Monday, July 12, 2010

Lincoln's Political Economy, part Two of Three

Abraham Lincoln, the sixteenth President of th...
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Last week, I wrote on Abraham Lincoln and the National Economy, part 1: income taxes, the national bank system, and the first U.S. savings bonds. The national banks, along with the new national currency, gave the U.S. better control over their sovereign economy. It displaced the anarchy of individual bank currencies, state bank currencies, and other local arrangements. It also meant that our currency began to have an international value.

There's no question that this changed a feature of international banking--although, it did not necessarily make a huge stir until the 1890's.

There are some other features of international trade, in regard to the "nations vs. markets", where Lincoln exercised "restraint-of-trade" actions. These are what some libertarians and other detractors find against him today.

The first is that Lincoln advocated a strong tariff regime. The second is that he used national clout and diplomacy to restrain trade for the South. The third is that by curtailing political freedom, in regard to the dis-United States of America, he infringed upon individual rights and individual commercial choices about how and where to conduct business.

This post became so long, so I have divided it yet again. This one will be on tariffs. Tomorrow I will post on international trade patterns and the diplomacy that took place during the Civil War. It will also contain my conclusion.

There is at least one author, writing at a libertarian think tank, who calls Abraham Lincoln "The most ardent protectionist in American History." This author cites others of his frame of mind, who say that higher tariffs impelled Lincoln to invade the South. This opinion is hardly new. It was, in fact, the opinion of much of Great Britain, the significant trading partner of the South in cotton and other agricultural products, about the Morrill Tariff of 1861. (The Morrill Tariff was actually signed by Buchanan, but it was enforced and extended by Lincoln.)

Here is a quote from a magazine article in Great Britain (December 1861):
The conflict is between semi-independent communities [in which] every feeling and interest [in the South] calls for political partition, and every pocket interest [in the North] calls for union … So the case stands, and under all the passion of the parties and the cries of battle lie the two chief moving causes of the struggle. Union means so many millions a year lost to the South; secession means the loss of the same millions to the North. The love of money is the root of this, as of many other evils... [T]he quarrel between the North and South is, as it stands, solely a fiscal quarrel.
Great Britain abolished slavery in 1833 within its borders, and previously, slave trade in its ships in 1807.

Lincoln was indeed for tariffs. In 1832, in a campaign briefly interrupted by the Black Hawk War, he made this speech, echoing the Whig platform of the time:
"Gentlemen and fellow citizens . . . I presume you all know who I am: I am humble Abraham Lincoln. I have been solicited by many friends to become a candidate for legislature. My politics are short and sweet, like the old woman's dance. I am in favor of a national bank.  I am in favor of the internal-improvements system and a high protective tariff. These are my sentiments and political principles. If elected, I shall be thankful; if not, it will be all the same."
He did not win that year, but in that district he came in first. And as we shall see, those beliefs stayed with him throughout the remainder of his life.

The difference in tariffs does cut along many of the same lines as the secession of states. There are some differences: the Northeast, with burgeoning industry, was definitely for high tariffs, but the Midwest was not universally for them. On the other side, Virginia was just beginning to industrialize, and wanted some protectionist measures in place for its beginning industry.

Vastly over-simplifying the tariff argument: "Buy & Sell American"
The South had a primarily agrarian economy that had reached economies of scale, (where large producers are able to avoid disproportionate costs--then add slavery as cheap labor to this). They were farming cash crops. The fabric mills to which they sold were predominantly in Great Britain. Therefore, they could do a steady trade back in manufactured goods. Their advantage was to have a low tariff regime for their imports, and avoid a high tariff disadvantage to exporting their cotton or other products.  The Northeastern fabric mills wanted cotton exchange diverted to them. A tariff regime made it more likely that Northern states would gain advantages in trade, cutting Britain out. Then Southern states would exchange manufactured American goods for American agricultural products.

Either way, the South was headed for local trade deficits. Their prosperity under the international system did not give a favorable 'balance of trade' to the United States. Each manufactured good they bought had 'value added' manufacturing processes included in the price. In the simplest example, to buy British or Connecticut muslin was to buy their own cotton back, at a higher price. The tariff advocates wanted the balance of trade 'deficit' to be internal rather than external. It would strengthen the national economy, if not primarily the South.

Add to Northeastern frustration that the distribution and shipping between Southern ports and British ones was well-established, while railroads from South to North were not. Thus, when Lincoln urged Congress to pass his Banking Act of 1861, he mentions fundraising not just for war, but for building railroad infrastructure to the South.

A Whig Party Legacy
The "system of internal improvements" was a philosophy that was made Whig doctrine by Henry Clay. In it, he maintained that monies from tariff should be dedicated to developing domestic infrastructure, such as railroads, to aid in interlocking domestic economy and expanding it Westward. Lincoln was a Whig before that party dissolved. The Republicans of that time took on much of the Whig policy. Lincoln did not deviate from it.

From Lincoln's point of view, tariff had the advantages of funding internal improvements and funding his army. But Lincoln did not break the South economically through tariffs. He did it through blockade.

Lincoln: Speeches and Writings, 1859-1865. Library of America. Available.
Civil War Home, using the Macmillan Information New Encyclopedia, linked above and here.
Shelby Foote, The Civil War: A Narrative, Volume I. Random House. Available.
The Miller Center, University of Virginia: Abraham Lincoln, part 5, linked above and here.
The Union Pacific Railroad, Lincoln and the Railroad, here. Is that restraint of trade?
William Wunder, The American System of National Republican and Whig Henry Clay, above and here.
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The Observer said...

Ann T:
I have so much to learn!

