Notes

Introduction

1. The interviews with members of the Business Council appeared as part of a special series of programs on money and elections. I served as a consultant to the series and appeared in several segments. Gregory MacArthur, its producer, kindly made available to me full transcripts of the interviews, which I checked against a video of the final program.

2. The comparison to Perot’s plan was initially encouraged by the administration, until the Texan declared against the program. See, e.g., the discussion in chapter 6 in this volume, as well as the news coverage in the major media, which is easily available and, to save space, will not be traced here unless some particular detail is vital. Many business figures weighed in with their various views on the president’s plan soon after he introduced it. But a major document witnessing to its support among important parts of big business is the letter released by Illinois Congressman Dan Rostenkowski dated May 25, 1993. This is signed by some fifty of the largest businesses in the United States and flatly endorses the bill reported out by Rostenkowski’s committee, which contained virtually all the parts of the proposal that occasioned most of the controversy and were subsequently modified in the Senate. Among the firms which enlisted on the president’s side in the alleged class war were AlliedSignal, Ameritech, Anheuser-Busch, Avon, BP America, Colgate-Palmolive, Delta Air Lines, Dow Corning, Electronic Data Systems, Emerson Electric, the GAP, GenCorp, General Electric, General Mills, General Motors, General Signal, Hallmark Cards, Honeywell, Hughes Aircraft, IBM, Jim Walter, Kellogg, Levi Strauss, 3M, Marriott, Mars, Owens-Corning Fiberglas, Philip Morris, Procter & Gamble, Quaker Oats, Ryder, Sara Lee, Southern California Edison, Southland, Tenneco, Time Warner, Walt Disney, and Westinghouse. General Electric’s chair attached a brief comment asking for more spending cuts, and a few other firms added other observations.

I suppose it is too much to hope that appending this list of firms will save us from a flock of articles and dissertations in the coming years about “Bill Clinton and the dilemmas of the autonomous state.”

3. Measuring the tone of press coverage is in its infancy in the social sciences. All one can do is try one’s best to carefully summarize main themes. In this and other essays in the book, I have, accordingly, stuck wherever possible to noting truly repetitious themes that I hope can command general assent. But see the discussion of media coverage following Clinton’s speech in Fairness and Accuracy in Reporting’s very helpful Extra, April/May 1993, p. 8; this reviews many programs and articles such as the Washington Post’s “Is Clinton Pitting Class Against Class?” of February 21, 1993. This article also quotes David Brinkley’s criticism, in a speech to a trucking association after the 1992 election, of the Democrats for practicing “long-standing class warfare.” The article also notes that many of the journalists making such comments are themselves very affluent.

University presses are forced to operate in what one school of French historians is wont to call la longue durée. Thus some parts of chapter 6’s analysis of the Clinton administration, and particularly the likely fate of its economic program, that were originally written as forecasts have become contemporary history. It may, accordingly, be worth mentioning that chapter 6 was essentially completed within a week or so of the president’s budget speech of February 1993. At that time I sent to press a much shorter analysis of the Clinton program, with a very direct prediction of the likelihood of the dollar difficulties that actually materialized in the summer of 1994. This appeared as “‘Organized Capitalism,’ Fiscal Policy, and the 1992 Democratic Campaign,” in Lawrence Dodd and Calvin Jillson, eds., New Perspectives On American Politics (Washington, D.C.: Congressional Quarterly Press, 1993), pp. 118–39.

4. This book went to press long before the conclusion of the great debate over the North American Free Trade Agreement, and an extended comment on the final outcome is obviously out of the question. I daresay, however, that readers of chapter 6 are unlikely to find anything surprising about the president’s stance, or those of his allies.

Note, however, in relation to the Gergen appointment and the Clinton administration’s efforts to redramatize itself, the discussion in the Boston Globe, November 12, 1993. There Robert Kuttner reports that during the summer of 1993 the administration discussed the possibility of pushing for a version of the NAFTA accord that would have contained much stronger labor provisions, including one that would have linked reductions in tariffs to rises in Mexican wages. A number of major unions were prepared to support the treaty in the event the administration opted for this alternative, as were key House Democratic leaders such as Richard Gephardt.

But urged on by, among others, the Democratic Leadership Council, which wanted to weaken unions and attract more business support, the Clinton administration rejected this approach in favor of one built around an appeal to Republican votes and, of course, massive lobbying by the business community.

I have independently confirmed the gist of Kuttner’s account. My sources add that while some American consumer goods producers did support efforts to raise Mexican wages, the rest of the business community favored the more sweeping approach the president eventually adopted. Is it too much to hope that no one will ever ask again whether the investment banking presence in the Democratic Party matters?

5. See, e.g., a typical comment by William Safire in the New York Times, September 20, 1993 (referring to the earlier period). Given the multiplicity of editions that the Times and most other papers now issue, it is impractical and potentially very misleading to note the pages of particular articles in references. Note that when articles are retrieved from computer-assisted data banks, there often are no page numbers supplied at all, even in the original indexes.

6. See USA Today, March 6–8, 1992.

7. Thomas Ferguson, “Money and Politics,” in vol. 2 of Godfrey Hodgson, ed., Handbooks to the Modern World—The United States (New York: Facts On File, 1992), reviews the main facts and literature that addresses these questions. See also Frank Sorauf, Money in American Elections (Glenview, Il.; Scott, Foresman, 1988). There are numerous reviews of the PAC literature. See, e.g., Larry J. Sabato, PAC Power (New York: Norton, 1985). Mark S. Mizruchi, The Structure of Corporate Political Action (Cambridge: Harvard University Press, 1992) is another particularly thoughtful contribution, although I would disagree with a number of points in his discussion, as well as his reliance on PAC data for much, although not all, of his analysis. A particularly unfortunate feature of the recent PAC literature is a concentration on congressional elections in the early eighties, when much of the business community coalesced in political movements designed to move the U.S. political agenda sharply to the right. The discovery by some researchers that this process—which I and others wrote about at the time—in fact occurred, along with experimental designs that often obscure (weaker, but eventually important) countertendencies, nourishes the view that significant political differences within the business community do not in fact exist.

All students of money and politics, incidentally, owe substantial debts to Herbert Alexander, whose publications and data archives are invaluable and quite literally irreplaceable.

The extent to which reality has outstripped the scholarly literature on these questions is hard to convey, but one example may be telling. In many parliamentary democracies it is now quite common for corporations and investors formally to retain members of parliament as advisers for fees. In the United States, on the other hand, it is becoming increasingly common for congressional staffers to strike up various arrangements whereby they are paid (sometimes through one or another legal dodge, such as “consulting fees”) by interested parties. The degree of statistical misspecification in ordinary voting models of politics is thus becoming ever more baroque.

8. The text of every previously published essay in this book has been revised and expanded, often considerably, and a substantial amount of material appears here for the first time.

Earlier versions of chapters (or parts of chapters) appeared as follows. Chap. 1: in Paul Zarembka, ed., Research in Political Economy 6 (1983); reprinted by permission of JAI Press, Inc. Chap. 2: in International Organization 38, no. 1 (Winter 1984); reprinted with the permission of MIT Press. Chap. 3: in The Journal of Economic History, vol. 44 (December 1984); reprinted by permission. Chap. 4: in Sociological Perspectives, 34, no. 4 (1991); reprinted by permission of JAI Press, Inc. Chap. 5: in Socialist Review 19, no. 4 (1989); reprinted by permission of Duke University Press. And in “Unbearable Lightness of Being,” in Benjamin Ginsberg and Alan Stone, eds., Do Elections Matter? (Armonk, N.Y.: M. E. Sharpe, 1986); reprinted with permission. Chap. 6: in Lawrence C. Dodd and Calvin Jillson, eds., New Perspectives on American Politics (Washington, D.C.: Congressional Quarterly, Inc., forthcoming); reprinted with permission. Appendix: in American Review of Politics (Winter 1993); reprinted with permission.

9. See Lance Bennett, The Governing Crisis (New York: St. Martin’s, 1992) and the discussion in the appendix. At a couple of points in his discussion, Bennett asks whether the main effect of money in the political system does not consist in bringing about the disintegration of the system to the exclusion of larger patterns such as those suggested in the various studies in this book (in which investment banks, various multinationals, and other definite business groups play major roles even in the Democratic Party). The NAFTA debate should now have resolved this question. American politics is not simply disintegrating; new, historically specific, political coalitions and patterns of policies are emerging.

10. Thomas Ferguson and Joel Rogers, Right Turn: The Decline of the Democrats and the Future of American Politics (New York: Hill & Wang, 1986).

Chapter One

* Readers unfamiliar with this work and the issues it raises may wish to skim over the next few pages. Nothing essential will be lost, and the later historical sections of the paper should be readily intelligible.

1. Frank Vanderlip to James Stillman, September 20, 1912, Frank Vanderlip Papers, Rare Book and Manuscript Library, Columbia University. On the controversy about the National City Co., the Taft and Wilson administrations’ inaction, and subsequent developments in defining the relationship between commercial banks and the securities markets, see Ferguson (n.d.). I have added the comments in brackets to provide background for non-specialist readers.

2. The literature on realignments, voting behavior, and party systems is vast. Since Ferguson (1986) discusses much of it, and extensively references other discussions and bibliographies, this paper will not attempt another inventory of the literature. Also, the summary of critical realignment theory which follows sticks closely to the theory’s “core” propositions, leaving aside many nuances and disputed points.

3. Some realignment theorists, including Burnham, Ginsberg, and David Brady, argue that effective popular control of public policy is most likely during critical realignments; at other times institutional obstacles to effective majorities inhibit the impact of voting on public policy. For a more extensive discussion see Ferguson (1986).

4. Note that with the possible exception of Lichtman (1980), whose closing chapters begin an analysis of the role of the business community which could lead toward an investment theory of parties, the critics of critical realignment theory draw few general conclusions about elections and the control of public policy. They largely concentrate on the facts of voting behavior during elections.

5. For example, Clubb, Flanigan, and Zingale (1980). Such efforts normally also propose intensive examinations of the content of public policy.

6. Ferguson (1986) summarizes the evidence on this score and makes use of data collected in Ginsberg (1982) to provide some quantitative evidence of the tenuous and unstable relationships between elections and public policy.

7. For example, Downs (1957a, pp. 247 ff.).

8. Some friendly critics of an earlier draft of this paper have suggested that Downs’s work ultimately takes a more jaundiced view of the possibilities for voter control of the polity than suggested here. Now, if consistently maintained, the discussion of “producer bias” in the closing chapters of An Economic Theory of Democracy leads toward an investment theory of parties. Also, as I suggest elsewhere, other parts of Downs’s work broach important lines of argument that could undermine “electoral control” theories. But these sections have been almost entirely ignored in the subsequent literature. Even Downs’s own summary of his views (1957b) did not develop the “producer bias” arguments at all but instead presented his analysis as a more rigorous and modernized updating of quite traditional voting models of politics. It is therefore unsurprising that neither reviewers nor the author of an excellent general discussion of economic “influence” in politics (Bartlett, 1973) considered such efforts essentially “Downsian.” See also the discussion later, on the principle of noncompetition and other quite non-Downsian consequences of the investment theory of parties.

9. It should hardly be necessary to observe that this brief discussion cannot hope to cover the nuances of the “socialization” approach or the differences that divide its exponents. For a more extensive discussion, see, inter multa alia, Campbell et al. (1960).

10. As discussed above; it is surprising that an application of Downs along Popkin and associates’ lines took as long to arrive as it did.

11. Olson (1971, Chap 1) briefly summarizes the notion of a “collective good.” See also the discussion of his work later in this paper.

12. Popkin et al. (1976, p. 786); the “simple act of voting” reference is to Kelley and Mirer (1974).

13. Roemer (1978); note that Roemer restricts his point here to what this paper refers to as “major investors.”

14. This is technically incorrect. Party competition takes place until investors in both parties feel their overall losses from mobilizing voters through appeals that lead to sacrifices of vital investor interests exceed the gains that might come from control of the state. But since what is at stake are vital interests—such as labor legislation, or perhaps even the existence of private property itself—virtually any erosion along these dimensions results in massive investor losses. Virtually no investors, accordingly, finance campaigns that involve such appeals, and so practically no competition occurs along these dimensions.

15. For a somewhat untypical case, see the description of the organizational structure established to help manage the Rockefeller fortune in P. Collier and D. Horowitz’s book The Rockefellers (1976). It should be noted here that this discussion of the advantages business enjoys in acting politically cannot be exhaustive. Nor, perhaps more importantly, is it intended as a contribution to the growing theoretical literature on the relationship of the state and market. Most of the considerations advanced in works like Lindblom (1977) are taken for granted here, where the concern is much more concrete.

16. For the evolution of modern management structures, see Chandler (1977) and also DuBoff and Herman (1980). While they make their argument cautiously, Bauer et al. (1972) come close to asserting that large firms do not have reliable cost data—a point which, I venture, will find little support in the mass of business history writings.

Several other observations about this frequently urged position are probably also worth making here. First of all, no one denies that lower-level bureaucrats occasionally escape from the control of their supervisors in the manner described in Allison (1971) (though later analysis suggests his examples may not have been well chosen), or that personality differences and other disputes are not endemic in large business organizations. The point, however, is that management structures have been continuously redesigned to reach and enforce a working policy consensus in the face of such obstacles. When internal divisions over basic policy surface in an important case, their consequences are fairly easy to observe: there will be visible signs of turmoil in the organization and, often, clear attempts by higher-level executives to deliberately take back control.

My own studies of internal documents and memoranda relating to corporate decision making on major public policy issues during the New Deal turned up only a few cases in which major issue-related differences persisted inside corporate managements. Where they did, the usual procedure was to call a committee meeting to hammer out policy. In this connection, see also William Baumol’s observations on the use of operations research after World War II to put such decision-making procedures even more firmly in place [quoted in Walsh (1970, p. 113)].

17. Strictly speaking, as Olson himself notes, his account of collective action also covers altruistic behavior (1971, p. 64). But many politically relevant applications of the theory probably require the stronger assumption of self-interest.

18. See, e.g., Roemer (1978), which rather clearly assumes that fairly concrete issues of work, distribution, and such are sources of frustrations that lead to collective action.

19. Many of these cases, including perhaps most of those discussed here, should perhaps be more properly described as private transactions which have important external effects on the rest of the population. But Olson himself continues to refer to “the group” provision of “public goods” in such cases (see, e.g., p. 48, n. 68), and this chapter will follow that usage.

20. After more than two decades of work on game and coalition theory, it is rather surprising, and cause for some alarm, that this sort of thing continues to happen. Even the most elementary acquaintance with the “prisoner’s dilemma” or oligopoly pricing theories should make it clear that “perfect competition” in a neoclassical sense is a wholly inappropriate assumption for the analysis of many important social outcomes. Like the Justice Department’s claim about the American antiwar movement in the 1960s, a confusion of such “imperfectly competitive” or interdependent situations with conspiracies reveals more about the speaker’s goodwill and clarity of mind than the merits of any actual case.

It is, after all, a sad day for social science when, for example, Morris Fiorina’s Congress: Keystone of the Washington Establishment (1977) has to perform a virtual ritual dance of purity in the introduction merely to advance the suggestion that congressmen vote for spending programs in part because they want to be reelected.

21. Personal communication from Lawrence Goodwyn, who has extensively researched this incident.

22. For more details see Ferguson (1984, n.d.) which relies on extensive primary sources.

23. See Olson’s (1971) discussion, pp. 24–25, especially n. 42, and p. 48.

24. This is apparent even from the example Olson uses in presenting his formal analysis. He considers the case of a group of property owners lobbying for a property tax rebate. Then he sets up the following model.

T = the rate at which the collective good is supplied;

S_g = the “size” of the group, “which depends not only upon the number of individuals in the group, but also on the value of a unit of a collective good to each individual in the group” (p. 23).

The “group gain” (S_gT) = V_g. Now, V_i/V_g = F_i, the “fraction” of the collective good an individual obtains; the total gain to an individual therefore is F_iS_gT.

For an individual to act, a positive advantage (A_i) must accrue to him or her.

To use the model to discover how much of the collective good will be supplied, Olson therefore analyzes how A_i varies with T.

Since the first order condition for A_i to be at a maximum is dA_i/dT = O, Olson evaluates

Now, because

the right-hand side becomes

For an individual to act,

Now, all of this is well and good. But what Olson does next is to argue that, because increases in the size of the group drive down F_i, individuals in large groups will not be able to meet this condition, which defines situations under which it is rational for individuals acting by themselves to bear the whole cost of collective action and, by their action, benefit the group as a whole. So, here is a reason, Olson concludes, why large groups will not be provided with collective goods.

But there is clearly something wrong with this analysis. As more than one real estate group in recent American history has discovered to its delight, rewriting a proposed tax rebate to include half or more of the potential electorate does not automatically reduce benefits to itself. Despite Olsons claim that increasing the size of the group should decrease individual benefits, such a strategy is often precisely the high road to success.

In terms of Olson’s discussion on pp. 22–23 of his book, this is to say that F_i does not necessarily change as additional property owners are added. Of course, whether collective action occurs depends on more than the maintenance of the F_i’s, but they, at least, need not pose a problem in a large group.

Note, however, the differences between this example and the Cournot market case Olson discusses on pp. 26–27. In the latter, the demand curve limits total sales, so that increases in individual F_i’s really do take directly away from someone else. This distinction is clearly recognized by Olson in the next section, which distinguishes between “inclusive” and “exclusive” groups (pp. 36–43), but the original claim that increases in group size lead directly to lower probabilities of collective action because of changing F_i’s is repeated thereafter.

It may also be worth observing that the point at issue here differs from the criticisms of Frohlich, Oppenheimer, and Young (1971). Their main argument centered on the possibility of introducing marginal cost-sharing arrangements (pp. 146–48).

25. This is, of course, far from the only problem with the neoclassical approach to “aggregate” concentration.

26. A good discussion of the U.S. experience in this respect is in Kotz, (1979), though its discussion of the New Deal should be supplemented by Ferguson (1984, n.d.).

27. For evidence on the CED see Burch (1979); among many sources on the Business Council see Collins (1981, passim). The only study known to me that failed to confirm the special significance of large financial institutions in major business organizations is Useem (1980). But this study included organizations like the National Association of Manufacturers (NAM) that formally prohibit financiers from being on the board in the sample it analyzed, thus imparting a downward bias to its estimate of the importance of financiers. Of course, the NAM is not without significance, but as Burch (1973) observed, the NAM only occasionally has represented really large firms. As Ferguson (n.d.) argues, when, as in the 1930s, the NAM’s national significance increases, it is because a core of large firms has subsidized organizational growth.

