- Image courtesy of Library of Congress
- "Republican Invincibles": a campaign button from 1864
The parallels between Barack Obama and Abraham Lincoln are many, but is there anything in the Lincoln lore to help Obama cope with the raging financial crisis and global economic meltdown he's facing as he takes office?
Absolutely there is. Lincoln would recognize immediately that the mess today is essentially a repeat of the Panic of 1837, "panic" being the term used then for what we now call a depression. Bank lending gets loose, fuels a speculative bubble, everybody wants in on the easy credit, and up, up, up the prices go until pop, people can't make their payments on the loans, values fall, there's a run on the banks, and when the banks don't have any money (the scene so memorably etched in our minds from It's a Wonderful Life), there's a panic and prices plummet.
In 1837, it was land speculation, not housing, and the perpetrators were unregulated local banks, not allegedly regulated investment firms and multinational giants like Citicorp and AIG. But the underlying cause was the same—financiers issuing bank notes (or today, "collaterized debt obligations") in sums far greater than were supportable by the supposed collateral, and laughing all the way to their bank accounts. When the bubble burst in '37, prices fell not just on land but across the economy by 25 percent in one year, according to historian Eric Foner, leading to business failures and lost jobs in every sector.
For a prescient take on what the bankers have done to us lately, Kevin Phillips described it perfectly last spring in Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism. The high-hat crowd "roughly quadrupl[ed] U.S. credit-market debt between 1987 and 2007," Phillips wrote, "a scale of excess that historically unwinds," and they did so "with a mixed fireworks of dishonesty, incompetence and quantitative negligence."
Indeed, no one would understand better than Lincoln, with his abiding Whig philosophy (only when the Whig Party fractured did Lincoln's faction throw in with the new Republican Party), that the economic history of the United States is a series of ups and downs tied to banking excesses, failures and restarts that of necessity must be orchestrated by the federal government.
As president, Lincoln went on a spending spree to finance the Civil War, borrowing $2 billion on the uncertain credit of the United States and ballooning the federal budget by a factor of 20 to more than $1 billion a year. Also under Lincoln, the federal government for the first time issued its own paper money, called greenbacks, to the tune of $400 million. One purpose was to support key industries like guns and railroads; Obama's today is to pump "liquidity" into the banking system and key industries like autos. (The original $1 greenback, incidentally, featured a portrait of Lincoln's Secretary of the Treasury, Salmon P. Chase, an abolitionist presidential aspirant who was one of the "Team of Rivals" depicted in Doris Kearns Goodwin's 2005 Pulitzer Prize-winning book.)
But at the same time Lincoln was vastly expanding federal borrowing and spending to address the crisis in front on him, he also pushed the National Banking Act of 1863 through the Congress (and when it proved problematic, the National Banking Act of 1864). Thus he created, along with the first national currency, the first Office of the Comptroller of the Currency. Lincoln surely understood, that is, that big banks are a mixed blessing: necessary to finance a modern economy (or war), but capable of driving the economy into the ditch if allowed to run amuck.
As a Whig, says David Herbert Donald in his Pulitzer Prize-winning biography Lincoln, Lincoln shared a vision of "the promise of American life" with its boundless prospects for growth, development and progress. To those ends, Whigs—and Lincoln—favored the creation of a national bank from the 1830s on, along with high tariffs to protect American industry and its workers. Lincoln was, in a word, a protectionist—and not a free-trader.
Supporting a national bank was an unpopular position in Lincoln's formative days, when President Andrew Jackson was the dominant voice in national politics (see The Age of Jackson, by Arthur Schlesinger Jr.) with his support for states' rights, state-chartered and local banks, and "hard" money—paper money backed by gold or silver reserves.
Nonetheless, says Foner, unregulated local banks "[tended] to over-issue paper money, whose deterioration in value reduced the real income of wage earners." A real hazard, in other words, when local bank notes were all the money that existed in the United States prior to the Civil War.
When Jackson became president, he crushed the old Bank of the United States. The subsequent absence of any national banking oversight—combined with the speculative fever surrounding federal land the Jackson administration was selling through local banks—was a proximate cause of the '37 panic.
Frontier Whigs like Lincoln, on the other hand, saw a national bank as necessary to finance western expansion, the emerging industrial base, and public "improvements"—what we now call infrastructure. Lincoln's first political speech, in Decatur, Ill., when he was 21, was in support of a dredging project on the Sangamon River. It was needed so goods and crops could be delivered more efficiently to the Port of New Orleans, Lincoln declared.
The novelist Thomas Keneally, in his brief biography Abraham Lincoln for the Penguin Lives series, notes that if the term "improvements" sounds unremarkable to us today, it was highly controversial at the time, when listeners understood that such projects would lead inevitably to national banking. At the time, many Americans rarely or never used money, operating instead on a barter system. And they distrusted the people who did use money, because it raised prices and cut the value of their labor.
Lincoln had a balanced view on these issues, according to Donald. He favored credit, but for purposes of financing local improvements. He did not, however, favor "the rich who wanted to strut around [in] British cloaks, and coats, and pantaloons"—his view of imported goods. Moreover, Lincoln thought that foreign trade involved "useless labor" by shippers and creditors who'd done no work but would reap the lion's share of profits on the goods they sold, thus cutting into workers' wages.
Obama may not have slavery and secession-minded states to deal with, but Lincoln's presidency offers food for his thought as he reckons with Wall Street meltdown and the trade deficit with China.