In remarks that spread quickly through the conservative blogosphere, Massachusetts senatorial candidate Elizabeth Warren challenged those who buttress their anti-tax agendas with appeals to self-reliance and individual initiative. She reminded successful entrepreneurs and other ?pro-business? listeners that ?you didn?t get rich on your own.? Warren pointed out that we all benefit from government spending and that no ?individualist? initiative would be possible without essential infrastructures that ensure public safety, transportation, a functioning market economy, and other critical services. Warren is right, of course, but she has perhaps not gone far enough in making her case.
Those who would claim that an activist federal government contravenes traditional ?American? values?and who call Warren?s remarks ?class warfare??miss the long history of American federal involvement in the economy; we have never had an economy ?independent? of federal influence, nor should we expect or hope to. From the very early days of the republic, the federal government actively promoted and shaped America?s economic growth?and helped to determine the beneficiaries of this growth. Government intervention in economic development has hardly been an unfettered good, or politically neutral?but it has been absolutely essential in creating the purported climate of ?free enterprise? that most Republicans extol.
Alexander Hamilton, the nation?s first secretary of the treasury, has been called the original American planner. He established the First Bank of the United States to support the federal government?s efforts to develop the American economy. In contrast to Thomas Jefferson, a fellow member of George Washington?s cabinet, Hamilton argued that agriculture alone could not sustain economic well-being; the government needed to promote manufacturing. Nor was he alone in welcoming an activist government. As early as 1794, Congress authorized a national armory; the first was at Springfield, Massachusetts and not long after at Harper?s Ferry, Virginia, where John Brown launched his raid. The government subsidized private firms to produce pistols, muskets, and rifles.
In 1806 Congress enacted the first federal effort at widespread economic development: the construction of the National Road from Cumberland, Maryland to Wheeling, West Virginia. It enabled Ohio Valley farmers to cross the Appalachians and sell their produce in Eastern markets. Albert Gallatin, another widely heralded secretary of the treasury, issued in 1808 a ?Report on Roads and Canals?? that endorsed Hamilton?s doctrine of ?internal improvements,? recommending infrastructure development to aid economic development in the growing nation.
The first half of the nineteenth century saw a great expansion of roads and canals, which made possible an enormous increase in domestic and international trade. National and state governments were major stockholders in canal companies and subsidized many ventures. Before the Civil War, federal and state governments furnished at least a quarter of all funds invested in railroads.
The Civil War period marked the next great wave of federal intervention in the economy. Federal inducements supported the construction of the railroad that connected the east and west coasts, a great spur to economic development. President Lincoln, a Republican icon, signed bills during the Civil War to subsidize the transcontinental railroad so that it would pass through the difficult terrain of the Rockies, rather than the flatter land of a southern route.
Again, the government’s role here was far from neutral. The federal government offered free land?not infrequently taken from Native Americans?on either side of the tracks to encourage railroad companies to lay rails. Often the companies sold the land and kept sub-surface mineral rights, which became a huge source of revenues for them. (This kind of support for business development stands in stark contrast to the unfulfilled promises to former slaves that the government would provide them ?Forty Acres and a Mule.?)
Lincoln also passed the Homestead Act of 1862, encouraging migration to the newly opened West by providing virtually free land to homesteaders who had worked the land for five years. Prospective farmers, particularly from Northern Europe, swelled the ranks of immigrants (and developed an attachment to the generous Republican Party).
That same year, the Morrill Act passed, providing free land to states that established ?agricultural and mechanical colleges? and had a ROTC unit on campus. These colleges not only supported agricultural development but also expanded educational opportunity, fostering social mobility for many young people.
Tariffs have also long been a centerpiece of U.S. economic policy; advocates see them as protecting ?infant industries? and older industries that could not compete effectively in world markets. The Civil War reduced the federal government?s revenues from tariffs and led to the introduction by the Lincoln administration of the wartime income tax. Later Republican administrations strongly supported high tariffs as a way of protecting domestic industries and workers.
The Civil War saw the foundations of Social Security?like programs. Pensions were given to Northern soldiers disabled by their military service and to their dependents if they were killed. Regulations defined ?disabled? in broad terms, and any veteran could receive a pension if he could not do manual labor. After 1890, old age was defined as a disability so that all surviving veterans were eligible. Many widows continued to receive benefits well into the twentieth century. While many Republicans disdain ?entitlement? spending as a sign of a contemporary culture in which citizens resist taking ?responsibility? for their own economic situations, government spending to aid possibly needy citizens is a long-established and admirable tradition in the United States.
Even Republicans with a reputation for backing free enterprise have supported federal involvement in the economy. It was the Hoover administration that started the Reconstruction Finance Corporation (RFC) in 1932 as a way of stimulating production and employment in the Depression. It provided funds to businesses that had trouble obtaining capital, influencing which companies and industries had a chance to grow. The Franklin D. Roosevelt administration expanded the role of and funding for the RFC, continuing it until the United States entered the Second World War.
Long before the New Deal and Great Society, federal and state governments played essential roles in developing the economic and social potential of the United States. The Republican rhetoric that government ?intervention? is inconsistent with traditional American values and practices clashes with American history. As Elizabeth Warren pointed out, no American entrepreneur or businessperson has ever succeeded without an enormous amount of local, state, and federal assistance. Rather than ?class warfare,? her arguments are firmly within the American grain.