Fist Of History

High Income Tax Rates and Economic Good Times (Part II)

January 21st, 2015

Stupid_Economic_History_Graphic

When we last left this topic we had gotten up to the post-World War II boom and the fact that the top income tax rate was locked at 91% until 1964.  However this outlook ignores a few key cultural pieces of information, specifically a minor modification to tax rates in 1944, as shown in the Tax Foundation tables on the subject.  If you look you’ll notice that starting in 1948 the tax rate for an individuals gross income was reduced if they were “Married Filing Jointly” – with reconfigured rates that reduced tax exposure for married couples.  Now in the modern era people think of that in terms of “well both spouses are working and earning” but 1948 did not see a huge surge in women entering the workforce, in fact after World War II the number of women in the workforce fell and remained low through the 1950s.

So if you were an average American working or middle class man who had a married wife at home, from 1947 to 1948 you saw your actual tax rate dip sharply by indirect manipulation of the tax code while keeping the illusion of high tax rates in place.

The stability and economic growth of the 1950s and the 1960s was due to a huge assortment of factors, expanding populations, the Green Revolution and a sudden explosion in global food production, governments in Western Europe and the United States paying down owed debt at low interest rates which caused a surge in consumer spending, and it was all anchored by a new system of tariff free trade combined with stabilized currency through the Bretton Woods system which had been established in 1944.  (In short, it created the World Bank, the IMF, and pegged all currencies to the United States dollar which was in turn pegged to gold.)

It was a golden, magical time, fueled by a series of different economic forces that started to come apart even as the world economy surged.

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The Revenue Act of 1964 cut the top tax rates significantly, dropping them from 91% on the highest earning levels down to 70% and cutting corporate income tax rates as well.  The reason for this was stagnating consumer demand from the early 1960s.  Despite this Johnson still had sufficient revenue to undertake his major policy initiatives to challenge poverty in the United States, his Great Society initiatives.  Which I would argue is the fly in the soup of this golden age of capitalism in the United States, mainly that the prosperity of the 1950s and early 1960s rested solidly upon a section of the working class forced by racism into the bottom-most economic rungs.  Urban and rural poverty among African-Americans, as well as other racial groups during this period, vigorously enforced through custom and law, helped bolster the United States competitively, in potentially a similar manner to how maintained colonial empires provided the economic edge to assist Western Europe’s boom.

Income tax rates stayed capped at 70% until it all began to really come apart in the 1970s.

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The mid-1960s onwards saw the Civil Rights movement in the United States, decolonization, new demands for a higher standard of consumer goods which bled into the 1970s and the counter-push against the ideas espoused by the 1960s youth.  Cynically put the hippies of the 1960s grew up and got jobs, more accurately the idealistic twenty-somethings of the mid to late 1960s got into power and changed the laws and culture of the United States, but also approached the economy from a position of demanding more.

The Bretton Woods system collapsed in the mid-1970s as unsustainable, President Nixon ended gold convertibility and the world entered a period of free-currency flow, which both sparked the current boom of global trade and also further eroded United States trade strength.  Combine that with the oil shock under President Carter, rapidly rising inflation and stagnation under both President Ford and President Carter, and you ended up with a United States caught in an odd economic problem of “stagflation.”

Stagflation, in short, combines economic stagnation (minimal growth of the Gross Domestic Product [GDP]) with inflation that erodes increased government spending without adding to the economy.  The causes of stagflation are still up for debate but it appears most likely it was a combination of mandatory contractual pay increases to match cost of living increases in union contracts, combined with supply shocks due to oil shortages absorbing federal spending.

In essence when the government spent money it was simply siphoned up into maintaining the standard of living and paying for increasingly expensive raw materials to meet current demand, not into expanding production or new technologies.

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But let’s look at the beast at the end, Ronald Reagan, the doom cutter, destroyer of government spending and crusher of the above factoids argument of an era of solid economic prosperity.

Regan did indeed cut the top income tax rate, from 70% to 50% in 1982.  If you examine the adjusted GDP table found here you’ll notice it did grow after the tax cut.  The late 1970s through the 1980s is a tough period to tease out individual economic factors, you have the falling income tax rates, deregulation, loosening of financial laws, the opening of the stock market to private investors with lower income levels, a series of economic booms and busts, and decreased government spending on social services and support.  But if you look at income tax levels you’ll note that under Reagan they feel to an all-time low of 28% from 1988 through 1991, when they then rose to 31% under the first President Bush.  President Clinton got them raised to 39.6% in 1994 and they stayed at that amazing peak level till 2003 when they fell, under the second President Bush, to an all time low of 35%.

