A Southern Political Economy vs. American State Capitalism

John Taylor

General Lee was a soldier and leader of men, not a politician. Although several of his decisions as soldier had an important political impact in American history, he seldom discussed such matters. An exception is his correspondence with the British historian Acton shortly after the war. Acton had spent a long career studying how constitutional liberty had gradually developed as an antidote to arbitrary central power. Writing sympathetically to Lee, Acton said that he regarded the defeat of the Confederacy as a setback in the progress of liberty. Lee replied:

“I yet believe that the maintenance of the rights and authority reserved to the states and to the people, not only essential to the adjustment and balance of the general system, but the safeguard to the continuance of free government. I consider it as the chief source of stability to our political system, whereas the consolidation of the states into one vast republic, sure to be aggressive abroad and despotic at home, will be the certain precursor of that ruin which has overwhelmed all those that have preceded it. “

The mission of the Abbeville Institute is to explore what is true and useful in the Southern tradition that may be of benefit to the United States today. I wish we could ask the reverse question: What can the United States do for the South? But that has never even been considered.

I think most of us would agree that the U.S. regime is today in a parlous condition and greatly in need of good advice. “Parlous” is a fine old word meaning risky or dangerous. Did not Lee get it right about that “aggressive abroad” and “despotic at home”? Is it not a far better analysis of the result of the WBTS than Lincoln’s much-celebrated folderol about “a new birth of freedom”? Can we not fairly call the American regime today imperialist? And history shows no example of an empire that did not fall of its own weight.

In political economy, the study of the proper relationship between government and the economy , the Southern tradition offers us a powerful and long-lasting body of thought, eloquently and convincingly expressed by a line of Southern thinkers—Jefferson, John Taylor of Caroline, Calhoun, the authors of the Confederate Constitution, the late 19th and early 20th century Populists, the Twelve Agrarians of I’ll Take My Stand, and most recently Wendell Berry.

From its beginnings, the U.S. government was regarded by Southerners as a matter of liberty, honour, and American mutuality. From its beginnings, the predominant class in the North regarded the government as their money-making machine. Southerners saw the Constitution as the people’s control over government power. Northerners saw it as an instrument to be manipulated to their advantage. This difference first came to a head in the struggle between Hamilton and Jefferson. Hamiltonians wanted a strong central government built on patronage to the wealthy. The patronage was to be paid through national debt, manipulation of the currency by a “national bank,” and various types of business subsidy, which were falsely claimed to be necessary and beneficial to all Americans.

No Philosophy has ever offered a more fundamental criticism of the American system of state capitalism than the Southern tradition. I deliberately use the term “state capitalism” to describe the regime in which the government does not operate in the interest of free enterprise, which is the comforting myth, but is the agent for protecting and adding to great private wealth. The Jeffersonian critique of capitalism is far more fundamental than the Marxist one. Marxists love and encourage state capitalism because it is a step towards government control of the economy. The Jeffersonian tradition upholds private property and freedom of enterprise against their enemies, socialism and big capitalism—the dominance of government-enhanced wealth over general well-being.

Let us start our lesson with a supper that took place in the very earliest days of the United States government under the Constitution—1790 or so when the government was a new and experimental thing. At this supper, among others, were Vice-President John Adams of Massachusetts, Secretary of State Thomas Jefferson of Virginia, and Secretary of the Treasury Alexander Hamilton of New York. What happened struck Jefferson so much that he made a record of it.

John Adams, who liked to exhibit his learning, was gassing on about his favourite hobby horse of “checks and balances.” The House and Senate could check each other and the President and Congress likewise. This would prevent anything hasty, ill-considered, and bad from happening—for him bad being too much democracy which would lead the majority poor to grant themselves the wealth of the minority rich. Fortunately the new government copied Great Britain in this system of balances, said Adams, because “ purged of its corruption” the British government would be the best model in the world.

But that is not what arrested Jefferson’s attention. It was Hamilton’s response to Adams. No, said Hamilton enthusiastically, it is precisely corruption that makes Great Britain such a powerful and energetic government. What Hamilton meant, and what his agenda then being proposed was designed to construct for the United States, was that for a government to be as powerful and energetic as Britain’s, the rich had to have an economic stake in that government. Hamilton just a little later amplified his point by the assertion that “a public debt is a public blessing.” What? Debt, especially government debt that must be paid by the people who worked for a living a blessing? How can that be? Jefferson had seen the serpent in Eden. Was this why we fought to become free, to have wealthy Northerners our masters and parasites rather than the British?

