A Summary of: The Real Lincoln: A New Look at Abraham Lincoln, His Agenda and an Unnecessary War
by Thomas J. DiLorenzo
Compiled and Edited by
Dr. Jimmy T. (Gunny) LaBaume
Chapter 4: Lincoln’s Real Agenda
In Lincolns words (1832): “I am in favor a national bank…in favor of the internal improvements system and a high protective tariff.” This statement summarizes his entire 28 year political career before being elected president. It is also a concise definition of the Whig Party’s political agenda—protectionism, government control of the money through a nationalized banking system and government subsidies for businesses. As historian Michael F. Holt wrote, “Few people in the (Whig) party were so committed to its economic agenda as Lincoln.”
When the Whig Party imploded in the 1850s, Lincoln joined the Republican Party and assured his constituents that there was no difference between the two.
The Lincoln-Douglas debates were a replay of the old argument between the Federalists (and Whigs) “one consolidated empire” and Jefferson and Jackson’s “confederacy of sovereign states.”
Economists have a word for the American System—mercantilism. More precisely, it is a system of protectionism which provides the means for government dispensation of favors to special interest groups which, in turn, provide support for the politicians handing out the favors. It benefits both the special interest groups as well as the politicians. Everyone else is harmed. For mercantilism to survive, the public must be intentionally miseducated in economics. And that is the role of intellectuals and publicists—confusing the public about the true intentions of the two groups.
The same goes for tax-funded subsidies. They generally benefit those lucky enough to get them at the expense of the taxpayers. Today, “internal improvement subsidies” is denigrated as “corporate welfare.”
Nationalized banking was always part of the mercantilist agenda. With it, the government can simply print paper money to finance special-interest subsidies. In this way, the true costs can be more easily hidden. Those “true costs” eventually show up as inflation which the politicians can blame on “greedy corporations.”
Obviously, mercantilism inherently has great potential for political corruption. In fact, it is this very potential for buying votes that attracts politicians to the system.
All of these policies generate centralization of governmental power. But, the debate ended in the 1860s. The centralizers won, literally by force of arms.
The American System provided the framework for a giant political patronage system. Contrary to what the public was generally led to believe, it was not “capitalism.” To the contrary, it was mercantilism which was the very system Adam Smith railed against in The Wealth of Nations. It was (and is) special-interest, pork barrel politics of the worst kind.
Capitalism is a system of voluntary exchange. It does not involve monopolistic privilege created by protectionism. Capital markets finance projects that serve consumers—investments do not depend on political connections.
The denationalization of money is essential to the development of a capitalist economy. Socializing the money supply is a dire mistake. By now it should be obvious that the more politicized an economy becomes, the less opportunity there is for its citizens. Of course, the same can be said for all forms of statism—everything from mercantilism through full blown socialism.
Henry Clay and the Whigs
An overview of Henry Clay’s political beliefs will be instructive in understanding what Lincoln was so devoted to. When Clay entered politics in 1811 he launched a 30 year political battle with the defenders of the Jeffersonian philosophy of constitutionally limited government.
Being Alexander Hamilton’s political heir, Clay was a champion of centralized government driven by political patronage for the benefit of the “monied aristocracy.”
He spent a large part of his career lobbying for corporate subsidies and was a fierce advocate for protectionism. Since high tariffs protected northern manufacturers from foreign competition, Clay was their man in Congress.
By the 1840s most of the country’s exports were from the South. The Southern economy was almost totally agrarian. Therefore, tariffs on manufactured goods meant that Southerners had to pay more for those goods—i.e. they had to bear most of the burden while most of the expenditures of tariff revenue took place in the north. They rightfully saw the tariff as an unconstitutional tool of plunder.
Clay was a primary proponent and sponsor of the 1828 “Tariff of Abominations” which almost resulted in secession. (A South Carolina convention voted to nullify the tariff by refusing to collect it at Charleston harbor.)
Clay favored nationalized banking and fought a pitched battle with Andrew Jackson over the Bank of the united States. Jackson eventually won the battle but in the meantime, Clay used his position as Speaker of the House to place his cronies on the bank’s board of directors. This was exactly the kind of corruption that the opposition to nationalized banking predicted.