In 2013 they rose again to 39.6% under President Obama.

Now, if a 4% dip and rise in the tax rate is the secret to the difference between economic boom times and economic collapse, then either our economy is incredibly sensitive to minor shifts in revenue or vast amounts of wealth are stored in the earned income of the top earners in the United States.  (Pro Tip – it is not.)

As a friend said – macro-economic and micro-economic factors are complicated, interlinked, and often require a deep understanding of a wide array of fields to fully tease out.

So when you see a factoid like this consider, it is probably more about stirring up your blood than about actually explaining real solutions to economic challenges.

Sources:  Tax Foundation information, Wikipedia entries on the economic history of the United States, the Bretton Woods system, post-World War II economic expansion, the Revenue Act of 1964, Richard Nixon’s presidency, Federal Bureau of Labor Statistics article on labor trends

High Income Tax Rates and Economic Good Times (Part I)

January 19th, 2015

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So if you are going to do a “lesson in economic history” the first rule really should be to get the history behind the lesson right, and in this case it is really overly simplistic if not downright deceptive in its presentation.  Lets begin with a brisk measure of facts:

President Warren Harding did not drop the top tax rate in 1922 to 25%, thanks to data from the Tax Foundation in actual fact the tax rate dropped from 73% to 58% on the super rich, a 15% drop, between 1921 and 1922.  By 1924 it dropped to 46% and only by 1925 had it dropped to 25% as the maximum tax rate.  1925, in case you were wondering, is about the middle of the “gambling real estate and stock market bubble” the above factoid cites as the major cause of the 1929 market crash and subsequent major sustained economic downturn known as the Great Depression.

But stating that lowering income tax rates led directly to the speculation boom of the 1920s is extremely overly simplistic, many factors led to the bubble including:  unregulated margin limits which allowed the middle class and the working class as well as the wealthy to speculate on the market.  A vastly overstretched credit market allowed the middle class and the working class access to property and consumer goods at rates of payment that were dangerously optimistic.  Business in the United States entered a cycle of hyper-production, to both feed the growing credit-driven consumer market and also out of a general feeling of post-war euphoria and high economic confidence.  Also lest we forget the, bluntly put, crappy banking laws that allowed financial institutions to put depositor money into the stock market and risky speculation with an open hand.

But all this overlooks the fact that the United States was also feeding off a massive loan/repayment cycle thanks to German reparations, where surplus United States savings were borrowed by Germany, used to buy gold on the world market, that gold was then paid to France and Great Britain as reparations, who in turn paid the gold back to the United States to pay down their respective war loans.  (All of which ended up temporarily transferring wealth from Western Europe to the United States due to the interest charged on both the war loans and the reparation payment loans.)

The market collapse brought all of this house of cards coming down, not just the rich having a low tax rate on their income.

FDR_Inauguration_1933

Roosevelt did not raise the tax rate on the ultra-rich to 90% upon taking office, he raised it to 63% with Congress in 1932, where it stayed until 1936 when it was raised again to 79%.  It remained at that gut busting level until till 1941 when it slightly increased again to 81%.  It wasn’t until 1942 and the beginning of United States involvement in the war in 1942 that the income tax rate skyrocketed, but not just by tweaking the rate, which rose to 88%.  Up to 1941 the highest income tax bracket kicked in for the ultra-rich who made more than $5 million in 1941 dollars per year, in 1942 the top tax rate of 88% percent hit those who made $200,000 or more in 1942 dollars.  (Which were not that different, buying power wise, than 1941 dollars.)

Peak Roosevelt tax rate hit 94% in 1944 and 1945 and then began to ease back slowly from that high to an actual 91% for the post-war period.  It remained at that high level until 1964, but we’ll get back to that in the next entry.

The claim is that this high tax rate of “91%” made the economy boom – which stretches the definition of “boom” considerably.  1932 to 1939 was a period of depressed economic productivity in the United States, according to these statistics, which mirror others I’ve read, United States Gross Domestic Product (GDP) remained below 1929 levels until 1940.  It did rise through massive federal spending from 1933 to 1937 but if you look closely you’ll notice a dip in GDP from 1937 to 1938.  That was the year Roosevelt attempted to move from “special economic policies” – i.e. the federal government spending money like crazy to boost economic activity to lower levels of federal intervention, and the economy went into the toilet again.  You can see that pattern repeated again in spending, 1936 to 1937, federal spending goes down, 1937 to 1938, GDP in response goes down.  But unemployment is the best marker, average in 1936, 16.9% unemployed, average in 1937 14.3%, average in 1938 rises to 19.0%.

