The Shape of US Populism

Henry C.K. Liu

Part I: Legacy of Free Market Capitalism
This article appeared in AToL on March 12, 2008

The financial crisis that broke out in August 2007 has stirred a revival of the latent populism that had been effectively suppressed by blanket anti-left hysteria during the Cold War. Despite residual psycho-political phobia, such indigenous populism has been simmering upward from deep freeze depths after two decades of debt-driven financial and trade globalization in the post-Cold War era. Globalization of deregulated trade and finance has produced spectacular wealth for an elite minority at the expense of the wage-earning majority even in boom time all over the world.

Legacy of Free Market Capitalism

Income and wealth disparities have been the legacy of free market capitalism, dictated by the call of neoliberal supply-side economic theory for concentration of wealth to achieve indispensable capital formation. While internationally, the United States has been the clear beneficiary of “free trade” which dilutes the authority of national sovereignty to institute defensive protectionism, stagnant wages in the face of high corporate profits from outsourcing jobs overseas have left US workers in manufacturing worse off than their parents. Global cross-border wage arbitrage has succeeded in keeping wages low around the world. But the decline in working-class fortune in the US had been masked by an exponential rise is home prices in a debt bubble that provided temporary phantom “wealth effect” to working families suffering the imperceptible real wage decline.
Now with the bursting of the debt bubble, while the culpable financial elite are walking away with equally spectacular severance packages after ringing in billions in market losses, the investing pension funds of helpless workers are unwittingly taking heavy hits and the social service entitlement for the working poor are further squeezed by ruthless corporate restructuring.

Looking for Culprits

In a congressional hearing on executive pay held on March 7 by the House Committee on Oversight and Investigations, Republican committee members lined up to defend the extraordinarily high executive pay accumulated during years of handsome corporate profit made possible by the blatant global manipulation of debt. The Republicans dutifully rationalized that these executives also suffered financial losses in the recent collapse of the debt market, albeit such losses only reduce their departing compensation from high nine figures to low nine figures. No executive has yet been forced to lose their second or third vacation homes, while many working families are forced out of their primary residences by the “bad judgment” of these executives.

Representative Henry A. Waxman, Democrat of California, the committee chairman, said in an opening remark: “There seem to be two economic realities operating in our country today. Most Americans live in a world where economic security is precarious and there are real economic consequences for failure. But our nation’s top executives seem to live by a different set of rules. When companies fail to perform, should they give millions of dollars to their senior executives?” Well, actually it is more like hundreds of millions.
Republicans on the committee reject the very premise of the hearing. Darrell E. Issa, Republican of California, asked rhetorically: “This is a hearing in search of bad guys. Are there bad guys in front of me? I’m not seeing it.”

Yet while Chuck Prince may not look like a bad guy to Representative Issa, the Citigroup chief executive did tell the Financial Times on July 10 2007, 35 days before the outbreak of the liquidity crisis, that “the party would end at some point but there was so much liquidity it would not be disrupted by the turmoil in the US subprime mortgage market.” Prince denied that Citigroup, one of the biggest providers of finance to private equity deals and collateralized debt obligation instruments, was pulling back. “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,” he said in an interview with the FT in Japan.  Things indeed got “complicated” five weeks later.  George Soros publicly observed later that at the time Prince made the comment that he must keep dancing while the music was still playing, the music had actually already stopped.

Representative Issa failed to understand that if he cannot see “bad guys” among the movers and shakers of the market because they were merely playing according to the rules of the game, then he does not enjoy the luxury of absolving deregulated free market capitalism as the real culprit of massive financial destruction.  See my August 1, 2002 article in AToL: Capitalism's bad apples: It's the barrel that's rotten.

Prince admitted in front of the committee: “Last fall, it became apparent that the risk models which Citigroup, the various rating agencies and the rest of the financial community used to assess certain mortgage backed securities were wrong. As C.E.O., I was ultimately responsible for the actions of the company, including risk models that eventually proved inadequate.”

The error these risk models made was not taking into consideration the possibility of  massive market failure, a condition consider too unreal to be taken seriously, since it was expected that the Federal Reserve, the nation’s central bank, would step in to keep markets functioning.

