Government and the Economy, The Origins

Government and the Economy, The Origins
Revisiting the Flintstones

One is always in a quandary as to where to begin in gaining insight on the relationship between government and the economy. Many instructors and books do it differently. At the beginnings of recorded history when there was no such thing as money and men used the barter system? With the ancient civilizations, such as Egypt, Greece, Rome when power derived largely top-down? At the beginnings of European history when there was elitism and serfdom? At the beginning of Capitalism?

In fact, an understanding of relations between government and the economy may well begin BEFORE recorded history when men were in what is called the "state of nature". Moreover, understanding mens attitudes toward government may also begin at this level. In this regard let me ask several questions of you for serious consideration? What was the state of nature like and what was the economy like in a state of nature? What is the character of man in the state of nature? Now? Why do we need government regulation of society? What motivates men in their dealings with other men?

Was the state of nature like this?

Or like this?

Or this?

The answer may lie in political philosophy.
Who has read THE LORD OF THE FLIES? What did William Golding posit the nature of men to be? Who has read the bible? Why did God find it necessary to issue commandments to Israel?

Thomas Hobbes in LEVIATHAN wrote the following:
“Speaking of man in the state of nature, without government he said- Whatsoever therefore is consequent to a time of Warre, where every man is enemy to every man; the same is consequent to the time wherein men live without other security, than what their own strength, and their own invention shall furnish them withall (*in the state of nature*). In such condition there is no place for Industry; because the fruit thereof is uncertain; and consequently no culture of the earth; no navigation; nor use of commodities that may be imported by Sea; no commodious building; no instruments of moving; and removing such things as require much force; no Knowledge of the face of the earth; no account of time; no arts; no letters; no society; and which is worst of all, continual feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short.

Later Hobbes says: The Passions that encline men to Peace are Feare of Death; Desire of such things as are necessary to commodious living; and a Hope by their Industry to obtain them? And reason suggesteth convenient Articles of Peace, upon which men may be drawn to agreement.

What was life like in Hobbes’ state of nature?
How large would an economy be? How much could one acquire? What was the nature of art, music, architecture, mathematics, science? What determined allocations (who got what, when, and where? How was business conducted (if at all)? Who governed? How and why did they govern? What was the role of men? What was the role of women? What about children?

Why does government exist
Why does government exist? To protect property, or to serve as the binding force and protector of a community? Or both?

John Locke in SECOND TREATISE OF GOVERNMENT (see entire text at ) wrote: To understand political power right and derive it from its original we must consider what state all men are naturally in, and that is a state of perfect freedom to order their actions and dispose of their possessions as they think fit, within the bounds of the law of nature, without asking leave or depending upon the will of any other man. But though this be a state of liberty, yet it is not a state of license; though man in that state have an uncontrollable liberty to dispose of his person or possessions, yet he has not liberty to destroy himself or so much as any creature in his possessions, but where some nobler use than bare preservation calls for it. The state of nature has a law of nature to govern it, which obliges everyone; and reason, which is that law, teaches all mankind who will but consult it that, being all equal and independent, no one ought to harm another in his life, health, liberty, and possessions.

What does it mean to say to not harm another in his live, liberty, or possessions?
Does that mean that one should not take another’s property? Is clean air property? Clean Water? Safety?

Later Locke said, “The ends of political society
Later Locke said, “The ends of political society. The mutual preservation of lives, liberty, and property. The preservation of property is the chief end of government, to which the state of nature finds three things wanting: 1) An established, settled law. 2) A known indifferent judge with authority to determine all differences according to law. 3) Power to back the sentence when right and give it due execution.... And all this to be directed to no other end, but the peace, safety, and public good of the people.”

He also said, “Whosoever therefore out of a state of nature unite into a community, must be understood to give up all the power, necessary to the ends for which they unite into society, to the majority of the community, unless they expressly agreed in any number greater than the majority. And this is done by barely agreeing to unite into one political society, which is all the compact that is, or needs be, between the individuals, that enter into, or make up a commonwealth. And thus that, which begins and actually constitutes any political society, is nothing but the consent of any number of freemen capable of a majority to unite and incorporate into such a society. And this is that, and that only, which did, or could give beginning to any lawful government in the world.” Locke’s Treatise was a primary basis for the American Constitution.

Which came first, government or a stable economy?
Why?

What was government responsible for doing in the earliest of times?
Were there taxes? If there was no money, then what form did commerce take? Was government responsible for providing security for the tribe or clan? Regulating the affairs of men and their economic transactions? Was there redistribution of benefits to the members of the tribe or clan? If so, why?

What was the basis for claiming leadership/the right to govern?
Was it spiritual? Power and strength? Intelligence, cunning, and wile? Age? Wisdom?

What forms of government existed in the earliest of times?
Autocracy? Theocracy? Dictatorship? Either malevelolent or benevolent? Monarchy? Democracy? Communist or Socialist?

What forms of economy existed in the earliest of times?
Barter? Why did money develop? Trade based? Mercantile? Microeconomies based on Von Thunen Rings? Explain Macroeconomies connecting a vast array of microeconomies? Global?

Early on people survived by being hunter/gatherers.
Later, people learned to produce their own food and basic necessities. Until very recent times, societies have been primarily agricultural. More modern societies have taken advantage of division of labor, mass production, and technology. Does this mean that our civilization is “superior” to those which existed earlier? Are people more/less intelligent than in earlier times? Capable of innovation?

Reflect on the structures and edifices constructed in ancient times
Reflect on the structures and edifices constructed in ancient times. Recall the picture slide show. The great civilizations of the past built things like the pyramids and other great edifices in Greece, Rome, and China. We tend to think of ourselves, capitalism and democracy as superior forms. If ancient societies were so primitive relative to ours, what enabled them to do this without machinery, computers, etc.? Social and political organization? Economic surplus? Religious zeal? Institutions such as slavery?

How were things of value allocated in earlier economies?
Tradition Command Markets Which form of allocation was most prevalent in ancient times? Modern times?

An empirical question: “Who does government benefit?”
The Strong? The Weak? How does government affect the size of an economy? Or, how much can be accumulated? Do the answers to these questions affect the answer to the preceding two questions? A normative question: “Who should government benefit?” The answer to this question is the basis of polarization in the American system.

Societies (including our own) exist on the basis of belief systems
Societies (including our own) exist on the basis of belief systems. Belief systems are at the core of what enables both government and an economy. The ancient belief system was based on: Religion Military Might Tradition Power, Command, and subservience All of these were intertwined.

Facets of ancient belief systems.
Religion – animal and human sacrifice, reading entrails, superstition and mythology, many gods. Were their religions much different than modern religions? Military – used to control slaves, the supply the Roman Latifundia, and to continually extract wealth from the periphery of the Empire, bringing it toward the center. Tradition – in ancient times (up to the 19th Century) what one did with one’s life, value, etc. were primarily determined by tradition. Tradition was often justified by religion, etc. Command and power – the ancient economy was a command economy. Elites decided matters of justice and the major economic decisions. The Feudal system after the fall of the Roman Empire was still rooted in command and power.