This enraged Roosevelt who had to back peddle quickly and restore government intervention.

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Claiming the explosive economic growth for the United States in the 1940s was due to higher income tax rates is also highly inaccurate, the federal government went on a massive spending spree building the material to wage war and also regulated the domestic United States economy to the point it was no longer remotely a free market system.  It was also one of the only times United States debt levels reached a point higher than its yearly GDP.  You spend that much money on top of even limited domestic consumption, combined with federal purchasing policies that paid obscene amounts for war supplies, and the economy couldn’t help but boom.

Dwight_D._Eisenhower,_official_photo_portrait,_May_29,_1959

As this entry is running long we’ll close with a brief overview of why high income tax rates did not solely power the economic boom of the 1950s.  As Truman left office by 1952 and Dwight Eisenhower took over, the United States enjoyed a period of greatly increased economic strength and productivity.  This was fueled by several factors however:  the maturation of federal World War II bonds, the providing of education to veterans through the GI Bill, the demands of military buildup for the Cold War and the Korean War, and an explosion of pent-up post-war demand in the domestic economy.

Did those high tax rates help?  They certainly did, as also did strong labor unions, but a few other factors helped as well.  Thanks to the twin impact of World War II and the post-war efforts by European colonial powers to maintain control over their former territories, there wasn’t much other place for economic investment to flow in this period besides either Western Europe or the United States.

Think about it for a moment…China in 1948 feel to Communist rule and turned inwards.  The Soviet Union was closed to capitalist investment, as was its Eastern European satellites.  Through the early 1950s Western Europe and Japan were rebuilding from rubble, and most turned to the United States for key manufactured goods and infrastructure support.  Even as Western Europe came back into the world economic system its own strong labor unions and tight taxation laws made it a competitor on par with the United States of the 1950s.  Only Japan didn’t follow suit as neatly and it took longer to come back into world economic prominence and compete with the United States, a factor that didn’t start to show up till the early 1970s.

On Wednesday, we look at the 1950s onwards and learn how Reagan didn’t make the United States into a economic dumpster through lowering income tax rates

Sources:  Tax Foundation pages on historic income tax rates, schmoop site on the Great Depression, Wikipedia entry on United States economic history

Terrorism by any other name…

January 14th, 2015

Gaspee_Affair

The period leading up to the American Revolution was one of extreme emotion and extreme violence, from 1765 through the actual revolutionary period groups of colonists banded together to take direct action against British authorities in protest of what they felt were unjust taxes and brutal British legislation.  The name of this group is one that is steeped in American history, the Sons of Liberty, but the question to be asked is what remakes a series of violent crimes against government into acts of patriotism versus their being remade into terrorism?  The cynical answer is “who wins the fight writes the history books” but I believe a more nuanced consideration has to be made, especially in our own modern times where acts of political violence by some groups are discredited as terrorism while older acts that stem from a similar root are treated as glorious moments of patriotic success.  Such discussions have to begin with terms though, so allow me a moment to outline, in bullet list form, the charges against the Sons of Liberty:

  • Attacks upon British government ships engaging in anti-smuggling patrols, including the capture and burning of some ships
  • Public demonstrations against government authority designed to cause violent confrontation with British military personnel
  • Arson against private homes and public offices of British government officials
  • Threats and intimidation against British government officials including threats of injury and/or death, targeting the official and/or their family

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Although there is no evidence of any actual tarring-and-feathering of British officials that is definitive, the threat of such treatment was real and Sons of Liberty led mobs burned down the offices of at least one Stamp Act official, Andrew Oliver, and burned him in effigy when he refused to resign.  The campaign of personally aimed terror was strong enough that there were no British officials willing to enforce the Stamp Act when it finally came into effect, the Sons of Liberty had blocked the actions of the British government through intimidation and coercion.  Even after the end of the American Revolution the Sons of Liberty remained a political force, in 1784 members of this group, supported by the mass of the population, took over the government of the State of New York and passed laws targeting former Loyalists for expulsion and punishment.