The strongest element in the push for a new and stronger federal government came from the holders of the debts from the War of Independence. By 1789 this debt was not owned by those who had provided goods and services to the cause, but by monied men, chiefly in New York and Philadelphia, who had bought it up at cents on the dollar while it was “not worth a Continental,” as the saying went. The centerpiece of Hamilton’s initiative was to pay off the debt to its current holders, a number of them Northern members of Congress, at face value in interest-bearing government bonds. Only in this manner he claimed could the “good faith and credit” of the government, which was said to be essential, be established. Thus would the wealthy and powerful be embraced in alliance with the government, guaranteeing the rulers the ability to act forcefully.

You now have the key to the great mystery of government debt.

The Lincoln Republicans pulled off a similar swindle after the War for Southern Independence. The war had been financed by the U.S. in part by paper money—greenbacks. The inflated greenbacks were all in the possession of money men who had bought them up when they had lost two thirds of their value. The U.S. government bought back the greenbacks at face value in gold. This is what I mean when I say that the American regime is not free enterprise but state capitalism.

The contest between the policies of Hamilton and Jefferson dominated national politics from their time to the WBTS. Each side had victories and defeats until the Republican party took power in 1861, and with the South not voting, implemented Hamilton’s policies with a vengeance—high expenditures, high tariff, perpetual government debt, and a “national” banking system.

Since 1861 the Southern tradition in political economy has been a very weak force—every principle that its spokesmen advocated has been crushed and everything they warned against has become catastrophically true. To regain it would require a massive increase in public virtue, a massive increase in public intelligence, and a massive restructuring of power. All we can do is bear witness to and seek inspiration from the better ideas of better men in better times, while we hope for a breakdown of the imperial government into more responsible structures.

The Southern position on the role of the government in the economy was succinctly stated by a newspaper in 1843:


It was taken for granted that this included modest government expenditures, restricted to the clearly stated Constitutional powers and duties of the federal government as spelled out in Article 1, Section 8.

You are probably familiar with I’ll Take My Stand, the classic statement in favour of a Southern Agrarian way of life as alternative to industrial capitalism, which was published at the time of the crisis of the Great Depression. The Agrarians, joined by Northern and British writers, published a sequel to give more detail to their program. It was called Who Owns America? A New Declaration of Independence. Who owns America? Well might we ask. That is an important question to think about and answer. Young people especially: remember it when you contemplate political issues in the future.

Since 1861 the question has hardly been asked, and it has never been answered honestly by the prevailing political and economic powers of the United States.

But the Southern tradition of political economy starts with that question. After all, what is the purpose of an economy if not the well-being of society? If we ask today who owns America, here is what we get. The richest three per cent of families own 54% of the national wealth. The richest 10% of families own 75% of the national wealth. Most of the rest of us own nothing except mortgages. We are at the mercy of large institutions. We are not the independent citizens that Jefferson said were necessary for a free society and a healthy society. In fact, the inequalities of wealth are worse today than at any previous time in American history and have been getting steadily greater since the 1970s. Many observers have noticed with alarm that American society is taking on characteristics of the Third World—a few fabulously rich and an immense population of poor.

Thomas Jefferson said that the earth belongs to the living, that the present generation may enjoy the fruits of the earth but it cannot destroy the equal right of the next generation to such use and enjoyment. He said this was among the most important of his beliefs. To preserve the freedom of the people, he said, “we must not let our leaders load us with perpetual debt.” It is deeply immoral for a present generation to use up the earth so that it leaves the next generation with less than their just patrimony and burdened with debt from the consumption of a previous generation. The Jeffersonian philosopher John Taylor of Caroline added to this thought: “The present age is cajoled to tax and enslave itself, by the errour of believing that it taxes and enslaves future ages to enrich itself.” Of course, Jefferson’s insistence on the rights of the living generation caused his enemies to declare him a radical who was uninterested in tradition, continuity, and bequeathing to one’s descendants.