Continuum of types of economic systems based on the role of government:
Laissez Fairre ---- Antitrust ---- Regulatory ---- Mixed ---- Command Of these types, which type of economy existed in the state of nature? Which type existed during ancient and feudal times? Which type existed in the United States during the 19th Century? Which type exists today in the United States? Which type exists today in Cuba?

The last ancient empire was the Romans.
For a period of about 850 years (350 BCE through 500 CE), the Roman Empire dominated Europe, as well as a large part of the World. At various times through this period, the Roman Empire was a Republic; at other times it was a monarchy governed by an Emperor. It was never a democracy, though Senators were elected (by whom?) The Roman era was clearly a time of cultural, political, and social development for much of the World, as law and social order displaced the state of war and tyranny in relations among people. Architecture, sculpture, art, and music also flourished during Roman times. For example, the Pantheon, built 2000 years ago is still standing in Rome, and became the model for the revival of architecture during Renaissance times. Brunelesci’s Duomo.

Of course, it was Roman military might that enabled this progression
Of course, it was Roman military might that enabled this progression. So it is a mixed bag. However, it is clear that the Romans gave much to a world that was even more primitive prior to the Empire. The last Roman Emperor was Constantine who ruled from CE. He converted to Christianity near the time of his death. He made Christianity one of the many state sanctioned religions of the Roman empire. Upon his death the Roman Empire was divided into three parts, West, Middle, and East, each under the rule of Constantine’s three sons. Later in the 4th Century, the Christian church became increasingly dominant. Why? Christians were intolerant of other gods and the role of women and slaves may also have been important. Entreprenurialism among church apostates may also have been important.

The next hundred years of the Western Roman Empire, which included Italy, coincided with large migrations of Germanic peoples (Visigoths, Vandals, Burgundians, Huns, Heruli, Alemanni etc.) who settled within her territories. At the same time, poor economic conditions also reflected the political instability of the imperial government. It deteriorated gradually and was accompanied by a chronic fall in Italian population.

It was in this period of the demise of the Roman Empire that the influence of the Christian church made itself felt more consistently. This was in contrast to the progressive orientalization of the Eastern Empire, which focused on its new capital of Constantinople. In 568 CE a new Barbarian invasion occurred. This put an end to the political and territorial unity that the Empire had preserved for so long. From the 6th century until the latter part of the 18th Century, Europe was a set of fiefdoms under continual military conflict. This period was typically marked by war, territorial conquest, political fragmentation, and the formation of city states and feudal kingdoms. Two competing influences through this period were secular Kings and Papal authorities who fought frequently over territory, money, and control of feudal subjects. An issue was whether to submit to Papal authority.

Changes coinciding with the shift and the Renaissance
Economics - Changing attitudes toward profit, bondage, the role of man in the master scheme of things. According to church doctrine, profit was earlier considered sinful. Charging interest was rejected until the Medici in the 14th Century. The Renaissance and financial influence spread throughout Europe. Increasing Monetization of the economy Mercantilism- During Christian times it was viewed dimly to make a profit. Mercantilism was all about making profit. Guilds- Families bonded their children to occupations. They were also somewhat like modern unions competing for influence with economic and political elites. Guild halls.

Religion – Religious fanaticism continued unabated up to the Renaissance. The Inquisition. Blind, cult-like belief in the edicts of a leader who claimed to be speaking directly for a god. Science rejected until the Renaissance. Christianity - animal and human sacrifice were replaced by symbolic human sacrifice and symbolic cannibalism. The church remained dominant and accepted no opposition.

The Renaissance period from about was a time of great progress in the arts, sciences, and culturally. The art, sculpture, music, architecture, and culture of the time is renowned for its creativity and beauty. Most of these endeavors were financed largely by provincial kings, lords, and the church. One particularly influential family was the Medici of Florence. They dominated Italy and Europe by using money, intrigue, and wile, rather than military might to bring about a political and cultural revolution that extended all over Europe. See Many famous artists were sponsored by the Medici, including Leonardo Da Vinci, Michelangelo, Donatello, Brunelesci, etc. Architecture also flourished during this period with the leading figure being Brunelesci who designed and constructed the Duomo in Florence. This was the largest free standing dome in the world after the Pantheon in Rome.

The Rise of Colonial States
The primary problem facing the modern state is in efficiently extracting resources from society. Because of the difficulties in extracting resources from agricultural economies, many states during earlier centuries pursued a policy of mercantilism. The modern state is a well-defined organization with a legitimate and continuous monopoly of violence over a defined territory. Mercantilism - Mercantilism is the state policy of attempting to create inflows of bullion. Mercantilism is a means to an end of producing an internal legal space, dominated by central authority.

One of the ironies of the modern state is that an economically marginal, technologically backward set of religiously fractionalized and fanatic peoples, governed by elites with virtually no administrative apparatus managed to conquer most of the world in about 300 years. Britain, France, Spain, Portugal, and the Dutch managed this.

The relative power of states continues to rest on their ability to extract resources from society without damaging the long-term growth in the economy, to transform these resources into outputs, and to manage the interface between the internal economy and the world economy. In earlier times virtually all economic, social, and political life took place in microeconomies, centered on market towns surrounded by an agricultural hinterland of about 20 miles radius. Until the era of railroads and canals there was no such thing as a national economy. Most economic activity in these microeconomies was by barter and direct trading. As late as 1929 agricultural goods made up as much as 3/5ths of internationally traded goods.

The New World While many rulers claimed that it was “Christianity” that led to the settlement of the new world, it was actually gold, silver, servitude, religious fanaticism, and the pursuit of wealth that led the first explorers in this direction. The period of “conquest” was a sad one in that the indigenous populations in the Americas declined sharply as a result of European conquests and the diseases they brought. “Within just a few generations, the continents of the Americas were virtually emptied of their native inhabitants – some academics estimate that approximately 20 million people may have died in the years following the European invasion – up to 95% of the population of the Americas.”

Mexico and Central America:
In November 1518 CE the Spanish conquistador Hernán Cortés marched on Tenochtitlán, capital of the Aztec empire, in pursuit of gold and spreading the Catholic religion. Accompanied by about 500 men, 13 horses, and a small number of cannons, he encountered Motecuhzoma, the Aztec king and an advanced economic system. Model of Tenochtitlan.

According to the Spanish sources Motecuhzoma allowed them entry to the thriving city. The Spanish had earlier shown their military prowess and the devastating effectiveness of their superior weaponry - canons, firearms and crossbows - in quickly defeating a force of Otomi- Tlaxcalan. Perhaps Motecuhzoma took note of this and pursued a policy of appeasement rather than engage the enemy in the field. Whatever Motecuhzoma hoped to achieve through diplomacy, his plans were scuppered in just two weeks when he was taken hostage and placed under house arrest by the small Spanish force. Motecuhzoma was forced to declare himself a subject of Charles V, handover more treasure and even allowed the placing of a crucifix on top of the Great Pyramid in the city’s sacred precinct.

The Aztec warriors renounced Motecuhzoma as their leader and Cuitlahuac was voted in as the new tlatoani. Motecuhzoma was pressed by the Spanish into pacifying his people but was struck on the head by a rock and killed. The Aztecs, ravaged by lack of food and disease, finally collapsed on the fateful day of 13th August 1521 CE. Tenochtitlán was ransacked of any precious goods and its monuments were destroyed. Get the whole story here .

