Cronyism

INTRODUCTION

The present book is an economic and political history of early America, describing government policies and their effects on marketplace activity. In particular, it is a history of cronyism: when the government passes policies to benefit special-interest politicians, bureaucrats, businesses, and other groups at the expense of the general public. Examples include a central bank’s selective credit expansion, discriminatory taxes and regulations, business subsidies, territorial acquisitions and other foreign policy maneuvers, and new constitutions. The rewards of cronyism take the form of monetary gains, particularly increased incomes and profits for individuals and businesses, or psychic gains from greater power and authority. The government’s claim that it passed legislation to enhance the public welfare is only a thin veneer for privileges and redistribution.

Special-interest legislation is inherent in the very nature of government. On the free market, the network of voluntary exchanges, all activity is based on individual liberty and results in mutually beneficial outcomes. The competitive profit and loss mechanism incentivizes individuals to produce goods and services that consumers desire. However, the government, the legitimated monopoly of power, lacks this mechanism and produces outcomes that are harmful to society. The incentive structure is different: unlike the Invisible Hand of the market, individuals that control the coercive Visible Hand are encouraged to pass legislation that benefits them at the expense of others. The stronger the government, the more lucrative the rewards. To control the government machinery is to control the levers of cronyism.

Researchers have analyzed American special privileges before, but their studies focus on individual cases in select time periods that remain unintegrated into an overarching narrative. There is still a need for an overview of cronyism that covers the motivations behind and development of relevant policies, their effects on the economy, and the critical attempts to reform the system. To achieve this goal, I utilize the “Liberty versus Power” theory, developed by Murray Rothbard in his five-volume Conceived in Liberty series. It contains three core components.

First, history is a clash between the forces of liberty, or those in favor of individual decision-making and the market allocating resources, and the proponents of power, the factions that support coercion and government organization of production. Libertarians want to reduce government power to limit cronyism while statists strive for the opposite. Favoritism is limited when a substantial interest with an ideological and pecuniary incentive to promote freedom exists. Otherwise, only clashing groups that want to control power mitigate special privileges. The liberty and power forces, with a spectrum in between, continually define the evolution of a government’s interference with the free society. When liberty triumphs over power, cronyism is reduced; when the opposite occurs, privileges increase.

Second, those who control the government’s power are corrupted over time. To quote Lord Acton, “[P]ower tends to corrupt and absolute power corrupts absolutely.” I define corruption as the willingness of government officials to push for interventions that benefit themselves and other favored interests. Coercion and the use of force increase the ability to dispense favors, which incentivizes corruption. While there is often a strong moral element to corruption, my primary focus is the increased inducement to secure special-interest policies. Lord Acton’s famous quote can be modified accordingly: “Power tends to incentivize cronyism and absolute power incentivizes cronyism absolutely.” Cronyism is due to the corrupting nature of government power and only by eliminating it can society destroy such favoritism.

Third, reforms that eliminate restrictions and redistributions are difficult to achieve because they require smaller government. This can only be accomplished through an outside amputation of power, particularly secession, or a change in the administrative leadership that internally dismantles the government’s power. The problem with reform, internal or external, is that any attempt requires laissez-faire proponents to use the coercive structure to enact their preferred policies. However, power tends to corrupt, which means that the previous advocates of freedom ineluctably start to pass their own special privileges. Radicals lose sight of their original goals, moderates stress the need to compromise with the opposition, and political office increases the incentive to provide favors to supporters. Soon the temptation to grant cronyism becomes irresistible. While in office, the libertarian faction transforms into a new coalition indistinguishable from the former statist party.

My thesis is the following: in early American history, special privileges increased in a staggered fashion and the Liberty versus Power theory explains this evolution. A majority of the population adhered to a basic libertarian ideology while the remainder supported big government. When the interventionist parties, i.e., the Federalists, National Republicans, and Whigs, secured control, cronyism shot upward. When the people elected the reform parties—the Antifederalists, Republicans, and Democrats—cronyism declined before increasing due to the corrupting nature of power. The ultimate driver of privileges on both sides was the insatiable urge to create an empire, a territorially vast and influential country. Statists wanted to replicate the European empires that easily facilitated cronyism. In stark contrast, libertarians envisioned their empire consisting of small independent governments that shared classical liberal values. However, power and the lure of territorial acquisition corrupted the libertarian parties into creating the same belligerent empires they previously weakened. Therefore, cronyism increased in a nonlinear fashion.