28. See Carle Conway to Thomas Lamont, Dec. 2, 1943; Lamont to E. T. Stannard, Dec. 3, 1943; Conway to Lamont, Dec. 15, 1943; Lamont Papers, Baker Library, Harvard University. Conway, the president of Continental Can and a CED activist, asked Lamont to intervene with Kennecott Copper. The famous Morgan partner did, and Kennecott increased its contribution.

29. See Olson (1971), e.g., Chap. 4.

30. For extensive discussion and references see Bernstein (1950), Fusfeld (1980), Goldstein (1978), Ferguson (1984, n.d.), and Zilg (1976, pp. 327–30). What appears to have happened to Zilg’s excellent study after its publication underscores this essay’s general analysis of the role major investors play in American life. See the chilling discussion in Sherrill (1981).

31. A close examination of smaller business support for Pennsylvania’s “Little New Deal,” I suspect, would be very revealing in regard to the abolition of the Coal and Iron Police.

32. See the discussion in Mowry (1946, pp. 225, 249, and 292–93); and Kolko (1963, Chap. 8). A few details of Kolko’s interpretation of the Perkins-J. P. Morgan links perhaps are mistaken, though there is no space here to discuss the question.

33. For the “leapfrog” reference, see Downs (1957a, Chaps. 8 and 9); and Barry (1970, pp. 118 ff).

34. See the discussion of relief in section 4 and the references cited there.

35. For the individual cases just mentioned, consult any detailed history of political parties and election campaigns, e.g., Polakoff (1981); for Carter in 1980, see Ferguson and Rogers (1980, pp. 28 ff).

36. Though not all analysts using an ethnocultural framework have claimed their results refute explanations of American politics that rely chiefly on economic arguments, many have. See, e.g., Bogue (1980), who cites Kleppner, Formisano, and Jensen to this effect. In fact, however, all but strong formulations of the “ethnocultural synthesis” are entirely compatible with this essay. And the strong formulations are clearly wrong. Almost none of the best-known studies in this tradition have employed adequate controls for economic factors, not have they tested analyses relying on sophisticated economic theories. Where sensible economic controls have been tried, the results show significant and powerful direct economic effects on voting behavior even in cases where ethnocultural theories should show to best advantage. See, for example, Lichtman’s (1980, Chap. 8) striking discussion of voting in the 1920s (whose analysis, especially when read in the light of his final chapter’s remarks on the utility for business elites of race and other noneconomic appeals, is highly compatible with this essay’s analysis) and Williamson’s (1981) study of Kansas in the 1890s.

Ethnoculturally oriented voting analysts have also made life easy for themselves by avoiding any detailed analyses of class structure and the churches (as is briefly discussed later, in section 4). Nor does it help the cause of either theory or clarity when Morris Fiorina, in his analysis of Retrospective Voting in American National Elections (1981), adopts a definition of “economic” influence on voting that excludes cases in which workers who have lost their jobs in a world recession accept Jesus Christ as their savior and then come out vigorously in favor of, for example, aid to Taiwan, South Africa, or the B-1 bomber (not to mention “right-to-work” laws).

37. See the discussion in Key (1959).

38. As Ferguson (1984, n.d.) suggests, often the best and most practical way to define “large” investors makes reference to (whoever controls) the largest corporations and banks in the country, and as many large individual fortunes as data can be gathered for. Also, as Ferguson (1986) observes, in this sort of work, as in other parts of the social sciences, missing data often represent a hazard which is to be worked around as best as one can.

39. It is obviously absurd to think that some fixed percentage of major investors somehow exercise an unvarying amount of influence at all moments in the life of a national economy. Any serious attempt to analyze concrete cases has to recognize that relations between large and small investors are dynamic and historically ever-changing. That said, it remains true that large investors are uniquely important to analyze within any given historical circumstance—even on the rare occasions in which many small investors become politically active and the level of class conflict rises.

40. It is obvious, for example, that many existing archives are missing any number of potentially important documents, including not only many which were inadvertently destroyed or mislaid but also many that were deliberately suppressed or which still exist but continue to be withheld by interested parties or their descendants. Material that has been recovered sometimes contains errors and can also mislead simply because it must sometimes be interpreted without a complete understanding of the context. More subtly, the kinds of material one examines most frequently can bias one’s conclusions. Excessive concentration on readily available government agency records, for example, makes it easy to exaggerate the importance of bureaucrats in historical events; the same is potentially true, mutatis mutandis, with all other kinds of records, including those in private business archives.

Memoirs and eyewitness accounts of major historical events contain additional sources of bias as well. Most kings, presidents, ministers, and such are prone to exaggerate their own roles in key decisions. Such sources also contain all sorts of other confusions, good-faith mistakes, and occasionally outright fraud.

It should also be obvious that no one has done more to damage the historical record than Alexander Graham Bell, and that written documents help little where the groups and persons concerned do not write at all or rarely articulate their views extensively.

41. Oral interviews, however, are probably the least useful and reliable of all possible sources. It is probably no accident, for example, that virtually all accounts of the business community that cast doubt on its general political skills and power rely extensively on oral interviews for their “facts.” For some striking comparisons of what high business and political figures told interviewers about their behavior in the New Deal and what archival evidence revealed about their actual behavior, see Ferguson (n.d.).

42. See the discussion of recent literature on appointments and the analysis of political power in Ferguson (1986).

43. For example, the analyses in Ferguson (n.d.).

44. Note the restriction of this condition to major investors. While it probably fits most other investors to varying degrees at different points in time, this paper is not basically concerned with how to analyze mass politics. It is important to note, however, that a special interest in profit maximization does not derive from any unusual deductive powers unique to large investors. Their behavior, in this respect, faces constraints that may not operate evenly on the rest of the population. As is not the case for lesser investors, in many situations the resources available to major investors ensure that what they do matters, visibly, tangibly, and often immediately. An error, or inaction, accordingly, imposes real costs.

45. In this paper there is little point in taking a turn on the income/wealth/maximization/optimization/satisficing/time horizon/discount rate carousels. Nor is there time to do more than pause ritually to acknowledge that, of course, the role profits play in capitalist economies is unique and not at all comparable with other sources of income.

Nor is there space to discuss how this analysis of wealthy investors relates to current discussions of cultural and ideological factors in social development. While these will have to wait for another occasion, it may be noted here—as it should be plain from parts of section 4—that investments in “culture” and information represent a major share of all politically relevant investments by major investors.

46. For the notion of a nondecision, see Bachrach and Baratz (1970). All these cautionary remarks, of course, provide no excuse for endorsing vacuous searches for “perfect” or “comprehensive” indicators. One point in favor of careful working procedures in the social sciences is that they permit cumulative improvement. See also the remarks in Ferguson (1986) on so-called thick description as a social science strategy for advancing knowledge.

47. For the original, more complex models, and many more details and references to the literature on the System of ’96, see Ferguson (1984, n.d.).

48. Which means that, unlike the first, this dimension is not continuous, but takes only two values. It also, of course, oversimplifies the relation of firms to the international economy.

49. It is perfectly sensible to plot the financial system on these graphs, as in Ferguson (1984). But financial markets are often highly decentralized and individual banks are frequently tied to very specific sectors and regional economies. Depending on the issues involved, accordingly, banks may simply support their borrowers. For example, it was surely not their own labor problems, but concern for labor problems that afflicted their investments (“borrowers”) that persuaded most nineteenth-century bankers to support government policy actions against labor. The assignment of the financial sectors to spaces on graphs like those discussed here is, therefore, more complicated than it appears at first sight. It is perhaps also worth noting that membership on boards of directors and trusteeships can often provide important evidence for further analysis by this scattergraph method. Note, however, that in such cases, the directorships merely function as data to support or negate a theory whose explanatory force depends upon the model of the underlying political economic relationships implicit in the dimensional analysis of the coalition. “Networks” by themselves explain nothing; their significance derives entirely from the demonstration they can provide that certain actors really are interacting in accordance with a theory of how they should act. I mention this point because previous (informal) statements of the methods discussed in this paper have been misunderstood as advocating “network analysis,” or as suggesting that the mere discovery of some sort of social tie between actors counts as definite evidence of joint, effective action. Obviously, it does not, and, a fortiori, it is substantive considerations of political economy, not the abstract fact of a “network,” that explains political outcomes.

50. It should not, however, be too difficult to form an impression of what these will look like when published. The sketches of various party systems which follow all clearly label outcomes and principal actors, and discuss the broad dynamics of the various transitions. It is perhaps also worth noticing that nothing in this analysis prejudices the possibility that a normally stable party system could be briefly disrupted by some intensely but briefly contested issue unrelated to other elections within the period. In that case, graphs for one election would be scrambled, requiring an extra dimension useless for analyzing the system as a whole. But if the basic long-run industrial alignment is not disrupted, then the “exceptional” character of such an election will be evident.

51. See section 4.

52. Now a major theme of much work inspired by Immanuel Wallerstein’s research.

53. See section 2.

54. Perhaps in reaction to the last generation of “consensus historians,” many recent studies of American history make a determined effort to discuss the often very painful daily-life experiences of ordinary people. This research has produced many significant works that amount to a powerful indictment of conventional pluralist theories of American politics. But while I am totally in sympathy with efforts to “assert the dignity of work,” “reveal the thoughts and actions of the rank and file,” or show ordinary people as “active, articulate participants in a historical process,” and similar aims, I am very skeptical about this literature’s frequent unwillingness and inability to come finally to a point. That ordinary people are historical subjects is a vital truth; that they are the primary shapers of the American past seems to me either a triviality or a highly dubious theory about the control of both political and economic investment in American history.

55. See, for example, Goldstein (1978, passim).

56. Except in specialist works like that of Goldstein (1978), such cases are normally neglected by all varieties of “consensus” historiography.

57. See, e.g., Ratner (1967). Taxes, of course, always remain one side of a problem whose other face is expenditures, though this essay cannot afford more than the briefest consideration of either.

58. “Ethnocultural” histories have produced much work on particular periods and elections, but no synoptic interpretations of American critical realignments. Perhaps the closest approach to one, though it scarcely represents a “pure” example of the genre, is Polakoff (1981). See also the works cited in Bogue (1980) and for a view that stands between these works and this paper, Shefter (1978).

A few other reservations may also be noted here for the record. First, because this is a paper and not a book, the sketches which follow pass over any number of major events in American history, from the political adventures of John C. Calhoun to the Vietnam War. This is unfortunate, but there is no alternative. Second, similar limitations of space preclude much discussion of the role of “intellectuals” and ideas in the realignment movements discussed here. I hope to return to this theme in the separate studies of the party systems I expect to publish in the future. For the time being, it must suffice to note that virtually all the major business figures discussed here maintained close, often intimate, relations with channels for the dissemination of ideas. Third, while a few of the most obvious and outstanding facts that bear on the daily life of average Americans are discussed here as crude benchmarks, an enormous amount of demographic, statistical, and personal facts have had to be left out. Only the barest details of how women, minority groups, or even workers as a whole fared [as well discussed, for example, in Gordon, Edwards, and Reich (1982)] can be put into an essay that must concentrate on the process of bloc formation among major investors. Finally, this essay has to focus on broad trends at the national level, without regard to differences between levels of government.

On many of these topics, however, an industrially sensitive analysis could contribute much. In regard to the progress of the movement for women’s rights, for example, it surely mattered a great deal that two of the biggest and fastest-growing sectors in the early stages of industrialization—textiles, and the brewing and liquor sectors—were dead set against women’s suffrage. One was opposed because initially women’s suffrage would likely have led to a stronger political position for its own workforce (which included many women and children); the other because of the leading roles women played in the Temperance campaign. Nor was it accidental that the final successful campaign for women’s voting rights coincided with World War I, when public hysteria and official investigations had virtually immobilized the heavily German-oriented brewers.

The gradual passage of laws giving women the right to hold property in their own names in the nineteenth century also had major consequences once the trust movement appeared. Combined with the somewhat misnamed “managerial revolution” (which enabled shareholders to control large blocks of shares without having to actively manage the enterprises), this development led directly to the ironic fact that some women (e.g., Mrs. Russell Sage) ended up in command of enormous fortunes upon the deaths of their husbands. They could then redirect (some of) the money to social causes. But more of this another time.

59. For example, the discussion in Formisano (1981); Ferguson (1986) discusses some of the ramifications of taking positions on this question.

60. Elbridge Gerry and his allies, for example, were certainly not poor, provincial farmers.

61. In this and most of the remaining notes in this paper, it would be easily possible to reel off a plethora of references. But there is simply not enough space for this. Accordingly, subsequent references are strictly limited to the minimum number necessary to support the argument and make no attempt to index even a minimally adequate list of major works on each period.

62. See the excellent summary of Hamilton and other Federalist leaders’ wealth and kinship ties in Burch (1981a, Chap. 2); this source also has a brief summary of Hamilton’s fiscal program.

63. See the discussion of banking practices in regard to loanable assets in Hammond (1957, pp. 74–75).

64. Among many discussions see, e.g., Polakoff (1981, Chap. 2), La Feber (1972), and Van Alstyne (1972).

65. Burch (1981a, p. 88) is most illuminating. Dallas himself represented Stephen Girard on several occasions. His very close associate Jared Ingersoll regularly represented Girard. Dallas seems also to have served as a sort of courier between Philadelphia’s Republican business community and the administration.

66. Reliable trade figures showing the dramatic reorientation of American trade after the Revolution away from Britain have only recently become available. See Robertson and Walton (1979, pp. 126–28). For John Jacob Astor and the other Republican merchants, see Burch (1981a, p. 88).

67. Hammond (1957, pp. 145–461); Van Alstyne (1972); and Burch (1981a, Chap. 3). Note that Joseph Story did not support Jefferson’s embargo policies. For the Western movement, see Van Alstyne (1972); for background, La Feber (1972). Paying for the weaponry necessary for this imperial venture, however, was a contentious issue in both Jefferson’s and Madison’s regimes.

68. A word about the significance of this brief increase in turnout may be advisable here. There is no reason in principle why the dream of conquering the West, or Canada, or Florida, should not also have captured a large mass of voters, as well as the elites this paper dwells on. Indeed, it almost certainly did. But the very steep decline in turnout in the elections following, as well as the considerations advanced below, in the discussion of the Jacksonian era, make it difficult to claim that voters were determining policy in general. On the contrary, the rise in turnout probably testifies to massive mobilization by sharply divided elites.

69. Hammond (1957, pp. 146–47); for Story, see Burch (1981a, p. 110). In this paper it is not possible to pursue the question of how the Supreme Court relates to the various party systems discussed here. Burch’s discussion of Supreme Court appointments (1980, 1981a, b) suggests, however, a variety of ways this issue can be approached that have so far not been widely explored, even in the growing literature on so-called critical legal studies.

70. Hammond (1957, Chaps. 6 and 8) is a superb discussion. For Girard’s plans, see Brown (1942).

71. Brown (1942) and Hammond (1957, Chap. 9) have excellent discussions. See also Burch (1981a, pp. 99–100).

72. The origin of Southern support for tariffs in this period has been debated extensively. For references and a perhaps less than wholly convincing analysis, see Preyer (1959).

73. For a vivid account of the distress that accompanied the depression of 1819, see Rezeck (1933). The 20 percent unemployment figure (in some cities) is a guess. It assumes that the figures for particular locations mentioned in Rezeck (1933, pp. 29–31) are exaggerations and that the panic of 1819 probably was not as severe as later depressions, such as those in the 1890s or 1930s.

74. See Burch (1981a, p. 100 and p. 122, n. 69). Astor evidently did not seek repayment of principal until after Monroe left the White House.

75. Shade (1981), which is an exceptionally interesting essay; McCormick (1960); and Polakoff (1981, Chap. 4). Note that local rivalries in this period remained intense. For some of the tensions associated with this development, see Welter (1960).

76. Taussig (1964), and Pincus (1977) are sources on the early tariffs. See also a fine and very stimulating study by Chase-Dunn (1980), which, however, attaches more importance to manufacturing during the period before 1860 than its weight in the economy warranted and greatly underestimates the significance of railroads.

77. Hammond (1957); compare the reception accorded this book with the earlier study of Schlesinger (1945) which Hammond had brilliantly reviewed (Hammond, 1946). Hammond, perhaps, could have made a bit more than he did of the support the Bank commanded among some large state banks (including some in New York City), though he was aware of it and indeed briefly discusses it most intelligently.

78. See Burch (1981a, p. 171, n. 126) and Sobel (1977, pp. 8 ff. and 26). For Philadelphia’s crucial role in finance during this period, see Chandler (1954).

79. Hammond (1957, Chaps. 12–14); but see especially Burch (1981a, p. 147), which demonstrates major errors of fact in earlier criticisms of Hammond by Remini (1967) and especially by F. O. Gattell (1966).

80. See the discussion in Haeger (1981, pp. 138 and especially 139), which is a nice case study of what American “radicalism” is frequently all about. Hammond made the same point in general but not in detail. On New York parties in general, see Bridges (1982).

81. See the discussion in Trimble (1919, pp. 410–11); for Cambreleng’s business ties, see Burch (1981a, p. 152, p. 170, n. 119 and 123, and p. 171, n. 126).

82. Compare the indications of increasing party cohesion in, e.g., Russel (1972). On the basis of a wealth of data, Shade (1981) argues convincingly that national parties properly “emerged” only toward the end of the 1830s. This is also the present essay’s argument; but I am somewhat puzzled why Shade believes this development is difficult to explain, or how relabeling capitalist development as “social mobilization” advances the inquiry. Nevertheless, his broad argument is compelling and merits a wide readership.

83. Evans, 1981, p. 34.

84. A good survey of the American experience with laws regulating wage and hours is Ratner (1980). See also Dankert, Mann, and Northrup (1965). David and Solar (1977) summarize trends in real wages and the cost of living. Williamson and Lindert (1980) provide a comprehensive analysis of wealth and income differentials over the course of American history. The minuscule nature of relief (less than 1 percent of GNP) all through the nineteenth century is clear in Peterson (1935) and can be directly estimated from what are probably reliable data for the 1890s in Mills (1894). Note that Peterson suggests that relief was much better organized in the 1890s than previously. It is also probably worth noting that relief expenditures ran highest in the largest American cities.