South America: In 1532 CE, Francisco Pizarro led a group of about 160 conquistadors into the Inca city of Tumbes in Northwestern Peru. When Pizarro entered the mostly deserted city in November, he immediately sent word that he would like to meet with the great Inca ruler at the city's center. As he waited for the Inca’s arrival, Pizarro planned a trap. The Inca King Atahualpa arrived at their meeting point carried in a litter by 80 noblemen and surrounded by 6,000 soldiers. Shortly afterwards, Pizarro ordered an attack. Cannons began to roar with deadly accuracy. The cavalry charged from their strategically hidden positions, and the infantrymen opened fire. The Inca soldiers and nobles who weren’t killed in the first few minutes of the attack fled in fear. Pizarro himself captured the Inca king, Atahualpa.

Fearing for his life, Atahualpa told Pizarro if he would spare him, within two months his people would fill a room 24-feet long by 18-feet wide and a height of 8-feet with gold, and twice that amount with silver. Even Pizarro was taken aback by this amount of wealth and instantly agreed to the ransom. Pizarro reneged on the deal, later executing Atahualpa. Get the whole story here.

Golden Church in Porto, Portugal

Cathedral of Saint Mary of the See, Seville Cathedral, Spain

La Compania Church, Jesuits in Quito Ecuador

Spanish art in the Monastery of San Francisco catacombs in Lima, Peru.

European greed was one motivation for settling the New World
European greed was one motivation for settling the New World. There was little known gold north of Mexico in North America at the time of the European conquest. However, the Spanish searched feverishly for the “lost city of gold.” Mercantilism was another motivation for the conquests and settlement of the New World. Capitalism in its modern form had not yet developed. Rather, monopolies granted by rulers were the prevailing form of market organization in settling the New World. It was the policy of the colonialists that the colonies were to be sources of raw materials and markets for goods from the mother country, but industry was not to be developed in the New World.

In medieval times, it was customary in Continental Europe for a sovereign to grant almost regal powers of government to the feudal lords of his border districts, so as to prevent foreign invasion. These districts or manors were often called palatinates or counties palatine, because the lord dwelled in a palace, or wielded the power of the king in his palace. His power was regal in kind, but inferior in degree to that of the king. This type of arrangement had been made in Norman times for certain English border counties. The monarch and his or her government, retained its usual right to separate head and body, figuratively or literally, at any time. Proprietary colonies in America were governed by a lord proprietor, who, holding authoriity by virtue of a royal charter, usually exercised that authority almost as an independent sovereign. Eventually, these were converted to royal colonies.

By the mid-1750s, colonial governments had become an extension of the English government. Courts enforced the common law of England. The Governor's Council or the Governor's Court was a body of senior advisors to the governor. The General Assembly was elected by the enfranchised voters; by 1750, most free men could vote. In New England, the towns had annual town meetings where all free men had a voice. Diplomatic affairs were handled by London, as were some trading policies. The colonies handled their own affairs (and wars) with the Native Americans, but Britain handled foreign wars with France and Spain.

The Founding The earlier materials on the state of nature, feudal economies, relationships between kings and the economy, and pursuit of wealth form a backdrop for the constitutional convention of It was this experience that the founders and the nation carried with them. Many common Americans had fled the sort of existence they were living under in the semi-feudal systems of Europe and wanted something different.

Many common Americans were also religious zealots who actually were encouraged to leave by European governments. The Puritans. Who were those who came to America? Religious fanatics? Yes and no. In Europe everyone was a religious fanatic, especially after the rise of Christianity, through the Renaissance, and even up until the 19th century. Americans were the religious fanatics who would no longer tolerate the absence of freedom to deviate from the state sponsored church. Rebellion against divine right. Rebellion against feudal origins, subservience and inequality. Rebellion against the right of free will.

Many early Americans were castoffs from European society
Many early Americans were castoffs from European society. They were people who were often at odds with government: religious zealots, criminals, adventurers with an aversion to authority and a zest for the wilds. Indeed one can observe the development of the nation and see that the frontier areas were occupied by these sorts for over a hundred years. There were diverse origins for each of the colonies, from religious zeal in Massachussetts and Rhode Island, to trade in New York and Pennsylvania, to the aristocratic origins in Virginia and most of the Southern colonies. One might argue that the reason for the American revolution is that we were intrinsically “rebels.” However, that assessment would be wrong.

The reason for the American revolution was primarily economic
The reason for the American revolution was primarily economic. The Lords of the colonies in America saw economic benefit in casting off the constraints of British mercantilism. They resented paying taxes to a nation thousands of miles away. They resented restrictions on their goods through tariffs.

Following are the major events that led to the Revolution
Following are the major events that led to the Revolution French and Indian War This war between Britain and France ended with the victorious British deeply in debt and demanding more revenue from the colonies. With the defeat of the French, the colonies became less dependent on Britain for protection Proclamation of 1763 This prohibited settlement beyond the Appalachian Mountains. While Britain did not intend to harm the colonists, many colonists took offense at this order Sugar Act This act raised revenue by increasing duties on sugar imported from the West Indies.

Currency Act Parliament argued that colonial currency had caused a devaluation harmful to British trade. They banned American assemblies from issuing paper bills or bills of credit Committees of Correspondence Organized by Samuel Adams, these helped spread propaganda and information through letters Quartering Act Britain ordered that colonists were to house and feed British soldiers if necessary.

Stamp Act This required tax stamps on many items and documents including playing cards, newspapers, and marriage licenses. Prime Minister George Grenville stated that this direct tax was intended for the colonies to pay for defense. Previous taxes imposed by Britain had been indirect, or hidden Stamp Act Congress In 1765, 27 delegates from nine colonies met in New York City and drew up a statement of rights and grievances thereby bringing colonies together in opposition to Britain Sons and Daughters of Liberty Colonists tried to fight back by imposing non-importation agreements. The Sons of Liberty often took the law into their own hands enforcing these 'agreements' by methods such as tar and feathering.

Townshend Acts These taxes were imposed to help make the colonial officials independent of the colonists and included duties on glass, paper, and tea. Smugglers increased their activities to avoid the tax leading to more troops in Boston Boston Massacre The colonists and British soldiers openly clashed in Boston. This event was used as an example of British cruelty despite questions about how it actually occurred Tea Act To assist the failing British East India Company, the Company was given a monopoly to trade tea in America.

Boston Tea Party A group of colonists disguised as Indians dumped tea overboard from three ships in Boston Harbor Intolerable Acts These were passed in response to the Boston Tea Party and placed restrictions on the colonists including outlawing town meetings and the closing of Boston Harbor First Continental Congress In response to the Intolerable Acts, 12 of the 13 colonies met in Philadelphia from September-October, One of the main results of this was the creation of The Association calling for a boycott of British goods.

1775 - Lexington and Concord
In April, British troops were ordered to Lexington and Concord to seize stores of colonial gunpowder and to capture Samuel Adams and John Hancock. At Lexington, open conflict occurred and eight Americans were killed. At Concord, the British troops were forced to retreat with the loss of 70 men. This was the first instance of open warfare. Second Continental Congress All 13 colonies were represented at this meeting in Philadelphia beginning May. The colonists still hoped that their grievances would be met by King George III. George Washington was named head of the Continental Army. Bunker Hill This major victory for the Colonists resulted in George III proclaiming the colonies in rebellion.

