? They get it
only one person, Jay Cooke, he's got a monopoly, the Cooke lobbies for it and then they have
to go to Cooke to get their money so they can inflate on top of it, expand credit on
top of it, that was a racket, a magnificent racket, Cooke himself created a couple of
national banks which he owned too.
So we then have Cooke emerging from the war as a multi-millionaire, the top investment
banker and mostly, he didn't have much money before the war started, he was a sort of moderate
Banker, begins to get a lot from the Civil War. He was also a Republican, he was a Republican
banker and tied in with the Republican Party and the Republican administration. So we have
then Henry Cook as the editor of the top Ohio Republican paper, we have Jay Cook as an underwriter,
monopoly underwriter and the only guy in the national banks can go to to get their government
So, anyway, that was the chase, that was the chase connection, that was the way the Treasury
worked during the Civil War.
Okay, just to begin the Civil War question.
It used to be thought until about 20 years ago, until about 20 or 30 years ago.
The textbooks have a view, which of course, Hughes is not half, he's up to date, they
had a view that the Civil War launched industrialization in the United States.
The railroads, the manufacturing, all these things start with the Civil War, because the
war gave a stimulus to industry.
And this was in all of it, and therefore, there's a lot of textbooks.
This was, finally I began to do some research and I found out, it's just the opposite.
War retarded industrialization, which makes more sense, after all, the war is siphoning
off a lot of effort, the war effort into armaments and stuff like that, which we didn't have
time for any kind of fundamental improvement.
So as a matter of fact, the take-off stage, as you could call it, industrialization really
begins in the United States with the 1850s.
This is, railroads began in the 1850s, so did industrialization, not as big as railroads,
but everything really begins in the 1850s.
Iron manufacturing increases by two-thirds in that decade, textile manufacturing goes
up by two-thirds, interchangeable parts begin to come in, the whole concept of interchangeable
parts really starts later, it begins to come in then.
See, before that, and this by the way goes on from then, there's some new work being
done claiming it's handicraft lasts for a long time, in the old days what you do is
even when you have machines, craftsmen or mechanics, they go out there and they fit the machine
and so there's a lot of hand work going on in each machine, a lot of expensive, obviously,
hand work, with interchangeable parts, machine-made interchangeable parts means they can all be
replaced easily, they fit together, you don't need hand fitting, it begins to come in in
the 1850s, it really only reaches a peak with Henry Ford in the 1920s, mass production really
1910s, really only begins with Henry Ford, but it begins to come in armories and stuff like that and also in some manufacturing in the 1850s.
Arms factories, clocks, begins with things like that. But one of the reasons why armament comes in is because you want to be able to replace the arm with some piece of the rifle that's broken, you want to be able to replace it, obviously, and fit it in.
So, it's a big advantage to do that. No new contribution begins, no new big
contribution is in the Civil War, starts with the Civil War. As a matter of fact, the war
delayed technological development. For example, the Bessemer steel process, which
is a big thing in England right by the 1850s, a big advance, only really is
adopted here after the Civil War because you haven't got time, you know, you have to
and turn out, grind out arms, there's no time to retool and invest in the Bessemer of Steel process
so that only after 1865 would that come in
the, as a matter of fact, steel in general really just comes in
and before that it was mostly just plain iron and the whole Bessemer of Steel you have the shift to a steel process
and all the things like mechanization, beginnings of corporation, all these things, cotton textile manufacturing began to take off in the 1850s
so all these things, you'll see more of that in Hughes
and as a matter of fact, there tends to be a sort of breakdown in production
because they're working the equipment too hard during the Civil War and it begins to break down.
Productivity begins to fall and they can only replace it after the war is over.
Okay, that's it. Time is up. So, the Hughes book.
Okay, so I'm going to give you some statistics to show.
I'm not going to give you too much statistics, I hope, of course,
but to show that the Civil War had a retarding effect on industrialization instead of a stimulating effect.
There are various ways to do this. There's a statistic or value added by manufacturing.
It's a way of trying to find out in dollar form how much national income is added by manufacturing.
What the hell is going on?
Try to keep them quiet out there, otherwise they won't be able to have any air.
A large class with no teacher is always an explosive combination.
From 1849 to 59, in other words, the decade of the 50s, this went up by 76%.