85. The illiteracy figures are taken from Cremin (1980, pp. 490–91), who cautions that variations in census procedures affected results at different points and that blacks’ illiteracy rates ran far higher than whites’. The 1854 Census estimates of newspapers show 852 papers in the United States in 1828, 1,631 in 1840, and 2,526 in 1850. The estimate of prolabor papers comes from Sumner (1936, p. 286) and is for the years 1828–1832—years before the panic of 1837, which wrecked unions across the country.

86. I have not been able to find any reliable estimates of the economic value of the output of political machines in this period. For slightly later dates, Yearly (1970, passim, but especially pp. 265–66) is suggestive. Much of the literature on political machines in America is highly romantic. A more accurate and less sentimental treatment seems now to be emerging, however; see, for example, Shefter (1976) or Erie (1980).

Note that a few voting analysts have raised questions about the reliability of the figures for voting turnout in this and later periods. In particular, it is sometimes suggested, the U.S. Census population reports might induce important errors. This chapter does not have space for a full consideration of such arguments, but it should be pointed out that Burnham, who is the most frequently cited source of turnout figures, made important use of state rather than federal censuses whenever he believed the federal government’s figures could be improved upon. Accordingly, calculations of errors based on experience with the U.S. Census miss the point; and the Burnham estimates, which were very carefully done, are probably as good as any that will ever be produced.

87. See, e.g., the discussion in Cremin (1980, pp. 338 and 341 ff.); this source perhaps exaggerates the number of actively involved farmers who did more than read papers or magazines.

88. The literature is immense, but see, for example, Beard and Beard (1934, Chaps. 15 and 17).

89. See the review of these various studies in Lee and Passell (1979, Chap. 10).

90. For references and a discussion of these theories, see Lee and Passell (1979, pp. 214–18).

91. For example, Robert Toombs, in a speech to the Senate, in the Congressional Globe (Jan. 7, 1861), pp. 270–71; though this is quoted in Lebergott (1972, p. 214), its point seems not to have been taken up in the subsequent literature, although Lebergott himself makes it clearly.

92. See the discussion in Polakoff (1981, p. 165), although he perhaps underestimates the pro-Southern sentiment that grew in parts of southern California. Note also that further settlement was certain to follow a successful transcontinental railroad, which many Southerners promoted.

93. Jones (1970) is one of many discussions.

94. For Walker, see LaFeber (1993, pp. 28–30); for Cuba, see, e.g., Jones (1970, pp. 66, 69).

95. Expansion into Mexico, for example, virtually required that the states remain united. Not surprisingly, therefore, many early Southern supporters of territorial expansion, such as South Carolina’s Joel Poinsett, opposed efforts to bring North-South conflicts to a head. See also Draughton (1966) on the role played by Sam Houston’s brother George in sparking opposition to Calhoun in the late 1840s.

96. Note also that parts of several of these states fell well below the Mason-Dixon line, the traditional dividing point between North and South.

97. See, among many sources, Russel (1948, passim). Jefferson Davis, future president of the Confederate States of America, was a major player in some of these struggles.

98. See Sorin (1970) for a statistical study of leading New York abolitionists. A leading abolitionist, New York’s Gerit Smith, was for some years probably the largest landowner in the United States. Lewis Tappan, another abolitionist leader, founded the firm that is today Dun & Bradstreet.

99. “James F. Joy,” National Cyclopedia, XVIII, p. 121; Forbes (1900, p. 171).

100. “James F. Joy,” National Cyclopedia, XVIII, p. 121; Dodd (1911, p. 787); Stover, (1975, p. 90).

101. Edelstein (1968, pp. 216–17). Forbes had earlier helped ship guns to Kansas. Gerit Smith also contributed to Brown. See “Gerit Smith,” National Cyclopedia, XVIII, p. 332.

102. See, e.g., Forbes (1900, p. 186).

103. Dodd (1911, p. 787) identifies several prominent New York Democrats as controlling the Illinois Central in this period. But while Dodd may be correct, neither the United States Railroad Directory for 1856 nor Low’s Railway Directory for 1858 records any of the men Dodd discusses as serving on the board. These directories do, however, show clearly that Dodd was right in claiming that New York interests maintained a dominant position on the board. The next directory I have been able to locate dates from 1861. This shows a continued heavy representation of New Yorkers, but also some turnover, including the removal of one director listed as living in Chicago, and the arrival of Nathaniel Banks. The seriously incomplete accounts of Lincoln’s relationship to the Illinois Central in Sunderland, (1955, pp. 24 and 39) and Corliss (1950, pp. 108, 117 ff., and 121) are consistent with the view that the Central’s top officers and directors were far more favorably inclined to Lincoln in 1860 than in 1858. It should also be observed that railroads in certain areas (like the Baltimore & Ohio, which ran through border states) were not at all enthusiastic about either Lincoln or conflict with the South.

104. Forbes (1900, p. 182); “James F. Joy,” National Cyclopedia, XVIII, p. 121.

105. While the full network of ties between all the principals in the Lincoln campaign is too dense to discuss here, for Ogden’s business relations with Thomas Scott of the Pennsylvania Railroad, see Burgess’ Railway Directory (1861), p. 88. Note also that most of these men still hoped to avoid war with the South.

106. For Cornell, see Dorf (1952, pp. 199 and 227); for Chase and Cooke, see Burch (1981b, pp. 20–21).

107. Almost all accounts of Lincoln’s election mention Pennsylvania and the tariff; for banking reform, see Rezeck (1942) or Hammond (1957, Chaps. 21 and 22). See also Burch (1981b, p. 22).

108. The literature on these matters is immense; see, e.g., Polakoff (1981, pp. 196 ff.) for a brief account.

109. Of many accounts, see e.g., the discussion of McClellan’s candidacy in Burch (1981b, p. 55, n. 70). In this period many railroads also shifted back and forth among the parties in a complex pattern that defies summary here.

110. Polakoff (1981, Chaps. 6 and 7); Burch (1981b, pp. 74–75).

111. For the railroad and other bargains in the Compromise of 1877, see Burch (1981b, p. 74). See also Josephson (1963) for many of the events of this period and Goodwyn (1976) or Schwartz (1976) for the subsequent nightmares Southern elites visited upon their subject population.

112. Schirmer (1972, Chap. 2). For civil service reform in this period see especially Roy (1981); for Forbes, see “John Murray Forbes,” National Cyclopedia, XXXV, pp. 331–32.

113. For the New York Central and the Democrats, see inter alia, Shefter (1976); for the turnout efforts in this period, see Polakoff (1981, pp. 232–33). In the 1880s the New York Central drew closer to the GOP.

114. I am presently preparing a study of “The System of ’96: A Reconsideration,” which attempts a rough quantitative evaluation of these trends.

115. See the sensitive discussion in Polakoff (1981, pp. 249 ff.); note his discussion of the importance of distinguishing among levels of government.

116. Goodwyn (1976) presents a wealth of new and very important information on the origins of Populism and the dynamics of its ascent. Schwartz (1976) adds important information on the Populist press, which Goodwyn also discusses, and has a penetrating discussion of some of the larger background reasons for the Populists’ eventual demise and the emergence of a racist planter-industrialist coalition in the South.

117. For example, Burnham (1970, 1974, 1981).

118. See Ferguson (n.d.).

119. Montgomery (1979) and Brecher (1972); the best strike statistics are those presented in Griffin (1939).

120. Where everyone admits that blacks and poor whites were deliberately pushed out of the electorate; I regret that space limitations preclude my discussing these developments in any more detail. Note, however, that Northern elites were very deliberate parties to this scheme. Northern bar associations and law reviews, for example, worked overtime thinking up reasons why the courts should not hear suits brought by disenfranchised Southern blacks.

121. Turnout dropoff is figured by averaging each states’ turnout in 1888, 1892, 1896, and 1900, then subtracting from this figure the average of the turnouts in 1920 and 1924. The turnout data came from Walter Dean Burnham and incorporate a minor correction for Delaware that he has not yet published. The figures for manufacturing value added per capita come from Kuznets, Miller, and Easterlin (1960, p. 131). For each state I have subtracted value added per capita in 1889 from the same category for 1929, yielding the difference per capita that appears in the graph on the X axis. The three exceptional states (which are not included in the calculations for the regression line drawn on the scattergraph) are Maryland, Rhode Island, and Wyoming. (Arizona and several other states not then in the Union also had to be eliminated since they provided no totals for 1888–1896 to compute.)

In all three cases, the special circumstances that produced the original low turnouts are too obvious to require elaborate analysis. Maryland was simply the northernmost state to have adopted the Southern system of voter disenfranchisement (around 1907). (It should be recalled that if the Battle of Antietam had gone the other way, Maryland would probably have made the transition much earlier.) Rhode Island in the nineteenth century was less a political jurisdiction than the name of America’s largest company town, as the elites of this early industrializing textile center, lacking any rural smallholders to strike alliances with, installed a succession of fantastically restrictive suffrage laws that at times excluded as much as 75 percent of the white male population of voting age from participation. (They also had to put down a series of revolts against their new order, of which Dorr’s Rebellion, in 1842, is perhaps the best known.) And Wyoming, for much of the System of ’96 the least populated state in the Union, probably eluded mass disenfranchisement for the same reason that Andorra escaped occupation by the Nazis during World War II—some places with more sheep than people are not worth the trouble of taking them over.

The full statistics for the regression equation are as follows. The equation itself is Y = 8.104 + .057x, R² = 0.45.

The standard errors for the first and second terms, respectively, are (2.426) and (0.0118); t-values are (3.34) and (4.81); F(1/28) = 23.231. These are all significant results, and tests did not suggest significant heteroscedasticity.

All regressions of this sort face various pitfalls. Spatial autocorrelation, for example, is a possibility. But with the limited number of cases there is little point in testing. Since the Southern states are not in the equation at all, the most obvious source of spatial autocorrelation is not a problem; nor does there appear to be a problem with the other states. Omitted variables, of course, are another possibility, but any discussion of particular candidates would be very lengthy; I believe there are good reasons for cautiously accepting the equation as is.

122. See Ferguson (n.d.) for more details.

123. Note that there is no reason to assume that changes in election laws by themselves necessarily produced the total turnout decline. All the factors mentioned in this paragraph doubtless played a role. At some point, also, “negative bandwagons” would doubtless form, pushing turnout much lower as voters realized that such incidents as the wholesale fraud that defeated Henry George in the New York mayoralty race of 1887 meant that they would never be permitted to assume power.

124. For the basic statistics and an excellent discussion of the merger wave, see Edwards (1979, Chap. 3) and Reid (1976, pp. 66–68).

125. See the discussion in my “System of ’96.”

126. Goodwyn (1976, Chap. 13); for Hearst’s copper (and, thus silver) interests, see Lundberg (1937, p. 65).

127. See the longer discussion in my 1984 and n.d. papers. Note that rivalries with European companies sometimes complicated the partisan choices of the copper companies in ways too complex to discuss here.

128. Ibid.; Weinstein (1968); and Kolko (1963). For reasons of space no further discussion of the Progressive era is possible here.

129. See Kolko (1963); but especially Ferguson (n.d.).

130. Oil imports, where they became an issue, of course ended demands for totally “free” trade by independent oilmen.

An outstanding review of the relations between big business and the press in this period is Debouzy (1972), pp. 153–56; see also pp. 210–22 on the relations of business to the churches and universities. Analyses of mass politics that slide past the facts discussed so well in this French study are unlikely to produce anything except confusion in regard to such topics as “rational expectations.”

131. Ferguson (1984, n.d.) and Ferguson and Rogers (1981). As originally published, the next few paragraphs of this chapter borrowed liberally from the brief summary in Ferguson (1984); the 1984 essay was also indicated as the appropriate source for details and references. In this book, a revised version of the 1984 essay follows immediately. Removing the paragraphs, however, seemed likely to significantly impair the unity and pedagogical value of the overview of American history presented here. I therefore left them in.

132. Virtually all the discussion which follows is based on Ferguson (1984, n.d.), so more specific references will be kept to a minimum. Both of these papers present a formal model of the processes discussed here along the lines discussed in section 3.

133. The quotation comes from an entry in Raymond Moley’s Journal for June 13, 1936, now in the Moley Papers, Hoover Institution. Astor and Harriman were major owners of the publication.

134. To such an extent that when a bank with ties to top union officials failed in the Depression, Standard Oil of New Jersey and other large companies raised a fund for its recapitalization. See Ferguson (n.d.) for details.

135. Ferguson and Rogers (1980, pp. 267–75; 1981, pp. 20–26).

136. Ibid.

137. See, e.g., Goulden (1971, pp. 257 ff.) for a striking example.

138. See the discussion in Ferguson and Rogers (1981, pp. 13 ff.).

139. Kalt (1981) presents convincing estimates of the size of these transfers.

140. This subject merits more discussion than it can be given here. I hope in the near future to consider it at greater length and with extensive documentation.

Note that the aggressive fundamentalism displayed by many elite Texas churches in the 1970s has a powerful “elective affinity” for decontrol because of its emphasis on individual action.

141. No single institutional change can possibly undo the effects of a whole system of influences. Still, consider the likely consequences of a federal campaign spending reform that established individual tax credits for contributions to political campaigns instead of guaranteeing money to the nominees of the two major parties. If these contributions were allowed up to, say, $100, then masses of ordinary voters would have resources that really counted. Some quite striking developments in the American party system would probably occur as these pools of money found their way to new candidates and parties, and as venturesome candidates discovered that even nonvoters now had resources worth pursuing.

Chapter Two

1. See, among many other comments on Fisher’s unfortunate pronouncement, John Kenneth Galbraith, The Great Crash (Boston: Houghton Mifflin, 1961), p. 75. The Irving Fisher Papers at Sterling Library, Yale University, contain many references to his service on boards of investment companies and Remington Rand, a major manufacturer. Fisher’s later role in New Deal monetary controversies made these ties an object of extensive comment. The final copy and various drafts of Lamont’s letter to Herbert Hoover of October 19, 1929 are in the Lamont Papers, Baker Library, Harvard University. (Most archives used in this project are adequately indexed; box numbers are provided for the readers’ convenience only where confusion seems likely.)

2. For a review of debates on the stock market’s contribution to the Depression, see Peter Temin, Did Monetary Forces Cause the Great Depression? (New York: W. W. Norton, 1976).

3. For a good summary of the Depression’s effects on the economy, see Lester Chandler, America’s Greatest Depression (New York: Harper, 1970).

4. Ibid. For the Depression in comparative context, see Charles Kindleberger, The World in Depression (London: Allen Lane, 1973).

5. The 1933 Banking Act, also commonly referred to as the Glass-Steagall Act, should not be confused with a 1932 bill that bore the names of the same senator and representative but dealt with different financial issues. The Emergency Banking Legislation, rammed through Congress in a matter of days in March 1933, was also a different bill.

6. The first of several New Deal reciprocal trade measures passed rather early in Roosevelt’s first term, but, as explained in this chapter, it had virtually no immediate effect on the administration’s essentially protectionist trade policy.

7. The role of Keynesian public finance versus a bulging export surplus in leading the Swedish revival of the mid- and latter-1930s has been extensively debated; the weight of the evidence suggests that the Swedish government did not vigorously implement the advanced monetary and fiscal proposals that were undeniably in the air. In view of this paragraph’s clear distinctions and exact datings of the New Deal’s “Keynesian turn,” I find inexplicable the recent claim by M. Weir and T. Skocpol that my essay “mistakenly conflates the labor regulation and social insurance reforms of 1935–36 with Keynesianism.” See their “State Structures and the Possibilities for ‘Keynesian’ Responses to the Great Depression in Sweden, Britain, and the United States,” in P. Evans, D. Rueschemeyer, and T. Skocpol, eds., Bringing the State Back In (New York: Cambridge University Press, 1985), p. 154.

8. See, for example, Arthur Schlesinger Jr., The Age of Roosevelt, 3 vols. (Boston: Houghton Mifflin, 1957–60); William Leuchtenburg, Franklin D. Roosevelt and the New Deal (New York: Harper, 1963); and Frank Freidel, Franklin D. Roosevelt, 4 vols. (Boston: Little, Brown, 1952-). Erwin Hargrove observes how images of Roosevelt and the presidency derived from such works have dominated postwar political science, in his The Power of the Modern Presidency (New York: Knopf, 1974), Chap. 1.

9. See, for example, Barton Bernstein, “The New Deal: The Conservative Achievements of Liberal Reform,” in Bernstein, ed., Toward a New Past: Dissenting Essays in American History (New York: Pantheon, 1968), and Ronald Radosh, “The Myth of the New Deal,” in Radosh and Murray N. Rothbard, eds., A New History of Leviathan (New York: Dutton, 1972), pp. 146–86.

10. See, for example, Ellis Hawley’s “The Discovery and Study of a Corporate Liberalism,” Business History Review 52, 3 (1978), pp. 309–20. In contrast, his classic The New Deal and the Problem of Monopoly (Princeton: Princeton University Press, 1962) does not emphasize these themes. See also Alfred Chandler and Louis Galambos, “The Development of Large Scale Economic Organizations in Modern America,” in E. J. Perkins, ed., Men and Organizations (New York: Putnam, 1977). It appears that Weir and Skocpol’s “Keynesian Responses,” and other recent essays in the “state managers” vein, represent something of a synthesis of this view and the older “pluralist” approach—with the conspicuous difference that the state manager theorists rely mostly on secondary sources.

11. For a review of the German work, see H. A. Winkler, ed., Die Grosse Krise in America (Göttingen: Vandenhoech & Ruprecht, 1973); perhaps the finest of the libertarian writings are those by Murray Rothbard—see his “War Collectivism in World War I,” and “Herbert Hoover and the Myth of Laissez-Faire,” both in Radosh and Rothbard, eds., New History of Leviathan; for Kolko’s views, see his Main Currents in Modern American History (New York: Harper & Row, 1976).

12. Some commentators, such as Elliot Rosen in his very stimulating Hoover, Roosevelt and the Brains Trust (New York: Columbia University Press, 1977, hereafter Brains Trust), have questioned the existence of “two New Deals.” These doubts, however, are difficult to sustain if one systematically compares the policies pursued during each period.

13. Sidney Verba and Kay Schlozman’s recent suggestion that American workers remained captivated by the “American dream” all through the New Deal does not constitute an answer. The “American dream,” before the 1930s, had not included mass unionization or social security—the term is elastic. See their “Unemployment, Class Consciousness, and Radical Politics: What Didn’t Happen in the Thirties,” Journal of Politics 39, 2 (1977), pp. 291–323.