In a 1998 testimony before Congress, Greenspan said: “We should note that were banks required by the market, or their regulator, to hold 40 percent capital against assets as they did after the Civil War, there would, of course, be far less moral hazard and far fewer instances of fire-sale market disruptions. At the same time, far fewer banks would be profitable, the degree of financial intermediation less, capital would be more costly, and the level of output and standards of living decidedly lower. Our current economy, with its wide financial safety net, fiat money, and highly leveraged financial institutions, has been a conscious choice of the American people since the 1930s. We do not have the choice of accepting the benefits of the current system without its costs.” The risk of market failure was apparently a conscious choice of monetary policy.

Systemic market failure was alluded to by several witnesses and committee members in the hearing but the issue was deemed out of the jurisdiction of the committee and the particular aim of this hearing, and was categorically brushed aside unanswered.

Tom Davis, the ranking Republican minority member from Virginia, said that even if the executives had been paid nothing, there would still be a housing crisis. And Mr. Issa emphasized that all of the executives were primarily rewarded with stock, meaning they have suffered alongside shareholders as the value of financial stocks has plummeted.

Yet it is a commonly known fact that executive compensation tied to annual performance has become an irresistible incentive for top management to take on increased risks for the companies they manage, at the expense of the long-term wellbeing of the company, and by extension, of the economy. The system has been designed to push risk to the limit until it fails.

John Finnegan, chairman of Merrill’s compensation committee, when asked why E. Stanley O’Neal, former Merrill Chairman and CEO, was permitted to retire rather than being forced out for cause, replied that if O’Neal had been fired, he would have forfeited the $131 million in stock and options he had earned in prior years.  Mr. Finnegan added that “cause” involved only unethical behavior, not bad judgment. In other words, the fault was with the system, not the individual who responds to the system’s incentives. “To say you don’t have the tools, it means that even if someone performs badly there are no consequences,” Mr. Waxman retorted.

Emphasizing that the compensation process at Merrill was “appropriate” and “independent,” he said: “It is true that top executives at public companies in the United States, especially in the financial services industry, are highly compensated. But a great percentage of that compensation, certainly for me, was and is at risk. When the business does well, all shareholders do well. But if the business does not do well, the value of that compensation can plummet.”

O’Neal of Merrill retained more than $161 million after he “retired” honorably in October on top of the $70 million he took home during his four-year tenure. The bulk of the exit pay was linked to previously earned benefits and exercised stock options. Since his departure was deemed a retirement, O’Neal did not receive any severance pay. Merrill Lynch, meanwhile, had announced write-offs totaling more than $10.3 billion by the time O’Neal left causing its stock price go into free fall. The write-off was partly funded by profit earned under the four “good” years of O’Neal’s tenure.

Prince of Citigroup collected $110 million while presiding over the evaporation of roughly $64 billion in market caoitalization. He left Citigroup in November 2007 with an exit package worth $68 million, including $29.5 million in accumulated stock, a $1.7 million pension, office with an assistant, and a car with driver. Citigroup’s board also awarded Prince a cash bonus worth about $10 million for 2007, largely based on his performance in 2006 when the bank’s results were better. Citigroup announced write-offs worth roughly $20 billion in 2007 and saw its share plummet over 60% from 2006 high.

Angelo Mozilo of Countrywide had taken home more than $410 million since becoming chief executive in 1999, including several stock sales made under an automatic plan while the company was buying back shares in an apparent conflict of interest. Federal securities regulators are scrutinizing those trades, as is the FBI. And in a report released on March 6, a day before the hearing, congressional investigators found that the use of a flawed peer group and easy bonus targets helped inflate Mozilo’s pay. He also had been entitled to a $37.5 million severance package, though he forfeited that in January, shortly after Congress requested that he testify.
Representative Elijah E. Cummings, Democrat from Maryland, noted that “We’ve got golden parachutes drifting off to the golf course and have people I see every day who are losing their homes and wondering where their kids will do their homework.”