Now, you can't, there's no precise percentages here, and of course you have to realize also
that as you get, as the economy grows, the percentages will probably decline, but at any
rate, that's, but this is enough of a factor to begin, for 1859 to 69, plus 25%, a big
slowing down, and then 1869 to 79, plus 82%. So again, you can see right away, you have
a big jump, a big increase in manufacturing in the 50s, a slowing down of the 60s. A lot
of this, if you could have figures from 60 to 65, probably you might be much lower.
And the 70s, bouncing up again to a big increase. So this is just one indication of a lot of
Pig Iron Production, very important, by the way, about half of Pig Iron went into railroad,
building of railroads in this period, railroad lines and cars or whatever, railroad track.
1850 to 60 increased about 20% from 1860 to 65 increased by 1% and virtually stayed the
the same, and from 1865 to 70, pig-armor production went up by 100 percent, and from 1870 to 80, went up by 130 percent.
The big industrial boom, as we'll see later, took place after the Civil War, but also, even in the 50s, it was quite substantial, and the Civil War, everything got retarded, all real capital investment gets slowed down.
Cotton textiles, another important manufacturing in that period.
This is a cotton consumed in manufacturing, which really means raw cotton consumed in
textile manufacturing.
Okay, that's the figures we've got, 1850 to 60 was up by 47%, 1860 to 70 down by 6%,
obviously almost all during the Civil War period, and 1870 to 80 up by about 48%.
So once again we have a consistent pattern, we have a big increase to 50,
It's slowing down, even getting declining in the 60s and going up again in the 70s.
And it's almost all the statistics we have have the same kind of pattern.
And when all the statistics sort of confirm each other, it gets a pretty firm conclusion.
Same thing happened with farm machinery, manufacturing, and construction,
And various indexes of business activity, all these things work in about the same way.
The other interesting thing by the way, this is something completely different about prices
which we'll get back to.
Prices, this is something which is almost impossible for us to comprehend because nowadays
we think of prices going up every year.
We think inflation is liquid, it only goes up by 3% nonsense because what we used to
In the 70s, prices were going up by about 14-15%, 10-20% every year, so when it goes
down and only increases by 3-4%, we think inflation is like, not true.
In the old days, prices used to go down every year.
Prices used to fall by about 3% a year, it was magnificent.
The reason is because supply of goods and services went up.
As you have an industrial revolution, supply of goods increases, production increases,
prices fall.
Here we bring in some fundamental economics, if you're taking a little micro, you should grasp it.
You have your good old supply and demand curve, which is the most important single thing to take out of micro.
You have price on the y-axis, and you have quantity on the x-axis, and you have the demand curve, something like that.
supply line which is vertical at any given point, as the supply of goods and services
increases every year, prices are supposed to fall and since overall, as a progressing
economy, a prosperous economy, especially in the 19th century, prices, supply, even
now supply of goods and services keep going up, why aren't prices falling? Prices are
supposed to fall and in the old days they used to fall all the time, every year they
It was magnificent for the average person. It meant that usually wages remain about the
same, the average wage, and of course the living kept going down every year, about 3%
a year or something, so everybody knew in their heart and soul and gut that if they
save money, the value of the savings will go up. It won't be wiped out by inflation.
It will go up because of deflation. And so it did not have a depressing effect on business.
Many historians think it must have been a depression. It wasn't a depression because
because costs also fell, in other words, productivity went up, as capital equipment and technology
improved and capital equipment was invested, supply of goods and services went up, costs
went down and so prices fell, costs fell and profits remained, you know, remained, okay,
profits were not wiped out.
Everybody was happy, the average consumer improved, etc., etc.
So this is the normal condition of the American economy from about 1800 to about 19, actually
from 1800 to 1940, prices fell every year with one exception, and the exception was wartime.
In other words, by the way, in England, in the great period of the Industrial Revolution in England, from about 1750 to about 1900, prices fell every year too, except during wartime.
Get wartime means the government needs money fast.
How are they going to get money? They create money by inflation. They print money one way or the other, print bank credit, various technical ways.
The basic thing is they print money. As they print money to finance the war effort, the supply of money goes up, and the man curves go up.
In other words, everybody's got more money in their pocket, and they bid up prices.
And so, as the man curve goes up, if you have a lot of money, you can offset the increase in productivity.