14. See the discussion in Milton Friedman and Anna Schwartz, A Monetary History of the United States (Princeton: Princeton University Press, 1963); Temin, Monetary Forces; Karl Brunner and Alan Meltzer, “What Did We Learn from the Monetary Experience of the United States in the Great Depression,” Canadian Journal of Economics 1, 2 (1968), pp. 334–48; Elmus Wicker, “Federal Reserve Monetary Policy, 1922–33—A Reinterpretation,” Journal of Political Economy 53 (August 1965), pp. 325–43, and later writings.

15. Kurth, “The Political Consequences of the Product Cycle: Industrial History and Political Outcomes,” International Organization 33 (winter 1979), pp. 1–34; Gourevitch, “International Trade, Domestic Coalitions and Liberty: Comparative Responses to the Crisis of 1873–96,” Journal of Interdisciplinary History 8, 2 (1977), pp. 281–313; Hibbs, “Political Parties and Macroeconomic Policy,” American Political Science Review 71, 4 (1977), pp. 1467–87.

16. I build here on my “Elites and Elections; Or What Have They Done to You Lately? Toward an Investment Theory of Political Parties and Critical Realignment,” in Benjamin Ginsberg and Alan Stone (eds.), Do Elections Matter? (1st ed.; Armonk, N.Y.: Sharpe, 1986); and “Party Realignment and American Industrial Structure: The Investment Theory of Political Parties in Historical Perspective,” in chapter 1 of this volume.

17. Hibbs, “Political Parties,” p. 1470.

18. For representative cross-national data on some of the large differences see ibid., and Edward Tufte, Political Control of the Economy (Princeton: Princeton University Press, 1978), chap. 4.

19. See, for example, Kurth, “Political Consequences”; Gourevitch, “International Trade”; and David Abraham’s The Collapse of the Weimar Republic (2nd ed.; New York: Holmes & Meier, 1986); Abraham’s “Introduction to the Second Edition” should be consulted on the long controversy. The honored ancestors of this general approach include Alexander Gerschenkron, Bread and Democracy in Germany (Berkeley: University of California Press, 1943); Eckhart Kehr, Battleship Building and Party Politics (Chicago: University of Chicago Press, 1975); and Arthur Rosenberg, Democracy and Socialism (New York: Knopf, 1939).

20. Taxes, for example, might be one issue that would not disappear entirely.

21. Indeed, many exceptions exist; for example, firms whose hazardous working conditions are more likely to be detected by a union (which can bear the detection costs) than by unorganized individuals (who may never realize the danger) will resist unionization far more fiercely than one might expect from the role wages play in their value added. Ability to pass through wage increases and, consequently, a firm’s location in the flow of production will also affect concessions vs. opposition to labor. Nevertheless, as a first testable approximation, the rule is probably the best available.

22. The (rounded) data for all but chemicals and copper come from the 1929 Census of Manufacturers as presented in Charles A. Bliss, The Structure of Manufacturing Production (New York: National Bureau of Economic Research, 1939), appendices, especially p. 214. My “automobiles” category is a weighted average of two of Bliss’s categories (parts and assembly). The chemicals figure has been calculated as per note 39, below. The copper data, for 1929, have been calculated from the 1963 Census of Mineral Industries (Washington, D.C.), vol. 1, 10C-10, table 1 (the figure is for “copper ores”). The “refining and smelting” part of the industry shows up in the 1929 Census of Manufacturers (Washington, D.C.), vol. 2, p. 1085. The most reasonable method of weighting and combining all the data yields a corrected estimate of 36.2 percent; but the difference in terms of this article are meaningless. Note that all figures are for industries; data for individual firms are not available, causing problems for estimates of individual firms (see note 39, below). Note also that the estimates for petroleum probably greatly understate the industry’s capital intensity. Finally, industries are listed on the chart if at least one firm in the top 20 as listed in table 2.1 did substantial business in them in both 1929 and 1935. I have also added textiles, by far the largest industry in terms of employment during most of this period, and shoes, as a representative “old” industry also with substantial employment.

23. The assumption that vectors of class conflict indicators and public policies can be treated as scalers is not strictly necessary to this analysis. But it is in accord with both ordinary language and many social science treatments of “rising” or “falling” social strife and labor activity. Note also that while, as suggested in this chapter, this analysis scarcely adds up to a theory of the labor movement and while this essay focuses on the business community, labor is not being treated as a passive element—note carefully the horizontal axis on figure 2.1, which reflects changing levels of social class conflict.

24. I choose this language carefully, to cover instances where a business firm supports both parties. Such instances are much less common or important than generally believed. As I argue at greater length in my “Party Realignment,” chapter 1, no more in politics than in the stock market can everyone profit by buying into the same stock. No less important, most cases of apparent “bipartisanship” rest on undiscriminating evidence—usually public campaign expenditure records. In most cases, more institutionally subtle behavior signals a preference for one or the other candidate.

25. For this, obviously, archival evidence has a privileged position. See, however, my “Party Realignment” chapter 1, for a discussion of the whole question of “evidence.” My experience with corporate records convinces me that the single most important form of business influence on American politics is not the actual transfer of money but the power major businessmen have to influence associates and cultural institutions, especially the media.

26. As with all modeling in the social sciences, of course, more dimensions become necessary the finer the context. “Broadly” labor-related issues include most “social welfare” policies.

27. On these definitions, note 1) the “free” market may well be an oligopoly maintained by a few firms; 2) “internationalists” often have to live in a world full of nationalists and accordingly modify their behavior; 3) occasionally “nationalism” and “protectionism” are not equivalents; 4) occasionally “internationalism” could helpfully be broken down into several dimensions; 5) “internationalism” is usually a matter of degree—any number of firms oriented toward international competition in an open world economy have been happy to welcome government aid where that would not upset a larger equilibrium.

To use this dimension for a real economy requires some impression of the positions of the various industries and firms. I use an independent source: with one exception noted in this essay, subsequent scattergraphs rely largely on summaries of the changing world economic positions of major American businesses presented by Mira Wilkins in her The Maturing of Multinational Enterprise (Cambridge: Harvard University Press, 1974). Based on a judgment about which policies objectively advanced the interests of firms as Wilkins depicts them (where “interest” is equated with profitability), I have placed firms and industries into one of five arbitrarily defined, ordinally ranked spaces along the nationalist-internationalist dimension. Some argument about particular cases is to be expected, especially with General Motors in the ’20s, where most analysts have underestimated the pressures from GM’s major owner, DuPont, to limit its overseas commitments and the importance of the so-called “rubber war.” However, nothing of importance here is sensitive to this imprecision; indeed, the ordinal scale is of some advantage. On the copper industry I follow James Ridgeway, Who Owns the Earth? (New York: Macmillan, 1980), p. 106.

28. Because only one of these axes has a true metric the definition of a “quadrant” is arbitrary: what is at issue is proximity in the defined spaces. Here, however, it is convenient to speak of “quadrants.”

29. See the discussion in my “Party Realignment,” which also contains a longer and more general statement of the “scattergraph” approach to the analysis of American party systems applied in the present article, a detailed justification for concentrating on big business in the analysis of political change, and some qualifications—unimportant in this article but of considerable significance in general—on the treatment of the financial sector in such graphs.

A word should probably be added about how agriculture figures into the analysis presented here. While reasons of space make it impossible to justify the claim, the politics of farm policy in the New Deal has received more attention than it deserves; while agriculture constituted an important part of Roosevelt’s coalition, most of what defined the New Deal derived from other constituencies. Furthermore, agriculture, like industry, is marked by both class and sectoral conflicts, and its political behavior can be analyzed on lines analogous to those for industry.

30. Complicating issues do not, of course, only appear during transition to a new party system, I simply claim that additional issues sometimes complicate such transitions.

31. See the discussion in my “Elites and Elections.” Severe but brief downturns, like that in 1920–21, do not last long enough to generate the processes described below in other than feeble, symptomatic form.

32. Because of this “cumulative” role played by past financial and other secondary cleavages, the actual sequence of historical events makes a real difference even in the model.

33. This expression refers to a party system before decay. See, for example, Paul Kleppner, “Critical Realignments and Electoral Systems,” in Kleppner et al., The Evolution of American Electoral Systems (Westport, Conn.: Greenwood Press, 1981), pp. 1–33.

34. See my “Party Realignment,” section 4. The shoe industry was singular because in contrast to most other charter members of the Republican bloc, its firms directly confronted a giant trust, United Shoe Machinery. As a consequence, they were far more likely to harbor doubts about the wisdom of “big business” and often went over to conservative Democrats.

35. This discussion neglects a modest movement for very limited trade liberalization promoted by several sectors in the pre-1914 period.

36. For the merger movement of the 1890s, see my discussion in “Party Realignment.” Railroad mergers, organized by leading financiers, were also a part of the consolidation of this bloc.

37. For World War I’s major financial consequences for the U.S. economy, see Charles Kindleberger, “United States Foreign Economic Policy 1776–1976,” Foreign Affairs, January 1977, pp. 395–417.

38. For the period’s labor turmoil, see Jeremy Brecher, Strike! (Boston: South End Press, 1977), chap. 4.

39. For rankings along the “internationalism” dimension see above, note 27. Because data for wages as a percentage of value added are available only for industries as a whole, I have assigned specific large firms the value of the industry mean, thus eliminating intra-industry differences. While these may sometimes be significant, they are miniscule by comparison to the variations across industries. I have assigned the firms to particular three-digit industries by comparing their main lines of business with “Manufacturing Industries with Large Scale Operations, 1929,” (Bliss, Manufacturing Production, p. 214); and, where possible, checking my industry code assignments against those in the Harvard Business School Project data presented in the Chandler papers “Global Enterprise” and “The M Form.” In this period only the calculations for General Electric, which moved in the 1920s into consumer durables while continuing its older lines of business in electrical machinery, raised questions about the need to weight two very different Standard Industrial Classification three-digit codes to get one number for the whole. Because the size of the consumer durables segment of GE’s business (with its relatively low wages as a percentage of value added) seemed too small to affect the overall firm average, I did not refine the data for “electrical machinery.” However, Westinghouse, which had not yet moved into consumer durables in this period, always seems to lag slightly behind GE’s political efforts in the New Deal, in a direction one would predict from knowing the firms’ labor sensitivities. (The two firms also differed sharply in the degree of overseas involvement.)

In the case of chemicals, I used a slightly different procedure. As Walt Rostow, The World Economy (Austin: University of Texas Press, 1978), p. 278, observes, the industry is markedly heterogeneous. Accordingly, in preparing figure 2.4’s estimate of “wages as a percentage of value added” for DuPont, I used the Chandler data’s list of the three-digit codes relevant for the firm in 1930. The codes were matched as closely as possible with particular branches of the industry for which statistics were available. On the basis of the 1931 Commerce Department Biennial Census of Manufacturers, pp. 564–83, “wages as a percentage of value added” was estimated for each three-digit industry in which DuPont operated. (In some cases categories had to be combined, using various weighted averages.) Since no better weights were available, an average was taken of wages as a percent of value added for all these three-digit figures and is used in figure 2.4. Because a large paper company placed among the top 30 industrials only in 1935, there should strictly speaking be no entry for the sector. I have added it because of my later discussion of the role played by the Mead Corp. in the Second New Deal. Note, finally, that many older industries dominated by small firms, such as shoes, would show up in the same area as textiles and steel if they were plotted.

40. Further footnotes are devoted to primary references or important amplifying facts, which will necessarily be stated in summary form.

41. These long-running negotiations culminated in the Achnacarry Accord of 1928, which cartelized the world oil market outside the United States. It scarcely exaggerates to say that the problem of oil policy during the New Deal was to find a viable domestic complement to this international cartel.

42. For Lodge’s views on the League of Nations and international finance see his extensive correspondence for 1919 and 1920, now in the Henry Cabot Lodge Papers, Massachusetts Historical Society Library, Boston. The most complete collection of papers of the League’s supporters is in the files of Harvard President A. Lawrence Lowell, now in the Pusey Library, Harvard University. The American Tariff League’s denunciation of the League of Nations (one of many) is from its American Economist, March 21, 1919, p. 190. I am grateful to John W. Coolidge Jr. for permission to examine additional correspondence of Louis A. Coolidge (beyond that in the Lodge Papers) in his family’s files; and to Carl Kaysen of M.I.T. for comments on United Shoe’s interest in the U.S. market.

43. The literature on the League of Nations debate is extensive but short on specific details of exactly who supported what compromises. A few later analysts have questioned whether Lodge should be numbered among the “Irreconcilables,” though everyone concedes his pivotal role in the final outcome. Correspondence from all sides persuades me that Lodge was, indeed, irreconcilably opposed to the League and intended to destroy it all along.

44. Hughes’s intimate connections to Standard and the Rockefellers have been extensively overlooked, and actually denied by several biographers. Files of the Standard Oil Co. of New Jersey, now in storage at Tulane University Library, New Orleans, list him as the corporation’s chief foreign policy adviser; in 1917–20, Hughes served as an attorney for both Standard of New Jersey and the American Petroleum Institute, and was a trustee of the Rockefeller Foundation. He was also active in the newly organized (and liberal) Northern Baptist Church, whose interlocking ties to the Rockefeller complex were very close. Carl Parrini’s Heir to Empire (Pittsburgh: University of Pittsburgh Press, 1973) gives an excellent summary of the clash between Standard and the British, and the role of the League in this context. See especially pp. 58 and 138 ff.

45. As is often emphasized, a stronger executive was fundamental to the New Deal.

46. The division between the old and new blocs in the business community, however, is certainly not equivalent to one between traditional and modern management or between firms with and without formal personnel programs. The multidivisional management structures described by Alfred Chandler and other analysts were slowly diffusing through both blocs. Most of the more advanced firms, however—DuPont is the most notable exception—were multinationally oriented.

47. A summary of the overwhelming Eastern bias in the control of U.S. foundations in this period, as well as their growing expenditures for studies of foreign affairs, is Eduard C. Lindeman’s long-ignored Wealth and Culture (New York: Harcourt, 1936), especially pp. 44 ff. For the interaction of big business and the professions, see, among others, David Noble, America by Design (New York: Knopf, 1975).

48. For the New York Times, see below; the Moley quotation is from a 13 June 1936 entry in his Journal, now in the Moley Papers, Hoover Institution, Stanford, Calif. Astor and Harriman were the most important of the magazine’s owners. Moley later moved much further to the right.

49. Cf. Brecher, Strike! chap. 4, among other sources.

50. The sources for this and the following paragraphs are mostly papers scattered through several archives, including the Rockefeller Archive Center at Tarrytown, N.Y.

51. Industrial Relations Counsellors seem to have coordinated the meetings of the group for most of the 1920s. Not every firm was capital-intensive. For the dominance of Standard Oil and General Electric within the group, cf. J. J. Raskob to Lammot DuPont, November 26, 1929, Raskob Papers, Eleutherian Mills–Hagley Foundation, Wilmington, Del.

52. Several (Northeastern) textile executives played leading roles within this group, which produced the otherwise inexplicable sight of a handful of textile men supporting Franklin D. Roosevelt during the Second New Deal, and which for a brief period generated some interesting, if ultimately unimportant, wrinkles in the Hull-Roosevelt trade offensive in the mid-1930s. Boston merchant E. A. Filene, who established (and controlled) the Twentieth Century Fund and who ardently championed what might be labeled the “retailers’ dream” of an economy built on high wages and cheap imports, was deeply involved with this group. The small businessmen of the Taylor Society differed very slightly with their big business allies on two entirely predictable issues: antitrust and financial reform. Supreme Court Justice Louis D. Brandeis, who is usually credited as a major inspiration for many New Deal measures, had once served as Filene’s attorney and remained closely associated with him and his brother, A. Lincoln Filene.

53. Ruml’s activities in this regard have been well chronicled in James Mulherin, “The Sociology of Work and Pattern of Development” (Ph.D. diss., University of California, Berkeley, 1979).

54. For the astonishing and complicated Morgan-Ford interaction, see, for example, Henry Ford to J. P. Morgan Jr., May 7, 1921, and Morgan to Ford, May 11, 1921, Ford Archives, Henry Ford Museum, Dearborn, Mich. Surrounding correspondence and an oral history memoir at the archives indicate that a larger group of New York WASP businessmen was also involved and that one Charles Blumenthal, who had a definite though obscure connection to Morgan, subsequently helped out with articles in Ford’s Dearborn Independent. For the Manufacturers Trust incident, cf. Thomas Lamont to V. H. Smith at Morgan Grenfell, January 10, 1929, Box 111, Lamont Papers.

55. A large mass of correspondence in the Lamont Papers testifies to the increasing bitterness within investment banking. Cf. Gordon Thomas and Max Morgan-Witts, The Day the Bubble Burst (Garden City, N.Y.: Doubleday, 1979).

56. This episode was reported in Time, July 30, 1928, p. 23.

57. For the chemical industry’s commitment to tariffs, see Gerard Zilg’s remarkable DuPont (Englewood Cliffs, N.J.: Prentice-Hall, 1974). Zilg’s study deserves a much wider audience; for a brief analysis of some extra-intellectual factors affecting the book’s reception, see Robert Sherrill, “The Nylon Curtain Affair: The Book That DuPont Hated,” The Nation, February 14, 1981, pp. 172–76.

58. This discussion draws on a still-unpublished review of top American wealth holders by Philip Burch of Rutgers University.

59. Cf. Zilg, DuPont, chap. 9.

60. A striking confirmation of the role of late-developing large fortunes in the tax revolt of the ’20s is the behavior of the chief representative of the one other truly gigantic American fortune that, while considerably more mature than the DuPonts’, nevertheless still remained in its “takeoff” phase during the decade: Andrew Mellon, leader of the Republican move to cut taxes.

61. A circular sent by Pierre DuPont to other wealthy Americans during the AAPA campaign, quoted in Fletcher Dobyns, The Amazing Story of Repeal (New York: Willett, Clark, 1940), p. 20. This study grasps the dynamics of the Repeal Movement far better than David Kyvig’s Repealing National Prohibition (Chicago: University of Chicago Press, 1979).

62. See in particular the penetrating and splendidly detailed study by Paul Johnson, A Shopkeeper’s Millenium (New York: Hill & Wang, 1979).

