American Capitalism

New Histories

Sven Beckert, Christine Desan

• Publisher: Columbia University Press
• Year: 2018
• ISBN:
  9780231546065
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

The United States has long epitomized capitalism. From its enterprising shopkeepers, wildcat banks, violent slave plantations, huge industrial working class, and raucous commodities trade to its world-spanning multinationals, its massive factories, and the centripetal power of New York in the world of finance, America has come to symbolize capitalism for two centuries and more. But an understanding of the history of American capitalism is as elusive as it is urgent. What does it mean to make capitalism a subject of historical inquiry? What is its potential across multiple disciplines, alongside different methodologies, and in a range of geographic and chronological settings? And how does a focus on capitalism change our understanding of American history?

American Capitalism presents a sampling of cutting-edge research from prominent scholars. These broad-minded and rigorous essays venture new angles on finance, debt, and credit; women's rights; slavery and political economy; the racialization of capitalism; labor beyond industrial wage workers; and the production of knowledge, including the idea of the economy, among other topics. Together, the essays suggest emerging themes in the field: a fascination with capitalism as it is made by political authority, how it is claimed and contested by participants, how it spreads across the globe, and how it can be reconceptualized without being universalized. A major statement for a wide-open field, this book demonstrates the breadth and scope of the work that the history of capitalism can provoke.

PART I

MAKING MARKETS

CHAPTER 1

THE CAPITALIST CONSTITUTION

WOODY HOLTON

In 1776, when thirteen North American colonies broke out of the British Empire, each became a sovereign state. Barely a decade later, these thirteen newly independent countries joined together under the U.S. Constitution, establishing an empire of their own. Why? Modern Americans’ estimations of the motives behind the adoption of the Constitution tend to reflect their own priorities, be they the First Amendment freedoms, “the equal protection of the laws,” or gun rights. Actually, none of these civil liberties received any protection in the document that the Constitutional Convention presented to the nation on September 17, 1787. The Framers decided not to open the Constitution with a bill of rights, and their later acquiescence in the first ten amendments is best described as a strategic concession.

What, then, were the actual motivations that brought the authors of the Constitution to Philadelphia in May 1787? One way to approach that question is to examine the constitutional clauses that elicited the most extravagant praise from its authors and from the Federalists (the Americans who championed the Constitution in the ratification debate). The clear winner of the most-popular-clause contest is something of a dark horse, virtually unknown among twenty-first-century Americans. It is Article I, Section 10, which prohibits the state assemblies from (among other things) printing paper money, making “any Thing but gold and silver Coin a Tender in Payment of Debts,” or adopting any “Law impairing the Obligation of Contracts.” In the close-fought ratification struggle, Federalists routinely referred to the ban on paper money and the Contracts Clause as “the best in the Constitution,” “the soul of the Constitution,” and “Sufficient to outweigh all Objections to the System.”1 “Nothing, in the whole Federal Constitution, is more necessary than this very section,” a New Jersey Federalist claimed. Two Pennsylvania signers of the Declaration of Independence, attorney James Wilson and physician Benjamin Rush, independently concluded that even if the Constitution had done nothing more than ban paper money, that alone would still have been, in Rush’s words, “eno’ to recommend it to honest men.”2

In the early twentieth century, Charles A. Beard and other so-called Progressive historians argued that the reason the authors of the Constitution were so eager to get rid of paper currency and other legislative impediments to debt collection was that they themselves were creditors. Many were, but there is abundant evidence that the Framers had a larger motive for writing a procreditor Constitution: making America safe for capitalist investment. The Framers believed that the economic troubles that beset the United States during the 1780s were the result of ill-advised legislation adopted by the thirteen state assemblies. Nearly 90 percent of eighteenth-century Americans tilled the soil for a living. During the recession that followed the Revolutionary War, farmers frequently asked their representatives for relief from their obligations to the tax man and their debts to local stores. According to the men who wrote the U.S. Constitution, its thirteen state-level counterparts were so democratic—all of the state constitutions except South Carolina’s required legislators to face the voters at least once a year—that state assemblymen had no choice but to accede to their constituents’ demands for tax and debt relief.

The obvious victims of relief legislation were the owners of government bonds (whose notes could not be serviced when the states eased up on taxpayers) and private creditors—mostly storekeepers who had sold merchandise on credit. But tax and debt relief also had a disastrous secondary effect, scaring off the investment dollars that were needed to pull the American economy out of recession. By the mid-1780s, many prominent citizens believed the only way to reopen the credit valve, attracting investors both to government bonds and to private enterprise, was to adopt a new national charter that prohibited state assemblymen from coming to the aid of debtors and taxpayers. The Constitution did just that, effectively transferring several key governmental responsibilities—from regulating the relationship between debtors and creditors to levying sufficient taxes to pay off the Revolutionary War debt—from the states to the federal government. To make sure that this new national government would not adopt its own tax and debt relief measures, or at least would not look the other way when individual states did so, the authors of the Constitution made it much less amenable to pressure from ordinary farmers.