And Mr. Mozilo, noting that “our stock price appreciated over 23,000 percent” from 1982 to 2007, said he received performance-based bonuses approved by shareholders and exercised options as he prepared for retirement. “In short, as our company did well, I did well,” he said.
Mr. Waxman ended the hearing by complimenting the witnesses on their extraordinary individual tales and for their service to their firms. But he added with a straight face, “It seems like everyone is hurting except for you.”

No one even on the Democratic side bothered to ask, while working families lost their home which constituted a major part of their total assets accumulated over years of hard work, why these executives who were responsible for such disastrous results should not be made to disgorge their accumulated gains to reimburse the victims of their manipulative perfidy. While populism is in the air, it has obviously not infiltrated into congressional committee hearing rooms.

In prepared testimony, Mr. Prince focused on his humble beginnings, as the first member of his family to go to college and Mr. O’Neal, an African American, revealed that his grandfather was a slave. The two executives personify the admirable socio-economic mobility in the US financial system. Yet one would expect that people of humble origins and minority background to be embedded with sensitive about the powerlessness of the poor to protect themselves from iniquitous manipulations beyond their comprehension, let alone control. Apparently, social mobility is possible in US society only if one leaves behind one’s populist baggage. 

Since last August when the credit crisis exploded to spread over the entire financial market that now threatens the US economy with a sever recession exacerbated by stagflation that promises to be protracted, populist rhetoric has been growing in volume in the final phase of the year-long presidential nomination campaigns of both political parties, even by the front-running candidates, with an eye to capitalize widespread voter discontent in November.

While the specifics of populist reaction to recurring financial and economic crises over the ages are not congruent, as contentious issues and reactions to them change with evolving new contexts and conditions over time, populism has deep roots in US political and economic history along the theme of the people being unhappy about perpetually getting the short end of the stick from a system run by the elite.

Populism Against Giantism

Historically, populism in the US emerged as a logical reaction to the emergence over a century ago of industrial capitalism, the abuses of which had left the masses of working people a legacy not much better than slavery. The free market, by not extending itself to include the labor market to equalize market power disparity between capital and labor, has merely commercialized the despicable institution of slavery, despite official emancipation.

Populism began as a movement to actively seek effective government regulation over a pro-capital free market monetary system that discriminated against the weak and the poor through banking monopolies that practiced unequal and unfair distribution of credit, transportation policies that discriminated against small dependent users, particularly with high freight rates that farmers must pay to bring their produce to market, and the unlimited predatory powers of big money trusts and giant market monopolies. The overall populist aim was to limit the growing uneven market power of the combination of big finance and big business.

To achieve this aim, populists realized that common citizens must regain control of the political process to reverse the pervasive influence of big business on government and to restore popular democracy.  Both Democrats and Whigs in US political history championed republican principles, but the two parties held conflicting assumptions about the nature of government authority, the correct path to economic development, and true meaning of individual rights. These conflicting assumptions form the ideological struggle behind the sectional conflict that eventually led to the Civil War.

The emphasis on popular democracy by historical populism with its programs of monetary, financial and political reforms was resisted by big finance and big business as counterintuitive to the natural needs of modern economic systems and the national security requirement of modern states, let alone the aspiration of a young nation to become a major world power, and eventually a superpower.

Yet this utilitarian argument is not supported by historical facts. Economic growth during the Industrial Revolution, and even in today’s sophisticated and complex milieu in the midst of a communication revolution, is driven not by large corporate dinosaurs, but mainly by new small business entrepreneurship through what Austrian economist Joseph Schumpeter (1883-1950) identified as “creative destruction”. Alan Greenspan tirelessly applied the concept of “creative destruction” to explain the rise of US market capitalism through internal renewal and the growth in productivity in recent decades.

Yet the concept of “creative destruction” was originally presented by Russian collectivist anarchist Mikhail Alexandrovich Bakunin (1814-76) based on the ideas of Georg Wilhelm Friedrich Hegel (1770-1831) and Karl Marx (1818-1883) whose Communist Manifesto was written with Friedrich Engels (1820-95) in response to the democratic Revolutions of 1848.

The case of Mircosoft is a perfect modern-day example of a small, home-grown maverick entrepreneur that exploited the growing power of the personal computer through standardization of stand-alone operating system software to outpace IBM, the early giant of the computer age.  But in record time Microsoft morphed into a gigantic monster more lethal to technological progress than the monopolistic industrial giants it managed to cut down to size.