63. For Rockefeller, in particular, cf. Raymond Fosdick, John D. Rockefeller, Jr. (New York: Harper, 1956), pp. 250 ff.

64. Cf. Johnson, A Shopkeeper’s Millenium, for an excellent discussion of the early period.

65. A crucial letter establishing that the DuPonts were in fact seeking a seat on the board of U.S. Steel is Irénée DuPont to John J. Raskob, March 31, 1926, in the Raskob Papers, File 677, Eleutherian Mills–Hagley Foundation Library; see also Zilg, DuPont, pp. 230 ff, on the broader divisions of interest, and several perhaps impolitic statements by Raskob; but note especially the bitter exchange on financing charges between Morgan partner Edward Stettinius and Lammot DuPont, after which the DuPonts appear to have withdrawn part of their business from Morgan (Edward Stettinius Sr. Papers, University of Virginia, Charlottesville). Pierre DuPont’s own unhappiness with the frequently tense GM situation, even while its massive dividends were piling up, is clear; see, for example, Pierre DuPont to T. Coleman DuPont, April 9, 1924, Pierre DuPont Papers, Eleutherian Mills–Hagley Foundation.

66. Most of what follows is based on the Chemical Foundation Papers in the Library of the University of Wyoming, Laramie.

67. For example: “B. says he, (B.) first discussed the Chemical Foundation matter with [New Hampshire Senator] Moses some six months ago and that Moses immediately went directly to President Harding and laid the matter before him. B. claims the entire credit for Harding’s recent move [to help compensate the Germans].” From a detective report to Francis P. Garvan of the Chemical Foundation dated July 4, 1922, now in the personal possession of Dr. Anthony Garvan. Francis Garvan was closely associated with J. Edgar Hoover both before and after Hoover became head of the FBI. A few surviving letters now in a file belonging to the Garvan family in New York City show that the pair exchanged sensitive intelligence information. The Chemical Foundation papers suggest that the detectives were probably ex-FBI men. I have made intensive efforts to verify the contents of these reports and am persuaded that they constitute good evidence. For German efforts to secure the return of the patents, see also Joseph Borkin, The Crime and Punishment of I. G. Farben (New York: Free Press, 1978), pp. 170 ff, in particular the discussion of John Foster Dulles.

68. Note that this case had nothing to do with the “Teapot Dome,” the scandal for which the Harding administration is best remembered.

69. Dulles’s efforts came to light as a result of a congressional investigation years later. See U.S. Senate, Special Committee Investigating the Munitions Industry, International Munitions Control, 37th Congress, December 4 and 5, 1934, pp. 2254 ff, which reproduces minutes of a meeting between Dulles and the arms exporters.

70. The German chemical companies had, of course, worked closely together before the amalgamation of the mid-1920s.

71. See Irénée DuPont to W. F. Huntington, March 6, 1926, Box 26, DuPont Co. Papers, Eleutherian Mills–Hagley Foundation, for a full account of the visit to Hoover; see Irénée DuPont to Herbert Hoover, March 6, 1926; and Hoover to Secretary of State Kellogg, March 12, 1926 (the original letter is missing from the Hoover Papers, Hoover Presidential Library, West Branch, Iowa, but is plainly referred to in the letter to Kellogg that Hoover attached with it. (A copy of the original letter is in accession no. 1662, part of the DuPont Co. Archives.) In the light of later events, it is interesting that Hoover’s response to these overtures was sympathetic but largely pro forma.

72. Translated from a confidential report to the German ambassador in Washington, November 5, 1926. The microfilm of this and related exchanges with Erich Warburg (nephew of Institute of Economics Trustee Paul Warburg) are now on National Archives Microfilm T 290 no. 27.

73. See, for example, J. Laffey, DuPont General Counsel Office, to P. S. DuPont et al., March 8, 1926, DuPont Co. Papers, written two days after Irénée met with Hoover.

74. Lamont to Dwight Morrow, December 16, 1927, Lamont Papers.

75. For Dulles’ activities, in particular, see Hoover to Dulles, March 12 and 24, May 31, and June 16, 1928; together with Dulles to Hoover, March 2, May 29, and June 13, 1928; all now in the Dulles Papers at Princeton University. See also R. W. Preussen, John Foster Dulles (New York: Free Press, 1982), pp. 92–96. It was Dulles who seems first to have supplied the Germans with a copy of the government’s brief in its suit against the Chemical Foundation.

76. See von Knieriem to Ritter, February 2, 1928, National Archives Film T 290, no. 27, and the surrounding cables. Donovan’s speech virtually quotes the I. G.’s formula as relayed in these cables; see the reprint of his address, “Foreign Cartels and American Industry,” in Chemical Markets, March 1928, p. 281. Donovan’s position can usefully be contrasted with what he had defended only a few months before in “The Antitrust Laws and Foreign Trade,” a speech delivered to the National Paint, Oil, and Varnish Association on October 28, 1927 (copy in Box 183 of the Hoover Commerce Department Papers at the Hoover Presidential Library).

77. See the discussion in Borkin, I. G. Farben, chap. 2; at this time Farben was supporting the liberal Weimar government. Not until the East Texas oil discoveries ruined the market for synthetic petroleum did it make its fateful switch. For the inability to reach agreement in the wider talks, see W. J. Reader, Imperial Chemical Industries: A History (London: Oxford University Press, 1975), 2, pp. 47–49.

78. Cf. Zilg, DuPont, pp. 267 ff.

79. In her American Business and Foreign Policy (Boston: Beacon Press, 1971), pp. 137–38, Joan Hoff Wilson cites a Hoover “diary” in the Hoover Presidential Library as the authority for an account in which Hoover worked against the bankers. Box 98 of the Lamont Papers contains transcriptions of the telephone conversations to which the “diary” refers. The transcriptions not only refute every detail of Hoover’s account but actually record Lamont’s specific instructions to the president to conceal the origins of the moratorium. (As Lamont signed off from the first conversation: “One last thing, Mr. President . . . if anything, by any chance, ever comes out of this suggestion, we should wish to be forgotten in this matter. This is your plan and nobody else’s.”) A mass of supporting correspondence in the file confirms the authenticity of the transcripts, while being grossly inconsistent with what Wilson reports about the “diary.” (Hoover often harbored private misgivings about both his policies and his advisers—but he never consistently acted upon these doubts.)

80. See Gerald Epstein and Thomas Ferguson, “Monetary Policy, Loan Liquidation and Industrial Conflict: The Federal Reserve and the Open Market Operations of 1932,” chapter 3 of this volume, and Epstein and Ferguson, “Answers to Stock Questions: Fed Targets, Stock Prices, and the Gold Standard in the Great Depression,” Journal of Economic History 51, no. 1 (March 1991), pp. 190–200.

81. The House Papers, now at Yale University, contain many letters between House and important figures in the Rockefeller complex. See, e.g., the discussion below, especially the main text to note 90.

82. Rosen, Brains Trust, p. 113, argues that House’s influence on Roosevelt ebbed after March 1932. But the aging House could scarcely be expected to provide the daily memoranda and speeches that Roosevelt then needed. There is a sense in which House and all of Roosevelt’s early advisors were supplemented, and in part supplanted, by many other forces then coming to life in the Democratic Party; however, House always remained a major actor in the New Deal.

83. See Rosen, Brains Trust, among many other works on the 1932 campaign.

84. The Newton Baker Papers now at the Library of Congress, Washington, D.C. and the Franklin D. Roosevelt Papers at the Roosevelt Library in Hyde Park, N.Y., have a mass of material on the primary and convention battles (e.g. the letters between Baker and Ralph Hayes in the Baker Papers). Rosen, Brains Trust, chaps. 9 and 10, presents considerable detail on the business opposition to FDR’s nomination, and is very good on the stop-Roosevelt forces’ manipulation of the press.

85. For Lamont’s dramatic bid to block Aldrich, see Aldrich interviews, Chase Manhattan Bank Oral History Project, November 29, 1961, now in the Winthrop W. Aldrich Papers, Baker Library, Harvard University; for apprising me of the Rockefeller Center financing controversy I am grateful to Robert Fitch, whose own work on urban development and American political structures involved a lengthy period of work in the Rockefeller Archives. For the subway battle, see the New York Times, July 31, 1932; August 27 and 31, 1932; as well as Cynthia Horan, “Agreeing with the Bankers: New York City’s Depression Financial Crisis,” in Paul Zarembka (ed.), Research in Political Economy (Greenwich, Conn.: JAI Press, 1986), vol. 8, pp. 201–232. (Exactly who controlled the Manhattan Elevated, one of the parties in the urban transit dispute, is unclear, though the New York Times indicates that the Rockefellers did. Aldrich had certainly represented the line in the late 1920s, when one of several bitter disputes with a Morgan-controlled subway was in litigation.)

86. Agricultural economist M. L. Wilson is normally identified as the author of the adjustment plan. For Rockefeller’s role in financing Wilson’s early work, see Rosen, Brains Trust, p. 180; see p. 178 for Ruml’s role in the famous Wilson-Rexford Tugwell meeting on the eve of the convention.

87. See the crucial letters of Thomas W. Lamont to various business associates and attached memoranda in Box 123 of the Lamont Papers, and my discussion of them in “Elites and Elections.”

88. Some of these are in the House Papers, others in the Aldrich Papers. See, e.g., the House-Auchincloss correspondence in the former.

89. Secretary of Commerce Daniel Roper to Franklin D. Roosevelt, March 28, 1932, Roosevelt Library. This is one of many documents relating to Aldrich’s vast lobbying efforts; other aspects of this legislation involved fairly heated exchanges between the Bank of America and the National City Bank of New York. While not as enduringly significant as the separation of investment from commercial banking, these conflicts persisted for some years and complicated the position of the National City Bank during much of the New Deal.

90. House to Roper, October 21, 1933, House Papers.

91. The chief source for most of what follows are the personal papers of Rene Leon, copies of which are now in my possession. See also the correspondence between Walter Lippmann and Leon, now in the Lippmann Correspondence at Yale, and between Raymond Moley, Leon, and Deterding in the Moley Papers, Hoover Institution, Stanford, Calif. Moffett later joined Standard of California.

92. The Frank Vanderlip Papers at Columbia University, New York City, contain the financial records of the Committee for the Nation during this period. The Standard Oil contributions are plainly listed there.

93. See, for example, the Minutes of the Executive Committee of the Open Market Committee, September 21, 1933; these are in the George Harrison Papers at Columbia University and available at the Federal Reserve Bank of New York. Copies also appear in the Minutes of the Directors Meetings of the Federal Reserve Bank of Boston for October 4, 1933, and other dates.

94. When Mrs. Rene Leon originally told me of her husband’s efforts to block the efforts of Warburg and the other financiers at the London Conference, she could not remember the name of the businessman who had assisted him. The Leon Papers make it obvious that Moffett was the man as, independently, Mrs. Leon subsequently wrote me. A copy of what is perhaps the urgent telegram sent to warn FDR against Warburg’s efforts, which Mrs. Leon remembers her husband dispatching, can be found in Raymond Moley’s papers relating to the London Conference. When that telegram came into Moley’s hands is not clear; but this and other files in the Moley Papers contain numerous messages from Leon and even Deterding himself.

95. Robert Wood to Franklin D. Roosevelt, November 16, 1933, Robert Wood Papers, Herbert Hoover Presidential Library. Wood was president of Sears Roebuck, and a leader of the Committee for the Nation.

96. See, among others, Norman Nordhauser, The Quest for Stability (New York: Garland, 1979), chap. 8. I have profited greatly from the material in the J. R. Parten Papers.

97. See, for example, Sidney Lens, The Labor Wars (Garden City, N.Y.: Doubleday, 1973), pp. 288 ff.

98. See Walter Lippmann, “Self-Sufficiency: Some Random Reflections,” Foreign Affairs, January 1934.

99. “Memorandum on the Views Relating to the Work of the Committee on Economic Security Expressed by Various Individuals Consulted,” National Archives Record Group 47, Public Record Office, Washington, D.C. The interviews reported in this memo were taken “on a trip to New England and New York on August 19–21, 1934.” I am grateful to Janet Corpus for bringing this memo to my attention.

100. It is impossible to inventory all of the relevant citations here, but see the material in Record Group 47 of the National Archives and, especially, the material in Box 31 of the Ralph Flanders Papers, Syracuse University Library, Syracuse, N.Y.

101. Some authors suggest that because strike rates went from ionospheric in 1934 to merely stratospheric in 1935, the Wagner Act cannot have been adopted in response to pressure from labor. In fact, the expiration of the NRA determined when the soaring overall rate of class conflict would affect the statutes. The Supreme Court decision declaring the NRA unconstitutional came only days ahead of the law’s lapse. Obviously, what follows on the origins of the Wagner Act hardly suffices as a treatment of the rise of labor during the New Deal. I largely discuss elite responses to mass protest; I do not pretend to be offering a theory of the labor movement.

102. See, for example, Charlton Ogburn to William Green, January 7, 1935, Box 282, W. Jett Lauck Papers, University of Virginia.

103. See Sloan’s remarkable letter to J. J. Raskob, October 23, 1934, Raskob Papers.

104. In the Twentieth Century Fund deliberations, some railroad leaders, noting the Wagner bill’s similarity to the Railway Labor Act, supported its passage; Industrial Relations Counsellors opposed some of its key provisions; while nearly all the businessmen sought an equivalent “unfair labor practice” provision applying to unions. AFL attorney Charlton Ogburn, however, won out. Some aspects of New Deal tax policy (which was certainly not radical) should probably also be viewed as evidence of labor’s rising power.

105. Morgan had sought to repeal Glass-Steagall. Aldrich blocked this, but had to accept a shift of power within the Fed from the New York bank to the board of governors in Washington, which the Bank of America and other non-New York bankers championed. The almost simultaneous legislation aimed at breaking up public utility holding companies drove another nail into the coffin of the House of Morgan, for that bank totally dominated the industry, especially after Samuel Insull’s bankruptcy.

106. The Parten Papers, along with those of Interior Secretary Ickes at the Library of Congress and Texas Governor James Allred, now in the University of Houston Library, Houston, Texas, contain large amounts of material on oil issues. See, as one example, Franklin D. Roosevelt to Governor E. W. Marland of Oklahoma, May 17, 1935 (copy in the Allred Papers).

107. See Bernard Baruch to Eugene Meyer, May 20, 1936, Baruch Papers, Seeley Mudd Library, Princeton University. Meyer was at that time helping to run the Landon campaign. Note that in autumn 1935 Standard had helped turn aside Hoover’s bid for the ’36 nomination (see Herbert Hoover to Lewis Strauss, September 23, 1935, Lewis Strauss Papers, Hoover Presidential Library).

108. The Chemical Foundation Papers contain much material on Francis P. Garvan’s efforts to promote protectionism around the time of the convention. See especially Garvan’s correspondence with F. X. Eble and Samuel Crowther, in Box 11-2.

109. Samuel Crowther to Francis P. Garvan, July 18, 1936, Box 11-2, Chemical Foundation Papers.

110. New York Times, October 29, 1936, p. 10.

111. The details of all the high-level switches around the trade issues and the complex positions of some large interests (such as the Rockefellers) cannot be discussed here for reasons of space. Note, however, George Foster Peabody to A. H. Sulzberger of the New York Times, December 5, 1935, on the importance of good coverage for FDR and Sulzberger’s accommodating reply of December 12, both in George Foster Peabody Papers, Box 50, Library of Congress. Peabody held a large demand note on Roosevelt’s Warm Springs, Ga., Foundation.

112. For some documentation on the trade committee, cf. Aldrich Papers, Box 67. For Ruml’s role in the deficit spending plan, cf. Robert Collins, Business Response to Keynes (New York: Columbia University Press, 1981), pp. 69 ff.

113. Francis Fox Piven and Richard Cloward, Poor People’s Movements (New York: Vintage, 1976).

114. “Ferguson,” write Weir and Skocpol in “Keynesian Responses,” p. 114, “[is] unmistakably a writer in the peculiarly American ‘Beardsian’ tradition” who attributes “magical powers” to business. Who could complain about a comparison with the greatest of all American political analysts (who, we now learn, was basically right about the founding fathers; see Robert Maguire and Robert Ohsfeldt, “Economic Interests and the Constitution: A Quantitative Rehabilitation of Charles A. Beard,” Journal of Economic History 44 [June 1984]: 509–19)? Serious readers of this essay, however, will recognize that the only “magical” power possessed by the New Deal’s business supporters is their ability to remain invisible to historians.

Thomas Ferguson and Joel Rogers, Right Turn: The Decline of the Democrats and the Future of American Politics (New York: Hill & Wang, 1986), analyze at length the movement of various industrial groups in and out of the party during the decline of the New Deal. The explanation put forward there can usefully be contrasted with, for example, Thomas Byrne Edsall, The New Politics of Inequality (New York: W. W. Norton, 1984), which continues to portray the GOP as the party of big business, while analyzing the Democrats mainly in demographic terms.

115. See the discussion in my “Party Realignment,” especially notes 44 and 45, chapter 1 in this volume, and the appendix, “Deduced and Abandoned.”

Chapter Three

1. Keynes’s remark is in his “A Note on the Long Term Rate of Interest in Relation to the Conversion Scheme,” Economic Journal, 42 (September 1932), 421–22.

2. This Glass-Steagall Act should not be confused with a law passed a year later, bearing the names of the same two legislators, that mandated the separation of investment from commercial banking.

3. Mathew Josephson, The Money Lords (New York, 1973), p. 101. Josephson was then in fairly close touch with top Fed officials. See his Infidel in the Temple (New York, 1967), p. 21.

4. See Milton Friedman and Anna Schwartz, A Monetary History of the United States 1867–1960, (Princeton, 1963); Karl Brunner and Allan H. Meltzer, “What did we learn from the Monetary Experience of the United States in the Great Depression,” Canadian Journal of Economics, 1 (May 1968), 334–48; Meltzer, “Monetary and Other Explanations of the Start of The Great Depression,” Journal of Monetary Economics, 2 (1976), 455–71; Peter Temin, Did Monetary Forces Cause the Great Depression? (New York, 1976); Elmus R. Wicker, “Federal Reserve Monetary Policy, 1922–33: A Reinterpretation,” Journal of Political Economy, 73 (Aug. 1965), 325–43; and Federal Reserve Monetary Policy, 1917–33 (New York, 1966). See also the essays in K. Brunner, ed., The Great Depression Revisited (Boston, 1981), and Paul Trescott, “Federal Reserve Policy in the Great Contraction: A Counterfactual Assessment,” Explorations in Economic History, 19 (July 1982), 211–20.