July 4, 1776 – The Declaration of Independence was signed by 56 leaders. Who were these men? In the end, the American Revolution grew out of increasing economic and political restrictions placed upon the colonists by the British. One interesting side note: It was not a popular uprising. It is estimated that only one-third of the colonists were in favor of rebellion. One-third continued to side with the British. The last third were neutral concerning the rebellion and break from Great Britain. October 19, The British army under Cornwallis marched to Yorktown, Virginia where they expected to be rescued by a British fleet. The French fleet was larger forcing the British fleet to retire. In October 1781 under a combined siege by the French and Continental armies under Washington, the British surrendered.

Peace negotiations began in April of 1782, involving American representatives Benjamin Franklin, John Jay, Henry Laurens, and John Adams. The British representatives present were David Hartley and Richard Oswald. On September 3, 1783, the peace treaty with Britain, known as the Treaty of Paris, gave the U.S. all land east of the Mississippi River and south of the Great Lakes, though not including Florida On September 3, 1783, Britain entered into a separate agreement with Spain under which Britain ceded Florida back to Spain. Issues regarding boundaries and war damages were not resolved until the Jay Treaty of 1795. Since the blockade was lifted and the old imperial restrictions were gone, American merchants were free to trade with any nation anywhere in the world, and their businesses flourished.

March 1, The Continental Congress drafted and approved the Articles of Confederation under which the states were drawn between 1783 and 1787.

The Articles of Confederation was the constitution prior to 1789
The Articles of Confederation was the constitution prior to The central government had no taxing and spending authority, no authority to regulate trade between nations, or power to regulate inter-state commerce, no power to raise an army, etc. The result was: -Protectionism by each state against nations -Protectionism between states because of localism -And a government unable to support itself or defend the nation -There was a very sizable war debt as a result of the revolutionary war. Who held that debt? The propertied class. Many who fought in the war or supplied the troops had been given promissory notes. Under the Articles of Confederation these became virtually worthless. Wealthy speculators bought up these notes for 10 cents on the dollar, taking a risk that they would later be honored. -Much debt was owed to European powers, particularly the Dutch and the French. Not receiving payment, they levied threats. -What was happening to “men of wealth” under the Articles? To their property, notes of “obligation to pay”, etc.

What is a Constitution? Constitutions are documents that temporarily resolve the important questions stemming from movement to the state of nature to governance. They are a social contract between the governed and those who govern. They determine: How much property can one bring into one’s possession? Who will possess that property? What are the means through which one can bring property into one’s possession? How much property in one’s possession can one keep, given the rights and needs of the community?

The constitutional convention of 1787 was a result of ECONOMIC pressures by commercial interests seeking an end to the chaos that was under the Articles. It was also an effort to gain economic advantage by a select group of economic elites. Centralization was the goal, but only to the extent it benefitted commercial interests (the powerful). The new constitution institutionalized the means for government involvement in the economy. Specifically, Article 1, Section 8 enumerated specific powers to the national government. Hamilton and Madison the primary adversaries at the convention. Hamilton favored centralization and business interests of the Northern states. Madison favored more limited government and represented primarily rural agrarian interests of the South, coming from Virginia.

The resulting constitution was a compromise which created a stronger central government, but one with limited powers. Separation of powers- three separate branches, each with distinctive roles. Federalism- powers not delegated to the national government were reserved to the states Limited government-overlapping authority with joint exercise. Still, some elements of centralization which specifically institutionalized the role of government in the economy. Power to levy and collect taxes, duties, and imposts and excises. (duties were an exclusive power of the national government and prohibited to the states)

Regulate commerce between nations and between the states
Regulate commerce between nations and between the states. Make all laws which were necessary and proper for carrying into existence the powers of the central government. Promote the general welfare. Tenth Amendment- all powers not delegated to the national government are reserved to the states. Many viewed this as limiting the central government to powers specifically enumerated. A study of the convention, however, indicates no such intention, and the courts throughout the 1800s agreed.

Elements of the Constitution Favorable to the Propertied Class -Representation in the upper chamber (the Senate) was decided by states, where property requirements for holding office were prevalent. What was the implication of this for enacting change hostile to propertied interests, given the institutional design? Ultimately, the 17th Amendment provided direct election of Senators. -Mode of electing the president was an electoral college, with electors designated by each state. What was the implication of this for the presidency? -No provision for partisan elections until 1801 with the 13th Amendment. Implication? King Caucus to select the president until about 1820.

-Article I, section 9 provides, in relevant part: "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken." Because of that apportionment requirement, application of a "direct tax" as it related to specific federal taxes was considered illegal by the Supreme Court in the 18th, 19th, and early 20th centuries, consistently deeming the income tax illegal. From 1789 to 1913 the government was funded exclusively by excise taxes and tariffs. Who did this favor? The wealthy paid almost nothing to the government in relative terms through this period. Indeed, they benefitted greatly from protective tariffs.. Particular onerous to Southerners and agrarian people was the tax on distilled spirits, and tariffs on the same. This dissatisfaction led to the adoption of the 16th Amendment in legalizing the income tax.

Article I, section 10, clause 1 states Congress shall have the power “To coin money, regulate the Value thereof and fix the Standards of Weights and Measures.” It further stipulated, in Section 10 that, “No state shall coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts…pass any Law impairing the Obligation of Contracts …” These few sections provided for a bimetallic monetary standard in the United States. This segment is often called the Contract Clause. Who did the Contract Clause favor, and why? What was happening to contracts under the Articles? Because of the contract clause, the nation was on a gold and silver standard until 1879, a gold standard after that until 1933, and a floating money standard after 1971.

For the United States, Congress defined the gold dollar as 24
For the United States, Congress defined the gold dollar as grains of pure gold. The basic gold coin it authorized was a ten-dollar gold Eagle that contained grains of gold, with an additional ten percent base metal to make the coin suitable for practical use. Other gold coins were proportioned by weight in the appropriate denominations. These coins were legal tender for all debts private and public, and, by the proscription of Section 10, nothing else, except silver, would be so privileged. The implication for creditors versus debtors under conditions of deflation? Declining prices, a common condition from the 18th Century through 1933, devalued the money of debtors who were dependent on market conditions to determine price. This made it more difficult to pay their debts due to the contract clause.

Who were the 55 men who attended the constitutional convention in Philadelphia in 1787? Read the Beard book. Were they elected by the states? Were they average Americans? What did they want? Who was NOT in attendance? Thomas Jefferson, Thomas Paine. How many of the 55 attendees approved of the Constitution? Who ratified the Constitution and Bill of Rights? Was the Constitution popular after ratification?

Constitutions are not “sacred” documents, such as some would have us to believe. Rather, they are means whereby relative power is institutionalized and made semi-permanent. Who did the constitution benefit? The strong or the weak? Why a new constitution? Parallels: Who does limited government benefit? Who does a free market benefit? Who does the state of nature benefit?

Because of the Constitution, early America favored limited government and a restrictive interpretation. The Washington Administration All officials except Thomas Jefferson, Secretary of State, were Federalists. Hamilton, Washington’s Treasury Secretary established the role of the federal government as the “promoter of business” through his three reports and proposals to Congress.