That's what happened, precisely what happened when the War of 1812, the Mexican War was
too short just to happen, too limited, the Civil War, the enormous increase in money
supply both north and south, World War I and World War II, and this whole period, and every
all other time, except for 1896 to 1914, which for special reasons we'll get to later, when
The prices went up slowly, about 2% a year.
Aside from that, prices fell all the time during all this period except during wartime.
The war, of course, was fairly short.
Like, for example, a lot of jerks now who are Reagan administration apologists.
The economists for the Reagan administration are apologists who face an interesting problem.
Namely, Reagan promised to balance the budget by 1984.
The deficit is about $200 billion a year and going up, I mean they keep saying, well it's
going to go down $150 billion, don't you believe it?
Okay, so the deficit is enormous every year, so how do you justify that?
Somebody's got to, you know, you've got to come up with some kind of justification if
you're a Reagan administration apologist, either actually working for it or spiritually
working for it.
So they say, well, after all it's not so bad if you take the proportion of the GNP, deficits
deficits aren't that bad, only 5%. It was higher in World War II. In other words, deficits
in World War II, since the GNP was lower, national income was lower, the proportion
of the deficit to GNP was high, at 7% or whatever. Well, that's true. However, it's not much
of an argument because the World War II that was only lasted for about two years, you know,
I mean, it was a big burst of tremendous war financing in 1943 and 44, 45, that was it.
And it was known by everybody, it was only a couple of years.
This damn thing is permanent.
It's a very different situation to have a burst of a deficit, it used to happen every
war and then you'd try to wash it out afterwards.
Very different from that to having a permanent deficit and leaning back and saying, ah, there's
nothing wrong with it, it was worse than World War II.
That's the problem with that argument.
At any rate, the, so prices used to fall all the time.
As a result, prices around 1940 were about the same, and this is very rough, about the
same as they were in 1814.
It wasn't really that much difference.
There was fluctuations in war and after the, you know, after war was over it would fall
again.
It would more or less pick up.
So prices were fairly constant over a long period because you have, you have war prices
falling in peacetime, punctuated by increases in war.
So, you wind up something like that.
And fully prices are good from any point of view, from the point of view of the consumer,
from the point of view of the economic health and whatever.
Any rate, to pick up on this, prices were about constant, I'm giving you wholesale prices
now, to give you an idea.
They fell in the 1840s, they went up a bit in the 1850s, so between 1840 and 1860 they were flat, constant.
So 1840 to 60 constant prices.
Again, this is a rough thing, but you don't need precision for this.
1860 to 65, because of the tremendous inflationary policy, so-called greenbacks I mentioned last time,
prices went up double, went up by 99%.
In greenbacks, see, one interesting thing about that period was
you could use gold, they didn't outlaw the use of gold, and in California and Oregon,
where they discovered gold fairly recently,
they were using gold coin
in trade, so
if the average person wanted to know the cause of inflation, you can obviously see the prices are doubling,
they could see what it was because they took a paper dollar,
they went to buy a loaf of bread or something, it cost two bucks in greenbacks, it cost only one buck in gold,
It was obvious what the reason was. They couldn't blame it on speculators or capitalists or unions or anything like that, or aliens or speculators.
It's obvious what the cause was. The cause was the goddamn paper.
There was something wrong with the paper money, and what was wrong was it kept increasing all the time.
At any rate, from 1860 to 1770, the increase was 46%.
In other words, prices began to fall as soon as the Civil War was over.
Just this half decade, if a doubling of prices, if you take the whole decade you have only
going up by 50%, so it goes down, starts going down since the war is over.
In the 1870s, 1870 to 80, prices fell by 26%, what a magnificent thing, 2.5% fall per year.
Money supply kept going up for various machinations, but the increase in productivity, production
was so great that it offset all the manipulations of the banks and so forth, and you have a
of Fallen Prices. In the 1880s, 1880s, 1890, it had a drop of 18 percent, and many historians
looking at this say, gee, it was a big depression in the 18th century, it wasn't a depression,
everybody loved it. There was a fall in prices, there was a fall in costs, everybody was happy,
yet the myth of the secular depression, the reasons historians are now thinking of prices
going up all the time, I think something wrong with prices fall, these are the pressures,
doesn't mean that at all and a little bit of stuff has been done on this in England
but so far in the United States there hasn't been much re-casting of this in the light
of the facts.