An earlier case is Thomas Edison, a self-educated man with little formal scientific education, who gave birth to the modern energy sector not by discovering electricity but by inventing and obtaining a patent for an inexpensive filament for the vacuum light bulb. The Edison Electric Company soon grew into a rapacious monopoly that a century later was broken up by anti-trust legislation into General Electric and Con Edison.

Alexander Bell, a Scottish immigrant doctor whose study of deafness led him to invent the telephone that became the monopolistic mammoth AT&T, also known as Ma Bell. John D. Rockefeller began as a small business accountant and went on to assemble the monopolistic Standard Oil Trust by unfair trade practices. Industrial and financial giants have a long history of creating wealth not from original innovation but by subsequent predatory acquisition of successful smaller competing enterprises.

Further, anti-populists sociologists sponsored by big business argue that with urbanization being a key prerequisite for economic development, the populist ideal of small-town life based on decentralized socio-political organization and local control had been problematic in the age of industrial expansion. By extension, this problem continues into the age of economic and financial globalization that requires suppression of national sovereignty and economic nationalism to facilitate the unimpaired cross-border movement of funds and goods, albeit not of workers.

Yet new advances in communication and data management have made such centralist arguments invalid. Large, complex organizations can now be devised through computerized communication without destroying the individuality of numerous component parts. Mass production of unique one-of-a-kind products is now routinely possible. Decentralized networks of assembly are increasingly practiced for complex products such as aircraft.

For example, the Internet, by providing access to instant communication among countless individuals detached from physical propinquity has diluted the controlling power of big mass media organizations. The irony is that the privileged and powerful elite have effectively sought refuge from populist threats through the devious exploitation of the constitutional principle of minority rights which originally had been framed for protection of the weak and powerless. The term “minority” was originally intended to denote the less powerful, not merely the smaller number.

Jacksonian Populism

The election of 62-year-old populist Andrew Jackson in 1828 as president over incumbent establishmentarian candidate John Quincy Adam (in office 1825-29), son of Federalist president John Adam (in office 1797-1801), the second holder of the nation’s highest office after George Washington (in office 1780-97), marked the revolutionary victory of government by and for the common people, even if, notwithstanding unfounded conservative fear, not quite yet of the people.

The late Arthur Schlesinger, Jr. (1917-2007) who had been catapulted into instant fame at age 28 by winning the 1945 Pulitzer Prize for his Age of Jackson, and went on to a long, illustrious career as official historiographer of the Kennedy administration, describes that period in US history as one of shifting from sectional conflict to class conflict created by the triumph of the industrial revolution over the agricultural economy. Schlesinger turned history backward to cast Jackson as a reformer in the mold of Franklin D. Roosevelt.

The Jackson-FDR-Kennedy Tradition

In a 2006 interview on Public Television, Schlesinger accused Democratic president Bill Clinton (in office 1993-2001) of breaking with the Jackson-FDR-Kennedy liberal tradition of interventionist government to rein in the excesses of market capitalism by adopting neo-liberalism, siding with the Republican ideal of small non-interventionist government. Schlesinger, a quintessential liberal, acknowledged in the interview that the two failures of US liberal capitalism have been unmitigated racial inequality and persistent disparity of income.

This criticism was very much on target, albeit that the liberal formula of meliorism had been patently ineffective in correcting these two failures after more than a century of reform.

Schlesinger earlier had accused Noam Chomsky, brilliant linguist and highly respected icon of the intellectual left and activist opponent of the Vietnam War, of “betraying the intellectual tradition,” to which Chomsky responded in a 1992 BBC interview by John Pilgar by agreeing with undisguised pride, adding that “the intellectual tradition is one of servility to power and if I didn’t betray it I’d be ashamed of myself.” Chomsky added that the members of “the liberal intelligentsia of America are in bed with the US government in some of its more vicious policies around, as they applied around the world.” He characterized the liberal intelligentsia of the Kennedy era as “a secular priesthood”.