The reason this comes up for a topic today is the current treatment of the Sons of Liberty by the History Channel, an entry on the show covers the problem neatly, from the following text:

“Don’t let the powdered wigs and oil paintings fool you: Samuel Adams, John Hancock and the other eventual Americans who changed the course of history were a ragtag band of secretive and sometimes mischievous young radicals.”

The question to consider is this – is there a future in which actions by other groups today, feeling alienated by their government and unable to get proper voice, who use violence and retaliation to win victories, and are hidden in a broader population might in two hundred become young radicals loved for their patriot success?

Sources:  (unfortunately no links due to technological issues) – Wikipedia on Sons of Liberty, the Gaspee Affair, PBS entry on the Sons of Liberty, Fox News entry on the new show “Sons of Liberty” on the History Channel

1920s Federal Government and Taxation…a quiet revolution

January 6th, 2015

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The period from 1920 through 1929 represents an unusual shift in the operations and nature of the federal government, one that can be best considered a “quiet revolution” in federal government in which both the principles behind taxation, and the principles behind expenditure, were quietly changed to reshape the government into a leaner structure which can still be seen in the foundations of the modern federal government currently operating within the United States.  The core of this change took place under President Warren G. Harding in 1921 with the passage of the Budget and Accounting Act – a new legislation that required that President to submit an annual budget to Congress for approval which would encapsulate all the revenues and expenditures of the federal government.  It also created the Office of Budget Management (OMB, it’s modern name) and the Government Accountability Office (GAO) – all institutions designed to make the federal government operate more like a modern corporation in its handling of income and expenditures.  The immediate result was increased government efficiency in cost-management and the opportunity for the government to reduce some of its expenditures overall.  By 1922 the federal government had reduced its overall spending by nearly half, from roughly six billion to only three billion in total costs.

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Harding also appointed Andrew W. Mellon to the office of Secretary of the Treasury, where he served from 1921 to 1931 under Presidents Harding, Coolidge, and Hoover.  Mellon was responsible for drastic modifications to the United States federal tax code, implementing vast reductions in tax rates on the theory that reduced income tax rates would capture more wealth overall for the federal government by encouraging wealthier individuals to bring their fortunes out of hiding from tax rates and into the productive economy.  During the 1920s his policies worked well overall, calling his efforts “scientific taxation” he oversaw Congress gradually reducing top-tier tax rates from 73% in 1921 to 24% by 1929.  During that same period federal tax receipts went up as well, however Mellon had some unusual ideas that shaped his policy of “scientific taxation” that make it stand out from more modern efforts to reduce tax rates.

  • Mellon believed that lower income tax brackets should be reduced as well, the lowest income tax rate was cut from 4% to 0.5% during the same period
  • Mellon oversaw estate tax rates being cut while also quietly ending policies that encouraged investments into tax shelters to hide wealth from taxation
  • Mellon pushed for the tax rate on “unearned income” – income from investments – to be taxed at a higher rate than that earned by direct labor – arguing that the inherent instability in income earned from wages and salaries needed to be sheltered from the hazards of life

The biggest part of Mellon’s revolutionary idea though was the goal of fine-tuning the income tax rate on the highest earners in society to a point where the government would gain maximum efficiency in returns by getting the most wealth into circulation against revenue generated for federal needs and then locking the tax rate down at that level.  He resisted calls during 1929 to further cut the income tax rate or other tax rates, arguing that peek efficiency had been gained and the wealthy needed no further incentives to get their money into circulation.  Mellon believed in squeezing those who could pay – his major goal was to find just the right squeeze to get the maximum revenue possible for the federal government that it needed, no more, no less.

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This aspect of the “quiet revolution” came to an end in the whirlwind of the 1930s and the global economic downturn now known as the Great Depression.  The population of the United States swept the Republican party from power in 1930 and 1932, putting the Democratic party into power and ending the era of a tight federal government and diminished federal spending.  The citizens demanded a more active role from the federal government in combating the problems of the Great Depression and this lead to the end of Mellon’s influence and an end to the idea of the federal government operating as a “business” rather than as a government.  But legacies from this carry on – in the modern United States tax policy is still guided by the goal of setting tax rates that will encourage money to stay in the system rather than hide and the federal budget is an annual event which Congress wrangles over even in the 21st century.