Hamilton’s plans for promoting American entrepreneurship was rooted in three reports to Congress issued during the first two years of the Washington administration. The first report on January 9, 1790 was called the First Report on Public Credit and proposed that the federal government assume all debts incurred as a result of the American Revolution (the assumption plan). The second report on December 13, 1790 was called the Second Report on Public Credit and proposed the establishment of a national banking system (the banking plan). Funded by elites who would exchange gold and silver specie for shares and the federal government which would fund its own shares. The third report on December 5, 1791 was called the Report on Manufactures, and recommended policies to protect and subsidize wealthy individuals who would expand American commerce (the tariff and subsidies plan). Subsidies to the wealthy to form businesses; tariffs to fund the subsidies. All three reports sparked significant controversy, and ultimately led to the development of the first political parties.

In U.S. History from 1789 to 1932 we have a store of empirical data about which we can draw inferences on the relative benefits of a free market economy? You should view the discussion over the next couple of periods in that light. Cultural heritage- favored a mistrust of government. Technological development stage- The stage of technological development favored localism, rather than a cosmopolitan outlook. There were no elaborate transportation systems, no communication system, little urbanization with most being farmers.

Economic incentives also favored limited government- The nation was undeveloped. The economy of incentives did not favor imposing the true costs on commercial interests. Early American government promoted commercial expansion, and did not to serve as a watchdog to manage it and assure prudent development. Hence, slavery, child labor, white slavery, disease due to poor sanitation and water supplies, lawless commercial relations including monopolistic trade and deceit, black skies, white slavery, all of the maladies of an unregulated market economy. Was the market free during the period from ? For a full hundred years after the constitutional convention, government did not impede the development of commercial and business interests. Indeed, it heavily subsidized them through tariffs, no regulation, and very little taxation of capital.

Laissez Faire Laissez Faire is a French phrase for “free market”. It is defined as an economic environment in which transactions between private parties are free from intrusive government restrictions, tariffs, and subsidies, with only enough regulations to protect property rights. Was the U.S. market a “free market” before 1933?

The Erie Canal was built by private investors subsidized by the government. Railways spread across America through the 19th Century. Government heavily subsidized private investors to build them. An industrial revolution occurred in America, as Europe. Through friendly tax incentives industry developed. In fact, government promoted business interests. Examples: tariffs for strengthening agriculture, hastening the growth of a merchant fleet, building roads, canals, and railroads (benefit who?) National Banking System to provide government capital for private investors to expand. Hands off approach to regulation. There was a popular sentiment favoring this promotive and restricted role for the federal government until 1929.

Still, There was a steady growth in the power of the central government viz state and local governments throughout this period. Why? Increased development, complexity required more powerful government? Business interests sought the benefits of government? Was this growth in power of the central government legal and intended by the framers? The old argument that only those powers expressly enumerated by the constitution should be exercised by government. It is an argument still heard today.

The Courts played a significant role in the relation between government and the economy in the 19th and early 20th Century. John Marshall and the Court interpretation of the TAXING AND SPENDING AUTHORITY and the POWER TO REGULATE INTERSTATE COMMERCE. In some measure, the historical relationship between government and the economy can be viewed as one of change in the composition of the Supreme Court. Marbury vs. Madison (1803) Held the Judiciary Act of 1789 to be unconstitutional, hence could not issue a writ of mandamus on behalf of Marbury. Firmly established the courts as the final arbiter on the meaning of the Constitution and what the law is. McCulloch v Maryland (1819)- The issue was whether or not the national government could establish and operate a National Bank in the state of Maryland and whether Maryland had the power to tax that bank. Vastly expanded the potential realm of the national government within the federal system. Established the doctrine of implied national powers and the notion of national supremacy.

John Marshall in McCulloch – "There is no phrase in the Constitution which requires that everything granted shall be expressly and minutely prescribed…The Constitution of the United States has not left the right of Congress to employ the necessary means, for the execution of the powers conferred on government, to general reasoning. To its enumerated powers is added, that of making "all laws which shall be necessary and proper, for carrying into execution the foregoing powers, and all other powers vested by this Constitution, in the government of the United States." "Let the end be legitimate, let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution, are Constitutional…"The Constitution and the laws made in pursuance thereof are supreme... they control the constitution and the laws of the respective states and cannot be controlled by them.”

Gibbons v Ogden (1824)- at issue was whether a New York statute could grant to Ogden exclusive right to navigate the waters of a state by steamboat for a period of years. A monopoly. The U.S. Congress granted Gibbons right of navigation. At issue was whether the power of Congress to regulate interstate commerce stopped at the state line or extended on into the state. The court held that "the word 'among' means intermingled with. A thing which is among others is intermingled with them. Commerce among the states, cannot stop at the external boundary line of each state, but may be introduced into the interior."

Gibbons defined power to regulate commerce. ". what is this power
Gibbons defined power to regulate commerce. " ...what is this power?" It is the power to regulate; that is to prescribe the rule by which commerce is governed. This power, like all others vested in Congress, is complete in itself, may be exercised to its utmost extent, and acknowledges not limitations other than are prescribed by the Constitution".

Questions: Was government promotion of business and industry between 1787 and 1932 a manifestation of free markets? Would the rapid development of the nation have occurred in a free market economy (railroads, waterways, public utilities, telephones, highways for the automobile, steel industry, etc.)?

Slavery The civil war, regulation of slavery, and the 13th, 14th, and 15th amendments were the first time government chose to intervene in a major way in the operations of the economy. It had enormous implications, moreso than any regulatory policy of modern times. What were the ramifications for southern economies which were previously left to their own devices? Were there larger implications about the power of the central government viz the states? Implication for the 10th Amendment?

Questions about Slavery: Is labor a commodity that is scarce and subject to market forces? In a free market, what should determine the price of a commodity? Supply and demand? Did the market, or some other force determine the wage paid to slaves? Was slavery a “free market” failure?

Ultimately there was a cleavage of an economic or moral nature that erupted in Civil War. Slavery was itself as much an economic issue as a moral issue. Could people be “property”? Question: Was slavery a manifestation of the free market? Was it a manifestation of government, in which the power of government in southern states was used to legitimate a market through non-action? What does the existence of slavery say, if anything, about the market in an unregulated condition? Did the abolition of slavery mark excessive government regulation of the economy? Many Southerners thought so, and still do today, especially among the older generation. According to one view, slavery was unregulated until It was a free market solution to the problem of labor costs.

************************* MARKETS ARE AMORAL
Take Away Point from this section. ************************* MARKETS ARE AMORAL What does this statement mean?

By the 1880s there was a changing public sentiment toward the role of the federal government in the US system. This changed sentiment was brought on by market competition carried to its extreme, and resulting from the laissez faire policy and hands off approach of the strict constructionist constitution. Government promoted commercialism and industry as a measure to develop the economy. However, “big” business grew bigger and was able in many arenas to dominate markets through monopoly. Business and monopolists were quite arrogant about their price fixing and efforts to monopolize.

Nose thumbing when Standard Oil was created by the buying out of 39 independent oil companies, virtually eliminating economic competition. Likewise in the steel industry, the ruthless behavior or Carnegie, Rockefeller, etc. virtually eliminated small steel companies. Similarly in the banking industry, J.P. Morgan attempted to create a banking trust. The railway industry was similarly arrogant, even after having been created by massive public subsidies.