Most Americans agreed with the Framers that the economy was in deep trouble in the years after the Peace of Paris in 1783 and that the thirteen state legislatures were largely to blame. But the Framers’ explanation of the government’s role in the recession—that state representatives had enacted irresponsible legislation because they were too responsive to their constituents—by no means commanded universal assent. In fact many Americans took the opposite view: that assemblymen had exacerbated the postwar downturn by coming down too hard on farmers. In particular, they had tried to pay off the war debt by imposing taxes that were, on average, three times higher than Americans had ever paid as British colonists.

The debate over the origins of the 1780s recession raised crucial questions about American governance. When prominent citizens, including future delegates to the Constitutional Convention, asserted that the state governments had adopted disastrous policies because they were too democratic, farmers and their defenders took the contrary position: that elected representatives could have pulled the United States out of the postwar recession much sooner if they had only listened to their constituents.

The Contracts Clause and the constitutional ban on fiat currency contributed mightily to the nineteenth century’s storied economic growth. Yet when state as well as federal judges gradually cracked down on debtors—who were the intended beneficiaries of the only two nonprocedural state laws struck down by state courts during the 1790s, of the first two state laws overturned by federal circuit courts, and of the first state statute voided by the Supreme Court—many Americans began to see the procreditor Constitution as at best a mixed blessing. The creation of the new national government also had unintended consequences—and not just in the political and economic realms. Indeed the Contracts Clause and the ban on state currency adopted at the Constitutional Convention in Philadelphia during the summer of 1787 set the stage for the married women’s property acts that the state legislatures began enacting a half century later.

Making America Safe for Investment

Given the widespread modern conception of the Constitution as a democratic document, it is jarring to read the Federalists’ descriptions of the affliction it was designed to cure. During the 1780s, Federalists characterized the United States as “a headstrong democracy,” awash in a “prevailing rage of excessive democracy,” a “republican frenzy,” “democratical tyranny,” and “Democratic licentiousness.”3 In a letter to George Washington, former Revolutionary War general Charles Lee prayed for “a quiet and peaceable transition from the present American government, into another more powerful and independent of the people.”4 Often the American Revolution and the people who had made it were compared to bucking broncos. To Silas Deane, an American expatriate in London, it seemed “the reins of Government” were held with too “feeble a hand” in the United States.5 Washington agreed. “Let the reins of government … be braced in time,” he wrote, “& held with a steady hand.” Numerous other supporters of the Constitution (and even some opponents) agreed that the fundamental problem of the 1780s was (to quote a phrase uttered at the Constitutional Convention by both Elbridge Gerry, a future Anti-Federalist, and by hyper-Federalist Alexander Hamilton) an “excess of democracy.”6

Whether the Federalists were correct that American officeholders of 1780s were too susceptible to pressure from their constituents is a matter of perspective, but it is objectively true that the state constitutions adopted during the founding era were much more democratic than the federal charter ratified in 1788. In every state except South Carolina, every member of the lower house of assembly had to face the voters at least once a year, which made it difficult for representatives to stray far from the views of their constituents.7 Within the state governments, assemblymen reigned virtually supreme. The senates were weak, and almost none of the governors (several of whom were chosen by legislators) had the power to veto laws. The concept of judicial review was undeveloped, and any bill that made it through the annually elected lower house of assembly was almost certain to become law.8 Independent America was not ancient Athens, but whether the thirteen state governments that emerged from the American Revolution are compared to their colonial predecessors or to the United States Constitution, they look highly democratic.

The Framers of the Constitution are often portrayed as devising it only after poring over tomes of ancient and modern history and then engaging in learned discussions of the ideas found therein. This portrait is not inaccurate, but the Constitution was also a practical solution to real-world problems. When the Framers pronounced the thirteen state governments too democratic, they were not just speaking theoretically but judging the tree by its fruit. In their view, the democratization of the thirteen state assemblies had led to the adoption of policies that gave American farmers temporary respite but damaged the American economy. Modern historians have likened the recession that followed the War of Independence to the Great Depression of the 1930s, and the most prominent men in America believed the downturn was primarily a result of the relief legislation coming out of the thirteen state legislatures.9

The aid that farmers extracted from their state assemblymen took two principal forms: tax relief and protection against creditors’ lawsuits. Paper money provided relief both to taxpayers and to private debtors.

Seldom did legislators respond to taxpayers’ complaints by simply reducing the amount they had to pay. Instead they allowed residents to pay their taxes using farm produce and (even more commonly) various forms of government paper, much of which had depreciated to a fraction of its face value. The benefits to the taxpayer were obvious, but in the Framers’ eyes, tax relief came at an intolerable cost. State governments that eased taxpayers’ burdens disabled themselves not only from covering their current expenses but, even worse, from paying off the enormous debts they had incurred fighting the Revolutionary War. In many cases, so little tax revenue came in that the states were not even able to pay the owners of state government securities their interest, much less redeem the principal. Under the Articles of Confederation (1781–1789), Congress could not service the federal war debt, either, because its only real source of revenue was the insolvent s...