A final note to those who might argue that Mellon’s model, and the tight federal spending efforts by Harding, Coolidge, and Hoover are a more “proper” path for the federal government need to know a key detail, although the spending and role of the federal government declined in the 1920s the role of state governments expanded, including spending to pick up more social programs.  So the overall level of expenditure during this period on social infrastructure is a more complex topic than presented here.

Sources:  Wikipedia entries on Warren G. Harding, the Budget and Accountability Act of 1921, Calvin Coolidge, and Andrew W. Mellon

 

Battle of the Bulge and the Battle of France – two cases of the same mistake

December 17th, 2014

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If you study military history in the 20th century at all, one of the thorny issues you will inevitably bump into is the conduct of France in 1940 and its loss to an invasion by Germany.  In particular the highly successful thrust into central France of Germany’s Army Group A through the Ardennes forest.  The usual presentation in many western histories of the conflict holds a viewpoint that the French military commander was foolish (at worst) and antiquated (more common) in its belief that the rough terrain of the Ardennes forest would prove too much of an obstacle to German tank units, thereby allowing the central region to be held by a thinner French military force.

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As evidenced by the above humorous description from College Humor that captures that very outlook on the battle.  So I find it somewhat amusing that this week is commemorating the 70th anniversary of the Battle of the Bulge, as mentioned on the History Channel website, a tactical and strategic battle that the United States normally writes up as an epic conflict that is a credit to the United States Army and Air Force – where a major force of German army and armor units were driven back after launching a surprise winter assault upon the American lines.

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What is often not mentioned in describing the Battle of the Bulge is that the territory being fought over was the same location where in 1940 the German army had surprised the French, and furthermore, that American military forces in the region were weak and unprepared for the attack for many of the same reasons that the French were unprepared for the attack.  Furthermore it can be argued that the Allied high command, and American military commanders in particular, allowed their perceptions of how they thought the war was proceeding to overly color their strategic assessment of the situation.  In fact the initial reaction of the American military in response to the attack reflected a similar level of shock and initial inflexibility comparable to that which paralyzed the French military in 1940.  Yet these failings are usually glossed over lightly in histories of the war and the emphasis shifted to the counter-attack and eventual American success in the field.

Dwight_Eisenhower

Why the emphasis shifts is an interesting question – personally I would consider it heavily influenced by the strong feelings of “hero worship” attached to many key American commanders by historians, especially American historians, when writing about World War II.  The core names in the battle, Eisenhower in overall command, Patton as the “saving angel of a general” who swept into the fight, Bradley as a key area commander, and the storied 101st Airborne Infantry fighting in Bastogne and holding out against German encirclement put a high gloss of success on the battle.  The reality though was that the American forces in the region were caught unprepared and were badly mauled, although the attack was a high-risk gamble by the German military it wasn’t because of the American military units opposing them, it was instead a combination of the weather, a tight timetable, and fuel shortages plaguing the German military.  Had Hitler gone with a less ambitious plan, like one of several advocated by his generals, the Battle of the Bulge would have probably been a successful backhanded slap to the Allies that would have helped stall the overall Allied advance temporarily.

What is particularly surprising is the broad dismissal historians make of what can only be described as a colossal error by Eisenhower in putting the weakest American military units on the line in the same spot, with the same overall defensive importance, as the French did in 1940 and trusting in the same terrain to prove too impassable to tank assault.  The only real mitigating factor is the season, winter versus fall, but one might ask why didn’t Eisenhower put a few stiffer units in the line, or at least some limited armor, having had only four years earlier seen the fact that German armor could smash through that region with great success as a surprise?

Sources:  Wikipedia articles on the Battle of France and the Battle of the Bulge

 

The Kapp Putsch of 1920

December 15th, 2014

Kapp-Putsch, Berlin

That isn’t an image of really bargain basement Nazi’s – that is an image from March 1920 during the Kapp Putsch, an attempt by members of the German military to overthrow the newly created Weimar Republic and replace it with a totalitarian regime with a restored German monarchy.  This particular attempt at a coup is a powerful moment in German history and an excellent reflection of the confused chaos that can occur in a post-war political environment when old foundations of society are overturned and the new ones still very fresh.  With the conclusion of World War I for Germany the period between 1918 – 1920 was an awkward one, the fighting was over but the peace treaty had not been created or signed, the German military was shrinking but still powerful, and units of paramilitary forces called Freikorps were roaming around working with the new Weimar government suppressing social unrest, with an emphasis on stomping out leftist uprisings and labor agitation.  The Kapp Putsch’s roots like in the Versailles Peace treaty of 1919 and its requirement that Germany reduce its military rapidly to a token force, this requirement involved a demand that all Freikorps units be disbanded as well.  In attempting to implement this order the Weimar government angered two of the most powerful Freikorps (and overall military units in Germany), the Marinebrigade Lowenfield and Marinebrigade Ehrhardt.  Rather then disband the units, and with a failure to negotiate an acceptable compromise with the Weimar government, the leaders of these two units, in collaboration with other German military figures, marched on Berlin.