Jeffersonians tried to pay off the national debt and almost succeeded. The U.S. Bank was installed twice and each time allowed to expire after twenty years. When the Republicans got power in 1861, Wall Street urged on the war which would make a national debt. Lincoln and his party were able to install an advanced form of Hamilton’s dream that dominates the American economy right up to the present moment. America became devoted to capitalism, by which is meant not free enterprise but private wealth subsidized by government.

Jeffersonians were often quite intelligent and sophisticated men, but they did not seem to grasp the arcane mysteries of finance. In fact, to them it looked like a bit of a swindle. A public debt at best could only be an onerous necessity in wartime. Who was going to pay that interest to the privileged minority who owned those government bonds? Where else could it come from but the pockets of good folks who actually produced something? Such debt merely created what Taylor called a “paper aristocracy,” a class endowed by government with special privilege for which it contributed nothing in return.

After all, most of the people were farmers—they produced something real out of the earth with their capital and labour and supplied the overwhelming bulk of American exports that allowed trade with the world. The worthy merchant saw that the farmer’s produce was sold and transported and that those things the farmer could not produce for himself were acquired in exchange. The professional man and artisan gave necessary services for which a just compensation was due. Even the manufacturer, when he asked no government bounty and provided goods that could not be found more cheaply elsewhere, played a useful role. But what exactly did the bond-holder do for his profits? Nothing except enjoy politically-dictated privilege like the affluent British who put their wealth into the government “funds.”

Taylor made a clear moral distinction between the producer and the speculator, one whose occupation was to manipulate paper for the acquisition of wealth produced by other men. He made a very basic point getting toward the proper nature of a good regime. Could we learn anything useful for our present troubles by applying the distinction between producer and speculator? The American economy is now highly financialised. Most income goes to pay debt and interest on debt, not into productive investment. A little later, John C. Calhoun usefully restated the same thought: there are two antagonistic classes in society— the taxpayers and the tax consumers.

Taylor argued with length, breadth, and depth that the whole Federalist case was based on a false understanding of society. The masses preying on the wealth of the classes was fairly infrequent in history. The masses were generally content merely to enjoy their modest own. The norm of history was that the classes preyed on the earnings of the masses. This was done either by force or by fraud—and the British/Hamiltonian public debt was the latest fad in frauds, covering up extortion by the mysteries of finance. Throughout American history the Northern idea of conservatism has been protecting the rich from the poor. Southern conservatism is something very different—preserving the wisdom and values of the ages.

Southerners asked some very fundamental questions that have had no hearing since Lincoln, about things that have long now been taken for granted as normal.

The government has a great income. Why does it need to borrow money? Because rich people like government bonds. They are risk free, tax free and draw interest. The government used to finance itself that way even when it generally balanced the budget. Now it finances its tremendous deficit spending the same way. The U.S. Congress has long been spending beyond its means year by year, and not because of an emergency, but to buy elections. There is now a debt so tremendous that it can never be paid. To pay it would take all the earnings of you, your children, and your grandchildren to infinity. However, the holders of government bonds are so far quite happy. These bondholders now include foreign governments, something which the Founding Fathers would have unhesitatingly identified as treason. The Chinese hold 45% of the U.S. government debt. Merely paying the interest on the debt is now a major part of the budget.

The debt of the U.S. government at the moment is something around 19 trillion dollars, equal to more than a whole year’s Gross Domestic Product. In 2014 federal expenditures showed a deficit of 483 billion dollars above income, a deficit that was covered by borrowing, adding that much more to the national debt. Note that the Constitutional purposes for federal spending have been obliterated as has the distinction between spending for public purposes and for private benefit. Do you want a Rock and Roll Museum in Cleveland, night basketball courts in Chicago, or talentless artists from New York to get grants? Put it in a bill that you know will pass. And what do military installations in over 100 countries and continuing Mideast wars possibly have to do with the Congressional duty to provide for the common defense of the United States? The Confederate Constitution opted for honesty in legislation: every bill could relate to only one subject that had to be clearly stated, and the President had a line-item veto.

John C. Calhoun foresaw it all in the 1830’s. “A habit of profusion and extravagance has grown up utterly inconsistent with republican simplicity and virtue, and which was rapidly sapping the foundation of our government. . . .It was impossible to force the minds of the public officers to the importance of attendance to the public money, because we had too much of it.”