Jackson referred to the bank as “a vast electioneering engine” with the “power to control the Government and change its character.” His Treasury Secretary, Roger Taney, pointed out the bank had a “corrupting influence.” The behavior of Henry Clay is evidence that these concerns were well founded. Clay left Congress for two years in 1822 for a position as general counsel of the Bank of the united States. In those two years, he was paid what would amount to almost a million dollars today.
Daniel Webster (another Whig) collected “compensation” from the bank without even bothering to resign from Congress. He simply demanded a “retainer” for being a bank spokesman in Congress. This was the kind of shakedown that Taney and Jackson correctly spoke of as a “corrupting influence.”
By 1840 the Whigs thought they would break the constitutional logjam with the election of William Henry Harrison. But, unfortunately for them, Harrison died shortly after taking office and John Tyler (his Vice President) turned out to be a Jeffersonian and strong advocate for states’ rights and limited government. Tyler vetoed Clay’s bank bill and was also opposed to protectionist tariffs and internal improvement subsidies.
Protectionism, a government controlled money supply and corporate subsidies where the corner stones for the American System. A fourth would be the quest for empire—a goal that the Founders never intended. Clay’s attitude toward the American Indian was essentially the same as the Republican’s from 1865-1890 when all of the Plains Indians were to either be killed or placed on reservations.
Lincoln the Whig
Lincoln was devoted to the American System from the time he entered politics. Next to Clay, he was the fiercest advocated of a nationalized banking system of all the Whigs.
If the Whigs could not have paper money printed by the federal government, they would settle for state government controlling the currency. When Jackson refused to re-charter the Bank of the united States, Lincoln and the Whigs in Illinois turned to advocating the issue of paper currency by state government to help pay for their internal improvement projects.
Lincoln , like Clay, was a devoted protectionist for his whole political career. He took up where Clay left off as chief advocate for tariffs to protect northern manufacturers from foreign competition. He not only ignored the case for free trade made by Adam Smith 1776, he also ignored the economic logic of the commerce clause of the uS Constitution which made it illegal for one state to tax goods imported from another. If free trade between states is a good idea, how could international trade not be?
Trade restrictions reduce the wealth of nations. Although they due provide temporary benefits to the industries they protect from competition, that comes at the expense of consumers and workers whose choices are limited and who have to pay higher prices for goods. A Naval blockade his ports is a means of harming an enemy during wartime. Tariffs and other types of protectionism achieve essentially the same result except the harm is suffered domestically.
In order to gain their support for protectionism, the public must be convinced that the interest of some small special-interest group is really their interest too. Clever protectionist propagandists make the case for special-interest policies by producing a blizzard of plausible sounding (but incorrect) economic theories intended to conceal their real intensions from the public. It is relatively easy to pull the wool over the public’s eyes by taking advantage of its ignorance of economics.
Lincoln frequently commented on the tariff issue. In a 1847 speech he made a counterintuitive argument that free trade would actually cause higher prices since the costs of transporting goods constituted “useless labor.” According to this logic, importing products from Illinois to Ohio should be prohibited.
He also espoused a crude version of Marx’s labor theory of value—the idea that all value is created by the labor used to produce the product. According to this theory, value can be created by digging a hole in the middle of the desert. According to Lincoln , free trade was a system whereby “some have laboured, and others have, without labour, enjoyed a large portion of the fruits…” Obviously this ignores the importance of consumer preferences, entrepreneurship, investment, risk taking, etc. in the determination of economic value.
Corporate welfare (or in the language of the time, government subsidies for “internal improvements”) was Lincoln ‘s motivation for entering politics in the first place. In 1837 the Whigs, under Lincoln ‘s leadership, appropriated $12 million for myriad “internal improvements.” The program was a disaster. Not even this miserable experience changed his support for such policy.
George Nicolay and John Hay described the debacle as resting “upon a people who had been deceiving themselves with the fallacy that it would somehow pay itself by acts of the legislature”…but after the $12 million had been spent, nothing was left of the “brilliant schemes” but “a load of debt that crippled for many years the energies of the people.” And Lincoln held a big part of the responsibility for convincing the public of that “fallacy.”