At any rate, it wasn't just great stuff, it was magnificent.
Someday it might come again.
Falling prices.
Okay, I'm going to get now to the land question, the key question for that.
It's a key question by the way for all of the so-called third world which we have fortunately
The Theory of Money escaped for various almost accidental reasons.
First you start with the third world model, and this is obviously not true of every country,
but basically it's true of most countries in South America, most countries in Asia.
The model is this, you have peasants, and the peasants are working the land.
Happy peasants with their native costumes, and they're making a living and all that in
in fairly good shape, and all of a sudden, a foreign government comes in and conquers
this land.
Why does a foreign government conquer anything?
What's the point?
Well, as the usual historian, the usual historical view is that they do it for glory, for national
sovereignty.
I wouldn't say it's totally unimportant, but mostly nonsense.
They do it for loot.
In other words, in the case of South America, you have Indians who are peasants who are
tilling the land.
The Spanish come in, conquistadores, they take over, they not only establish a government
there, they also parcel out the land, the key thing which is the story mostly overlooked.
They take, you know, 40 warlords or something, 40 big shots in the Spanish army, in the Spanish
period regime, and they parcel out the land between 40 people, right?
So they have huge land of the states.
The problem is not the size of the land of the state, the problem is you got the peasants
there who thought they owned the property.
All of a sudden they find, bingo, they don't own it anymore, in fact they have to pay rent
rent, people call themselves landlords, and it's as if, I'll give you an example, my
favorite analogy is, as if the Rockefeller family suddenly announced, we own all of New
York State, and the land in New York, and the government passes a law, in the old days
Nelson was the governor, they pass a law saying from now on the Rockefeller family owns the
entire territory in New York State, so from now on we have to pay not only the crummy
taxes we pay, which are enormous for New York, we also have to pay rent, huge amount of rent
This is basically what happens in most countries, except it's mostly foreigners who come in.
So in the United States this would be probably, even now it would be considered unconstitutional
in the past such a world.
In most countries they haven't got a constitution and you don't worry about that.
So what you have is all of a sudden you turn around and by God you've got to pay land rent.
Also in Latin this is the origin of the so-called peasant problem.
The peasants thought they were landowners, all of a sudden they finally have to pay.
And if you're an intelligent landowner, what you do is you squeeze the peasants to the limit.
You're sort of like a slave owner.
You take the peasants, you figure you can't tax all of his income and rent because he
wouldn't even starve.
You charge him enough rent to permit him to continue living and continue to raise a family.
That's basically, in other words, you tax, it's a rent tax over and above subsistence.
So you siphon off the landlords and build big palaces, and also they have to have a little army there to enforce this.
So what you've got, this is not, I'm not talking about landlords in the United States, but fortunately we've escaped this problem as we'll see in the next time, I guess.
Maybe this time. What you've got is an enforced theft of property on a massive scale, stolen by the foreign government, which then parcels out the property to Lopez, Gonzalez, or whatever.
and they suddenly find you have to pay rent to these people, plus the fact you have to
pay taxes to the same set of governors, the government is usually an executive committee
of these landlords.
So what you have, you pay the same group of people high taxes to support this whole thing
plus high rent.
That's the present problem and it's interesting when Marxist-Leninist movements, Marx's theory
is that the revolution would take place in the most advanced capitalist country, the
and the proletariat would rise up and take over. There hasn't been no communist revolution in any capitalist country.
All the communist revolutions have taken place in peasant countries, third world peasant countries, including Russia in 1917, which was essentially a peasant country then,
and of course China and Cuba and whatever, Vietnam, all these countries were peasant countries.
The problem was a peasant problem, nothing to do with the proletariat.
The peasants were being shafted, in the case of Vietnam, by the French who came in about 1890s, 1880s,
seized the land and parceled it out to various French landlords and also Vietnamese allies,
the so-called compradores and Marxist terminology.
And when the peasants were rebelling in Vietnam and China and Cuba, they were rebelling basically
against these landlords.
They figured they really owned the land.
They were private property people.
They hadn't read Das Kapital.
They didn't know from communism or anything.
They wanted their property back.
That was the whole key to these communist revolutions.
They were not interested in communism.
They just want to get their properties. That's the peasant problem.
