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SERIES: This is the second in a Series about recent reinterpretations of important episodes in American Political Development. This Post concerns 1836-1848, a period of economic depression and political crisis that reshaped American political economy. Later posts will treat later episodes.

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This Post reports a fine recent study of the USA from 1836 to 1848, when a short economic depression precipitated a longer political depression. This process in early American capitalism proceeded at multiple levels, with subnational and international levels more important than the national level. This episode was an important early test of American democracy, with lasting effects on American Political Development. In some respects this episode resembled the 2008 financial crisis and its political aftermath. It may foreshadow some future aspects of American politics and USA-PRC relations. (Alasdair Roberts 2012. America’s first great depression: Economic crisis and political disorder after the panic of 1837. Ithaca NY: Cornell University Press, 255 pages.)

The most important similarity between the 1837 and 2008 financial crises is that, in both periods, the USA was heavily dependent on foreign creditors and strongly constrained by external military powers. In the 1800s the creditors and constraints were principally British. In the early 2000s, they are increasingly Chinese. For much of the 1900s – particularly from 1945 to about 1980 – the USA attained relative economic and geopolitical autarchy, which Americans and others came to take for granted. However, in American history, such autarchy was more the exception than the rule. Usually national leaders had to attend to external interdependence and vulnerability. Increasingly, they will have to do so in the present and future. (Introduction and Conclusion.)

The broadest theme of the book is the relationship between LIBERTY and ORDER (Conclusion). The American 1820s, 1830s, and 1840s were the first decades of mass democratic governance anywhere in the world. Historically, elites had doubted that masses could govern themselves. Elites suspected that, given political power, just as elites had done, masses would seek to enrich themselves. That is what happened in the USA in the 1820s and 1830s. “... liberty without discipline was a formula for ruin.” (83). The question then became, could a democracy restore discipline and order? As it turned out, in the USA in the 1840s, mass democracy could and did. This was an important step forward for democracy, in the USA and elsewhere.

This Post will summarize Roberts 2012 along three analytical dimensions: Sectors, Levels, and Dynamics. The main book begins with a chapter reporting how, in the late 1830s, the USA went from boom to bust (dynamics). Then the core of the book is three chapters about how the Depression played out at the state, national, and local levels (levels). Then a chapter reports how, in the late 1840s, the USA went from depression back to prosperity (dynamics). Along the way, Roberts explores the relationship between economics, politics, and even society and culture (sectors).

SECTORS

One broad theme in Roberts 2012 is SECTORS. Economic busts have causes and impacts that go far beyond the strictly economic to politics, society, and culture. (The interaction of economics and politics is a theme also of the book Political bubbles, reported in Post 140208.)

Economy. Before and during the 1836-1848 depression, a main problem for American financial stability and economic development was a shortage of capital, met by foreign banks. Accordingly, finance was pivotal, fragile, and international (Chapter One). The 1836-1848 depression began with a financial panic, but quickly became a general economic and political crisis. Business deals that in good times appeared feasible, in hard times became unsustainable. At the end of this period, international confidence in American investment recovered and America discovered domestic supplies of gold. Both helped economy and politics recover and stabilize.

Politics was a cause of the 1836-1848 economic crisis: state politicians had pandered to public aspirations to prosperity by overinvesting in state economic infrastructure (Chapter Two). As depression deepened and spread, it strained old political institutions and agreements: some states were still operating under old colonial constitutions not intended to manage robust economic development. Economic crisis became political crisis: “Voting rates soared, the duration of incumbency for officeholders became more uncertain, tempers frayed, and the capacity for conciliation declined.” (137) Political crisis constrained what policy solutions to economic crisis politicians could adopt – in fact, prevented ANY constructive repairs to national finance!

Society. Earlier, economic prosperity had facilitated mutual tolerance between classes and ethnicities, regions and localities (Chapter Four). The depression aggravated tension between them, not only over their own interests but also over the proper role of government. “As a result, the depression years became a long, painful test of the federal government’s capacity to manage [regional] and class conflict.” (86) State and local governments faced similar challenges.

Culture. Externally, when depression struck, some states defaulted on their debts to foreign lenders, who impugned Americans’ morality and honor. Managing the economy better became a matter of national honor, pride, and identity (50). Internally, the crisis produced a shift in attitude toward democracy, from naive optimism to cynical pessimism: politicians were unwise and corrupt and the public was undisciplined and irrational. Locally, ethnic tensions worsened as old Protestant residents became increasingly distrustful of new Catholic immigrants (Chapter Four).