To prove my thesis, I describe the history of special-interest legislation over the backdrop of political history. My narrative concentrates on the motivations of the major “players,” or America’s “Great Men”—the politicians and businessmen involved in the legislative process—and their attempts at reform. As a result, my work is “a throwback to a traditional approach to politics, focusing on elections, parties, and the maneuvering of elite white males in government.” By utilizing the Liberty versus Power theory and a political narrative that stresses the Great Man perspective, I have intentionally made this work “old fashioned,” and deservedly so, given that the goal is to accurately study American cronyism.

Cronyism: Liberty versus Power in Early America, 1607–1849 starts with Jamestown in 1607 and finishes with the election of 1848. It is broken down into the following five parts.

“Part I: The Road to Empire, 1607–1790” covers the American colonies to the US Constitution. It intentionally relies on Rothbard’s writings, particularly Conceived in Liberty. Chapter 1 describes how the Old Order Empire of England failed to impose mercantilism and feudalism over the New World. Consequently, the thirteen colonies imbibed the Enlightenment’s radical theories, developing a basic libertarianism that recognized individualism, natural rights, and private property. Classical liberal colonists that supported radical change and decentralization fought reactionary defenders of the status quo and government power, particularly over declaring independence from Great Britain. As chapter 2 explains, during the American Revolutionary War the radicals exercised the preeminently decentralist reform of secession. However, Pennsylvania’s merchant prince Robert Morris and other nationalists tried to institute an Old Order American Empire through the formidable Articles of Confederation. The nationalists hoped that their new empire would centralize government power, weaken the independent states, and facilitate special privileges, particularly a central bank and assumption of debts held by speculators.

While the reactionaries narrowly failed during the war, after the conflict ended they engineered a second movement through the Constitution under the guise of Federalism. This is the focus of chapter 3. Virginia’s James Madison and Alexander Hamilton of New York led the Federalists. The Antifederalists, commanded by George Clinton of New York and Patrick Henry of Virginia, bitterly opposed the new dispensation, correctly recognizing that the proposed power-aggrandizing polity was antithetical to the ideals they fought for during the Revolution. Despite the Antifederalists’ resistance, the Federalists utilized dirty political tactics and imposed their new government on the United States. While the ostensible leader was President George Washington of Virginia, Congressman Madison arranged the major policies behind the scenes. Madison strengthened the new government, particularly with a weak Bill of Rights that imposed few structural limitations upon the Constitution.

“Part II: The Hamiltonian Era, 1790–1801” continues the narrative into the early years of the new republic. As explained in chapter 4, Secretary of the Treasury Hamilton alienated Madison by using the Constitution to push for crony policies that benefitted Morris and other northern Federalist elites, such as assuming public debts, enacting the Bank of the United States, and protecting land speculators. In response to Hamilton’s program, Madison opportunistically allied with the radical-moderate Thomas Jefferson of Virginia and disgruntled Antifederalists. Chapter 5 narrates how Hamilton and New England’s Essex Junto merchants secured a military program that moved the country towards their cherished goal of an American Empire. The Federalists suppressed resistance to taxes that financed their special-interest policies, expanded the territorial domain, and encouraged the Quasi-War with France to monopolize international commerce. By the end of the decade, Inspector General Hamilton was dangerously close to leading the long-awaited empire.

To defeat the Hamiltonian Federalists’ power grab, libertarians formed the Republican Party. This is the subject of chapter 6. The new coalition, composed of former Antifederalists and alienated Federalists, strategically interpreted the Constitution strictly to stop the Federalists’ machinations. They enshrined their states’ rights philosophy, the compact theory, in the “Spirit of 1798.” During the Revolution of 1800, the people rose up, drove the increasingly unpopular Federalists from office, and elected Jefferson president.

However, just when the Republicans thought they could roll back cronyism, power corrupted them and warped Jefferson’s dream for an “Empire of Liberty” into an Old Order Empire. “Part III: The Failed Jeffersonian Revolution, 1801–1817” analyzes the presidential administrations of Jefferson and Madison. With the Federalist Party out of the picture, the Jeffersonian Republicans split into two groups: Madison’s ex-Federalist moderate Republicans and the Antifederalist Old Republicans led by the Virginian John Randolph. In the middle stood President Jefferson. Chapter 7 documents the ways in which power corrupted the Republicans into moderation during the early years of Jefferson’s administration. They secured some notable reforms, such as over the judiciary system and spending, but did not go as far as the Old Republicans desired because moderates wanted to court the opposition Federalists.