So, the “internal improvement” system collapsed and Illinois was left with a huge debt and an empty treasury. The Whig experiment at the state level had been an unmitigated disaster. Never-the-less, they (and Lincoln ) continued to advocate more of the same for decades.
Internal Improvements in Historical Perspective
It was not just chance that caused Lincoln to pick internal improvements as his key issue. It was central to the most important political debate of the time and Lincoln was an astute politician. To understand Lincoln ‘s agenda, one must understand this debate in historical perspective.
From the beginning there had been a sharp political divide between advocates for centralization and those who advocated decentralized government—i.e. the Federalists v. the anti-Federalists or the Hamiltonians v. the Jeffersonians.
Alexander Hamilton was the foremost proponent of centralization. He proposed a constitution that concentrated all power in the central government with little or no role reserved for the states. He did not believe in federalism’s divided sovereignty.
By the 1820s an economic policy agenda was being promoted by the political heirs of the Federalists. This consisted of ”a group of northerners determined to use the federal government to bring about its economic goals” through national banks, internal improvements and tariffs.
Essentially, their agenda was the British-style of mercantilism that Jefferson and his disciples were so opposed to because they knew of its results—government-sanctioned favors at the expense of the public, economic monopoly and corruption. It was just such a system that had driven so many British to settle in America.
By the 1830s the Whig Party had adopted the Hamiltonian/mercantilist mantle and would battle mightily on its behalf until the demise of the party in 1856. But then, the agenda was adopted by the Republican party and in 1860, Lincoln became its standard bearer. His election and the northern victory in the war was the final victory of the Federalist/Hamiltonian centralizers.
Hamilton was the first to propose government subsidies for internal improvements. But it was Albert Gallatin ( Jefferson ‘s Treasury Secretary) that was the first to present a detailed plan but very little came of the “Gallatin Plan.” John Quincy Adams was the second most prominent champion of internal improvement subsidies but neither did he have any real success. Then, after Andrew Jackson defeated Adams in 1828, Henry Clay took up Hamilton’s vision and young Abe Lincoln jumped on the bandwagon.
Henry Clay had introduced a bill for road building subsidies which James Madison vetoed on his last day in office. In his veto message, the “father” of the Constitution made a powerful constitutional argument against internal improvements. He said simply that Congress had certain enumerated powers but “it does not appear that the power proposed to be exercised in the bill is among (them).” He warned that the general welfare clause was never intended to be a Pandora’s box for special-interest legislation.
Sixteen years later, Andrew Jackson would veto numerous internal improvement bills. This was not just a debate over funds for building roads, canals, etc. It was a debate over the fundamental meaning of the constitution and the form of the united States government.
Waste, Fraud, and Corruption
The proponents of government subsidies for internal improvements argued that private capital would not provide sufficient resources. But privately funded roads proliferated throughout the early 19th Century.
James J. Hill built a transcontinental railroad (the Great Northern) without a dime of government subsidy. And so did several others.
Local merchants and residents invested in private road and canal building because it helped their businesses and communities.
Virtually ever case where state and local governments subsidized internal improvements turned out to be a calamity. Projects in Ohio , Illinois , Indiana , and Michigan were all plagued by waste and corruption and shortly went bankrupt. In fact, subsidized internal improvements were such a universal disaster that, by 1875, Massachusetts was the only state that still permitted them. But none of these experiences fazed Lincoln.
Most of the opposition at the federal level came from the Southerners. In fact, the South was so opposed to it that the Confederate Constitution outlawed the practice.
The Essence of Liberty Volume I: Liberty and History chronicles the rise and fall of the noble experiment with constitutionally limited government. It features the ideas and opinions of some of the world’s foremost contemporary constitutional scholars. This is history that you were not taught at the mandatory government propaganda camps otherwise known as “public schools.” You will gain a clear understanding of how America’s decline and decay is really nothing new and how it began almost immediately with the constitution. Available in both paperback and Kindle versions.
You might be interested in the other two volumes of this three volume set: The Essence of Liberty Volume II: The Economics of Liberty and The Essence of Liberty Volume III: Liberty: A Universal Political Ethic.