Popular calls for change emerged, but Congress, as it is today, was fragmented, dominated by special interests, and lacking in policy leadership. In 1887, Congress finally passed the first regulatory law, the Interstate Commerce act to address the problem of rate discrimination by the railroads against farmers. In 1890 Congress passed the Sherman Antitrust Act. Effectively, however, the Supreme Court gutted these enactments based on a restrictive interpretation of the 10th amendment. Beginning with Theodore Roosevelt and continuing through Woodrow Wilson, presidential participation in the policymaking process expanded. Roosevelt consulted frequently with Speaker of the House Joseph Cannon. Cannon’s power as Speaker helped Roosevelt get progressive era legislation through Congress.

Administratively, Roosevelt attempted to push a trust- busting strategy using the Sherman Act. Other Progressive reforms were also established. Theodore Roosevelt, president from , believed that it was his job to cause government to do all that it could to protect and improve the people. He believed that it was government’s role to protect and defend the community, not just private property. Established a Bureau of Corporations to implement the Sherman Act. He filed suit to eliminate monopoly against 40 large corporations. He used the law and was known as the trust buster. Northern securities company case most famous. Owned by J.P. Morgan, this was a case to eliminate the railroad monopolies. Under Roosevelt, the Forest Service was created as the first conservation agency. Also, the National Park Service which set aside preserves for American recreation.

Roosevelt spoke in support of organized labor, and in May 1902 arbitrated a strike among anthracite coal workers. Upton Sinclair and the muckrakers. The Jungle, published in An expose on the problems of the meatpacking industry that sickened most readers. Tales of rats, bugs, roaches, rotten meat, and unsanitary conditions. There were also incidents of bad drugs for profit. Under Theodore Roosevelt, Congress passed the Meat Inspection Act of 1906 and the Pure Food and Drug Act of 1906 in reaction to the excesses of the meat packing industry. Hepburn Act of 1906 gave the ICC the power to set rates in interstate commerce.

Panama Canal Treaty was ratified in 1903, having been pushed by Roosevelt. Roosevelt had even sent troops to Panama to secure the new Canal Zone from neighboring Colombia. Of course, the Canal construction benefitted the United States enormously by shortening the time for shipping from East to West. Roosevelt’s successor, William Howard Taft, was even more vigorous in pursuing antitrust activities. Where Roosevelt pursued what he believed were “bad trusts”, Taft pursued all trusts. He pursued government action against far more trusts than had Roosevelt. This angered Roosevelt, leading him to reenter politics in the 1912 presidential election. Payne-Aldrich Tariff Act of 1909 reduced domestic tariffs, anathema to business oriented Republicans. White Slave Trade Act of the Mann Act which prohibited the shipment of Women in interstate commerce for the purpose of prostitution and white slavery.

Taft proposed and secured the first income tax on corporations
Taft proposed and secured the first income tax on corporations. Taft proposed a constitutional amendment to establish a federal income tax. After quick ratification by the states, it became the 16th Amendment on February 3, 1913, just a few days after the start of the Wilson administration. During the Taft administration, the 17 Amendment providing direct elections for U.S. Senators was passed by Congress on May 12, It was finally ratified by the states on May 31, 1913, roughly four months into the Wilson administration.

Woodrow Wilson expanded the presidential role even further
Woodrow Wilson expanded the presidential role even further. Wilson was a political scientist. He wrote a book while a professor at Princeton entitled Congressional Government. The book was descriptive, depicting government in the US as primarily Congress centered. The president was depicted as assuming a rather limited policymaking role. Nevertheless, Wilson saw his responsibilities as similar to those of the British prime minister-to propose an integrated set of measures that addressed social and economic problems and then to use personal and political influence to see that they get enacted. Wilson was the first president to personally draft a legislative program, even drafting some legislation. Wilson also often went across to address Congress. He was the first president since John Adams to personally deliver a State of the Union Address.

Wilson’s legislative program was dubbed by publicists as the New Freedom. It included banking reform, labor measures, tariff reform (substantial reductions), and consumer protection. Wilson introduced legislation that created the Federal Reserve System in 1913 for the purpose of stabilizing the money system. He also secured passage of the Adamson Act which established the 8 hour work day for Railroad workers. The Clayton Antitrust Act of 1914 was intended again to reign in monopolies and trusts and made illegal activities such as price fixing, mergers that restricted competition, interlocking directorates, rate collusion, etc.

Wilson also oversaw the creation of the Federal Trade Commission through the Federal Trade Commission Act of 1914 which was intended to regulate anti-trust. Later as part of the New Deal, consumer protection was added to the FTC’s mission. This was an independent commission not under the direction of the president.

The composition of the Supreme Court had changed in 1911
The composition of the Supreme Court had changed in As a result, the Supreme Court continued even more vigorously to take a restrictionist view of the expanded role of the federal government that flowed from the progressive era. Gutted the FTC Act, the Clayton Act, etc. as they pertained to anything other than the federal level. A restrictive interpretation of the 10th amendment implied that the federal government did not have the authority to regulate matters in intra-state commerce or to interfere in the economies or affairs of the states. In 1916, the NCLC and the National Consumers League successfully pressured the US Congress to pass the Keating- Owen Act, the first federal child labor law. However, the US Supreme Court struck down the law two years later in Hammer v. Dagenhart (1918), declaring that the law violated a child's right to contract his or her own labor. In 1924, Congress attempted to pass a constitutional amendment that would authorize a national child labor law. This measure was blocked, and the bill was eventually dropped.

World War I broke out in Europe in January of 1914
World War I broke out in Europe in January of However, America did not enter World War I until after Wilson won reelection in He ran under a campaign slogan of “He kept us out of war.” In January 1917, Germany initiated unrestricted submarine warfare on American shipping. The Lusitania was sunk, triggering U.S. entry. Congress declared war in April Some measures enacted by Congress actually preceded the war in preparation.

Over the strenuous objections of Woodrow Wilson, Prohibition was adopted through the Volstead Act of 1919 and the 18th Amendment to the Constitution in Wilson vetoed the Volstead Act, but was overridden by a congressional supermajority. Both political parties contained a majorities supporting Prohibition. Prohibition was by far the second most intrusive regulatory enactment in American history. It was an effort to regulate morals. Also, a mode of economic regulation.

Women’s Christian Temperance Leagues pushed and achieved the ratification of Prohibition. In 1920, women achieved the right to vote with the ratification of the 19th Amendment. Women voted overwhelmingly Republican in the 1920 presidential election. Aftermath of this. Republican presidents consistently supported Prohibition from The election of 1920 resulted in a landslide for Republicans. The war had been unpopular, especially the price controls, seizures of entire industries by the government. Harding and the Republicans ran on the promise of “a return to normalcy.

Wilson’s Republican successors, Harding, Coolidge, and Herbert Hoover, did not seek to expand the government’s involvement in the economy. Republicans enacted three large tax cuts that especially affected the wealthy between 1921 and Increased tariffs starting in 1921 to replace lost revenue. Smoot-Hawley Tariff of 1930 intended to protect U.S. markets. Sometimes blamed for the Great Depression. Their conservative philosophy undoubtedly influenced their conception of a limited governmental role. Nevertheless several regulatory enactments occurred through this period, reflecting the path of modern technology. The Civil Aeronautics Board and the Federal Aviation Administration. The Federal Communications Commission. Federal Maritime Commission.