Economics as practiced today is a utilitarian and materialistic study. It is concerned with maximizing profit, with describing the actions of man as an economic being, and explaining the allegedly inevitable results of supposed economic laws. Our Southern forebears did not practice economics. They practiced political economy—which is concerned with human well-being. Those old-time Southerners did not assume that man is to be understood wholly or chiefly as an economic being. They did not believe that the economic conditions they faced were entirely determined by abstract laws—but rather that they were the result of human decisions, some of them the product of corrupt politics.

Southerners did not believe that abstractly described maximum wealth was the proper goal of economic activity. There were such things to be considered as widespread and comfortable prosperity and stewardship instead of maximum exploitation of God’s bounteous Nature. Man must eat, but he does not live by bread alone. Economics being the product of human acts and decisions, it was part of the moral realm and not merely technical knowledge. Most of all Jeffersonian political economy insisted that the health of society was not represented by great wealth but by widespread ownership of productive property. Without widespread ownership of real property, which made the great mass of men independent citizens, there could be no healthy society, and certainly no free society.

When I was a college undergraduate a half century ago, a professor asked a large class for a show of hands—who expected to be more prosperous than their parents? There was at least an 90% response rate. I doubt if it would be 20 percent today—even less among native white Americans. Unemployment and underemployment is now the settled lot of millions of people who once would have been solid members of the middle class—even among the skilled. The young remain longer dependent than they used to on the older generation, who were able to accumulate some wealth in better times.

Meanwhile, the rich have reached levels of wealth unprecedented in human history and are cosmopolitans rather than Americans, happy to ship abroad the livings of their fellow countrymen or import hordes of aliens to replace them. You can be sure that the optimistic 20% of young folks are not thinking in traditional terms about hard work leading to success. They are thinking that they are smart enough to get a cut out of the going racket. Some of them will be disappointed. And millions of hard-working Americans live on a dangerously small margin of survival. Millions more live off the books in a all-cash and barter economy.

Triumph of the Northern idea of political economy has been catastrophic, has it not? The consequences of this loss of social morale could in the long run be more serious than a revolution or world war.

The public debt was bound up with the question of banking and currency, as Hamilton well knew when he pushed for a “national” bank—actually a private corporation in which the government invested and to which the government delegated privileges. Although the Philadelphia Convention had voted down allowing the federal government to charter corporations, according to Hamilton the Bank was “necessary and proper” for carrying out his official functions. John Taylor pointed out that this was the first of countless instances in which mere verbiage was employed to subvert the plain intent of the Constitution.

Until Lincoln, politicians argued about national bank or no national bank, seldom touching the real question—that is, who would control the money supply. Secretary of the Treasury Hamilton quietly did something far more significant than the national bank—he issued an executive order by which the government would accept as if they were gold the paper notes issued by private banks controlled by his friends and supporters.

In the 1830s the National Bank charter was about to expire and there was heavy pressure to renew it. America’s greatest statesman, John C. Calhoun, from outside the two-party system, conducted a brilliant and successful campaign against this example of “modern ingenuity and dishonesty” which had deprived the country of a sound currency and caused great hardship by the fluctuating value of unbacked paper banknotes. A historian of banking has said that Calhoun was the only statesman at the time who actually understood the matter, much better than Andrew Jackson in his misguided attack on the national bank, which only caused the proliferation of paper money by dozens of other banks.

Said Calhoun: “We must curb the Banking system, or it will certainly ruin the country.” “The banks have ceased to be mere moneyed incorporations. They have become great political institutions with vast influence over the welfare of the community . . . .” “It has been justly stated by a British writer that the power to make a small piece of paper, not worth one cent, to be worth a thousand dollars, was a power too high to be trusted to the hands of mortal man.”

In 1863, Senator John Sherman of Ohio, brother of General Sherman, declared that establishing a national banking system was the most important Northern goal of the war. He would leave the slaves as they were rather than loose this system. This is even after the Emancipation Proclamation, and our brilliant historians still tell us that the war was all about slavery. There had been two so-called national banks when the Republican took over, both allowed to expire. Their national banking system followed the same plan except that it spread the loot around. The government chartered a series of national banks, endowing them with government bonds at a discount as their capital. These banks could issue money, giving them virtual control of the money supply and credit of the country. Theirs was the power to inflate and deflate the currency and to decide what credit there was to be in the economy and at what rate of interest.

