The regular appearance of remarks on financial corruption in the proceedings of Congress in the Nineteenth Century might seem to indicate that American Government always was susceptible to the highest bidder. Rather, these comments are markers of Americans’ strong dislike and fear of corruption than they are proof that financial corruption was in fact eating the roots of their republicanism. The Americans had good reason to regard financial corruption in their government as an unmitigated evil, and so they loudly denounced it when they espied it, and publicly shamed, if not impeached, corrupt politicians upon discovery.
Financial corruption is a direct enemy and threat to republicanism. That is because when an officer of the government is suborned by gift or gain, he or she is representing the policy aims of the giver of gain, and not the people for whom his or her service is due. In aristocracy or monarchy, as Alexander Hamilton correctly observed in his remarks on the British monarchy, corruption actually strengthens those types of political regimes. When the monarch dispenses gifts to the officers of the government, he insures their subordination to his sovereign will. Royal money in the pocket of a member of Parliament might seem to be unseemly to a republican, because in fact, the practice does tilt the regime away from republicanism, but such money or other gifts, like the grant of a title of nobility serve the same purpose – loyalty to the king. Hence, corruption unifies monarchy. In a republican regime, gifts to government officers divides the allegiance of the government between the givers of gifts and the people.
Institutionalized corruption first entered the American regime after the success of the Jacksonian Democrats in the late 1820s and 1830s. Before the rise of Jacksonian Democrats, political parties were used to organize like-minded government servants, so that party leaders could more easily count on the support of the rank-and-file. They needed to be able to count on this support so that when they struck deals with their political opponents, they could deliver the votes that they promised.
But Democrat Martin Van Buren, Andrew Jackson’s right-hand man, pioneered a new use for political parties, the organization of the people. Van Buren built up the Democratic Party into the first national party, by merging the state organizations and extending them into the electorate. The mass party was born, and vaulted Andrew Jackson into the White House.
The glue that held the Democratic Party together was not just their party platform, but also, “spoils,” later known as patronage. As a reward for supporting the party, the victorious party handed out low-level government jobs to its supporters. Criticism for this patronage system was mild, partly because the system was transparent, the people themselves were the beneficiaries of the patronage, and partly because the parties still lived and died according to popular votes. As a result, when the Whig and Republican parties adopted the mass party model pioneered by Van Buren, they also used patronage to hold their supporters together.
But more importantly, the total expenditures for the patronage system could not ever amount to much. From the formation of our first government under the Constitution until well into the Twentieth Century the total expenditures for federal, state and local government during peace-time never exceeded ten percent of the gross domestic product (GDP), or all the new wealth created by the American economy per year. A few postmaster and customs house jobs handed out to the party faithful barely scratched the national wallet. In our day, federal, state and local government spends about forty percent of GDP, which was just shy of $18 trillion in 2015.
In the Nineteenth Century the practice of limited government guaranteed that government budgets were low relative to GDP. Low government budgets meant less money available to spread around and sneak back into the pockets of party supporters and politicians. Small government was one surety against corruption.
During the first presidential administration of Ulysses S. Grant, 1869-1873, a series of scandals made corruption into a national issue. The tremendous expense and industrial needs of the Civil War accelerated the development of the economy and the sophistication of finance. A new breed of financiers and industrialists arose in America, and their activities mixed with politics and tarnished the Grant administration.
New York financiers Jay Gould and Drew Fisk attempted to corner the gold market in 1869. They were able to use their political connections to plant their associate, Abel Corbin, in the Department of the Treasury. Corbin was Grant’s brother-in-law and used his influence on Treasury policy to drive up the price of gold. Then, in 1870, Henry and Charles Francis Adams, Jr., great-grandsons of John Adams, began to publish a damning series of articles on the corporate wars for ownership of the Erie Railroad. Each side in the struggle owned their own set of politicians and judges; fortunes rose and fell. Shareholders were gulled and bankrupted. Finally, the Credit Mobilier scandal broke in 1872, when Grant was seeking re-election. Congress had used nearly $150 million in federal funds, on the credit of the United States taxpayer, to fund the Union Pacific Railroad. But some Senators and United States Representatives who voted on the legislation were stockholders. Worse still, common shareholders, that is, ordinary Americans, were defrauded.
More scandals followed. Grant’s biographers usually conclude that although he was never involved, he befriended or allied himself with bad characters, and was too loyal to them when they were discovered to have betrayed his administration. Grant’s particular weakness permitted the proliferation of scandals that weakened Americans’ trust in government, although he remained popular.
Amidst these scandals, Republican Senator Carl Schurz from Missouri proposed the formation of a new political party to combat corruption. The existing parties were inadequate to meet the exigencies of the times due to the patronage system. Schurz read into the record two letters that he intercepted, proving that the Republican Party was levying funds from Republican office holders and attempting to maintain control of the manner by which they discharged their duties. The patronage system prevented conscientious public servants from doing their duty and was forcing them to do the bidding of the party, which was in bed with new financial powers. The party was accountable to these powers and not to the people.
Schurz, a German émigré, wanted greater regulation of business. Instead, Congress enacted the first civil service bill in 1871, which Grant signed into law. The act created the Civil Service Commission. By executive order, the Commission was expected to appoint officers in the agencies of government according to merit, often by qualifying exams. This reform was intended to break the back of the patronage system, so that public servants would serve the public, and not bend to the will of the parties. Although Congress refused to fund the Commission in 1875, this reform paved the way for more permanent reforms, especially the Pendleton Act of 1883, signed into law by President Chester Arthur. The movement to professionalize civil service in the federal government continued, but did not fully address the question of how to prevent collusion between government and business to the detriment of the public good.
Forrest A. Nabors is Assistant Professor of Political Science at the University of Alaska, Anchorage, a founding partner of Alyeska Venture Management, and a political news commentator. He has recently completed The Great Task of Reconstruction which is now under review for publication.