Interestingly enough, in Vietnam, after the North Vietnamese made the Treaty of Geneva in 1954,
they were willing to abandon the South. They thought, all right, we have our Northern,
this is the theory of peaceful coexistence, we'll hold up on the North and hold up on the South.
The peasants in the South, as soon as the Americans came back there,
they started reinstalling the French and other Vietnamese landlords.
So they send around to each village tax collectors and rent collectors, both of whom were hated on site because they figured they owned their own.
Nobody likes tax collectors. In addition to that, you get the rent collectors for property which they felt they owned, and rightly so.
So what happened was, and nothing to do with communism at first, what happened was the South Vietnamese villagers started forming little guerrilla bands and popping off the rent collectors and tax collectors.
They come around, you shoot them. That was the first response. And they started shooting more. The government would send more.
and finally they told the communists, look if you don't join our, the communists were trying to shush them up at the beginning
this violates the peaceful coexistence policy, they said look fellas, you claim you're on our side, you're in favor of the peasants, either sign up or ship out
and so the communists then of course signed up and being better organized and being aided by the north they finally took over
but the initial impetus of the Vietnamese revolution was a pure peasant question, nothing to do with communism or Marxism or anything like that
All right, so we have the poor peasants being shafted by the feudal land system, that's
probably a bad term, I don't know what better term to use for it.
State-imposed land ownership.
In the United States, we escaped feudal land for this reason, we had a lot of land.
First of all, in the United States, America's discovery of a huge amount of empty land,
enormous, hundreds of millions of acres of not very productive land with nobody on it.
Nobody except Indians, of course, there's a controversy about how many Indians there were at that.
Many of them got wiped out by disease, because when they met the whites they interchanged diseases, and most of them got wiped out.
But at any rate, the Indians were unfortunately not considered human,
because of the general policy of the white colonialists, and so they were basically exterminated.
And aside from that, it was an empty land situation.
They did not have, it wasn't very densely populated, even with the Indians.
At any rate, so you have unowned land, unused land, land which is not owned at the UCF.
Who owns it?
First question is, who owns this land?
Well, the peasants, we know who owns it, the peasants owned it, then the feudalists came
over and took it over, but with unowned land, with this vast country, who owns it?
So, you have two theories of this, the libertarian theory, which essentially was adopted by Jefferson
and Jackson.
I mentioned the democratic party position.
The libertarian theory is nobody owns it, it's unowned, and this is essentially the
Jefferson position, essentially the Jackson position.
So who should own it?
The libertarian theory is nobody owns it until somebody settles it.
really settles it and does something with it, bringing it into production.
Now what it is could be fuzzy but it really isn't in practice.
You clear the land, you grow something on it, whatever it is, chop a tree down, you
build a road, whatever the heck it is, you then own it.
You become a homestead owner.
This is called homesteading theory.
John Locke was the first theoretician of this and it's the sort of theory which is sort
of common sense which most people in practice will adopt.
Simply enough, for example, in the California gold rush in 1848, there was no government
in California.
The United States government technically owned it but wasn't interested.
It was way the hell out there.
There was a lot of Indians in between.
Nobody wanted to schlep the California.
Don't forget, there was no interstate highway program, no airplanes, there was no interstate
highway program, no railroads, there was no nuts.
And I mentioned something, somebody mentioned the covered wagon last hour.
I have great reverence for the covered wagon people.
If anybody's ever driven the California, if any of you ever drive the California and driven to it, it is a mess. It is a boring mess.
From about the edge of Iowa, from the Iowa-Nebraska border until the California border, even beyond that,
2,000 miles, there's nothing there. There's no houses, there's no people, there's no trees. There's no nothing.
This is a slight exaggeration, but not much. These people were doing that with no roads, no motels.
and how they did it, Lord knows, recovered wagon types.
At any rate, it was a tremendous, I take my hat off, they're a real pioneer spirit.
What you see in the movies is nothing compared to what actually they went through.
At any rate, so California had no government, it was anarchy.
So miners got out there, a whole bunch of gold miners prospecting.
They had to make decisions on the spot, who owns what, and they made it very interesting.
They created their own property law. There was no mining property law.
They created it, they were mostly illiterate, they did it because they knew what was going on.
Well, let's see, Jake has this vein and therefore Jake owns whatever the technological unit is.
Say, in other words, he owns this vein plus X number of feet around it or whatever.
I don't know anything about gold mines, but they did.