Obviously, the granting of such charters was political and open to corruption. The Federal Reserve is simply a more centralized version of this system. Most people today think, I suppose, that the Federal Reserve system is a government institution. Actually it is an immensely powerful and profitable private banking cartel.

John C. Calhoun, laid it all out in 1834. After pointing out that the banking system had intolerable power over the property and earnings of individuals, that its power corrupted society, and that it inevitably grew worse and worse until it would wreck the country, he said:

“But its most fatal effects originate in its bearing on the moral and intellectual development of the community. . . . I object to the banking system, because it allots the honours and rewards of the community, in a very undue proportion, to a pursuit the least of all favourable to the higher mental qualities, intellectual or moral, to the decay of the learned professions, and the more noble pursuits of science, literature, philosophy and statesmanship, and the great and more useful pursuits of business and industry. With vast increase of its profits and influence, it is gradually concentrating in itself most of the prizes of life—wealth, honour, influence—to the great disparagement and degradation to all the liberal and useful and generous pursuits of society, The rising generation cannot but feel its deadening influence. The youths who crowd our colleges, and behold the road to honour and distinction terminating in a banking- house, will . . . no longer be pressed forward to mount up the rugged steep of science. . . .”

These words could have been spoken in Athens at its highest day. They describe what was really at stake at Appomattox—the Union as republican honour or as a money-making machine.

The Southern Jeffersonian conception of the good society did not completely disappear even after Lincoln and his party negated it, but long remained in Southern Democratic opposition to Big Business. I might mention the Clayton Antitrust Act of 1914, bearing the name of Representative Henry D. Clayton of Alabama, son of the Confederate general of the same name. The Georgia Populist Tom Watson wrote in 1916 words applicable to 2016: “Special privilege, corporate greed, concentrated wealth are divided throughout our Union between those who call themselves Republicans and those who call themselves Democrats . . . . Under the Banking and Bonded Systems, all roads of Produce lead to the Rome of the Imperial Plutocracy . . . .” The Agrarian Frank Owsley agreed 20 years later, condensing the truth to a short sentence: “The government is the executive committee of great wealth.”

A Jeffersonian political economy as the ideal was implicit in the Southern classic I’ll Take My Stand. As I have said, in 1936 the Twelve Southerners joined some Northern and British writers in the last formal defense of a humane economy—Who Owns America? A New Declaration of Independence. The Great Depression had generated much discussion about fundamental reform of the American regime. Communists and socialists were sure they had the answer—government control of property. Progressives thought capitalism could be preserved but the economy could be managed by expert planners like themselves, basically the New Deal approach.

Who Owns America? took a different stand. Both capitalists and socialists, these writers argued, were asking the wrong questions. Both took for granted the gigantic concentration of power over the economy in a few great corporations, only argued over who should exercise the power. There was little difference between them. Both were for preserving a system in which the mass of people were wage earners at the mercy of owners. This was the wrong kind of society. The U.S. had begun as and for a time had continued to be a society of wide-spread property ownership, of independent citizens. Free enterprise and private property are good things. We are all for them, they said. We reject socialism but we also question the existing domination of America by corporate capitalism. As John Taylor of Caroline had pointed out in his great exposition of Jeffersonian political economy , a rich country is not the same thing as a happy people. And certainly a rich government is not the same thing as a prosperous people.

The capitalists yell about threats to free enterprise and the evil effects of interference with the law of supply and demand. The trouble is, Big Business never has practiced free enterprise. It is too powerful to tolerate competition. There is a lot of small scale free enterprise in America, but not in Big Business which controls rather than participates in the free market. The authors pointed out that in the Depression prices of farm products declined by over 30%. But the prices of steel and automobiles did not declined at all. If the law of supply and demand was working, prices should decline with declining demand. Something was interfering with the free market. The large corporations preserved their profits because their foreign competition was excluded by government tariffs and their gigantism guaranteed their ability to stifle any potential domestic competition. The only real solution offered by the New Deal was to flood the economy with cheap money so as to increase demand, which might help unemployment but would also keep profits up. So much for free enterprise.

