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 9: The Great Centralizer: Lincoln’s Economic Legacy
Lincoln vetoed only two pieces of legislation during his presidency. Historians interpret that as being his delegating domestic policy to Congress while focusing on the war. However, this interpretation does not take into account the historical context.
The Whig-Republican-American System had been consistently blocked for decades by the opposing constitutional arguments. Not only the federal, but the state constitutions as well, stood in the way of Lincoln’s aspirations. He had seethed in frustration over this for two decades. So, it should not surprise anyone that he would discard constitutional liberties the way he did. Once the Southerners had left the uS congress and the Republican Party was firmly in control, Hamilton’s old mercantilist coalition was finally in charge. And they finally had their man in the White House. Clearly, Lincoln was not about to let the Constitution stand in the way of the centralization of governmental power and the implementation of mercantilism.
This perspective sheds a different light on Lincoln’s role in delegating so much domestic policy to Congress. Congress was dominated by his party and he did exactly what they expected of him—acquiesce in the legislation that all previous administrations had deemed unconstitutional.
Furthermore, Lincoln set the president for his predecessors by awarding himself special “war powers” (not mentioned anywhere in the Constitution) in order to adopt every mercantilist plank of the American System.
- Protectionist Tariffs
In his first inaugural address Lincoln stated that he had no intention of disturbing slavery and, even if he did, it would be un-constitutional. But when it came to protectionist tariffs, he was totally uncompromising. In that same address, he promised a military invasion of any state that failed to collect its share of tariff revenues. He essentially threatened his own citizens with death and annihilation unless they paid a tribute. In other words, slavery was just another political issue subject to compromise, but protectionist tariffs were nonnegotiable. No other American president would have threatened a bloody war over the issue of tax collection. The Republican Party had just doubled federal taxes and now Southerners, if they refused to pay, faced an invasion.
As soon as it was apparent that Lincoln had won the election of 1860, Congress began working on the Morrill tariff. It had passed both the House of Representatives and the Senate by the time Lincoln was inaugurated. So, Lincoln may have had little to do with the tariff in an official capacity, but as the leader of the Republican Party, he was surely involved in the political maneuvering.
The Morrill tariff was a radical departure from existing tariff policy. By 1862 the average tariff rate had crept up to 47.06%–more extreme than any in previous history. In fact, the Republican-controlled Congress went on a protectionist frenzy for the next several decades. Great sacrifices were made by the Southerners who were being taxed and conscripted. But northern manufacturers were not only exempted from sacrifices, they actually thrived.
Taken in historical context, Southerners, who had been protesting protectionist tariffs since 1824, ended up paying the lion’s share of all federal taxes. Southerners relied heavily on foreign trade while most federal spending was occurring in the North. The tariff raised the price of virtually everything they purchased. Even before the Morrill tariff of 1860 Southerners were paying about 87% of all federal taxes with less than half the population of the North. They were simply being plundered by the government’s tariff policy for the benefit of the politically well connected.
Protectionist tariffs were outlawed by the Confederate Constitution. Free trade in the South would have shifted shipping from New York, Boston, and Baltimore to Charleston, New Orleans, and Savannah. Therefore, European goods would have sold much more cheaply in American markets—which is exactly why northern manufacturers wanted to destroy free trade in Southern ports. The Republican Party could not tolerate this. It was either wage war to stop it or suffer political death.
Representative Clemet L. Vallandigham of Ohio was the leader of the opposition in the House of Representatives and an advocate of free trade. He was arrested without a warrant, imprisoned without being charged, and deported. He and other opponents of protectionist tariffs were branded as “traitors” which was bound to have intimidated others.
Long before Ft. Sumpter, newspapers in the north had been calling for the bombardment of Southern ports in order to destroy the South’s free-trade policy. On December 10, 1860, the Daily Chicago Times candidly admitted that the tariff was indeed a tool used by the north to plunder the South. DiLorenzo continues by quoting editorials from several Republican papers aimed at conditioning the public to the idea that the government was about to unconstitutionally blockade Southern ports.
However, there were some voices of moderation among northern editorialists in favor of allowing free trade to flourish in both the north and the South. But this was an intolerable position to Lincoln. It would have meant that he and his party failed to generate special privileges for its major base of political support. Lincoln was a devoted protectionist over his entire political career. Having the government dispense special privileges to the wealthy and influential was always the core of the Whig political program.
- Internal Improvements (Again)
When Lincoln was elected in 1860, the constitutions of almost all of the states prohibited subsidies for internal improvements. Furthermore, federal subsidies had never materialized for constitutional reasons either. “Constitutional scruples” had prevented Congress from passing a Pacific Railway Act but Lincoln had very few constitutional scruples. Any he might have had rapidly disintegrated once the Republicans controlled both the Senate and the White House.