5. Friedman and Schwartz, Monetary History, pp. 411–18; the quotations are from p. 415.

6. Wicker, Reserve Policy, pp. 195, 171.

7. Ibid., p. 195.

8. Brunner and Meltzer, “What Did We Learn,” p. 343; Meltzer, “Monetary and Other Explanations,” p. 468.

9. See for example, Meltzer, “Monetary and Other Explanations,” p. 465.

10. Charles Kindleberger, The World in Depression (London, 1973) surveys international responses to the Depression.

11. Our discussion here summarizes the more detailed analysis in our “Monetary Policy, Loan Liquidation, and Industrial Conflict: The Federal Reserve and the Great Contraction,” available from the authors.

12. Meltzer’s table is presented in his “Monetary and Other Explanations,” pp. 465–67. Our continuation of the table is available from either of us.

13. See George Stigler, “The Economic Theory of Regulation” in his The Citizen and the State (Chicago, 1971), and Richard Posner, “Theories of Economic Regulation,” Bell Journal of Economics, 5 (autumn 1974), 335–58. For one attempt at applying the economic theory of regulation to the Federal Reserve System, see Gerald Epstein, “Monetary Instability and the Political Economy of the Federal Reserve,” in Alan Stone, ed., The Political Economy of Public Policy (Beverly Hills, 1983). Pressures from other sectors strongly affect the treatment of the Fed as a creature of a single industry. Note that Wicker, and Friedman and Schwartz, though they did considerable research in archives, gathered very little material on the private sector. Of course, what the Fed needs to do to raise bank profits depends on the state of the economy and, as we discuss later, on the condition of bank portfolios. In regard to the latter question, see Lawrence Fisher and Roman L. Weil, “Coping with the Risk of Interest Rate Fluctuations: Returns to Bondholders from Naive and Optimal Strategies,” Journal of Business, 44 (October 1971), 408–31; and Mark Flannery, “Market Interest Rates and Commercial Bank Profitability: An Empirical Investigation,” Journal of Finance, 36 (December 1981), 1085–1101.

14. The previous two paragraphs primarily rely on Friedman and Schwartz, Monetary History, pp. 363–71. Note that opposition to the New York Fed’s initiatives helped lead to a reorganization of the open market committee.

15. See Harrison, “Report of the Chairman of the Open Market Policy Conference to the Governors Conference” of April 27, 1931, for a review of policy up to then. This and the other Harrison papers quoted can be found in the George L. Harrison Papers, Rare Books and Manuscript Library, Columbia University. The papers there are often said to be duplicates of those in the Federal Reserve Bank of New York archives.

16. The stock market crash initially threatened banks in New York to a greater extent than those in other districts. Almost 50 percent of the loans of central reserve city member banks in New York were loans on securities, over a third of them to brokers and dealers in New York City. This compares to less than 40 percent for all member banks with only 10 percent of those to dealers and brokers in New York. Moreover, much of the pressure of withdrawals of bank deposits following the crash was concentrated in New York banks. See Board of Governors of the Federal Reserve System, Banking and Monetary Statistics (Washington, D.C., 1943), p. 76, 83; in regard to the directors see the quotation in Meltzer, “Monetary and Other Explanations,” p. 463.

17. Andrew Mellon, quoted in David Koskoff, The Mellons (New York, 1978), p. 265; Koskoff in turn is quoting from the report in Hoover’s memoirs.

18. See the sources discussed at greater length in our “Monetary Policy.”

19. For Hoover’s efforts, see the entry in the Henry Stimson diary for April 4, 1931 (which discusses the policies Hoover implemented soon after the crash), Henry Stimson Papers, Sterling Library, Yale University, and Murray Rothbard, America’s Great Depression (Princeton, 1963). See also Martin Baily, “The Labor Market in the 1930s,” in James Tobin, ed., Macroeconomics, Prices and Quantities (Washington, D.C., 1983).

20. Thomas Ferguson, “From ‘Normalcy’ to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression,” (chapter 2, this volume).

21. E. A. Goldenweiser, Meeting with Federal Reserve Board, January 3, 1930 from Goldenweiser Papers, Library of Congress, Box 1, quoted in Friedman and Schwartz, Monetary History, p. 401. For other evidence on how seriously the Fed viewed the gold question, see Minutes of Meeting of The Open Market Policy Conference, April 29, 1931, in the Harrison Papers.

22. Miller, for example, clearly relied on real bills in his statement cited in the preceding paragraph of the text. The true meaning of real bills during this period is complicated by the Fed’s enthusiasm for liquidation. During much of the early Depression the brunt of deposit withdrawals, runs, and suspensions fell on smaller, generally state-regulated banks. As a consequence, deposits had a discernible tendency in some Fed districts to leave such banks for larger ones regulated by the Fed. Because a bank that gained deposits probably had less need to borrow from the Fed and real bills advocates frequently relied on such borrowing to gauge how tight policy was, a plea in favor of real bills by larger banks was equivalent to a request for a policy that transferred the assets of their marginal competitors to them. Note that our regression results, reported in the last part of this chapter, indicate that for the Depression as a whole, the Fed did not respond to bank failures and that the Fed was frequently criticized in this period for its alleged hostility to small banks.

23. E. A. Goldenweiser, Memorandum on Meeting with Federal Reserve Board, January 3, 1930, Goldenweiser Papers. Harrison’s forceful advocacy of the reduction of collateral requirements mentioned in this chapter shows that he agreed with Goldenweiser, and is incompatible with a real bills doctrine. In 1932 when the Glass-Steagall Act passed, Thomas W. Lamont of Morgan was also openly attacking older, restrictive notions of “elegibility.” See Lamont to Walter Lippman, Memorandum, dated February 11, 1932, Lippman Papers, Sterling Library, Yale University.

24. Certain brief, anomalous aspects of Fed behavior during 1931 cannot be considered here.

25. Friedman and Schwartz, Monetary History, p. 316.

26. Ibid., p. 322; they also note Hoover’s interest in other assistance for banks.

27. U.S. Board of Governors of the Federal Reserve, Banking and Monetary Statistics (Washington, D.C., 1943), pp. 468, 475, 478. Lower grade bonds had plunged earlier. Note that actual failures continued to be concentrated among smaller banks.

28. See the striking letter of Morgan partner Russell Leffingwell to Senator Carter Glass, Jan. 8, 1932; Leffingwell Papers, Box 3, Yale University, Sterling Library. Leffingwell’s views had been very different only a few months before, and he now emerged as a leading lobbyist for the program.

29. The portfolio changes discussed here can also be expressed more technically as an analysis of changes in the “duration” of bank assets and liabilities as, for example, in Paul Samuelson, “The Effect of Interest Rate Increases on the Banking System,” American Economic Review, 35 (March 1945), 16–27.

30. See the discussion in Ferguson, Critical Realignment.

31. Minutes of the Meeting of the Open Market Policy Conference, Washington, D.C., January 11 and 12, 1932, p. 7; Harrison Papers. Friedman and Schwartz do mention the issue of railroad wage cuts, p. 383, but do not indicate its importance. Wicker does not mention it. The report of an official communication (New York Federal Reserve, January 20, 1932, from J. E. Crane to Confidential Files, Bank of France telephone conversation; report on talk of Harrison with Lacour-Gayet) underscores the importance of the railroad wage cuts.

32. Letter from Burgess to Harrison, February 16, 1932, Federal Reserve Board of New York archives (hereafter FRBNY). This memo is also an excellent indication that Burgess has abandoned (if he ever held) the “Riefler-Burgess-Strong” doctrine.

33. See Ferguson, Critical Realignment.

34. See the Eugene Meyer and Ogden Mills papers at the Library of Congress; and “Selected Monetary and Banking Series,” in the Presidential Papers—Subject—Financial Matters, Gold & Silver, Herbert Hoover Presidential Papers, Hoover Presidential Library, West Branch, Iowa.

35. Preliminary Memorandum for Executive Committee of The Open Market Policy Conference, April 5, 1932, Harrison Papers.

36. Preliminary Draft, Minutes of Meeting of the Executive Committee of the Open Market Policy Conference, April 5, 1932, Harrison Papers.

37. Meeting of Joint Conference of the Federal Reserve Board and The Open Market Policy Conference, April 12, 1932; Washington, D.C., Harrison Papers. Note that even Miller, previously a champion of real bills, supported reflation.

38. All issues of the Federal Reserve Bulletin in this period present comparative data for the various Federal Reserve banks. In the 1920s controversies between the Chicago and New York Federal Reserve banks had been acute; for a particularly striking example, see Ferguson, ‘From Normalcy to New Deal,’ chapter 2 of this volume.

39. McDougal and Young, for example, had opposed the program at a February 24 and 25 meeting of governors. See Minutes of the Meeting of Governors held at Washington, D.C., February 24 and 25, 1932, Harrison Papers. Minutes of the Boston Fed, for various dates in 1932, now held in the Federal Reserve Bank at Boston, indicate that the Boston bank, nevertheless, sometimes bought securities.

40. Meeting of Joint Conference, April 12, 1932, Harrison Papers, p. 21. Harrison’s answer indicates what he thought was animating the critics and seems to rule out an appeal to belief in real bills as an explanation for their behavior. After questioning the program as “inflationary,” McDougal finally voted with the majority. No significance should be attached to this move, however. Both before and after this meeting, McDougal, whom Harrison later described as “always a reluctant follower” of the reflation program, vigorously attacked open market expansion. (See Harrison’s comments at the June 23, 1932, meeting of the directors of the New York Fed, Binder 50, Harrison Papers.) Note also that bureaucratic pressures, to close ranks once the outcome of a decision was clear, were very strong and led losers to say frankly on several occasions that they would vote formally against what they lacked the strength to halt.

41. See the figures for the period in Federal Reserve Bulletin (February 1938), pp. 123–24.

42. The Federal Reserve volume Banking and Monetary Statistics actually has a record of negative values for short-term interest rates in October 1932, p. 460.

43. By 1933 some banks were refusing deposits because they were losing money on them. See Commercial and Financial Chronicle (February 11, 1933).

44. The data on net earnings are from Federal Reserve Bulletin (February 1938), p. 119. Table 3 of our “Monetary Policy” breaks down bank expenses for salaries and wages and other categories during the early 1930s. The data for this table, on which our discussion here is based, are from various issues of the Federal Reserve Bulletin.

45. These figures are drawn from table 4 of our “Monetary Policy” paper, which calculates net margins for banks in each Federal Reserve district from 1927 to 1932. The data come originally from various issues of the Federal Reserve Bulletin. Net margin equals interest earned less interest paid less other expenses per $100 of loans and investments. Note that margins vary considerably over the whole five-year-period.

46. Report of Open Market Operations to Meeting of the Executive Committee of the Open Market Policy Conference Held at Federal Reserve Bank of New York (FRBNY) on April 5, 1932, Harrison Papers.

47. F. Cyril James, The Growth of Chicago Banks, (New York, 1938), vol. 2, pp. 1062–63. After the declaration of the banking moratorium, when it was too late, the Chicago bank finally did agree to rediscount for the New York Fed.

48. For statistics on each bank’s notes and gold holdings, see Federal Reserve Bulletin for 1932 and 1933, various issues; remember that each bank desired a safety margin. Note also that opponents of reflation soon began arguing that the system-wide nature of the program was very important, if it were to be done at all, while the New York Fed feared the wrath of the provinces if it tried to go it alone.

49. Board of Governors of the Federal Reserve System, Banking and Monetary Statistics, p. 574.

50. For statistics of the gold loss, see ibid. The much-disputed question, whether French Prime Minister Laval made a promise to President Herbert Hoover, is discussed in Ferguson, Critical Realignment.

51. See Allan Sproul (E. M. Despres) to Crane and Burgess, June 8, 1932 (a retrospective on gold in recent months), in FRBNY archives. For Fed-Bank of England communications in this period see the file for the Bank of England in the Archives of the Federal Reserve Bank of New York. For the Bank of England’s efforts to lower interest rates in the spring of 1932, see the Monthly Newsletter of the National City Bank of New York, May 1932, p. 69; see also Susan Howson, “Sterling’s Managed Float,” Princeton Studies in International Finance (Princeton, 1980) concerning the conflict between the British Treasury and the Bank of England.

52. R. Leffingwell, Memorandum, April 2, 1932, Box 3, Leffingwell Papers, Yale University.

53. Federal Reserve Bank of New York, May 26, 1932, telephone conversation with Cariguel, Banque de France. From L. W. Knoke, reporting on a call from Cariguel to Crane of the staff of the New York Fed. See also Howson, “Sterling’s Managed Float,” p. 15, which suggests that the Bank of England had been buying dollars in May, but was selling them in June and July; and Goldenweiser, untitled memo for June 10, 1932, Goldenweiser Papers.

54. Woodlief Thomas to Sproul; Subject: “Gold Movements and System’s Open Market Policy,” June 9, 1932, reporting the comments of several investment bankers, FRBNY archives. Note that many, perhaps most, lower-ranking New York Fed officials supported the reflation program.

55. Harrison to Confidential Files, from Governor Harrison, June 2, 1932, Subject: “The Dollar in England, President’s meeting May 30, balancing budget, etc., “Harrison Papers, which discusses a meeting with various industrialists and a U.S. senator to put pressure on Hoover and the leaders of Congress.

56. See Ferguson, Critical Realignment. Among primary sources, see especially the Charles Hamlin diary for May and June 1932, at the Library of Congress. It is also worth mentioning that currency hoarding worried some Fed officials, as did the prospect that this could develop into a domestic gold run.

57. For example, the memoranda referenced in n. 54. In May and June some Fed staffers who supported reflation had attempted to minimize the significance of the gold outflow. But the bankers who were losing the deposits and the high Fed officials responsible for policy took a more serious view of the situation. Gold cover problems in individual Fed banks also continued.

58. Minutes of the Meeting of the Executive Committee of the Open Market Policy Conference, June 16, 1932, Harrison Papers.

59. J. B. McDougal to Harrison, July 9, 1932, FRBNY archives. Note that falling interest rates could, and in districts like Chicago where many banks were already collapsing, almost certainly did increase chances that depositors would withdraw their funds.

60. The “pool” was a corporation in which different financial groups could buy shares. See Ferguson, Critical Realignment, and contemporary references such as the Journal of Commerce and Finance, (June 8, 1933), 780.

61. Our “Monetary Policy” reports a regression on bank stock data indicating that falling prices of bank stocks, but not industrial production, influenced the Fed. We have only limited confidence in this equation, however, and so do not discuss it here.

62. See, for example, S. Goldfeld and A. Blinder, “Some Implications of an Endogenous Stabilization Policy,” Brookings Papers on Economic Activity, 3 (1972), pp. 585–640. The problem of “selective attention” is particularly worrisome.

63. See the literature on currency substitution, for example, L. Girton and D. Roper, “Theory and Implications of Currency Substitution,” Journal of Money, Credit, and Banking, 13 (February 1981), 12–30, and the discussion in the Federal Reserve Bulletin (January 1932).

64. Given the traditional posture of central banks and discussions of the time, one might expect that the Fed would respond to inflation. We found, however, in our statistical work that the Fed did not respond to inflation in this period, contrary to conventional wisdom.

65. Minutes of the Meeting of the Open Market Policy Conference, Jan. 4, 1933, Harrison Papers. McDougal of Chicago also expressed a desire to “make open market money rates firmer.” Epstein and Ferguson, “Answers to Stock Questions,” presents further documentation in regard to the squeeze on bank earnings.

66. See Ferguson, Critical Realignment.

Chapter Four

1. Most of these details are taken from Ferguson (1984, pp. 89–92), supplemented by material collected from various archives for my full-length study of the New Deal (Ferguson, n.d.).

2. Initially, Magee, who had read my essay (1984), was skeptical about the historical relation between Democrats and low tariffs; the skepticism disappeared after he and his coauthors produced their own evidence in favor of the proposition. Magee, Brock, and Young (1989, pp. 185–201) provide additional evidence supporting my point about the connection between the post-New Deal Democrats and multinationals, but their ingenious model linking tariff rates, unemployment/inflation tradeoffs, and the party reverses the actual historical relations: Hull’s tariff revisions and the Wagner Act preceded macroeconomic stabilization efforts. And their suggestion that my account is incomplete because “it does not explain why Democratic presidents would support free trade when this works counter to the interests of blue collar and much union labor” (1989, pp. 194–195) is true only if one cannot bring oneself to accept the obvious conclusion: that my account explains why blue-collar workers and unions do not, in fact, control the party.

Borchardt’s essay originally appeared in German in 1984; he was responding to Ferguson (1980).

3. Ferguson (1983) and (1986) were originally written as one paper and had to be divided for initial publication. Ferguson (1984) was completed long before any work had commenced on either, save for slight revisions inserted as it went to press. Ferguson (1989a) is largely an abridgement of the 1984 article, save for several footnotes.

4. It should not be necessary to caution that this example is discussed only informally. But the thrust of the argument should be abundantly clear—as also why the objections brought against my essay by some “rational expectations” enthusiasts (e.g., McKelvey and Ordeshook, 1986) fail. The investment theory essay’s fundamental criticism of the economic theory of democracy is that most people are not wealthy enough to control government, not that they are uninformed. At the same time, it should be observed that in all real political systems, problems of the flow and processing of information are extremely important. Accordingly, the basic reply to McKelvey and Ordeshook (1986) is that information systems rapidly become politicized in episodes of major social conflict, so that traditional cues (including polls, which frequently are very poor or deceptive) used by voters become very unreliable. This process was clearly visible in the 1936 election, during which many Republicans cited a wide variety of poor indicators of sentiment, including the famous Literary Digest poll, in hopes of influencing public perceptions of momentum. See the appendix to this book.

5. I disagree with the view that these organizations exist outside of partisan politics. Actually, they have a very complex relation to political parties—as was true in the New Deal.

6. Most of these contributions, and those of many other corporations (including a few that, at first sight, are not consistent with “From ‘Normalcy’ to New Deal”) are plainly grouped together in a little over a box and a quarter of Louise Overacker’s papers, now housed at the Citizen’s Research Foundation at the University of Southern California. Overacker coded a variety of information about the contributions she (and the Lonergan Committee—see U.S. Congress [1937]) studied. But the code is not difficult to decipher; it is clear that some of these contributions were those involved in what became a major controversy at the time: paid advertisements in a Book of the Democratic Convention of 1936, which was later sold in several versions, including a deluxe “edition bound in leather and autographed by the President” (Overacker, 1937, p. 480). Others took the form of bulk purchases of these various editions.