A mechanism that underlay several sectors was TRUST (205). In 1837 as in 2008, financial panic involved both a decline of public trust in financial institutions and actors and a decline in trust BETWEEN financial institutions and actors. These declines froze financial transactions, which caused economic depression. Then as now, the ensuing political depression included a decline of public trust in political institutions and actors and a decline in politicians’ trust of each other. These political declines intensified regional rivalries, partisan fragmentation, and policy deadlock. Political compromises that had been feasible for politicians to negotiate and maintain during good times became impossible to negotiate or maintain during hard times.

Most fundamental was challenge to the very “union” of the USA: “By the end of Jackson’s presidency [1837], Congress had negotiated a compact on taxing and spending which seemed to reconcile the North, South, and West. But this compact hinged on the persistence of good economic times. As the economy declined, and federal revenues evaporated, old animosities came quickly to the surface.” (98)

LEVELS

Another broad theme in Roberts 2012 is LEVELS. In an “open” economy, as the USA was then, the foreign and the domestic inevitably become intertwined. Roberts tracks the interaction between the supranational level (imperilled British financial interests), the national level (the federal government’s fragile finances), and the subnational level (the states’ overinvestment with British money and the cities’ difficulty in maintaining public order).

British power. Roberts emphasizes the continuing external MILITARY WEAKNESS of the USA, relative not only to global hegemon Britain, but also to France (109-136). Supranational weakness limited what the USA could do both at home and abroad. Americans had always agreed on territorial and commercial expansion, but in 1836-1848 those popular aspirations directly challenged British global power. That gave the American national president the hard job of minimizing confrontation between the two. Throughout, Roberts emphasizes the continuing ECONOMIC DEPENDENCE of the USA on British capital and the direct relationship of British capital with individual American states (bypassing the federal government).

Federal government weakness helped cause and prolong this crisis (Chapter Three). In particular, President Andrew Jackson had refused to allow a strong central bank; instead he deposited federal funds in state banks. When the state banks failed, the federal government too lacked funds: to repay foreigners, to operate the national government, or to help subnational states, banks, or merchants. The USA’s weak central bank then tried to recover by borrowing abroad and speculating in cotton, unsuccessfully. Eventually the national bank itself went bankrupt.

State governments, during boom times, had over-invested in developing their transport infrastructure, in order to become economically competitive with other states (Chapter Two). Economic bust caused some states to default on their foreign loans, because the states refused to raise taxes in order to repay them! Some states even went bankrupt. Popular elections then shifted control of some northern state governments – and eventually the national government – from over-optimistic Democrats to more cautious Whigs. (The Whigs were the party bridge between earlier statist Federalists and later business-oriented Republicans.) Between 1846 and 1861, in many states, conventions wrote new state constitutions that sharply restricted the states’ role in economic development.

Local governments. The 1836-1848 depression strained state and local governments in other ways (Chapter Four). There were rebellions (Rhode Island), anti-rent war (New York), and urban riots (Philadelphia and other large cities). The 1836-1848 period saw rising immigration by poor Irish and Germans – mostly Catholic – many of whom remained in large east coast cities. Late 1830s economic depression precipitated class war and ethnic conflict between them, and between new immigrants and old residents. It was at this time that large cities established their first municipal police forces (ironically, copied from Britain). Local governments tried to avoid confrontation with demonstrators, but in the end all resorted to “ruthless repression” to restore order. “Dissent was tolerated only if it was channeled through existing institutions.” (206)

Thus, for managing this crisis, a mechanism that crossed all levels was DISCIPLINE. External discipline was needed in foreign policy, to avoid war with global hegemon Britain, despite some popular demands to confront it. Internal discipline was needed in economic affairs in order to reassure external creditors and investors, despite the domestic costs that imposed. Internal discipline was needed also to maintain law and order in large cities.

DYNAMICS

A third broad theme in Roberts 2012 is DYNAMICS. The 1836-1848 depression had a midrun dynamic of cyclical boom-bust-boom. The depression was a critical juncture in longrun American economic and political development. Yet neither midrun nor longrun outcomes were inevitable. Both were grounded in the shortrun maneuvers of investors and politicians with limited time horizons.

Short-run opportunism. Nothing could have been more shortsighted and inept than the (non)response of the national government to the USA’s first major depression. Counter-productive response extended even to failing to strengthen national defense (109-120). Diplomacy only slowly came to the rescue (120-136). But let us again take financial reform as our example (86-98). (On fiscal reform, see 98-109.)