In a February 28, 2007 obituary on Schlesinger written by Douglas Martin, Gore Vidal, a rebellious member of the Democratic aristocracy, was reported to have characterized Schlesinger’s “A Thousand Days” on the JFK presidency “a political novel”. Vidal’s mother, Nina Gore, married Hugh D. Auchincloss, Jr, later stepfather of Jacqueline Bouvier Kennedy. A fifth cousin of Vidal is Jimmy Carter and a cousin is Al Gore.

Back in the 1824 election, although Jackson received more popular and electoral votes than Adam, neither received a majority in the Electoral College, leaving the final choice of Adam as a minority president being made by the House of Representatives. Four years later, the voice of the people was finally heard with Jackson receiving a plurality in popular vote and a definitive majority of 178 to 83 in electoral votes over incumbent Adam who lost because of his unresponsive attitude to the rising spirit of popular democracy.  It was a replay of the elder Adam’s defeat in 1800 after serving only one term by Thomas Jefferson (in office 1801-09), the father of American popular democracy.

With his background as a leading member of the frontier upper class, Jackson’s personal exposure and innate honesty left him convinced that privileged big business routinely enjoyed the upper hand over the average individual citizen. His main political view was expressed in his farewell address:
“Government should be administered for the planter, the farmer, the mechanic and the laborer who form the great body of the people of the United States. These classes all know that their success depends upon their own industry and economy, and that they must not expect to become suddenly rich by the fruits of their toils. Yet they are in constant danger of losing their fair influence as a result of the power which the moneyed interest derived from a paper currency which they are able to control and from the multitude of corporations with exclusive privileges which they have succeeded in obtaining in the different states.”

Populist Battle over Banking

In the election of 1832, Jackson won a second term by defeating Henry Clay, the vocal spokesman for economic nationalism. Clay’s “American System” called for high protective tariff up to 25% to help budding domestic industries, the establishment of a national bank to resist domination by foreign capital and government assistance to private enterprise in the development of a national transportation and communication infrastructure. The main issue in the 1832 campaign was whether the charter of the Second Bank of the United States should be renewed for another 20 years.<>

The First Bank of the United States had been established by Congress in 1791 as a national bank at the recommendation of Alexander Hamilton, legitimized by the Supreme Court on the doctrine of “implied power” of the Federal government. The Bank had been opposed by Jefferson on constitutional and ideological grounds.  Jefferson felt the Bank would give excessive power over the national economy to a small group of private investors who would make unconscionably large profits. He preferred small state banks with moderate inflationary tendency to help small farmers shackled with cyclical debts. He waged his opposition on constitutional grounds that the chartering of it was not specifically authorized by the Constitution. But the argument was overruled by the Supreme Court.

In 1811, Congress voted to abandon the First Bank and its charter but the Second Bank was chartered four years later in 1816 to handle sovereign debts from the War of 1812. By 1832, the Second Bank had operated successfully as a national bank to support the development of the US economy for 16 years, providing finance for an economic boom, particularly in agriculture brought about by the devastation of Europe caused by the Napoleonic Wars. The Second Bank provided easy credit to finance farm land speculation, tripling land prices in a decade. Land sales in 1819 alone totaled over 55 million acres, feeding a speculative bubble froth with fraud. The financial gains of the boom went mostly to speculators rather than farmers. In the summer of 1818, the Bank started to call in loans to reduce risk its exposure and caused the Panic of 1819 that drove many farmers bankrupt from excessive debt.

Although the Bank’s latest charter extension would not expire until 1836, Clay advised the Second Bank to request renewal in the spring of 1832. Clay needed the Second Bank to support his American System of economic nationalism, but he underestimated the unpopularity of the Second Bank throughout the West as a result of the financial crisis of 1819.  By preventing the state banks from issuing notes and making loans freely and independently, the Bank limited the supply of money in the Western states and thereby kept their population permanently in debt to Eastern moneyed interests.