And so they were able to assign, without too much trouble, create a property law for gold mining.
And they had courts, they had their own private courts, the miners set up, arbitrate all of this and enforce it.
Claim jumpers, the so-called claim jumpers, a terrible crime, somebody jumped a claim, he was ridden out of town or shot or something.
So, it worked pretty well, and it took about ten years for the US government to get interested in this.
So, these things can be worked out in practice. The people who are doing it, they allocate property on a homesteading basis.
Whoever uses it, finds it, claims it, does something with it, becomes the owner.
That's the libertarian theory. The libertarian theory is nobody owns it until it's homesteaded.
The other theory, which is essentially the Federal Government owns it.
Since the Federal Government was around then, they of course took over immediately when America was discovered.
The Spanish government owns half of the globe, the Portuguese government.
They were all porcelain out of land without having been there even.
And so this is the basic distinction here. The Federal Government puts claims to it.
Now, once the government claimed they owned it, there's nothing much libertarians could
do about it.
It stuck with this government owning it.
For example, how did this state get to be called New York?
It's called New York because Charles II, I believe, King of England, we were owned by
England, parcel out the territory, not called New York, but his brother, the Duke of York,
okay, who became the private owner of this whole kind of, I mentioned Rockefeller, he
probably thought it was an exaggeration.
is exactly what happened. The Duke of York privately owned this whole state, and the
thing which saved us from feudal land rent, the reason why we don't have to pay half of
our income to the Duke of York's descendants, was he wanted money. I mean, this is a godforsaken
area here with no people and lots of trees. He wanted to get money out of it. So in order
to get money out of it, the feudal landlords of New York and North Carolina, etc., parcel
it out into small plots and sold it to settlers.
So that way homesteading came about in the long run, in other words the settlers finally
wound up, even though they had to pay a high price for it, they finally got out from under
the feudal land system, a land monopoly system, whichever you want to call it.
So we had a way out, which unfortunately other countries don't have, because there was such
and so land became a drug on the market so to speak and they were willing to sell it
off in small parcels and get any money out of it they couldn't, I mean the Duke of York
was not really interested in the fact, he wasn't thinking about the fact that in 1980
his descendants could make a lot of money out of New York, I mean 1680, just a bunch of
trees and no people, he wanted some people here, in order to get people he had to subdivide
the land into small plots and sell it to settlers.
Okay, so we have then, as the United States acquired the West, and the original thirteen
states in pretty good shape, except for slavery of course, where plantations became large,
unnaturally large because of cheap labor, except for that, it was a fairly good land
system because it was essentially acquired by settlers as the government, government
then owns it.
In other words, as the United States became a republic, U.S. government owned all unused
Land, the so-called public domain, just by virtue of the fact that they were government.
But in the East, the land had already been fairly well parceled out.
The problem came west of the Appalachians when, first of all, after the revolution,
we got all this unused land, and then after the Civil War, of course, we got more and
more of this.
You have all this land on the west owned by the federal government.
Aside from the fact that the federal government is not a very shrewd or efficient landowner,
to say the least, as with everything else, then it becomes a governmental question, how
do we parcel out the land?
How much land should go to private ownership and how should it be done?
Well, what happens is the temptation that either this government will hold on to it
forever, which happens since about 1900, the so-called conservation movement.
Most of the land in the western states is still owned by the federal government, held
out of use, just sitting there locking up all these resources, minerals, trees, ranches.
And there's a lease of that, well, this is a bad effect, I'll get to that a little bit later on.
At any rate, the Civil Government owns it. You can either sit on it, lock it up, or you can sell it at auction or whatever, or grant it to various favored people.
Call it political favorites, or sell it at auction, political favorites. In other words, sell it or keep it. Sell it or grant it.
So, that was, partially that was done. Before the Civil War, there was a lot of that, selling at an auction to speculators, not the settlers, the speculators, and the speculators would charge the settlers for it.
The homesteading principle, Jackson and Jefferson, since the government already owned the land, they said, well, at least allow the homesteaders to own it.
In other words, granted to the homesteaders. The homesteaders is a clear piece of land, the government should grant it to them, and that's it, without charging them for it.
That's the homesteading doctrine. It's sort of the later version of the libertarian doctrine.