Some politicians advocated a strong national government bank, some a national system separate from government in which simply to deposit federal funds (an Independent Treasury). After the disastrous state bank failures of 1837-1839, few advocated still depositing federal funds in state banks. However, advocates of the first two options could defeat each others’ proposals but could not secure adoption of their own. The result was that, for much of the 1836-1848 crisis, continuing to deposit federal funds in state banks remained the default practice, a risky system with no basis in national law.

Roberts calls national politics in this period “polarized.” Instead one might say that national politics was “fragmented.” Democrats and Whigs could not agree, but neither party could agree within itself, either. Individual politicians were left to maneuver as best they could amid political chaos. Shortrun tactical considerations reigned. That was true even in the economy, where events were driven by sudden random events such foreign financial panics or domestic bad weather.

Mid-run cycles. After a sudden economic crash, economic recovery can occur rather quickly. The accompanying political dynamics take longer. So, for exploring the interaction between economics and politics, one needs to look at periods of time longer than just economic cycles themselves. Political causes of crash can go back some time: here to earlier 1830s Jacksonian Democratic policies. Economic crash takes a while to produce broad political crash. The Whigs did not displace the Democrats nationally until 1840, political crisis did not bottom-out until 1842, new thinking began to emerge only from 1844, and new policies could be adopted only from 1846.

In the 1820s and 1830s, under populist Democrats, the USA had enjoyed optimistic and free-wheeling liberties and investments. The 1836-1848 episode ended unlimited optimism about state investment in transportation infrastructure. It raised doubts about the ability of Mass Democratic politics to manage economic development: politicians had pandered to unrealistic public economic aspirations. By the 1840s, both elites and masses – particularly the new opposition of elitist Whigs – thought some correction was needed back toward order and stability.

Long-run development. As noted throughout this Post, the 1836-1848 depression was an important early test of American democracy and an important early definer of American institutions.

This political cycle involved both institutional and ideational change that, in the long run, proved irreversible (209). Institutional change included new restrictions on the role of state governments (to reassure foreign investors), expansion of local police power (to restore local order), and expansion of presidential power (to compensate for legislative dysfunction and to avoid war with Britain). Ideational change rationalized restriction on the role of government in the economy and rationalized reimposition of law and order. Americans emerged with a more skeptical view of democratic politicians and even of democratic citizens.

But perhaps the larger longrun conclusion is nonlinearity. “American Political Development” has not proceeded in a straight line. In the 2000s, it may to some extent revert back to earlier adaptations to external interdependence. As Roberts shrewdly observes, under a mixture of cooperation and competition with another great power (then Britain, now China), Americans are not fully in control of their own economic and political destinies. They do not want to admit that, so they focus on their contentious domestic politics as though that were truly decisive. (210) Of course, the 2010s is not the 1840s, the USA of today is not the USA of then, and China is not Britain. Nevertheless, there are significant resemblances. (See Roberts’ nuanced concluding discussion at 211-214.)

A mechanism that relates all these dynamics is what “historical institutionalists” studying American Political Development call INTERCURRENCE: institutions from earlier periods persist into later periods. In some states, colonial institutions had persisted into the early Republic and proved unworkable. Some of the Constitutional institutions of the early Republic proved unworkable too, particularly the absence of a central bank. Also unsustainable in their original form were some aspects of the extra-constitutional arrangements (such as mass parties) that had produced the “regime shift” away from Elite Republic to Mass Democracy. For example, early mass parties were opportunistic affiliations of local politicians. These eventually gave way to more national, organized, and disciplined parties.

In the early-to-mid 1840s the American economy gradually recovered. Nevertheless, the 1836-1848 depression and crisis was finally ended only by 1848 war with Mexico and by the infusion of gold from California, earlier seized from Mexico (Chapter Five). Britain was too strong for the USA to challenge for territory. An alternative outlet for popular expansionism was to seize more territory from a weaker power, Mexico. War and victory in Mexico in the 1840s stimulated the economy and united the country, similar to how it was only 1940s world war that finally ended the 1930s Great Depression. Eventually, the USA’s victory over Mexico restored both the USA’s credibility with foreign financiers and Americans’ own confidence in their democracy. However, incorporating much new territory from Mexico into the existing USA revived arguments over slavery that, in the 1850s, gradually tore the country apart. (Please see the next Post, 140315).