Further, giant corporations did not exist because concentration is economic law. Industry was not controlled by entrepreneurs or managers—it was controlled by bankers. Wealth had come to consist of entries on bankers’ books. Such property is infinitely manipulable for private profit. John D. Rockefeller had never done a productive day’s work in his life, but he controlled Standard Oil which controlled a large part of the market in the U.S. It was not socialists who hated the fabulously rich Rockefeller, who exhibited his Yankee charity by handing out dimes to Sunday school children. It was entrepreneurs who hated Rockefeller, the men who used their knowledge and risked their money to get the oil out of the ground. They found that Rockefeller capital had bribed state legislatures, rigged railroad rates, bought refineries, and acquired and suppressed new patents that would have cheapened production for small producers. The real producers of wealth were not able to sell their product except on Rockefeller’s terms, which usually meant turning over control. I guarantee you that today, when Lawrence Rockefeller of the Chase Manhattan Bank (or whatever they call it now) calls, the President of the United States answers it as soon as he can. The power of the banks is almost never questioned in American public discussion. Now that is real power, when you can prevent yourself from even being mentioned.

And, the authors of Who Owns America? , as did those of I’ll Take My Stand, asked: what is so great about concentration of industry into a few gigantic firms? Is a huge factory necessarily more efficient than many small factories spread through the countryside? It is certainly less humane and makes the workers even more insecure. No, we had giant corporations not because they are efficient but because that is what the bankers want. It makes their control easier and firmer. The bankers always get what they want. We do not want to do away with private property, the authors of this last gasp of Jeffersonian political economy said—we want to see policies that will spread it around, that will curb the corporations and increase the number of people who have enough property to make an independent living. Of course, the program of Who Owns America? was too humane, too lacking in money to buy politicians and media, too unappealing to the vast herd of petty intellectuals who dominate American discourse. It could not succeed, and America has paid the price.

Declining prosperity and vast inequality in wealth is now a settled fact of American life.

Economic health is not measured by the day’s average of stock speculation, or the profits of bankers, or the munificence of government subsidies and salaries, or the consumption of luxury goods, or even by the Gross Domestic Product. Economic health is when the great bulk of families have some property and a secure source of living, large or small. When nearly everybody has an abundance of necessities and access to some small luxuries and leisure. Naturally, debt, the ancient nemesis of prosperity, is minimal and temporary in a prosperous society for both government and people—it is a device for emergencies or starting up promising ventures. A healthy society is made up mostly of people of middling economic status, with relatively few very rich and very poor. Government apparatus is small, unobtrusive, and mainly local. Religion, charity, education, and the arts flourish, especially where there is cultural cohesion, through private patronage. Cultural cohesion would seem to be typical of societies with widely shared prosperity. The U.S. is catastrophically short of cultural cohesion today.

The Glass-Steagall Act of 1932 was a late reflection of Southern political economy. This law was designed to separate commercial and investment banking and correct some of the abuses that had led to the Great Depression. It carries the names of Senator Carter Glass of Virginia and Representative Henry B. Steagall of Alabama. The repeal of this law by the Reagan administration, according to many experts, caused the derivatives crisis of 2007—2008. The big bankers and brokers behaved unethically and illegally on an immense scale and the official watchdogs failed entirely. When the crash came it not only put the Big Fellows in peril of collapse, it also destroyed pension funds and small investors. America was desperately in need of some Jeffersonian insight.

Note that the only solution to be found by either party was for the taxpayers to “bail out” the misbehaving bankers and brokers so they could continue to draw their multi-million dollar salaries rather than go to jail. State capitalism all the way! The malefactors were judged to be Too Big to Fail or Too Big to Jail. Timothy Geithner, Secretary of the Treasury, and Hank Paulson, head of the Federal Reserve, were hailed as heroes for finding a way for the taxpayers to bail out the offending banksters. Both were formerly officials of Goldman Sachs, one of the greatest offenders. We were told that a multi-billion dollar bailout was necessary to save “our economy.” The Economy, Stupid, has become a monstrous god without any interest in the well-being of his people. Now and then his priests inform us what sacrifices we must make to keep in his good graces. As John Taylor put it two centuries ago: “A crocodile has been worshipped, and its priesthood have asserted that morality required the people to suffer themselves to be eaten by the crocodile.”

In our Hamiltonian world nobody could think of anything except government bail-out. You can bet our Southern forebears would not have allowed such an atrocity to be perpetrated on the people.

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