America's Fiscal Constitution (22 page)

Republican reformers slowly gained political strength, particularly in New York and Massachusetts, states that contained 15 percent of the nation’s population. Reformers prevailed in their fight for the creation of a professional civil service to replace the patronage system used then to staff the federal government. They made little headway, however, when calling for tighter controls on pensions for the families of Civil War veterans or effective regulation of the business of railroad tycoons such as Jay Gould.

Reformers also gained momentum in the Democratic Party. In Northern cities they fought Democratic machines that provided social services to a flood of immigrants and padded city payrolls with campaign workers. Samuel Tilden of New York galvanized support from reformers throughout the nation with his fight against Tammany Hall leader “Boss” Tweed, the most corrupt machine politician of all. Tilden would also provide the Democratic Party with a fiscal platform that endured for two decades.

The soft-spoken Tilden’s record of public service, spanning almost half of the nation’s history, exemplified the liberal mainstream in the mid-nineteenth century. After the Panic of 1837, he articulated a Democratic economic ideology based on competitive markets, balanced budgets, and a stable currency. In 1846 he crafted a novel New York state law that allowed businesses to pool the money of shareholders in a corporation without the need for legislative action or any implied grant of monopoly. Other states copied the law, which gave rise to the modern corporation as the distinctive form of American business organization. After helping Salmon Chase write the Free Soil platform in 1848, Tilden set up corporations that built railroads and then rallied most New York Democrats behind the Lincoln administration’s war efforts.

After his election as governor of New York in 1874, Tilden prosecuted “Boss” Tweed for bribery. Governor Tilden cut the state’s padded payrolls, which permitted him to balance the budget while slashing state property
taxes. Tilden’s 1876 presidential campaign slogan—“retrenchment and reform”—signified honest government with lower taxes and more efficient spending, a theme embraced by future Democratic Party platforms.
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Tilden earned the respect of British Liberals who shared his belief in efficient spending and balanced budgets. After the Civil War, Liberal leader Gladstone commended US leadership for “braving a large burden of taxation” in their belief “that the true secret of their future power lies in the steady and rapid reduction of their debt.”
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Gladstone and Tilden viewed universal public education and debt reduction as means to enhance upward mobility and create opportunities for the next generation.
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Tilden’s large victory in the popular vote for the presidency in 1876 election showed that Democrats could win the White House with a candidate capable of carrying the South, New York, New Jersey, and at least one other Northern state. The aging Tilden would not run again, and Democrats longed for a reformer in his mold.

Enter Grover Cleveland.

Cleveland, a three-hundred-pound, forty-four-year-old bachelor, regularly ate dinner—usually sausage and beer—at one of the many taverns in Buffalo, New York. One Saturday night in October 1881, while dining at Billy Dranger’s bar, three other patrons invited him to their table and shared their troubles. Those three had repeatedly been turned down in their attempts to recruit a Democratic candidate for mayor. Buffalo, after all, was a Republican town. Why not nominate Grover? Within weeks of that meeting, Buffalo voters elected Cleveland as their mayor.

Cleveland compensated for his lack of political experience by carefully reading every measure considered by Buffalo’s city council. Buffalo politicians had routinely made grants to various small civic organizations. Cleveland vetoed these grants as well as a street cleaning contract that he considered overpriced. These vetoes stunned city hall insiders but impressed voters. State party leader Daniel Manning, a publisher and friend of Tilden, began thinking about the future of this newcomer who many called “the veto mayor.”

Nine months after Cleveland’s election, New York Democrats reached a deadlock in their balloting to nominate a candidate for governor. Manning and other reform-oriented party leaders gambled by arranging for the nomination of Cleveland. In the general election the veto mayor received support from Republicans who were repelled by their nominee’s ties to Senator Conkling and rail tycoon Jay Gould. A number of Republican
reformers, including young Theodore Roosevelt Jr., were also elected to the state legislature.

Governor Cleveland vetoed eight bills passed by the legislature during his first three months in office. Those vetoes encompassed more than just wasteful spending. Democrats and Republican reformers succeeded in passing a popular bill that lowered the fees of a New York City transit line from 10 cents to 5 cents. The transit line’s owner, Jay Gould, had made generous campaign contributions to Cleveland’s Republican opponent in the governor’s race, and no one liked to pay higher fares. In vetoing the bill Cleveland explained that he could not discern any consistent principle to justify the use of state power to override valid municipal contracts. Cleveland’s reliance on principle even when vetoing a popular bill earned national attention. The day after the veto, Theodore Roosevelt Jr. publicly apologized for backing the bill for political purposes and applauded Governor Cleveland’s courage.
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Only three years after Cleveland walked into Billy Dranger’s bar, Americans elected him to serve as the first Democratic president since the Civil War. In the bitter 1884 presidential campaign, GOP operatives accused the religiously devout Cleveland of being an alcoholic who kept a harem of young women. Republican reformers in New York again crossed party lines to give Cleveland the electoral victory.

In the six years before Cleveland took office in 1885, the federal government retired over half of the $2 billion in interest-bearing Civil War debt.
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All that remained was $250 million in bonds yielding 4.5 percent, which would mature in 1891, and $737 million in bonds yielding 4 percent, maturing in 1907.
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Federal bonds sold at a premium to face value that ranged from 10 to 24 percent, reflecting the strength of the nation’s credit and currency.
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After 1883 the federal government refused to pay market premiums to retire more debt, so budget surpluses led to a rise in the cash balances in the Treasury.
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Since the end of the Civil War the federal government ran a surplus despite its padded payrolls and increased spending on pensions for military veterans and their families. The nation spent little on its army and navy compared to European nations. Lower debt and interest rates had reduced the annual federal interest expense.

