02 February 2021

How the Republican Party Made Slavery and the Agricultural Economy History And Created a New American Economy

“The Republican party is the ship and all else is the sea.”

- Frederick Douglass

One of the reasons for the invention of the Republican Party was to outlaw slavery. One of the reasons they were successful in this was because an industrial economy was already emerging to gradually displace and transform the agricultural economy slavery was part of.

Ohio Senator Ben Wade was one of the country’s first, most influential Republicans. “Once you might work the galley slave with profit,” he reminded his Senate colleagues on one occasion. “[But] how is it when you pit the galley slave against the steam engine? Every labor-saving machine is an abolitionist. Every pull of the engine upon a railroad is an abolition sermon.” (From Fergus Bordewich's Congress at War.)

Republican policy represented a massive shift in economic policy, shifts so big that we can hardly imagine the world as it was before.

For instance, before Lincoln and other Republicans swept to power in 1861 (power made even greater when the southern Democrats all seceded, leaving Republicans to largely govern unopposed), the country had more than 10,000 different banknotes floating around in circulation. Republicans introduced a national currency – greenbacks - and this alone was enough to boost the economy. Imagine a world in which counterfeiting was widespread and each banknote had to be exchanged, some discounted at one rate and others at another rate. A national currency ended that.

One of the few reasons that a world with 10,000 different banknotes was tolerable was because early Americans were self-sufficient. Cash transactions were the exception. You grew your own food, made your own clothes, built your own cabin. But as the country gradually began to industrialize, money became the norm for acquiring goods and not the exception. Rather than the exception, it became the norm to work for someone else for pay. 10,000 different banknotes were an obstacle to this new economy. The Republican’s new, national currency was one of the reasons the economy began to boom.

Desperately needing money to wage war against the South, Republicans turned to New York’s big banks for loans. Those banks said no. Republicans did another thing that was so revolutionary at the time but now seems so very common: they sold bonds directly to everyday Americans. Americans had a way to invest, to become a part of this new industrial economy, to become capitalists. To be a political movement, it has to be popular. Republicans helped to popularize capitalism by making every day Americans bondholders.

Republicans at the state level invented the modern corporation. Railroads were among the first investments that demanded more capital than a single family might have. A railroad needed a number of investors, shareholders. But one big obstacle to my investing in your company (particularly in a time when information was so scarce that it was hard to get good, timely data) was liability. What if I invested $1,000 in your railroad and you were sued for a train wreck that suddenly left me liable for $1,000,000? The proper response to such risk is to avoid it, which made it tough to raise the capital needed to create the new industrial economy of railroads, factories and department stores. So Republicans adopted a clever British invention from the time: the joint-stock, limited liability corporation. We could join forces, dozens or thousands of us each buying a share (the joint-share) and yet our liability was limited. If we invested $1,000 we could lose $1,000 but not $1,000,000. This made investment safe. Like the bonds, this turned thousands more Americans into capitalists and was part of an unprecedented wave of wealth creation.

Finally, the Republicans invented income tax. Before that, the federal government one big source of federal income was land sales. The federal government essentially waged continual war against the first nations, taking land that they would in turn sell to speculators who then sold it to settlers. Income tax did a couple of things. One, it signaled a big shift from the land-based economy of the Democrats that had defined economic policy since the founding of the country. Two, it enabled the government to invest in the economy. Republicans didn’t just subsidize the construction of a transnational railroad that helped to transform the continent into a nation (a union rather than a confederation of states). Republicans funded universities, an investment in people that pays off to this day. The University of California, MIT, Ohio State, and so many universities that have a name like “University of Minnesota” or “Michigan State University” trace their origins back to Republican legislation from during the war. Income tax didn’t just help fund the hugely expense Civil War; it enabled Republicans to create universities throughout the country during this war. Income tax enabled them to invest in economic development.

The Civil War marked the emergence of the Republican Party that would define and be defined by capitalism, by the industrial economy that made the agricultural economy in which slaveholders thrived seem as obsolete as a world of kings and queens. By 1900, the Republican Party would – like the Democratic Party before it – be defenders of elites rather than champions of the common man. The Democratic Party of 1860 had been defined by slaveholders; the Republican Party of 1900 was defined by robber barons. By the early 1900s, the Republican Party would need to be displaced in the same way that it had displaced southern Democrats.

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