The Depression Throughout the nineteenth century there were numerous panics and recessions. The market economy was subject to fluctuations in the level of employment, spending, saving, etc. Runs on banks were not uncommon during these periods. Clearly, the market economy was unstable, subject to the fluctuations of a business cycle. In 1929, a major interruption occurred in the market economy. It was of such proportions and of such major magnitude that one could reasonably call it a major failure of the market system. On October 24, 1929, the bottom fell out of the stock market. Shortly thereafter, between 1929 and 1933, the economy came apart at the seams.

The depression did more to expand the central government’s role in the economy than any other single event. 9,000 banks failed, and when a bank failed in those days people lost everything they had. GNP fell from $104 billion to $56 billion. Business investment fell by 88 percent. Unemployment grew from 3.2 percent in 1929 to 24.9 percent. 85,000 businesses failed. Wages and salaries dramatically declined. People were literally going hungry.

Herbert Hoover, a Republican whose philosophy was much like RRs was president in from 1929 to Hoover, an engineer and not a politician, had two problems as President. First, he had an overriding (probably unwarranted from the empirical evidence) faith in the ability of the market to correct itself. Hence he said after the start of the depression:

"The evidence of our ability to solve great problems outside of government action and the degree of moral strength with which we emerge from this period will be determined by whether the individuals and local communities continue to meet their responsibilities…. Throughout this Depression I have insisted upon organization of these forces through industry, through local government, and through charity, that they should meet this crisis by their own initiative, by assumption of their own responsibilities…. The federal government has sought to do its part by example and thus to avoid the opiates of government charity and the stifling of the spirit of mutual self help.”

Second, Hoover was a procrastinator
Second, Hoover was a procrastinator. In the summer of 1932, Hoover signed the Emergency Relief and Construction Act which provided for $322 million in emergency assistance. Only $30 million was ever spent. Many of the nation’s governors supported this position of the federal government not intervening in subnational economies. Most governors, anxious to preserve states rights told Arthur Woods, Chairman of the President's Committee for Unemployment that they had matters in hand and needed no federal assistance.

Huey Long of Louisiana typified the state and local response
Huey Long of Louisiana typified the state and local response. He said "Although Louisiana has considerable unemployment, we believe we will be able to handle our own conditions.. Mayor of Hartford Connecticut said "We believe in paying our own way. It is cheaper than to bear the cost of federal bungling. Vermont's Governor said " I think I am speaking for the great majority of the people of Vermont when I say... that thepeople of Vermont are for a government supported by the people rather than a people supported by the government. On July 16, 1929, roughly three months before the market crash, the governor of New York said "There is a tendency, and to my mind a dangerous tendency, on the part of the national government to encroach on one excuse or another more and more upon state supremacy. The elastic theory of interstate commerce has been stretched to the breaking point.

Who was the governor of New York
Who was the governor of New York? After the Depression struck, in 1930 New York (where Roosevelt was governor) established a Temporary Emergency Relief Administration which was copied by several states thereafter. This program also later became a model for parts of the New Deal. In 1931, Wisconsin enacted the nation's first unemployment compensation act. In 1933, Minnesota passed a mortgage protection law to prevent hasty bank foreclosures on hapless homeowners unable to meet loan payments.

As the depression deepened, however, demands percolated upward
As the depression deepened, however, demands percolated upward. Why could not states and localities, through provincial economic policies bring the nation out of the depression? Was the economic well being of localities tied to their neighbors? Was the U.S. economy more interdependent and technically complex than at any other time in U.S. history? Was the depression a state or local problem, or a national problem requiring national attention? In 1800, most economic activity was confined to local communities. What was the most appropriate level of government to regulate those activities? In 1933, was most economic activity still confined to local communities? Was the market economy a state and local market economy or a national one?

Hypothesis: As an economy becomes more interdependent and complex, the level of government which can effectively address market problems moves higher. In 2011, is most economic activity confined to the nation, or is it international in scope? What is the most appropriate level of government to address problems of the current market economy?

Franklin D. Roosevelt FDR was the leader of the remnants of the Progressive movement from Harding through Hoover. He had been Assistant Secretary of the Navy under Wilson. Stricken by polio in 1921 and revived by a trial of fire through FDR was always active in Democratic politics, favoring a more expansive role for government. He was governor of New York from 1929 through 1933 where he implemented a variety of policies that were later to become national policies and a model for the New Deal. FDR was always opposed to Prohibition. Prohibition was repealed with the 21st Amendment in December 1933 roughly a year after his election.

More important, FDR was a unifying leader who drew the nation together during the most trying times in all of American history, probably rivaling the Civil War in its impacts on the nation. During the 1932 election, he drew together a “brain trust” of academics from various disciplines who helped design the New Deal programs and entities. Many officials serving as part of his administration had also been with him as governor of New York. For example, Labor Secretary Francis Perkins was given wide latitude in designing various social programs, including Social Security and the Wagner Act enabling organized labor.

National Intervention in the Market Economy
The nation was in deep despair and economic distress from 1929 through The banking system had failed, agriculture was depressed, people were literally going hungry and living in what were called “Hoovervilles.” Read Wood, chapter 4 to see documentation on this. The election was no contest, as Herbert Hoover, the elite business set, and Republican Party were widely discredited. Few wanted to identify as Republican. Free market economics and the Republican Party were “done for” and would not rise again until the 1980s.

The 1932 election was a large landslide in favor of FDR and his New Deal (57.4 percent to 39.7 percent). Very large Democratic majorities came to Congress with this election. Senate was 59-36; House was The 1936 election, after many New Deal programs were enacted, was the largest election landslide since the 1820s when Americans first exercised a right to vote (President – FDR 60.8 percent to Landon 36.5 percent)(Congress- Senate 75-17, House ). Such large majorities for the Democrats resulted in sweeping changes in the role of the federal government in the American system. These changes dramatically transformed the Social Contract and relations between government and the economy in the United States.

The attitude in the New Deal Era differed from those in earlier eras in that Government was expected to take a positive role in promoting the public well being, rather than just the well being of business and industry. Of course government promoted business and industry from the beginning, so there was never a real free market economy in the United States.

Post-Depression and World War II
Since the Depression- With a prevailing attitude that government had a responsibility to protect citizens from the imperfections of the market system, the role of government and the economy were transformed considerably. Regulation Government manages the macroeconomy-The Employment Act of 1946 committed the resources of government to maintaining "maximum employment, production, and purchasing power“ The president is responsible for management under this law. This was amended in 1979 through the Humphrey-Hawkins Act. The rise of monetary economics since the 1970s.

