The Two Real Parties: The Hamiltonians And The Jeffersonians

The two opposing political philosophies being debated in 2012 can be traced back to George Washington’s presidency.  Alexander Hamilton, Washington’s Secretary of the Treasury and a Federalist,  offered an economic plan that created a centralized bank (First Bank of the United States), imposed trade tariffs and exise taxes, and had the federal government assume all of the states’ debt. He justified government expansion by referring to implied powers implicit in the Constitution. Former Federalist Thomas Jefferson opposed the expansion of government,  supported states rights, and followed a more explicit interpretation of the Constitution with strict limitations on federal government. Eventually, Jefferson’s side formed a party referred to by historians and people of the time as Republicans, but known today as Democratic-Republicans. Hamilton and Jefferson are the patrons of the two opposing American political philosophies of big government vs. small government.

President Washington didn’t openly join either side, but he supported Hamilton’s policies as his Treasurer. Both the House and Senate were pro-administration (Federalist) throughout Washington’s presidency and remained Federalist through John Adam’s (also a Federalist) presidency. During this period, there was a financial crisis in 1792 when Hamilton bailed out the Bank of New York, the bank he started, through providing securities that brought the price of securities down by 24%. There was also a land speculation bubble that burst in 1796.

From 1800 to 1825, the Democratic-Republicans dominated Congress. The charter of the First Bank of The United States expired in 1811 and wasn’t renewed. After the Nepoleanic wars ended, there was an ”Era of Good Feelings”, where there was a general feeling of Unity between all politicians as the Federalist party faded into history. There was basically a diluted, moderate Democratic-Republican party. The Second Bank of  The United States was chartered in 1817 as a reaction to the difficulties in financing the War of 1812. After the panic of 1819, however, politicians split into Hamiltonian and Jeffersonian factions again over the existence of a centralized bank.

The Democrats emerged as the Jeffersonian Party; and the National Republicans, who later became Whigs, favored Hamiltonian policy. The Jeffersonian Democrats dominated the presidency and both houses until 1860.  After the charter for the Second Bank of The United States was allowed to expire by Jackson’s administration in 1837, there was a contraction and a five-year long depression. Despite this economic downturn (and a brief surge in Whig popularity),  there was no central bank again until 1913.  There was another panic that spread from Great Britain’s central bank in 1857, but the economy quickly recovered after President Buchanan (Jeffersonian Democrat)  lowered tariffs and withdrew government usage of bank notes. The panic leveled out and was over by 1859.

In 1854, a new Republican Party formed from the remnants of the Whigs (as did other abolitionist third parties to fight slavery.) The Republicans dominated Congress and the presidency until 1885. After the war, they became  the representatives of Hamilton’s philosophies.  In order to fund the Civil War, the US government left the gold standard and created greenbacks, or legal tender fiat currency that was not readily redeemable in gold. As a result of the war,  the transition back to the gold standard, and Republican protectionist tariffs, the growth of the American industrial revolution was slowed in what is known as the long depression between 1873 and 1896.

Theodore Roosevelt and Woodrow Wilson both took Hamiltonian policy to a new level in the early 1900s. Much like our last two presidents, their party affiliation was nominal.  They introduced progressivism and government activism throughout their presidency, pushing antitrust laws and new departments like the ICC, as well as reinstating a central bank and introducing the income tax. Party members from both sides opposed certain aspects of the activism and supported others. Pure Jeffersonian policies were abandoned. There was a panic in 1907 that was in recovery by 1908 during Roosevelt’s presidency. During Wilson’s presidency, we entered WWI and imposed a  top income tax rate of  73%, when just seven years before there was no income tax at all. This led to a crash in 1920.

After the heavy government expansion of the progressive era and the crash that resulted, there was a backlash and a redefining of the parties once again. After Wilson’s administration, politicians who favored Hamiltonian policy aligned themselves with the Democrats, while Jeffersonian policies were revived by the Republicans. The next two presidents, Harding and Coolidge, were Jeffersonian Republicans backed by Republican Congresses throughout their terms. They cut taxes and reduced government. This policy led to the roaring twenties. The roaring twenties ended with a crash in 1929.

A month after the stock market crash, the market bottomed out and began to make a recovery. After unemployment went from 9% in November of 1929 to 6% in June of 1930, without any government interference, Hoover decided to compromise with Hamiltonian principle and urge wage controls and protectionist tariffs. The Republican Congress went along. The market quickly turned south again; and the more Hoover did to help, the worse it got.

After Hoover and the Republicans’ failures with the recovery, the Democrats took over both houses of Congress and the Presidency with Franklin Roosevelt.  Roosevelt began what he called modern liberalism based on the new Keynesian economic model. Modern liberalism was and is Hamiltonian progressivism on steroids. Massive government regulation, price controls, and protective trade tariffs led to a depression that only ended after those policies were scrapped for the WWII war effort over ten years later.