The South was against homesteading, and the East was against homesteading, and the Westerners
tended to be in favor of it, but of course the Westerners had voted. So the Republicans
in 1863, I think, passed the homesteading law, not because they were in favor of it,
They wanted to make a deal with the West, they wanted to get support on the West, and
that was their concession.
And unfortunately, I was fine, Iowa was settled in a homesteading manner, everything was done
pretty well there, except the problem was, as soon as you get west of Iowa, and this
happened around 1870, as you ever drive there you'll see, as soon as you, something happened,
something drastic happened to America, and you get to west of that Iowa, namely there's
There's no water. Water on line, what do they call it? Ain't no water. So this means that
it's very dry. It means that you can't, you can have a farm in the east, east of the Mississippi,
east of Iowa, if it's a little bit west of Mississippi. An average farm could be, a family
farm is about 160 acres. And so the homesteading law said anybody who clears and produces 160
acres gets it. And you have to stay there for two years, whatever the provision was.
160 acres is fine, it's fine for cattle, you can see cattle farms up in Virginia or
down here, Connecticut or something, a bunch of cattle, 20 cows and it's sitting there
in a water hole or whatever, it's great, they've got a lot of grass, there ain't no grass out
there, it's all scrub, you know, they have one cactus and a little bit of grass under
it, five miles away there's more cactus, 160 acre farm or ranch is nothing, you can't
do anything, you need a couple of thousand acres to do anything, but for cattle, if
If you drive in the west, instead of having a bunch of cattle that you do here sitting
under the shade or in the shade, there ain't no shade out there, so there's no possibility
of that.
What they do is, they have one cow over here, another five miles another cow, because there's
no food, so they have to spread out a lot.
Unfortunately, after the Civil War, the jerks who were federal land bureau and farm material
didn't understand that.
They probably never went out there.
Who wants to schlep out there?
They're sitting in Washington where they didn't have air conditioning then but they were sitting there in comfort and so 160 acres and that's it, they refused to expand the size of the homesteading claim.
They refused to allow farms of more than 160 acres or ranches.
As a result, there was what we call land communism for about 30 years, making 60, 80, 90 all over the West.
In other words, from Iowa West to the Sierras or whatever, this whole area and no private
ranches and there's no private property there at all in land.
So what they did is the sort of stuff you see in western movies in the old days, you've
ever seen an old western movie on television, they're always shooting each other.
Why are they shooting each other?
Not shooting each other for the fun of it, not because they enjoyed it, it's because
there was no private property, everybody was scrambling over the water hole.
Who gets this land?
There's the nesters, right? There's the nesters who want to farm. There's the ranchers, who
we usually picture as evil in the movies for some reason. There's the ranchers and the sheep
men, okay? There's whole groups of them. Each one want to get the same land. They want to
get their cows to pasture on this thing or whatever. They're each fighting over the same
property and shooting each other because they claim that... Why are they shooting each other?
We don't have to shoot each other in the east. Why is that? It's not because they're evil
Westerners, because there's no private property. They didn't allow property in the public domain.
They didn't allow large acreage. As a result, you have people using the property but not
owning it. They're leasing it, in a sense. They're using the fruits of it. They can't
own the actual land. So, yeah, constant conflicts as a result, constant war over the resources.
Sheep men come. The sheep men, for example, one thing is, if you have grass, I mean the
The reason for the dust bowl and so forth, it's quite simple.
If you have a bunch of grass, it's nice to, it's better to be able to renew it from year
to year.
Seed it again and so forth, don't want to eat up the whole thing.
If you own the grassland, you'll have a capital investment in it.
To your interest is keep the thing going, to keep the thing productive, not to destroy
the grassland.
It's to your own economic interest to keep up the capital value of the ranch.
So private ranchers or private foresters, they don't chop down all the trees, they might
They might benefit in the short run, but they've got a lot of trees to sell, but they haven't got any forest left.
The capital value of their forest, the stock value, disappears.
So they're interested in renewing it. Private foresters renew the trees. They chop down only a certain amount.
They renew it. They plant more. Same way with grass. They don't destroy the grassland.
But if you can use any trees you want or grassland you want, but you can't own it, there's no incentive for you to renew it.
Renew it.
Because if you try to renew it, if you plant more grass, some other guy's cattle will eat
it in two weeks.
What's the point?
You're just creating more grass for the other schmo to come in and eat your grass.
There's a negative incentive to keep up the value of the property, just the opposite.