Kennedy, Johnson, and the Great Society
The 1950s were a time of great economic expansion. However, that expansion was not even. Read Wood, chapter 5 for a more complete depiction. Inequality developed along various lines, including Race Region Gender Age

Kennedy John Fitzgerald Kennedy was an inspirational leader who wanted to produce change. However, he was constrained in his ability to do so by a conservative coalition of Southern Democrats and Republicans in Congress. Little was accomplished during the Kennedy administration to remedy the unjust conditions that flowed from the 1950s into the 1960s. When he was assassinated on November 22, 1963, a civil rights bill was in Congress with no hope of passage. Action in a variety of other arenas were also on the agenda. His assassination sparked change every bit as significant as had occurred with the New Deal.

Lyndon Johnson Johnson was Kennedy’s vice president, former Senate majority leader, and was very committed to his agenda. Kennedy’s assassination provided Johnson with the political capital to move the social agenda forward, much further forward than could have been accomplished by Kennedy. However, Johnson had aspirations that went much further than Kennedy’s vision. Johnson wanted to create an American that was the “GREAT SOCIETY.” Johnson’s vision went much further than civil rights and social justice. He wanted America to be great along all dimensions.

Nixon-Ford Era 1970 – Nixon created Environmental Protection Agency by Executive Order- Administers Clean Air Acts, Clean Water Acts, Safe Drinking Water Acts, Hazardous Waste legislation, Pesticides, Low level radioactivity, all passed by a Democratic Congress and signed by Nixon – Occupational Safety and Health Administration 1972 – Equal Employment Opportunity Act 1972 – Federal Trade Commission Reform Act

Carter President Carter campaigned on a deregulation platform. Deregulated the airline and transportation industries. Civil Aeronautics Board abolished. Interstate Commerce Commission abolished Addressed energy crises in 1974 and 1979, leading to the creation of the Department of Energy.

Reagan/George Bush Sr. Between 1981 and 1988, the top marginal tax rate dropped from 50 percent to 28 percent. The capital gains, estate, and corporate tax also declined sharply. At the same time, taxes went up on the middle and low class. See chapter 6 for details. Budget priorities shifted from social welfare to defense spending. Spending on unemployment insurance, AFDC, work training, Food Stamps, school lunches, subsidized housing, and mental health declined sharply. Given an uncooperative Congress, Reagan attempted to deregulate administratively. OIRA and placing friendly appointees at regulatory agencies. Federal deficit and debt grew without bound over the next 12 years.

George Bush attempted to rein in deficits through a combination of spending cuts and tax increases. “Read my lips, no new taxes!” In 1992, the top marginal tax rate increases from 28 to 31 percent.

Clinton A tax increase on upper-income groups in The top rate increased from 31 percent to 39.6 percent and remained at this level until after the 2000 election. America ran budget surpluses from Longest period of economic expansion in American history. In 2000 when he left office the unemployment rate was at 3.8 percent, there was no inflation. Other notable things: NAFTA, ending welfare as we know it, and Banking Deregulation in 1999.

George W. Bush Replaces Reagan for enacting the largest tax cuts, revenue-wise, but not percentage wise in American history. The top marginal rate drops from 39.6 percent to 35 percent. Smaller reductions occur for other income groups. Capital gains and estate taxes also decline sharply. Deficits and debt begin once again to grow again The GREAT RECESSION. Deficits and debt grow even more out of control as the federal government attempts to keep us out of another Depression. Bush signs bill for bailout of the banking industry (Emergency Economic Stabilization Act of 2008) over great Republican opposition in October The largest economic stimulus package since the Depression.

Against the backdrop of the worst economic downturn since the Great Depression, Republicans decisively lost control of the presidency and Congress in the elections. Barak Obama won over Republican John McCain, receiving 365 electoral votes and 52.9 percent of the popular vote. Democrats took control both houses of Congress for the first time since They had controlled the House since 2007, but extended their majority to Democrats gained 8 seats in the Senate to hold a majority of The Democratic victory shocked Republicans. They feared entering a period similar to the post-depression era when they were vanquished from the majority for 50 years. However, the Republican reaction this time was not to move closer to the Democrats, as New Republicans had done from the 1950s through the 1970s. Rather, they did precisely the opposite. From the 2008 election through the end of the Obama presidency, the Republican Party became the party of “NO!”

In early January 2009, Republican leaders developed a deliberate strategy of keeping members united against virtually anything the president proposed (Draper 2012, Prologue; Grunwald 2012, chapter 7). Pete Sessions, the new Republican National Campaign Committee chair, asserted at a meeting of party leaders in Annapolis, Maryland that the party’s purpose was not to govern in this time of crisis, but “The purpose of the minority is to become the majority.” (cited in Grunwald 2012, 143) As expressed by Republican Senator George Voinovich, “If he was for it, we had to be against it.” (cited in Grunwald 2012, 19) Eric Cantor, the House Republican Whip stated “We’re not here to cut deals and get crumbs and stay in the minority for another 40 years….We’re going to fight these guys. We’re down, but things are going to change.” (cited in Grunwald 2012, ) Cantor believed that in order to produce that change, Republicans needed to be united and not lose the vote of a single member of their caucus.

The Republican leadership also believed good PR, rather than governing, was required to move them back into the majority (Grunwald 2012, 141). They wanted to paint Obama as a weak leader, unable to accomplish bipartisan change, and somehow responsible for the weak economy.

Obama More stimulus spending. The American Recovery and Reinvestment Act of 2009 (ARRA), commonly referred to as the Stimulus or The Recovery Act, was an economic stimulus package enacted by the 111th United States Congress in February 2009 and signed into law on February 17, 2009, by President Barack Obama. $789 billion. On February 17, 2009, President Obama signed the American Recovery and Investment Act. The legislation passed the House by a vote of , with 177 of 178 Republicans voting against. On the Senate side, the legislation passed by a vote of All Democrats voted for the bill, with 37 of 40 voting Republicans against. The Patient Protection and Affordable Care Act passes and is signed by the president on March 23, 2010, without a single Republican vote..

In December 2010 after the mid-term elections and rise of the Tea Party, all Republicans in the Senate vow to not allow any significant legislation to pass during the Obama administration. Mid-term elections – Aftermath produced a focus on deficit and debt reduction at a time when the economy was still very troubled. Obama was reelected in In the aftermath of the 2012 elections, Congress passed and the president signed the American Taxpayer Relief Act on January 3, The law restored the marginal tax rate of 39.6 percent on the highest income group, now set at $450,000 for joint returns. It also increased the tax on capital gains for this group, as well as increased the estate tax. However, the Bush tax cuts for low- and middle-income groups were made permanent and even reduced at the low end.

Overview Since the Depression, government has become involved as never before in every sector of the economy. From health and safety for workers, to automobile manufacturers, to highway safety, to the environment, to whatever. In the daily lives of students how much involvement is there by government? Slept on a bed manufactured under federal standards, and under sheets which are regulated as to the materials that can be used. Awoke by a clock radio, manufactured under federal standards which receives transmissions through regulated airwaves.

Ate food for breakfast inspected by Agriculture Department and produced according to health requirements under FDA. Drove to school in a vehicle regulated by NHTSA and manufactured under constraints imposed by NHTSA, EPA, OSHA, NLRB, EEOC, etc. The highway you drove in on resulted from federal funds. Regulated by government in a variety of ways. Highway Act of 1957 was the largest public works program in all of American history. Education highly subsidized by government. Faculty subsidized by federal grants. Lighting in classroom regulated by feds, as well as building specifications.

Government and the Economy, The Origins

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