Such efforts (whose true dimensions become plainer when one multiplies by just under 10 to translate the 1936 amounts into current 1991 dollars, as indicated at the opening of this essay) provided a way around laws against direct payments by corporations to political parties. They could also be defended (and were, by corporation officials and Democratic Party operatives, when the GOP complained) as ordinary advertising, though no firm would have paid such rates to commercial media. (There was, of course, no plausible defense for the practice of buying copies in bulk.) From the standpoint of testing the investment theory, all such payments belong in the database, and in the analysis below, they are, though, of course, not all the companies that contributed are part of my sample.

I was unable to check the original data at the National Archives because analysts with the Record Group that Webber names could not locate the material. I do not read much into this; many libraries, like individuals, frequently have less than perfect recall. I have a great deal of confidence in Overacker, whose records were clearly painstakingly compiled and meticulously maintained. There are some mistaken individual identifications, but not many. In some individual cases, notes indicate that her totals differ from those of the Lonergan Committee; I infer that this usually arises because she continued working on the data after the report was published.

7. My answer, in regard to the statistical tests below, ultimately was “no,” since a committed lobbyist like Kremer, who also doubles as a party official, may simply not be in a position to follow his patron’s each and every turn, especially around a turning point like the New Deal.

8. The existence of such a scheme is plausibly asserted in Roosevelt and Brough (1975, p. 133), and a great deal of supporting evidence exists for their claim, though I cannot deal with the question in this essay. Nor can I sort out the question of the relations among independent, national, major, etc., oil companies any further.

9. Weinberg was assistant treasurer of the Democratic National Committee in both 1932 and 1936; Baruch’s biographer, Schwarz (1981, p. 314), says flatly that Baruch contributed in 1936 though he is unable to determine how and when. After reviewing the archival evidence, I concur. On Astor, a variety of sources are available. Though caution is necessary because of its author’s strained relations with FDR, Raymond Moley’s diary, now with Moley’s papers at the Hoover Institution at Stanford, makes it plain that Astor (who was then in business with Harriman) was working—and spending—to reelect the president. Kennedy (who is not in my sample) has been discussed by innumerable analysts and the facts are not in doubt. In cases such as these or such as Texas oilman Roy Cullen—who was openly attacking the New Deal in many forums and who should clearly be counted against “From ‘Normalcy’ to New Deal”’s case—or the “Liberty League” Republicans discussed in this essay—where the evidence appears dispositive even though no precise date or form of payment can be pinned down, the individual has been counted in the data set as a contributor. (Such cases number fewer than 10 out of 1,872 individuals appearing in my data set; they should not be confused with cases like that of Thomas W. Lamont—discussed in note 10—where archival sources contain receipts or letters acknowledging otherwise unrecorded contributions.) I also examined the (public) listings of the national executive committee and the national advisory council of the American Liberty League, since it appears that recruitment for these bodies was linked to a willingness to contribute. In the end, however, this search brought forth only three names, for two of which other evidence exists that is very strong indeed (Raskob and William Knudsen), while the third seems quite definite (S. Bayard Colgate).

10. Evidence of Lamont’s activities in the 1936 campaign can be found in many archives. But Box 123 alone, in his own papers, now at the Baker Library at the Harvard Business School, establishes conclusively that Lamont was a lavish contributor and major fund-raiser—though the unwary are cautioned that the range of Lamont’s efforts is only imperfectly represented in these papers. In a striking warning of the incompleteness of the Lonergan data and the Overacker files, there is even a formal receipt from the New Jersey Republican National Finance Committee for one particular contribution of $2,500. This is especially interesting, because this organization appears actually to have been covered by the committee’s report. Yet, somehow, while Lamont’s son (also at Morgan) made it into the document (U.S. Congress, 1937, p. 84), the best-known banker of the age did not. Nor was he included in Overacker’s files.

11. Domhoff (1990, pp. 232–235) claims repeatedly that Webber’s work disproves “From ‘Normalcy’ to New Deal” thesis in the course of a lengthy discussion of Right Turn (Ferguson and Rogers, 1986). He adds that Webber’s results show “conclusively” that the evidence discussed in “From ‘Normalcy’ to New Deal” that Right Turn cited in regard to business support for the New Deal is an “artifact of regional differences” (1990, p. 234). Webber is more circumspect in his paper on this point. This is fortunate, for, as shown in this chapter. New Deal business support is not an artifact of regionalism, not even in the case of tobacco (where by no means all firms were based in the South). Domhoff’s own discussion contains other methodological errors. See my comments in chapter 6 of this volume, n. 37.

Almost everything that has been said about the shortcomings of Webber’s discussion applies also to Allen (1991) save that Allen does at least attempt to incorporate an analysis of large investors. (Though I lack the space for detailed comment, I do not consider his choice a happy one, not least because it takes virtually no account of the Texas oil producers.) On p. 683, for example, he describes his sample as consisting of “589 individuals who were among the most powerful members of the capitalist class during the New Deal,” or less than a third the size of my sample. Alas, however, he indicates that he took over only the individual contributions from Overacker’s data set, and makes no allowance (or mention) of corporate contributions or loans. This, of course, is guaranteed to produce nonsense, particularly if one also mistakenly believes that the Overacker data represent an accurate count of “all campaign contributions of $100 or more received during calendar year 1936 at the state and local level by party organizations and other political organizations . . .” (p. 683). From his other descriptions of his sample and procedures, it is sometimes difficult to know for sure what he is doing. I cannot, for example, tell if the subsample of 110 industrial corporations—all that he relies on to test my views about labor intensity—include oil companies or not, or how many there were. But his subsample here is so minute and selective that it is something of a minor miracle that it nonetheless produces evidence that I am right after all (“labor intensity does have a modest negative effect on contributions to the Democratic Party”).

Other claims he makes in the paper that run counter to my work are so easily falsifiable that one can only shake one’s head. On p. 687, for example, he explains that “corporate elites from investment banks contributed nothing to the Democratic [P]arty.” But this is ridiculous, as anyone who is willing to take the time to inspect the Lonergan Committee or the Overacker data in person will readily discover. (Consider, for example, such Roosevelt contributors as Averell Harriman, Paul Mazur, James Forrestal, or—as previously discussed—even Sidney Weinberg—all of whom appear in one or the other or both of these sources that he claims to have relied upon.) And his “explanation” for this nonfact only makes it obvious that he does not understand the issues in the Glass-Steagall Act. Otherwise, all his paper has to contribute is some unintended humor, as when he respectfully cites another study on p. 681 that found evidence that “the New Deal coalition included a ‘power bloc’. . . [of] representatives of capital-intensive corporations with international markets,” while failing to realize that this (waiving details) is the central argument of my 1984 paper that so vexes him.

The evidence about the industrial basis of Roosevelt’s coalition, of course, is quite counter to the “state managers” or “independent state apparatus” views of essays such as Weir and Skocpol (1985). Precisely what distribution of campaign contributions claims such as theirs entail is, perhaps, not altogether clear. Perhaps most plausible on the basis of their premises would be a completely random distribution of contributions between the parties. If one were willing to beg certain fundamental questions, perhaps one could also argue that the traditional view of Roosevelt as lacking important business support (and the GOP as the party of “business”) should show up in the statistics. But no matter what one’s views, it is clear that my findings are not what such theories predict.

12. In such instances, chi-square tests are obviously appropriate, though so are others. Such testing can, however, involve some subtle questions of hypothesis testing. Many common statistical tests rely on exclusive partitions of the data. The question must be framed to allow for cases where contributions are made to both parties, e.g., test for differences between those who gave at least one contribution to Party X from those who did not.

What should not be done is equally clear, I think—regressions on totals are to be avoided. (No one, I think, who has ever read coal magnate Edward J. Berwind’s remarkable letter to Thomas W. Lamont of October 31, 1932, in Box 123 of the Lamont papers on the Berwind companies’ “normal” level of political contributions in the many states where they had interests is likely to succumb to this temptation.)

13. Both my sample and Webber’s are technically forms of systematic rather than pure random probability samples. But, as long as the reader is duly warned about the nature of the sample, in problems of the type we are concerned with here, it makes perfect sense to treat such samples as though they were probability samples. See, for example, Stone (1971) for a vigorous defense and the subsequent discussion in Floud (1973, pp. 177–178). (Note that the work Stone is defending makes liberal use of confidence intervals.) The use of significance tests in such cases is now virtually universal in econometric history, though not always appreciated outside of it. The dubious are invited to consider that even comparatively large samples—such as those Webber and I each constructed—surely contain random variation that will affect one’s best estimate of differences among investor blocs in their support or opposition to the New Deal. If, for example, I had taken the top 190 firms instead of the top 200, etc., as discussed in appendix 4.1, some minor differences in my results are to be expected.

14. My portmanteau term for an industry that embraces a few of the largest fortunes based in newspapers, but mostly magazines and film companies, both of which have a substantially lower labor intensity.

The significance values reported in table 4.1 are for the (2 × 2) Pearson chi-square test, with instances where the expected frequency in a cell falls below 5 flagged for the reader. In such cases, many analysts prefer to report results for Fisher’s Exact Test (Jarausch and Hardy, 1991, p. 109). For the Democrats, the relevant two-tailed Fisher test results are as follows: Tobacco (.00); Media (.00); Chemicals (.11); Mining (.00); Coal (.31); Steel (.75); Autos (.73). For the Republicans, the cases where the test is relevant are Tobacco (.07), Media (.10), Coal (.64), Steel (.00). The analysis in the text is, clearly, not affected by the choice of significant test.

15. Note that these figures report the percentage of firms contributing to the Democrats as a percentage of all firms. All of my empirical papers have used this conservative approach (otherwise, missing data/no contribution entries would swell the Democratic percentages). The Republican comparisons discussed later are reported the same way—but, in these cases, one can be much more confident that a lot of the missing data were really Republican contributions that happened to be lost.

16. The evidence for the auto and rubber industries (plus a part of the steel industry too small to add up to anything in the aggregate) contains an interesting twist that may shed some light on the “process” character of the Second New Deal. These firms collectively show in the data as average. But I believe there is a deeper meaning here. To see it, however, it is necessary to reject a serious misreading of “From ‘Normalcy’ to New Deal” that Webber makes. He cites automobiles as an example of a capital-intensive, internationalist industry, and claims that his inability to locate contributions to the Democrats is evidence against my views.

The automobile industry is conventionally considered to be a classic example of an internationally oriented sector. But my essay specifically observed that I had doubts about General Motors, where there is clear archival evidence that its major owners, the DuPonts, exerted pressure on the company not to internationalize as much as it could have (Ferguson, 1984, p. 54). But let this, and the complicated question of Opel, pass for now. The real response to Webber is that he has forgotten about the automobile workers. Contrary to what he says, I have always designated the industry as “labor-intensive”; indeed, at the time I wrote (1984) I used to tease the author of an outstanding essay on European politics and industrial structure that by his “leading sector” argument, Alfred P. Sloan should have been the greatest of New Dealers (Kurth, 1979).

In reality, the case of autos is even more complicated. Among the firms listed in the Overacker data as providing various forms of financial assistance to the Democrats in 1936 are Ford ($4,000), Chrysler, and Chevrolet, a part of GM ($2,000). Provided one takes seriously the injunctions given earlier on the use of institutionally subtle evidence, these cases are less mysterious than they look. First, it is necessary to remember that the strike wave had not yet occurred. Also, the automobile companies had been particularly successful before in pressuring FDR into ruling in their favor in moments of crisis. On the other hand, it is clear that GM worked hard for a Republican victory—spending large sums in the process. Ford, the most multinational of the auto companies, and Chrysler, for which exports probably mattered a great deal, present less clear-cut cases. Henry Ford and most of the Ford management were strongly for Landon. Ford’s son Edsel, however, who had a real role in the management of the firm, backed FDR strongly. Chrysler, I think, initially was sympathetic to Roosevelt, but then clearly moved away. After 1936, virtually all of Detroit moved massively against the New Deal.

The picture is of an industry trying to control events, and then being forced by its inability to coalesce with labor to move completely into the enemy camp. The same is true for the handful of steel and rubber companies that also donated to the president’s campaign. Already very hostile and suspicious, they had not quite reached the fork in the road in 1936. They campaigned for Landon, but a few (we are, after all, dealing with a decided minority) were still willing to hazard comparatively small sums on the Democrats.

17. I suspect, but am not yet prepared to assert as a fact, that Roosevelt’s tariff stand also attracted retailers, who probably wanted access to the lowest-priced merchandise. But there are various stumbling blocks to this conclusion; as a consequence, retailing, save for a few genuine multinational chains, is coded as neutral (intermediate) in this analysis. This will probably turn out to be too cautious, but it strengthens my confidence in the conclusions.

18. Webber criticizes my associating Herbert Lehman with investment bankers, saying that he had left the firm. This, of course, is true. But an important principle of realistic political economy is that family wealth should normally function as a touchstone of assessments of individual social and economic locations. I do not believe that a serious analysis of Lehman’s subsequent political career can sustain a claim that he did not derive continuous, basic advantages from his ties with the family investment bank—any more than Harriman or Nelson Rockefeller did not from their respective enterprises. Indeed, there is perhaps a better than even chance that someone in the Lehman orbit helped arrange the Manufacturers Trust loan to FDR’s campaign. Nor is there any reason to become vexed about the Lehman partners in 1936. Mazur is on the record as a contributor, while it seems plain that the obvious place for the others to contribute is to the Lehman campaign (or are we to believe they had nothing to do with their former partner?)—and this was very closely coordinated with the Roosevelt campaign.

A last point: Frank Altshul’s papers, now open at Columbia University, record his efforts to gather contributions from investment bankers for Landon, particularly at the start of the campaign, before Landon attacked Hull’s treaties. He certainly raised some money, but I am struck by how little. Some Dillon, Read partners and Lehman partners appear to have contributed (one such episode raised but $1,500). By comparison, Forrestal, by then clearly the dominant figure at Dillon, Read (after Dillon himself) alone gave at least $7,500 to FDR.

19. Exactly how one ought to code insurance, railroads, and utilities is unclear. Free-traders, of course, stress that they should favor free trade—because that would make for a higher rate of economic growth. But while this argument is popular today (and was then—among communicants), it ignores the fact that many business groups at that time defended what amounted to a dependency-reversal argument, akin to those popular until recently in the Third World, that stressed the role of the tariff in protecting nascent industries. Some studies I have undertaken of nineteenth-century business views reinforced my view that this is a potentially serious problem. Accordingly, I did not try to code the three industries for this analysis; they are not included in the calculations that follow, nor are a few private investors for whom I simply could not find enough data to allocate them.

How to code Texas oil and other “national” oil concerns was another thorny problem. The difficulty arose because these producers usually opposed imports in their industry, but strongly favored free trade everywhere else. The import issue did flare in the industry until approximately 1935, when it faded away, in no small part because Standard and other producers in South America rerouted oil shipments away from the United States as the Second New Deal’s oil price support program got under way. My solution was to try to keep this issue—which after all only affects a portion of the industry—from having a major impact on results. These producers were coded a neutral 1.

As explained in appendix 4.1, I was unable to locate usable wage data for insurance, railroads, and utilities. These industries accordingly had to be dropped from the apposite t-test. This exclusion surely cannot affect the basic results—the differences are simply of too large a magnitude.

The results of the t-tests reported here differ very slightly from those reported in my original essay. No point of substance is involved—purely statistical considerations are at issue. The original essay reported results for t-tests in which contributors to both parties remained in both groups. I adopted this procedure because I feared (correctly, it turned out) that many readers would interpret my results in terms of an idealized clash between representative industries, such as “steel” vs. “oil,” and one’s estimate of which bloc is near what would be greatly affected by dropping the cases. Retaining these contributors, however, adds to the number of cases, thus changing the statistics reported. I regret that my written caution about this point was not included in the published version—a fact I did not learn until I saw the article in print.

In this essay, accordingly, I have reverted to the preferred alternative of dropping all the joint contributors—the econometric equivalent of testing between laboratory-pure samples of Democrats and Republicans. As will be evident when these results are compared with those in the original paper, my central hypotheses are confirmed no matter how one does the tests.

20. In the form raised by Domhoff (1990), the regionalism question is jejune; the very meaning of the term is unclear, when, for example, a Southern textile firm is controlled by executives who live in New York, Southern utilities are run from the Midwest or the East, and oilmen come to Texas from Pennsylvania to add to their fortunes. Moreover, it is perfectly obvious to all but perhaps some elite theorists that many of these industries operate in a world market, no matter where they are located. This was certainly the case with the textile industry, for example, which was badly hit in the 1930s by imports from Japan.

On the other hand, if one is not trying to explain away the effects of the world market and related economic forces, there may well be a role for some interpretation in terms of regional effects, including ones of a cultural nature. Here I would mention two results that I consider too tentative for the main text, but worth mentioning since I have not yet, despite much effort, found an inconsistent pattern.

Reasoning that a failure to find regional effects might derive from an antecedent failure to control for major economic influences, I explored how controlling for international position affects the results. Two results turned up. First, in the South, Democrats (only) who are located at either extreme on the free trade-protection axis appear not to be influenced by any regional variable. But Democrats in the middle position—where, perhaps, the clues of industry are less clear—appear to be somewhat more Democratic than they otherwise would be. Outside the South, this finding is reversed, but only for Republicans—save that it occurs for all levels of international position. These results—evaluated by chi-square values—are all statistically significant. I continue to analyze these results, but cannot refrain from observing that they are perfectly consistent with conventional views of the political culture of the (expiring) political System of 1896: a strong Southern culture organized around the Democrats and free trade, while outside the South a powerful Republican culture is pervasive.

One last point. Webber (1991) raises the question of the Council on Foreign Relations (CFR). This question arises not because of anything I wrote, but because other writers, who do not work from primary sources, mention it. My view is that the council did not become truly important until the end of the decade, around the time of the so-called “Century group.” Before then, I am inclined to think that it overrepresented the Republican internationalists, particularly those close to the Morgan interests. There certainly were prominent Democrats within the group, but I can think of no reason why it should overrepresent Democratic, as opposed to Republican, internationalists in 1936. It would be news, on the other hand, if the council were proven to be full of protectionists. But this is someone else’s problem.

Chapter Five

1. On the “myth of the U.S. public’s turn to the right” under Reagan, see Thomas Ferguson and Joel Rogers, Right Turn: The Decline of the Democrats and the Future of American Politics (New York: Hill & Wang, 1986), chap. 1; Stanley Kelley, “Democracy and the New Deal Party System,” in A. Guttman, ed., Democracy and the Welfare State (Princeton: Princeton University Press, 1988) demonstrates the persistence of New Deal issues.