More to the point, Jackson held a populist belief that the concept of a national bank was a threat to popular democracy. His view was validated by the behavior of Nicholas Biddle, a member of the Philadelphian financial elite, who had been president of the Second Bank since 1823, who after 1829, with the Jackson White House threatening the future of the Bank, began seeking political support by lending large sums without collateral to key Congressmen and influential newspaper owners and editors without pressing them for repayment. 

then appointed Roger Taney as Treasury Secretary (in office 1833-34) who transferred government funds from the Second Bank of the United States to state banks on ground of the Bank had become a risky institution. The Bank ran on though the remains of its existing charter and restructured as a state banks after the charter expired in 1836.

Tocqueville Warning

Alexis de Tocqueville, French sociologist, published
Democracy in America in 1836 which observed with clear insight that the “primary fact” behind American democracy was a “general condition of equality.”  People in America, he observed, were “on a greater equality in point of fortune and intellect, or, in other words, more equal in their strengths than any other country in the world, or any other age of which history has preserved its remembrance.” Tocqueville admired the energy and versatility of the Americans he encountered, their high Protestant moral standards and their willingness and ability to achieve social progress by forming voluntary associations instead of dependence on government. Such qualities were the natural result of an environment of abundance in which individual self help could produce a good living without interference from government or private oppression. 

Or the other hand, with equal insight, Tocqueville warned of the danger of Americans being pushed into an economic system excessively intent on making money, and that their wholesome founding culture was consequently in danger of being too commercialized. He predicted, with amazing accuracy, that the initial equality among Americans might eventually be endangered by the domination of a new industrialist/financier class. To Tocqueville, political democracy cannot exist without economic democracy which is always threatened by concentration of wealth. Throughout its history and up to the present time, the disconnection between political democracy and economic democracy remains the weak spot in American society. The problem is not merely a disparity of wealth, but more fundamentally, an unequal gap of opportunities and market power.

The Civil War and Big Business

Prior to the Civil War which began in July 1861, big business had not enjoyed such clear-cut favoritism from government. The agrarian leaders who controlled the Federal government during 1801 and 1861 had regarded individual property in land as more deserving of government protection than corporate property. The logic for this belief is that a corporation, by virtue of its nature as an exclusive collection of real persons, is more powerful than any single real person. By granting such an exclusionary collection of select individuals the same protection the Constitution granted to each and every real individual citizen is a distortion of democratic principles of equal protection. It is particularly inequitable when the rights of exclusionary collectivism are protected at the expense of the rights of communal collectivism. Moreover, the basic raison d’etre of government is its role of protecting the weak, those who could not otherwise protect themselves. Giving powerful corporations the same government protection intended for each powerless private individual separately amounts to a perversion of individual rights as well as the principle of equally before the law, and constitutes a direct threat to the principles of democracy.  

After 1835, with Roger Taney (in office 1835-64) appointed by Andrew Jackson (in office 1829-37) to succeed John Marshall as Chief Justice (in office 1801-35), the Supreme Court took a different position to rein in Federalist centralization. Whereas Marshall had extended the “implied power” of the Federal government over the states, Taney ruled to protect those powers of the states that the Constitution had not specifically granted the Federal government, upholding state rights to regulate commerce within their borders and to adopt and enforce economic policies of their own to suit local conditions and traditions for the benefit of citizens within their separate jurisdictions. Whereas Marshal has ruled religiously to uphold the sanctity of contracts and the right of private property, Taney ruled for the right of states to regulate private property rights to promote common welfare.

In 1837, the Charles River Bridge Company, chartered in 1786 by the Commonwealth of Massachusetts, having made enormous profits from tolls on a bridge between Boston and Cambridge, claimed that the terms of its charter forbade the construction of a competitive bridge. The people of Massachusetts authorized a second bridge to relieve traffic congestion and to abolish tolls as the cost of the first bridge had been more than paid for the by its monopolistic tolls. The shareholders of the monopoly brought suit to stop the second bridge. Taney ruled in an epoch-making decision, declaring that the public interest was more important than the alleged property rights of the private bridge corporation. In his ruling, Taney wrote:

“While the rights of private property are sacredly guarded, we must not forget that the community also has rights, and that the happiness and well-being of every citizen depends on their faithful preservation.”

Taney died in 1864, the year the Civil War ended, and was replaced by Salmon P. Chase, former Treasury Secretary under Lincoln and former leader of the Free Soil Party which opposed the expansion of slavery into the western territories.