Harkening back again to FDR, some feel that the protectionism of that day made the Great Depression worse/start by discouraging commerce around the world when economies were shrinking.

This is a slippery concept to get a hold of. Needs more study...

The Observer

Slamdunk said...

Great and well-researched post Ann T.

I do understand the South's tariff argument in relation to Lincoln. I saw it cited that the South was paying 80% of the nation's tariffs in 1860, with the campaign promise from Lincoln that it would go higher.

Similar to the contemporary example of the unpopularity of Pennsylvania's governor trying to tax the entire Commonwealth to pay for Philly's public transportation, pre-Civil War era citizens of the South and current PAers were not at all pleased with these approaches.

It did not break the South, as you state, but I can see how tariffs would be considered painfully unnecessary.

On the "one author" you mention, a great criminal justice professor used an article of this author favoring incarceration to reduce crime (as well as another from a separate author on the left against the strategy) to show examples of how manipulation of stats and figures can cloud topics so badly that even a studious person can be left confused.

Ann T. said...

Dear The Observer,
It IS hard to figure out. I am generally in favor of low tariffs and international trade. In this blog, though, by talking about law enforcement and the plight of cities, I am constantly focusing on the Disadvantages of international markets. My real purpose (if anybody is interested) is to try to figure out how cities can catch up and hold their own in the face of a larger international system.

Some of the more recent thinking in foreign relations on tariffs is that developing countries need them to do exactly as Henry Clay advised. Others disagree.

The Clay-type argument: A tariff system allows countries to develop their internal business. Usually that is small business, such as local, small insurance companies, small banks, and local outlets for all kinds of (repair, skilled trades). This helps them become a little more savvy and capable. Evenutally their mining or manufacturing concerns are ready to go global. In the meantime, they've put things in place for themselves, such as road and utility infrastructure.

The argument against it: each country has a comparative advantage or two, e.g., port access, or mineral wealth, or cheap labor.

For them, the international system of trade allows them to capture the benefits of international safety and tech standards as well as connections and $$ in the international market. Then they can speed up development.

A good example for this is oil. My thesis was on how well this works, if someone like the World Bank insists that the international companies follow the international standards.

In truth, the money gained by local governments is frequently squandered or laundered. This is again another reason that the World Bank and IMF are good, and, IMO, Swiss banks and other money hideouts are detrimental. Is that open commerce? Not by a long shot.

For the Depression: the U.S was under some standards of definition, more globalized in commerce in 1890 than it was in 1990. It also had tariffs, we have Always had them. The % rate matters; so does the Amount of regulation that adds non-tariff costs.

When huge parts of Europe were undergoing Reconstruction post WWI, it was counteracted by a vast financial bubble--which popped. As people stopped trading, they lost financial partners and everyone went down the tube.

When money is hard to come by, and trading partners in trouble, it may be wiser to lower tariffs just to keep trade going. It's similar to the local grocery letting the poor guys run a tab. But nobody wants to do that if they don't think their customers will ever be able to pay--or, to pay before somebody forecloses on their store.

Likewise, a country doesn't want to give away its goods for free, especially say foodstuffs, when their people are starving themselves. Basically, Trust broke down, and confidence, and there were hard choices.

Somewhat a side note: What people don't remember about FDR is that he put in a lot of infrastructure. It created jobs. But rural electrification, big city plazas, turnpikes, national parks, and stuff like that helped us internally get ready to be the global actors we again became.

The only wise way to be internal is to stabilize and be ready to face the external. Or something like that.

Whew! Did that help or make it worse?
Thanks for writing in!
Ann T.

Ann T. said...

Good Grief!
I beat you on the Epic. Blogger almost didn't process my comment b/c it was TOO LONG.
Ha ha!
Ann T.

Ann T. said...

Dear Slamdunk,
Oh, I KNEW that author was a snake.
That is why I didn't mention his name. I detested him in two paragraphs. Thanks for the confirmation!

I don't think my arguments here are very advanced. I did notice in my reading that the history of tariffs during this time are as varied as the history of everything else in Congress. There were higher tariffs than Lincoln's and lower ones too.

It is interesting though, many say the South didn't industrialize and that was a mistake. Truth was, they were going with the advantage they had. There certainly weren't any cotton mills to the West, so the impetus to railroad was not there-instead, ports. Therefore, the Northeast was definitely privileging sales at home, Westward along their latitudes.

So in a way, the conditions of being un-diversified came from the prosperity they enjoyed. Like many countries who live by agriculture alone, though, or any one industry, they are at the mercy of the international price set by others at least half of the time. We see this in Africa and South America today.

I think the real eye-opener on Lincoln and P.E. comes in part 3. But it got so long!

You have added so much to this series. I suspect you are quite the student of Lincoln yourself--

Thank you,
Ann T.

The Observer said...

Ann T:
Thanks for your comments about FDR. It is in the area of infrastructure I am most disappointed in the "stimulus package" offered by President Obama. Many of our roads need repair badly, we need mass transit infrastructure, and so much more. (Kansas City sewer project, anyone?) But we got hardly any of that. I was ready for "shovel ready"!

The Observer

PS: Back in the mid/late 1970s, we still had parts of our town in Vermont served by the Rural Electric Administration. (Typically called REA so I may not have gotten the full name correct here.)

Ann T. said...

Dear The Observer,
I am sitting in the middle of a stimulus package or three. We are getting fancy sidewalks and they are fixing sewers and then they will resurface the road.

Undoubtedly we needed this, except the brick sidewalks (although, attractive) but I'm not sure we should have been the priority.

Also, I seem to remember you have a dimwit mayor? Somebody in the city has to go after that stuff. Sad but true.

I'm glad my explanation didn't cause your head-banging headache,

Ann T.