Berlin, Kapp-Putsch, Putschisten

On 13 March 1920 the conspirators successfully occupied Berlin and forced the Weimar government of Germany to flee Berlin entirely, the government had to flee to two different cities and, when reassembled, called upon the German military to fire on the rebelling units and restore order.  The German military leadership refused to undertake such an activity, with almost the entire German officer corps either openly supporting the military coup and its new government or favoring it while remaining officially neutral to see how things panned out.  The Weimar government placed its hopes instead in a different strategy, calling on 13 March 1920 upon the citizens of Germany to take part in a general strike and shut down the rival government by simply refusing to interact with it.

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It worked, to put it simply, the overwhelming mass of German citizens simply stopped working and refused to do any activities that supported the new government.  Services in Berlin collapsed entirely with the city suddenly having no gas, electricity, or water, the military government was forced to give orders to its units within the city by courier only.  Despite threats by the new government of mass shootings, along with offers to try to win the German working class back into the fold, had no impact and the military government collapsed entirely by 18 March 1920, with the rebelling units leaving Berlin and its major leaders either surrendering to the Weimar government or fleeing the country.

Yet the Kapp Putsch had unfortunate legacies which had yet to be fully corrected however it stands as one of the more impressive examples of what can be achieved by mass citizen resistance and effective major strikes on impacting government policy and even survival.

Sources:  Wikipedia article on the Kapp Putsch, Encyclopedia Britannica entry on the Kapp Putsch, Spartacus Educational entry on the Kapp Putsch, entry in the Rutledge Companion to Nazi Germany

Nazi Secret Map and the United States in 1941

December 8th, 2014

 

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What you see above is a broad map that depicted Germany’s long term ambitions in South America – discovered in 1941 as part of a British espionage effort to capture files from the German ambassador in Brazil the map was shared with the United States in October 1941.  Roosevelt reacted with anger and announced the secret map in a speech to the American people in which he denounced the ambitions of Nazi Germany in the “American Hemisphere” – of particular concern to the United States Congress, the President, and the American public was how the handwritten notes on the map discussed air fuel supplies and locations for airbases potentially within range of the United States mainland.

The reaction by the United States Congress and the American people was powerful – both houses of Congress within a week repealed the Neutrality Act and shifted from an isolationist view to one more open to intervention in Europe.  Although the Japanese attack on Pearl Harbor would settle the issue of involvement by the United States in December 1941, this map paved the way towards American intervention in Europe.

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What is of particular interest is the map was a fake, created by the British government to push the United States towards entry into the European war.  It was created under Churchill’s direction by Station M, a forgery producing espionage unit located in Toronto, Canada.  Although the question that historians have yet to answer is was the map entirely fiction or was it based off a real Nazi map used to outline German ambitions and attract the diplomatic interest of South American nations.

Either way the map itself was a highly skilled bit of espionage that helped push the United States down a path towards full intervention in World War II.  In particular the work of this map helped the British cause even after the attack on Pearl Harbor, the American public were in December 1941 of a mixed outlook on joining the war in Europe, but generally leaned towards the need to intervene in Europe.  This map, and the argument it established that Nazi Germany was already working to intervene in the “American” sphere of influence, probably helped ensure that the wrath of the United States and its people would be shared in both major theaters of the war.

Sources:  Wikipedia article on the New Order (Nazism) and its interests in South America, article in the Daily Mail on the secret map, entry in Napoleon’s Hemorrhoids and Other Small Events that Changed History by Phil Mason, pp. 91

Civil War Intrigues – the Northwest Conspiracy

December 3rd, 2014

Copperhead_Cartoon

The Civil War was a major defining conflict for the United States, one of the simplest ways to describe the change in the United States was how the average citizen referred to the nation, prior to the war it was often called “these United States” and after the war it changed to “the United States.”  But forging that new sense of unity involved a considerable amount of blood and stretching the powers granted the federal government under the Constitution to hold the various parts of the nation.  In particular President Lincoln throughout the war made a point of exercising “expansive” federal powers in the Midwestern states due to a strong pro-South, pro-Democratic party leaning in the region.  Lincoln, although not directly approving extreme actions, often allowed by inaction military commanders to take extreme steps to keep the region loyal, including using intimidation tactics, targeted arrests, suppressing the press, and expelling dangerous political figures to ensure that the American Midwest remained solid in its allegiance.  This in turn sparked its own problems, mainly the growth of groups that advocated separation from the United States and the formation of a new third nation from the states of Ohio, Indiana, Illinois, and Missouri.