As president, Cleveland diligently read each bill passed by Congress and vetoed hundreds of spending bills intended to curry favor with particular constituencies. He rejected legislation that would have extended generous veterans benefits to all soldiers with at least ninety days of service, regardless of whether they saw combat or suffered from a disability. The president called the “race for pensions” an incentive for “pretended incapacity” and “dishonesty.”
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In vetoing the Texas Seed Bill, which authorized $10,000 to help drought-stricken farmers, Cleveland criticized the use of federal tax dollars for “relief of individual suffering.” His veto message proclaimed that “though the people support the Government, the Government should not support the people.”
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The president also championed efficient use of public dollars and assets. He eliminated half the jobs at the Bureau of Printing and Engraving. When an audit showed that railroad companies had received land grants despite failing to meet contractual deadlines, the Cleveland administration forced them to relinquish eighty million acres.
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Continuing federal surpluses had long encouraged the type of spending opposed by Cleveland. Treasury Secretary Daniel Manning continued to advise the president that it would be wasteful to use surplus revenues to buy back federal debt at a market value that included a large premium over the face value. As a result, Cleveland had to find another means of eliminating the surplus.

In the fall of 1887, Cleveland discussed the issue with key Democratic leaders at his farm, Oak View, now the site of the upscale Cleveland Park neighborhood in Washington, DC. Afterwards the president toured the country to participate in a series of “Oak View Conferences” with civil and political leaders. He observed a nation in the throes of rapid change.

Rail transportation reduced the significance of the country’s vast distances. Immigrants used these rail lines to settle the interior’s federal lands. The population of the Dakotas, Kansas, and Nebraska tripled in the 1870s and doubled during the 1880s. By 1890 the population of these four states approached three million, double the size of New York City.
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Railroad corporations financed their expansion with large amounts of debt, and by the end of the 1880s they had issued bonds of over $5 billion, an amount far exceeding the amount of federal debt.
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The rail lines spawned both growth and discontent. Farmers worked hard and produced more, but larger harvests yielded lower prices and farm income. From 1886 to 1889 the average price of wheat had fallen by a third from its average during the years between 1870 and 1873.
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Cotton and cattle prices had declined by almost half in the same period. Farmers borrowed to purchase mechanized equipment and then struggled to service their debt when wheat prices fell after production outstripped domestic demand. Wheat, like cotton, was a cash crop; corn producers fared better because their surpluses could be fed to livestock and poultry. Agrarian frustration erupted where the wheat and cotton belts began.

The cost of rail transportation reduced the net price received by farmers for their crop. Rail lines had been financed with help from public land grants. Since powerful industrialists and the federal postal service had secured volume discounts on their rail rates, farmers demanded that federal, state, and local officials obtain lower rail rates for agricultural products.

American farmers longed for both the independence of business owners and the secure income of hard-working employees. Federal import taxes had been used for generations to protect the interests of producers of textiles and other goods. Farmers now demanded similar help and took a keen interest in monetary policy.

The amount of circulating paper currency—greenbacks—remained fixed at the level set by John Sherman and Congress in 1878. Gold supplies would not increase until new gold discoveries in the late 1890s. The total money supply, including bank credit and federal silver certificates, rose almost in line with economic growth from 1870 to 1890. Yet distressed farmers demanded even greater amounts of currency in the form of silver dollars or greenbacks. Because the market price of silver declined relative to gold, farm prices fell less when expressed in silver rather than gold. In agricultural areas, many voters believed that an increased amount of silver dollars would lead to higher prices.

Farmers had been organizing long before Cleveland’s 1887 national tour, and their organizations began to realign the constituencies of Democratic and Republican parties. It may seem surprising today that ranchers in Texas gave birth to a populist movement that is considered a precursor to twentieth-century liberalism. Several ranchers who met in 1876 at John R. Allen’s ranch and called themselves the Pleasant Valley Farmers Alliance No. 1 had modest goals: recovering missing livestock and
discouraging legal challenges to land titles. Farmers Alliances soon spread throughout rural Texas and began protesting railroad freight rates and the prices charged by monopolies such as the Barbed Wire Trust. The alliances spread like wildfire and spilled over into the cotton-growing Southern states. In 1880 Chicago publisher Milton George founded the Northern Farmers Alliance, and six years later a Texas minister began assembling the Colored Farmers Alliance.

The growing industrial economy posed other challenges. Deposits of coal and iron ore near Lake Superior powered rapid growth in steel production and related employment. Chicago and Minneapolis doubled in population during the 1880s, while Cleveland, Detroit, and Milwaukee grew by more than 50 percent.
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The wages of laborers, however, did not rise as fast as the fortunes of the powerful men who dominated ownership of certain industries. Andrew Carnegie consolidated steel mills, improved production technology, and minimized costs. John D. Rockefeller built the country’s dominant oil company in the same manner.

Younger writers such as Woodrow Wilson and Theodore Roosevelt idealized the virtues of political life in the early republic. Utopian authors offered a vision of the future rooted in the modern experience of industrial efficiency. Edward Bellamy’s novel,
Looking Backward
, became a bestseller shortly after Cleveland’s 1887 national tour. Bellamy depicted the United States in the year 2000 as a technologically advanced nation with universal public education, gender equality, pensions for seniors, greater access to medical care, shorter working hours, credit cards, discount stores, home delivery of goods, and even a music and information delivery system linked to homes through a “cable-telephone.” Competent managers rather than corrupt politicians guided the public sector in
Looking Backward
. Bellamy’s ideal inspired millions of Americans to join Nationalist Clubs committed to greater cooperation and economic justice.