Despite the efforts of Randolph, chapter 8 shows that power soon corrupted the Republicans to pursue outright cronyism. The 1803 Louisiana Purchase and its massive territorial acquisition incentivized the Republicans to compromise on speculative land grants, pursue foreign policy maneuvers in Spanish Florida, support internal improvements to bind the country together, and engage in bellicose trade relations to protect commerce and conquer Canada and Florida. Chapter 9 narrates the final stage of the corruption process: the Madison administration created an Empire of Power by aggressively encouraging conflict against Great Britain. After the War of 1812, the new National Republicans adopted the old Federalist cronyism, including the Second Bank of the United States (SBUS) and protective tariffs. With the National Republicans’ embrace of Federalist policies, the Jeffersonian Revolution ended in a resounding failure.

“Part IV: The Era of Corruption, 1817–1829” focuses on the after-math. It explains the National Republicans’ adoption of the “American System” to strengthen the Madisonian empire, which advocated monetary nationalization, manufacturing subsidies, federally funded internal improvements, increased congressional interference with newly formed states, and imperialistic aggression. Major beneficiaries included the Philadelphia financial elite and the commercial Boston Associates. However, as explained in chapter 10, Congressman Henry Clay of Kentucky, Massachusetts’ Congressman Daniel Webster, and Secretary of State John Quincy Adams only partially implemented the American System. This setback resulted from the Panic of 1819, caused by the Second Bank of the United States’ (SBUS) reckless credit expansion. Chapter 11 documents how the resultant downturn increased opposition to the American System and exposed sectional animosities, interfering with National Republicans’ plans to enact protective tariffs and public works. Chapter 12 shows the ways in which the panic bled into disputes over slavery and the National Republicans’ foreign policy of imperialism. Despite the Panic of 1819, slowly but surely the National Republicans fastened the American System upon the country.

Consequently, New York’s senator Martin Van Buren organized a new libertarian coalition, the Democratic Party, to cripple the American System. This is the subject of chapter 13. The Corrupt Bargain of 1825, when Clay helped Adams win the presidency in an overtime House election, especially motivated Van Buren to create his new party. Andrew Jackson of Tennessee, Van Buren’s standard bearer, denied Adams’ reelection in the Revolution of 1828.

“Part V: The Failed Jacksonian Revolution, 1829–1849” finishes the narrative. From the presidential administrations of Jackson to James K. Polk of Tennessee, the Democrats strove to destroy the American System despite furious Whig opposition. The Jacksonians succeeded where the Jeffersonians failed because of their radical free market ideology and determination to not work with the opposition. Chapter 14 explains how the Jacksonians transformed the executive branch to eliminate the SBUS and institute the independent Treasury. As described in chapter 15, the Democrats also used presidential power to move the country toward free trade, pay down the national debt, and reduce internal improvements spending, thereby weakening the American Empire.

But power corrupts, and what happened to the Republicans also afflicted the Democrats. This is the subject of chapter 16. The executive branch’s burgeoning power incentivized the Jacksonians to belligerently expand the empire to monopolize world commerce, a goal of expansionist southerners and northern businessmen. This portended an explosive situation regarding the growing slavery controversy, an issue largely absent from earlier political debates. Jackson and Van Buren pursued a peaceful foreign policy in the 1830s, but in 1844 they split over Texas annexation and its implications for slavery and war against Mexico. President Polk used annexation as a pretext for conquering California ports during the Mexican War, a goal internationalist merchants and manufacturers had long desired. By the end, the Democratic Party’s laissez-faire creed was irrevocably extinguished. The Jacksonian Revolution was another deafening failure for liberty and anti-cronyism.

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Murray N. Rothbard, Conceived in Liberty, vols. 1–4 (Auburn, AL: Mises Institute 2019); Murray N. Rothbard, Conceived in Liberty, vol. 5, The New Republic, 1784– 1791, ed. Patrick Newman (Auburn, AL: Mises Institute, 2019).

John Acton, Essays on Freedom and Power (New York: A Meridian Book, 1955), p. 335.

Unless otherwise noted, all spelling, punctuation, and italics in quotations are taken from the cited source

Gordon Wood, Empire of Liberty (New York: Oxford University Press, 2009), p. 741.

Joseph T. Salerno, “Introduction,” in Murray N. Rothbard, A History of Money and Banking in the United States, ed. Joseph T. Salerno (Auburn, AL: Mises Institute, 2002), pp. 7–43.