By mid-1862 the military situation was desperate. Nevertheless, the Lincoln administration diverted millions of dollars to the construction of a railroad in California. The major opposition to such subsidies had previously come from Southerners. But, since Southerners were no longer present, nothing was to stop the adoption of the second plank of the American System—massive subsidies for corporations. So, Congress passed the Pacific Railway Act in June of 1862.
Most historians erroneously believe that transcontinental railroads would never have been built if the only source of financing came from private capital markets. But history shows that view to be wrong. All of England’s railroads were privately financed. Furthermore, the transcontinental Great Northern railroad was built by James J. Hill without government subsidy. And, it is likely that it would have been built sooner had his competitors not received millions of dollars in subsidies. The Great Northern was efficient and profitable. By contrast, the Union Pacific and Central Pacific were so inefficient that they were bankrupt as soon as they were completed.
Whenever government subsidizes any industry, the inevitable result is inefficiency and corruption. By contrast, when private investors have their own funds at stake, they do everything possible to see that their funds are used economically. Of course, this doesn’t guarantee efficiency, but it certainly provides the proper incentives. No such incentives exist with government financing. In fact, government has a tendency to throw good money after bad.
Furthermore, with government financing, politics inevitably takes the place of economics as the main decision-making criterion. Legislators will always insist that the railroad be built near where they live—even if it is uneconomical to do so. By contrast, on the free market, railroads are built in a way that will serve consumers most effectively. If not, profits decline. Consumer sovereignty is prevalent over the whims of politicians.
In sum, transcontinental railroads would have been built and financed by private capital markets. They would have been more efficient and corruption would not have even been an issue. As long as the federal government was subsidizing railroads, corruption and inefficiency were certain. In fact, it was just this type of corruption that generations of Southern statesmen had warned about. The author continues by citing numerous incidents and examples of inefficiency and corruption.
It was only after federal subsidies dried up in the latter part of the century that the transcontinental railroad industry began to take on some semblance of economic efficiency.
The Confederate Constitution was not compatible with Lincoln’s economic policy. Not only were protectionist tariffs unconstitutional in the Confederacy, so were internal improvement subsidies. And that, in a nutshell, is why Lincoln waged a merciless war on women, children and feeble old men.
- A Nationalized Banking System at Last
In 1861 government was completely divorced from the banking system. There was no central bank and the only legal money was gold or silver. The nation’s currency essentially consisted of state-chartered bank notes redeemable in gold or silver.
Cult historians argue the myth that this caused an unacceptable degree of financial instability. But the fact is that this was the most stable system the uS ever had. There were some bankruptcies but most of these were the result of government regulations such as the prohibition of branch banking, mandates for minimum specie reserves, restrictions on the issue of small-denomination notes, and requirements that banks purchase state bonds issued to finance internal improvement boondoggles.
Then in 1862 Lincoln signed the Legal Tender Act which empowered the Secretary of the Treasury to issue paper money. This paper was not immediately redeemable in gold or silver but was backed by a governmental promise that it would be someday.
Then the National Currency Acts of 1863 and 1864 created a system of nationally chartered banks. These banks could issue notes supplied to them by the newly created comptroller of the currency. In addition, the Acts imposed a 10% tax on state bank notes.
Government paper money flooded the private banks. The money supply doubled in the first year. The resulting inflation was so severe that the greenback fell in value to only 35 cents in gold—so much for monetary “stability” through centralized banking.
At least Ohio Senator John Sherman, top spokesman for nationalized banking, was honest when he said, ”All private interests, all local interests, all banking interests, the interests of individuals, everything, should be subordinate now to the interest of the government.”
This was a blatant repudiation of the philosophy of government held by the founding fathers. It was a precursor to 20th century collectivism, whereby individual rights would become subservient to the “national will” and citizens would have “duties” to the state, rather than the other away around.
The Republicans clearly used the war as an excuse to enact the Hamiltonian mercantilist system. The result was utter destruction of States rights and the consolidation of all power. The third plank of the American System had finally been put firmly into place.
- The Birth of the Internal Revenue Bureaucracy
Lincoln was the first president in history to sign an income tax into law. The tax was eliminated in 1872 but it had established a precedent that would eventually prevail.
The public was relentlessly propagandized and dissenters were branded as traitors with the implicit threat of imprisonment.
As one unhappy democratic senator put it, “ The Government is everything; it has become the end; and the people, and all their property, labor, efforts, and gains…are merely the means by which the Government is to continue…and its powers progressively augmented.”
By 1863 Lincoln’s career-long dream was complete. The propaganda led the public into believing that it could look to the federal government for solutions to its problem. This, of course, has made it easier for future politicians to convince the people to acquiesce in greater expansions of government and restrictions of personal liberty.
The founding fathers would have reached for their swords.
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.