After the Great Depression and World War II, Americans in general had had enough of big government. There was no proper plan to handle the switch to a peacetime economy. The removal of some price controls  resulted in inflation and some of the biggest public sector union strikes in history, while remaining agricultural price controls led to farmers refusing to sell grain in 1945 and 1946. The chaos resulted in Congress being lost to the Republicans in 1946 for the first time since 1930.  Anti-union legislation as well as tax cuts were passed by this Congress by overriding Truman’s vetoes.  Truman was in trouble in the 1948 election, so he convinced fellow Democrats at the convention to support more civil rights policies to muster support for Hamiltonian policy, despite Southern Democrat objections. He won the Presidency, and the Democrats won back Congressional control. During Truman’s second term, he began integration in the military and made discrimination against public service employees illegal. Beyond that, Truman’s second term was rife with corruption and cronyism in the IRB (the predecessor to the IRS) and court appointees, Union Strikes, and unrest from continued price controls, as well as a war in Korea that was not declared by Congress.  Truman lost the nomination to run again in 1952. There was a recession in 1949, shortly after Truman’s Fair Deal was enacted and the Federal Reserve tightened the money supply. After The Korean War, more inflation was expected, so the Federal Reserve implemented a more restrictive monetary policy than necessary, leading to a recession in 1953.

Republican Dwight Eisenhower won the presidency, and the Republicans won the majority in both houses of Congress in 1952.  Eisenhower returned to a financially responsible, progressive Hamiltonian Republican policy and blamed the Old Guard of the Republican party for being too inflexible. He lost both houses of Congress to the Democrats in 1954. Democrats maintained their majority in both houses until 1980. Although he removed wage and price controls and cut back remaining New Deal legislation, ended the Korean War, and balanced the budget,  he also expanded Social Security and proposed the Interstate Highway System.  It was the Eisenhower administration that effectively began the marginalization of Jeffersonian Republicanism for responsible Hamiltonianism. There were two short, minor recessions in 1958 and 1960 that resulted from the Federal Reserve’s attempts to avoid economic difficulties.

John F. Kennedy and Lyndon B. Johnson enjoyed a Democrat-controlled Congress throughout both of their presidencies. Kennedy returned to Keynsianism, loosening monetary policy and increasing government spending to create our first non-war, non-recession deficit. Kennedy’s policies resulted in the fastest growth in American history up until that point.  Johnson continued and expanded Kennedy’s policies by creating The Great Society. The Great Society was a dramatic expansion of government control. Everything from Medicare and Medicaid to current education policy to arts endowments, welfare, urban renewal, and even heavy environmental  policies was all born during Johnson’s administration. The bubble created by Keynsian policies led to an economic slump that started in 1966 and led to the worst inflation in a century. johnson didn’t seek re-election.

Richard Nixon beat Hubert Humphrey in 1968, but both Houses of Congress remained Democrat throughout his administration. Nixon was a Hamiltonian Republican who created a “new Federalism”. He reduced the power of states, lifted the gold standard, and put wage and price controls in place. His policies were a temporary fix, and high inflation returned with a vengeance accompanied by rising unemployment at the end of his presidency.

Gerald Ford assumed the presidency in 1974 after Nixon resigned. He was another Hamiltonian Republican who saw a short presidency with a Democrat-controlled Congress. Ford continued the tradition of government spending, which increased the deficit and had no discernible effect on inflation or unemployment.

Jimmy Carter was a Hamiltonian Democrat elected in 1976.  Carter also had a Democrat majority in both houses of Congress. He tried following Ford’s policies, then reversing them, leading to a new economic phenomenon called stagflation (or high inflation and high unemployment at the same time resulting from the erratic policies.) The economy progressively got worse, leading to a  shift from Democrat to Republican control in the Senate and the Presidency, for the first time since 1952, in 1980.

The first Jeffersonian Republican President since Calvin Coolidge was elected in 1980. Ronald Reagan enjoyed the only three Republican majority houses of Congress elected between 1954 and 1994.  All three were Senates. He cut funding of government programs and lowered taxes. The freeing up of the economy led to a deep recession that lasted until 1982, followed by a robust recovery that didn’t see another recession until 1990, even with greatly increased defense spending  to push the Soviet Union to bankruptcy.

George Bush Sr. was a Hamiltonian Republican elected in 1988. He gave into the demands of the Democrat majority in Congress during his presidency; this led to a prolonged recession and made Bush a one term President.

In 1992, Democrat Bill Clinton was elected with a Democrat majority in both houses of Congress. Clinton claimed to be a Centrist who followed responsible Hamiltonian policy over the Keynesian policies of the FDR Democrats. He went too far with a push for more strict gun control laws and universal healthcare, however, and lost The House of Representatives for the first time in forty years and the Senate for the fist time in eight. Congress remained Republican until 2006. Huge advancements in technology and deregulation  led to Clinton being President during the biggest technological boom in history. It was blown up into a bubble through The Federal Reserve keeping interest rates artificially low, leading to over-investment. The bubble burst during his last year as president in 2000 after the Federal Reserve brought interest rates back up.

George W. Bush became President in 2000. He was a Hamiltonian Republican with a Republican majority in both houses of Congress for the first 3/4 of his term. Together, they increased  spending  more than any administration since Lyndon Johnson. The Federal Reserve lowered interest rates to counter the recession of 2000 while legislation was passed for the government to insure risky mortgages to help more people own homes. This rebirth of Keynesianism led to a housing bubble that burst in 2007. The recession lasted until the end of Bush’s presidency, despite  bailouts in 2008.

Barack Obama was elected in 2008, along with a Democrat majority in both houses. Barack Obama is a Hamiltonian Democrat who, along with his Democrat Congress, also followed the Keynesian policies of Bush. The economy continued to get worse until 2010. In 2010, The House of Representatives as well as many state legislatures were taken over by a new Jeffersonian Republican movement referred to as the Tea Party. (Of course, we all know what happened in the couple of years that followed.)

I hope you see how important it is to return to the small government Jeffersonian policies that have proven to have more beneficial effects on the economy and the quality of life for all Americans.