Progress as Illegitimate Child of Politics

Progress is often the illegitimate child of politics. The same ironic metamorphosis would apply to Richard Nixon, lifelong anti-Communist, who would be able to achieve as President a historic opening to Communist China in 1973 as a grand strategy in superpower geopolitics, after a quarter of a century of ideological estrangement between the two nations, while a similar attempt by a liberal Democrat, such as John F. Kennedy, would have to face domestic accusation of being soft on Communism.

It would take anti-abolitionist Abraham Lincoln (in office 1861-1865) who gained attention early in his political career as a pragmatic segregationist cloaked under the high-minded rhetoric of democratic ideals, to finally overcome his previous political rationalization and to make peace with his personal morals to issue the Emancipation Proclamation in 1862.
Lincoln came into national prominence in the Lincoln-Douglas debates during the 1858 Senate campaign by shrewdly trapping his opponent, Stephen A. Douglas (1813-1861), into introducing the anti-slavery Freeport doctrine, permitting the new territories to exclude slavery in the name of popular sovereignty.  The compromise proposed by Douglas, in spite of the Dred Scott decision by the Taney Supreme Court a year earlier in 1857 ruling that slavery could not constitutionally be excluded from any territory, cost Douglas much popular support, particularly among pro-slavery Southern Democrats, even after his insistence on his personal indifference to the immorality of slavery. 

Lincoln, the man who had oppose the exclusion of slavery in the new territories with his perversely righteous and dubiously motivated declaration: “A house divided against itself cannot stand”, and who would declare himself to be personally opposed to racial equality, would end up abolishing slavery for the whole nation four years later as a political expediency brought about by a poorly conducted, ongoing civil war, notwithstanding his earlier belief that while "Negroes" should enjoy the right to life, liberty and pursuit of happiness promised to all men by the Declaration of Independence, the extinction of slavery could only be a gradual and lengthy process, with no near-term target date.

American attitude toward the issue of slavery in her history is clouded by a fundamental conflict between its self-image and historical facts. The majority of Americans continue to be abolitionists in public and pro-slavery in private. It shows up in every debate on social issues even today.

The Civil War Saved the Union but destroyed Popular Democracy

The Civil War, which lasted from 1861 to 1865, saved the United States from being partitioned by secession, a fact conveniently overlooked by those in Washington who now support secessionist movements around the world, the latest being the secession of Kosovo from Bosnia.

Still, the Civil War was not followed, as Lincoln had hoped, by fraternal love, mutual forgiveness and reconciliation. Most Southerners at the end of the fighting in 1865 were resigned to the need to accept the supremacy of the Federal government and the abolition of the institution of slavery to move on to the urgent task of rebuilding their war-torn home region where all the fighting had taken place. But not withstanding Lincoln’s inspiring words of “with malice towards none; with charity toward all”, Southern sentiments of reconciliation were not reciprocated by a hostile North where an attitude to treat the South as a conquered territory the root institutions of which required wholesale reconstruction lasted more than a decade after war ended.  It was not until 1877 that the Union was finally restored along a path towards terms that would be both fair and acceptable to the South.

After Appomattox where Robert E. Lee surrendered to Ulysses S. Grant on April 9, 1865, with Lincoln assassinated five days later on April 15, the returning Confederate soldiers found their home country in an indescribable state of ruin and disorganization. The communication and transportation infrastructure was totally destroyed by the vengeful armies of Sherman and Sheridan. The final phases of the war had degenerated from a patriotic undertaking on the part of the North to subdue the South’s will to secede, to a frenzied orgy of savage destruction. 

The war debt accumulated by the Confederate government that had absorbed all the savings of the South became worthless in defeat and all Southern banks and insurance companies that held such debt instruments were left insolvent.  The devastation of the Southern economy did not end with the war. The Federal Treasury confiscated all properties of the Confederate government. Federal agents, many of whom were dishonest, exploited the confiscation order to loot the Southern agricultural economy to enrich themselves personally while they transferred wealth northward to support the costly transition of the war economy of the North in peace time. With the defeat of the South went the defeat of popular democracy and the triumph of big business corporatism.

Next: Long-term Effects of the Civil War