Clement_Vallandigham_-_Brady-Handy

The center point of this plan was a combination of a local organization that called itself the Sons of Liberty (hailing back to the American Revolution) and lead by Clement Vallandigham (pictured above) working with Confederate raiders to enact a complicated plan in 1864 to split these four states from the rest of the union and create a new nation, the planned working name for this new entity would be the Northwest Confederation.  (The name hails from the regions original designation in the early post-Revolution period as the Northwest Territory.)  The plan was ambitious in its goals – Confederate cavalry raiders would head into the state of Illinois to link up with Sons of Liberty militia units – the combined force would liberate a series of Confederate prisoner of war camps and arm the freed soldiers with weapons taken from state arsenals.  This newly combined force, it was  hoped, would total over 100,000 soldiers in arms and provide enough force to spark other pro-South leaning individuals to join the effort and create a new nation.  This was all to start at the Democratic Party National Convention in Chicago.

The plan collapsed though, a combination of secret police/spies loyal to the federal government discovered the plot and arrested a few key leaders, but mainly internal bickering and the fact that most Sons of Liberty when faced with the call to actually rise up in arms against the federal government and the other Union states backed out of the plan.  It did have one lingering impact though, from 1864 till the Spanish American War the Republican Party was able to bring up this event to brand the Democratic Party as the party of “traitors and backstabbers.”  It was one more effective election tactic that helped ensure the Republicans maintained a dominant political position in the United States for nearly twenty years.

Sources:  Encyclopedia.com entry on the Northwest Conspiracy, Wikipedia entry on Clement Vallandigham, The Northwest Conspiracy by Thomas Fleming in What Ifs? of American History edited by Robert Cowley.

American Protective League

November 24th, 2014

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In 1917 the United States was faced with a challenge, on 2 April 1917 Woodrow Wilson had asked the United States Congress for a declaration of war, by 6 April 1917 he had it in hand, and the United States faced a war with Germany.  At the time the United States had a massive population of first and second generation German-Americans and concerns were raised that these individuals might form a solid source of sabotage and espionage against the United States.  Furthermore the U.S. government did not have the federal manpower to investigate the sheer number of individuals suspected, so a new organization was needed to fill this perceived gap in federal enforcement.  Fortunately an organization had already been created to handle just such a situation, the American Protective League, organized by an Chicago advertising executive named Albert M. Briggs and informally approved by Wilson on 30 March 1917 in a cabinet meeting to serve as a semi-official extension of the Justice Department.  The theory was that citizen volunteers could provide the needed manpower to allow the government to rapidly expand its ability to examine its citizen base for disloyalty and cut the risk of sabotage and espionage.

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Claiming a peak membership strength of 250,000 members the American Protective League deployed its volunteers to serve as spies on the entire population of the United States, claiming that over 52 million Americans lived in a city which had an active American Protective League presence.  After quickly exhausting any risk of sabotage or espionage the American Protective League instead focused on rooting out domestic “disloyalty” and reported on individuals who shirked on voluntary activities to support the war, who broke food ration regulations, who engaged in “slackerism” or “defeatism” in vital war industries, and those who expressed “defeatism” or who supported “political views” that were in opposition to the goals of the United States in a time of war.  To put it more simply – anyone who didn’t have wholehearted support for the United States in World War I was subject to being reported to the Justice Department and pursued by federal agents.  Combine that with the broad sweeping powers granted to the government under the respective Espionage and Sedition Acts of 1917 and you had a perfect combination for civilian participation and legal crushing of individual political and social rights throughout the United States.  But of course it got so much worse…

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In 1917 and 1918 local police agencies used American Protective League members as auxiliaries or deputies, as the local laws permitted, to engage in more “direct action” activities to deal with “disloyalty.”  In Chicago the police used League members to beat members of the International Workers of the World (IWW members of “Wobblies”) who attempted to protest or hold meetings.  In Arizona members of the League, along with vigilantes, locked 1,200 IWW members and their “collaborators” (families) into box cars, rolled them over the border into New Mexico’s desert, and abandoned them with no food or water and a warning to not return on pain of death.  Local Arizona authorities supported, and applauded, the action.  In Illinois the army used support from the American Protective League to extract confessions from twenty-one African-American soldiers who were accused of “assaulting white women.”  No records exist on the methods used to extract these confessions.