If you don't chop down the tree, some other guy will chop down the tree.
So the incentive is to chop down the tree as fast as possible.
Because you don't have a private property in the actual resource.
You only have a private property in what you can chop down today.
So what you have is, you have one set of cattle, you eat as much grass as possible down to
the nubbin, because if you don't do it, somebody else's cattle will do it.
Same way with the sheepmen, the sheep or cattlemen always complain that sheep eat the grass down
to the root or something.
Well, I mean, if you have your own sheep ranch, you find a way to solve that problem.
You wouldn't let them eat everything, you know, whatever.
That's what happened.
You have a war of all against all, created by the fact of land communism, it was a fact
There was no private property. There was communal property in the grassland and in the ranches.
No private property in actual resource. Actually, left-wing historians blame it on capitalism.
Just the opposite. Blame for the situation is due to the fact that the entire grass cover
was destroyed, the forest was destroyed. The problem was not capitalism. The problem was
the failure to have private property, for the government to allow private property in natural
resources and grass and forests etc. etc. You've probably seen some movies about the
barbed wire. They started fencing off them, they started seizing private property and
cattle ranches by putting a barbed wire around. And then there's a whole bunch of Mystique
of the Open Range. I remember Kirk Douglas about 30 years ago had a movie which he had
a phobia about barbed wire. I guess his chest was cut up on him one time. He kept looking
He's speaking for the open range, he says, this place is no good, they've closed off, they've fenced off everything, I'm leaving for Montana or something.
Well, it's shawmy and romantic, but the point is, by fencing it off, they were able to have private property and ranches,
and to solve this problem of constant war over between the nesters, the sheepers and the cattlemen,
and they were able to keep, start renewing the property, keeping up the capital value and maintaining it.
It was illegal until about the 1890s. They just illegally fenced it off.
This is my property, I'm fencing it and that's it.
And with the invention of barbed wire, which was around the 1870s, it was much cheaper than wood.
Also, there were no trees there, you understand.
You can't have wooden fences in the West, there ain't no trees.
So with the invention of barbed wire, they were able to go in there and just fence off and the heck with it.
At any rate, this is the reason for the war of the West, the fact that there were constantly wars between the nesters and the ranchers and the cheap men and all that.
It was brought about by government intervention, by the fact that government refused to have to allow homesteading at larger than 160 acres in dry climates where the 160 acres was pointless.
Okay, that's really the land question.
I think there are, this has an application right now, there are lots of things with water.
One of the problems for the great water problems in the West, it's not just as dry there, that's
not the real point.
The point is they steal water from one area to the other.
Nobody is allowed to sell water.
Nobody has private property, but they do in the western states.
You have private property in certain rivers and percentage of flow, like the first deep
percent or the next second 8% or whatever it is, but you can't sell your right to anybody
else.
In other words, the people in Los Angeles want water, the guys up here have it.
They should be able to sell the right to somebody in Los Angeles.
They can't do that by law.
By law, the government has to do it.
And so it's not done.
They have a big political conflict in Sacramento between the Southerners and the Northerners.
They hate each other's guts.
They threaten to see seeds and so on and so on.
And finally what happens is they have huge federal projects where they waste billions
of dollars.
There's a central Arizona project right now.
They wasted billions of dollars, huge amount of money to bring water from the Colorado
River here to Arizona.
They take this water.
They sell it.
The government, of course, owns it.
Salerno sold it very cheaply to farmers. In other words, the cost of the taxpayer, I don't know, X amount of dollars per gallon, it sold the farmers about one-tenth of that, thereby inducing, and the farmers, by the way, have to buy it, they don't use it, they don't get it, they have to use all this water, induces them to use a lot of water, and then they take the water and they irrigate, uneconomically, growing crops which the government then pays them not to produce. In other words, they then pay them to plow under the crops,
government buys it and stores it somewhere and finally dumps it
so it's a totally insane policy, the farmers get subsidized, the water construction people get subsidized, the taxpayers pay through the nose
and water gets wasted, in other words, here you have a very scarce water supply in the West
they deliberately induce people, they sell farmers water at a very low rate
inducing them to go waste it and then they buy the crops and burn it somewhere
so it's a totally insane policy which benefits only politicians and their constituents
Anyway, that's enough for today. Next time we'll go on to the railroad question.