As well throughout the United States members of the American Protective League made a point of hiding their members in key factories and production centers to sniff out any sense of disloyalty in the workforce.  They even got into such mundane activities as “helping screen jury members” prior to a trial, as testimony before Congress showed.

The American Protective League was disbanded after the war when the government no longer felt it necessary and the leadership of the Justice Department changed, however the government did maintain the extensive files the League’s members helped it collect.

Sources:  Wikipedia entry on the American Protective League, testimony before the House that discussed American Protective League Activities, entry at Sewanee University on the American Protective League, Salon article on the American Protective League, The Great Influenza by John M. Barry.

Net Neutrality and the Interstate Commerce Commission – a lesson from history [OPINION]

November 14th, 2014

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Usually I try to avoid using the Fist to talk about current political issues by bringing history to bear, but in this case I decided it was appropriate to do so, as long as I flagged it as an opinion piece.  The current debate on net neutrality seems to rest, in part, on a debate about whether or not internet service providers should be forced to treat all content identically when delivering, i.e. if internet providers should be bound by the idea of the “common carrier.”  This in turn is challenged by others who argue that the government should not be allowed to get into the business of regulating the internet, should not treat internet providers as “common carriers”, and also it is perfectly reasonable for internet providers to charge different amounts based on the need, or ability to buy preferential treatment, of certain internet businesses over other internet businesses.  The last is the topic that I find personally most concerning, as the United States has dealt with this issue in the past, in the form of the Standard Oil Company, John D. Rockefeller (pictured above), and eventually the Interstate Commerce Commission.

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John D. Rockefeller eventually formed the Standard Oil Company (unflattering depicted above) but he began building an oil producing combination through a combination of buying up local oil producers and negotiating special rates for his product to be shipped on the railroads.  Furthermore he negotiated that in the event his rivals product was shipped, the railroads would pay him a bonus equal to the difference between his special rate and his competitors shipping rate.  This plan was codified in the South Improvement Company.  (It also agreed to share all his competitors rates, shipping schedules, and costs with Rockefeller.)  In turn the oil traffic was divided up among the various member railroads to provide a fixed rate of shipment and a guaranteed market share to each member, cutting the “chaos of cost cutting competition.”

Now the South Improvement Company never took off, Rockefeller’s rivals called foul and public pressure, along with near violence in some areas, led to the collapse of the scheme.  Rockefeller though simply continued with his previous method of operation, including negotiating secret deals and rate rebates so that his oil shipped at lower prices than his competitors, despite it being the same oil.  This in turn was the foundation upon which the Standard Oil monopoly was based, and although it was later broken up through the Sherman Anti-Trust Act this naked favoritism in the use of a commonly valued commodity moving network led to the Progressive’s pressuring the United States government to reform railroad.

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This led to the passage of the Interstate Commerce Act in 1887 and, with it, the creation of the Interstate Commerce Commission.  Now the commission was not all success and wonder, it ended up becoming to some a major regulatory burden on the free market and a point of protection for the industries it was trying to regulate, but what it did do was eventually force a system of uniform rates on the railroads and made them into a true “common carrier” of cargo.  This was done solely to prevent a future deal in which “sweetheart” deals could be struck by some companies to gain favor in using a common freight delivery system over their competitors, competition considered unfair.  Considering the role the internet plays in commerce today, and its commonalty with the railroads of the past, it seems to my eye history provides a solid lesson in what happens if regulation to enforce uniform rates and fair access is not enforced.

Hint – it ends up with a lot of independent producers being gobbled up by one sneakier/more success competitor that uses rate manipulation to gain an edge.

Sources:  Wikipedia entries on South Improvement Company, Interstate Commerce Commission, Interstate Commerce Act, John D. Rockefeller, two different articles in the Marquette Law Review on the Interstate Commerce Act, a Wired article that discusses the connection between the act and the internet, and a contrary blog post on the subject