Right Turn was not alone in reaching the conclusions about opinion trends that it did. Tom Smith of the National Opinion Research Center, Vicente Navarro, and a number of other analysts have all argued rather similarly, while some students of comparative politics made similar observations about the Margaret Thatcher regime in Britain. Recently the whole question in regard to the United States was reexamined by Benjamin Page and Robert Shapiro, who, after reviewing an enormous number of polls, concluded in their The Rational Public (Chicago: University of Chicago Press, 1992) once again that “Ferguson & Rogers are correct, therefore, in arguing that the policy right turn of the Reagan years cannot be accounted for as a response to public demands.” (pp. 169–70).

In his The Changing American Mind (Ann Arbor: University of Michigan Press, 1992), William Mayer claims that Right Turn was mistaken. Mayer’s argument, however, is tendentious in the extreme. Early in his book he concedes that he does not disagree with our claims about opinion trends after 1980 and even suggests that our way of proceeding makes perfect sense. (Cf. p. 125: “Given [Ferguson and Rogers’] interests, their [emphasis on the 1980s] is a perfectly appropriate procedure; as will become clear, their verdict on these years agrees with my own . . .”) His subsequent discussion of opinion trends in the ’80s, however, takes no account of our discussion and slips past the key question of the relation of policy to opinion. In other parts of his book, he picks quarrels with our analyses of the pre-1980 data. A very close reading, however, shows that he consistently backs away from critical points, even as he suggests that somehow our evidence is flawed. Thus, for example, we noted a number of opinion trends that moved in a conservative direction before 1980, including opinions on crime, taxes, and military spending. These, we thought, scarcely added up to an explanation of the sweeping policy changes that occurred under Reagan, and we attempted to place them in the framework of our general argument. Mayer acknowledges that we noted these trends, but then carries on as if we were somehow careless about the data, rather than simply disagreeing with us about the meaning of the data. (p. 125 ff.) This is remarkable, particularly given his later caution that in fact, he is not arguing that any of the shifts he and we noticed in fact explain the election results of 1980. (See his p. 123, n. 20.)

Mayer also makes several statements that are simply absurd. Although a fairly large number of researchers were reviewing the same polls we were and coming into general agreement with us, he accuses us of “selectively” choosing data. It is of course true that we did not report every poll ever taken. But Right Turn looks at a great many polls and highlights a number of areas that don’t fit the general pattern it suggests exists. Nor, as anyone can see, do we in fact “demonstrate a consistent, and highly questionable preference for data from the Harris poll, whose surveys are often tilted in a liberal direction.” (p. 126) Even a simple count of sources will show far more citations to polls by the Los Angeles Times, CBS/New York Times, ABC, Gallup, etc. Indeed, the Harris data could be removed entirely without affecting our general argument. He also claims (p. 125, n. 24) that part of our argument about military spending is based on a “factual error.” I believe that one poll (out of literally dozens discussed) confused data that had excluded residual categories with results that included answers such as “don’t know.” But that one poll is immaterial to the argument we make that most of the shift in favor of more military spending occurred late in the seventies (as the cold war heated up and the Soviets invaded Afghanistan). We cite a series of polls for this conclusion, and our argument is correct (and confirmed in Mayer’s table 9.2). (Further sometimes quite amusing comments on Mayer’s very facile discussion are in a memorandum of November 8, 1992, made available to me by Joel Rogers.)

I conclude that Mayer’s footnoted caution about the implications of his work is fully justified, and that public opinion trends cannot explain the changes in American public policy wrought by the Reagan administration—exactly as Right Turn argued.

2. See Thomas Ferguson, “Lessons from a ‘Meaningless’ Election,” Texas Observer, December 5, 1986.

3. Gallup has kindly made its unpublished data for 1980, 1984, and 1988 available to me. For 1988, the last Gallup pre-election survey showed that among registered voters, 53.3 percent of those who were likely to vote favored Bush, 41.6 preferred Dukakis, and 5.1 percent were undecided. On the other hand, of those who were unlikely to vote, only 46.1 percent favored Bush, 42.3 percent liked Dukakis, and fully 11.6 percent were undecided. Note that this would not guarantee victory for the Democrats if everyone voted, but it would certainly make for a qualitatively different strategic situation, and probably a very different campaign. This Gallup survey, in contrast to former practice, is restricted to registered voters. A survey of those who were not registered might well show up even better for the Democrats. The Reagan popularity figures in the previous paragraph came from Thomas Ferguson, “F.D.R., Anyone?” The Nation, May 22, 1989.

4. For the 1988 voting results, see the New York Times, November 10, 1988.

5. See, for example, Walter Dean Burnham, “The Reagan Heritage,” in G. Pomper, et. al., The Election of 1988 (Chatham, NJ: Chatham House, 1989) who argues that a “traditional decay-revitalization cycle” provided a significant mass underpinning for the Reagan revolution. Thomas B. Edsall, “Black vs. White in Chicago,” New York Review of Books, April 13, 1989, is one of many statements of the case on race. Neither, however, examines any opinion data.

6. What is perhaps the best general approach to voters’ decisions is laid out in Stanley Kelley, Interpreting Elections (Princeton: Princeton University Press, 1983). An important consequence of this view is that hardly anyone appears to be a one-issue voter, such as Burnham’s revitalization view would predict. Using Kelley’s general methods, John Geer has produced several important papers (see his “The Electorate’s Partisan Evaluations: Evidence of a Continuing Democratic Edge,” Public Opinion Quarterly 55; no. 2, pp. 218–31, and “New Deal Issues and the American Electorate, 1952–88,” Political Behavior 14, pp. 45–65). The former shows convincingly that, contrary to many studies (e.g., E. Carmines and J. Stimson, Issue Evolution [Princeton: Princeton University Press, 1989]), race presently plays a secondary role in American politics as a whole (though obviously not in particular localities); he also shows that this was not true in the sixties. On the basis of Kelley and Geer’s results, I broke down changes in the net pull of various issues that affect public attitudes toward the Democratic Party. For reasons of space, this had to be detached from this chapter.

7. This formulation, of course, is deceptively simple. For a full discussion of methods and pitfalls, including the “obvious” objections, cf. Ferguson, “Party Realignment and American Industrial Structure” (chapter 1 of this volume). The analysis of 1988 campaign contributions set out below is premised on this essay. One implication, perhaps, needs to be noted here: the particular focus on top investors—the very largest, richest firms and individuals. It is obvious that a great deal of money in politics arises from outside this sector. But as the essay argues, large investors have unique advantages (including, collectively, the fact that they own the media); they in addition—and certainly in the 1988 campaign—do much of the organizing that brings in the rest of the money.

The actual data analysis closely follows the procedure described in the statistical appendix to Right Turn (including the reliance on 2 × 2 chi-square tests, with the industry being tested separated from the rest, and inclusion within the sample of both PACs and individual top investors, top executives of all large firms, and members of the Forbes 400), with the notable exception that the sample is much larger. The industry divisions, except where noted, generally follow the industry codes used in the Fortune lists of large firms, with the obvious exceptions that, for example, investment banking does not have its own code there, as it certainly does in my analysis; and that the Fortune category “diversified financial company” makes little sense in my context. Its separate firms have therefore been located in other appropriate industries (e.g., Morgan-Stanley is classified with the investment banks). I should add that I doubt very much that any conclusion of this paper is at all affected by any of these decisions—this data set is truly large. But because it includes far more contributors than just PACs, it differs a great deal from all other studies known to me of campaign financing. I should also note that while virtually all the data are drawn from the Federal Election Committee (and are complete through at least mid-September 1988, when the parties officially go to the public trough), I have added in the donors for both the GOP and Democratic soft money lists, as disclosed after the election in a much-publicized series of articles in the Washington Post. (These lists, in fact, add virtually no information to my sample; the absence of good information about totals is precisely why I avoid regression, and other ratio or interval-levels tests, in favor of chi-square and other less presumptous approaches).

8. Much of what follows is discussed at length in many works on Reagan, including Ferguson and Rogers, Right Turn, ch. 3, and my “Who Bought Bush, and Why,” International Economy, (January/February 1989), pp. 68–75.

9. One almost hesitates to employ the expression “bloc,” since this group, in sharp contrast to the second, exists largely in a reactive mode, defined preeminently by what it opposes, and since the 1930s, when it lost its dominant position in U.S. society, has never succeeded in articulating a well-developed alternative point of view. Neither are its views well represented in the major media.

10. Paul Kennedy, The Rise and Fall of the Great Powers (New York: Random House, 1978).

11. Rejecting the advice that Herbert Stein, Walter Wriston, and other analysts were giving not to make the ritual promise to avoid fighting inflation by means of unemployment, the administration’s earliest economic projections envisioned only a short recession. See Ferguson and Rogers, Right Turn, p. 118.

12. See the statistical appendix to Ferguson and Rogers, Right Turn, pp. 221–27, especially tables 1 and 2 on p. 225.

13. Other business groups complained about the deficit, of course. But they did not leave the party over it; nor, though the point cannot be pursued here, were they always serious. That was, after all, the point of hammering away at the deficit to build pressure on social programs. And a few firms, notably defense, certainly had other priorities. See Right Turn, p. 154.

14. See David Hale, “Accounting for the Dollar Glut,” Wall Street Journal, April 18, 1988.

15. These are overwhelmingly represented in the sample. U.S. textiles firms have fallen so far that they are no longer well represented in this data, and their political behavior has to be separately analyzed. For the Fortune poll, see the issue of February 15, 1989.

16. The table also registers disproportionate support from the beverages industry. One might well ask why. The sample suggests a fairly obvious answer: For Kemp, the “cola wars” combine with support from some right-wing beer barons to drive the numbers up. Note also that the table compares each party’s candidates with regard to all contributions within the party, so that pockets of industrial support for particular candidates can be assessed. Table 5.2 compares industries with statistically above-average rates of contributions to each party, where the universe of comparison is all investors. The findings for the GOP showed a high mean of .45 across more than 20 industries. The industries with rates of contributions to the Democrats significantly above average (.17) for the entire sample are unsurprising; computers (.32, at the .07 level); investment banking (.40, .01); real estate (.39, .01) and beverages (.50, .01 level). Finally it should be obvious that many important political cleavages show up inside industries. Indeed, this chapter alludes to several rifts at various points. But I know of no mechanical way to statistically test for these. One must instead proceed case by case, as I do in the discussion of Dole, for example.

17. Because of my grave doubts about reported spending totals, I am skeptical of comparing percentage rates of contributions, especially when reporting within blocs in each party, as in the present table. I think it makes more sense to think in terms of a bloc of industries that all prove significantly above the mean (always, of course, assuming that the mean is not impossibly small, as in the Haig case). For what it is worth, however, Dole’s absolute rate for this bloc is actually higher than Bush’s—a remarkable indicator of sentiment, considering that Bush collected far more contributions. The list of defense firms is adapted from James Kurth, “The Military Industrial Complex Revisited,” in J. Kruzel, ed., American Defense Annual, 1989–90 (Lexington, MA: D.C. Heath, 1989).

18. See, for example, the New York Times, January 20, 1988. The Boston Globe ran somewhat fuller notices around the same time.

19. From this standpoint, it is scarcely surprising that the first days of the Bush administration witnessed a sharp rise in world oil prices that the Soviets abetted, and an influx of Kissenger protégés. In effect, the most powerful potential opposition to the administration was being coopted. Nor is it surprising that this led almost at once to indecision on détente, and a crisis in German-American relations. Subsequent events, notably the Gulf War and the collapse of the Soviet Union, complicated matters in ways too complex to analyze here.

20. The New York Times, January 11, 1988. Preston Tisch at the time indicated that he was normally a Democrat.

21. For Sununu and Westinghouse, see the Boston Globe, January 16, 1989. The other industries in table 5.1 for Bush might merit a word. Recall the previous discussion on government support for the computer industry in negotiations with Japan. Oil needs no comment, in general; nor do the (multinational free-trading) investment bankers, who barely make the grade anyway. I strongly suspect interindustry differences play a role here, for in the Bush camp are representatives of several firms that have prominently championed financial deregulation and are actively lobbying to expand into the role of nonbank banks. Many other investment bankers have strongly opposed this, and this industry was one of those most likely to back Democrats in the 1988 election.

22. See, for example, “Presidential Campaign Hotline,” February 23, 1988. For past textile commitments inside the GOP, see Thomas Ferguson, “The Right Consensus? Holsti and Rosenau’s New Foreign Policy Belief Surveys,” International Studies Quarterly, 30 (1986), p. 414.

23. See Ferguson and Rogers, Right Turn, chap. 6, but especially the statistical tables in the appendix on campaign contributions; for the antinuclear movement, see pages 150–54.

24. For most of what follows on the Democrats, see Ferguson, “Private Money and Public Policy,” International Economy (September/October, 1988); useful also is Fran Hawthorne, “Playing Politics,” Institutional Investor (April, 1988).

25. While consistent with Hart’s orientation toward free trade, the table’s indications of support from retailers may well be a statistical artifact. The table warns plainly that the power of the test is low, but it is worth noting here how exiguous the result really is: it rests on two contributions that are significant only because the N is so small for Hart. I report the result only because I do not favor tailoring data presentation to a priori theories.

26. See S. R. Lichter, D. Amundson, and R. Noyes, The Video Campaign (Washington, DC: American Enterprise Institute, Center for Media and Public Affairs, 1988), p. 76.

27. What table 5.1’s suggestion in regard to electronics is worth is not clear. The finding is marginal to begin with, both statistically and in regard to strength (it concerns two firms, both highly regulated). One might guess that it relates to issues before a Senate committee, but I simply do not know.

28. For representative polls and a useful overview of the media reaction to Simon, cf. the FAIR (Fairness and Accuracy in Reporting) newsletter Extra, March/April, 1988.

29. For more on the Gephardt amendment’s real origins and purposes, cf. Thomas Ferguson, “Have the Democrats Really Gone Protectionist?” Baltimore Sun, May 10, 1987.

30. See Lichter et al., Video Campaign, p. 115. On p. 104, the authors briefly attempt to absolve the networks of responsibility for the tone of coverage toward Gephardt, claiming that they simply carried the attacks of other candidates. But their argument is flimsy indeed—deciding which candidate attacks to carry is a primary power of the media. Jackson, for example, criticized many of the other candidates. But the data of Lichter et al.—which confirm that issues simply were not featured in most coverage—imply that most of these attacks were never aired. After the Iowa primary, the best way to hurt Gephardt was surely to publicize the flip-flop and special interest charges leveled at him by Dukakis, while failing to notice the arrant hypocrisy of the affluent Dukakis campaign’s claims that Gephardt’s PAC money uniquely branded him a “special interest” candidate.

31. As discussed above, the 1984 data revealed a clear relation between candidates’ liberalism and support from the real estate bloc. In 1988, there was no outstanding liberal candidate—if for the moment one excludes Jackson as at least partly sui generis. So partitioning the candidates makes little sense. But it is still possible to demonstrate structural incompatibility within coalitions. One very striking result is that any Democrat whom the aircraft industry disproportionately favored is disproportionately unfavored by real estate, and vice versa. The rule works for all candidates, who, like Gephardt and Dukakis, have sizable contributions. But the effect is significant for candidates with small numbers of contributions, also. (Two cases of really minuscule contributions raise doubts about significance levels, but do not contradict this.) It is always unwise to invest any single data analysis with too much significance. But reality, I think, is trying to tell us something.

32. How the well-financed, but derivative and often very unstable appeals financed by the investor blocs discussed here were translated by voters is a subject that this essay simply does not have room to treat in detail. From the present standpoint, however, most ordinary electoral analyses are technically misspecified in that they neglect, for example, Gephardt’s running out of money, as well as many other factors that influence candidate appeals in a systematic manner. They also fail to discuss, or even to raise, questions about the way money functions to make sure certain questions are not asked in public, as the investment theory notes. While I, therefore, cannot follow its treatment of the campaign, see for some analysis of the voting patterns, Bruce Cain, I. A. Lewis, and Douglas Rivers, “Strategy and Choice in the 1988 Presidential Primaries,” Social Science Working Paper 686 (Pasadena: California Institute of Technology).

33. See Ferguson and Rogers, Right Turn, pp. 176–79.

34. In this category I would place the commercial bank contributions recorded in table 5.1. Although they were few, they are statistically—and probably politically—significant.

35. On the Jackson campaign, see also the New York Times, April 17, 1988, and April 15, 1988. The latter provides some indication of how wide Jackson’s support among regional and local labor leaders was—an important corrective to the view espoused by much of the media and some academic analysts that Jackson’s white support was concentrated among upper-income and white-collar groups. Jackson was clearly not the choice of the AFL-CIO or the UAW but his effort definitely would not have gotten off the ground without the support it received from a minority of (mostly white) trade unionists.

On May 9, 1988, the Washington Post published a Post/ABC poll claiming to show that Jackson had brought few new voters to the polls during the primaries. Being rather surprised, I phoned the Post, where a man, identifying himself as one of the authors of the story, flatly refused to make available to me any part of the survey. Neither would ABC. This was the first time this had ever happened to me, and it was a marked departure from the usual practice of reputable polls. Because they would not release details of the survey, it is impossible to say for sure how they arrived at this implausible conclusion. Examining the story, however, suggests they fell victim to a classic blunder: taking the word of the respondent as evidence that he or she voted. It is well known that people overreport voting. As a consequence, the survey would turn up many people claiming to have voted in 1984, who in fact were new 1988 voters. But it is possible to do better than this. I. A. Richards of the Los Angeles Times poll kindly made available to me an unpublished survey taken during the New York primary which is sorted by whether the respondent admitted to not voting in 1984 or not. While this is not perfect either, it is very likely that most people who admitted to not voting in 1984 in fact did not. Among these 1988 voters, 64 percent voted for Jackson—a very striking rate of new voter attraction, if every there was one.

36. On Dukakis’s campaign, see especially Ferguson, “Private Money”; also helpful for this and the rest of this section are Hawthorne, “Playing Politics”; also the Boston Globe, April 12, 1988, June 22, 1988, and May 12, 1988. Dukakis’s stock holding in Automatix, Inc., founded by Philippe Villiers, is mentioned in the New York Times, July 6, 1988. Enron’s cosponsorship of the Boston-Austin link is noted in the Austin American-Statesman, July 22, 1988; one hint in the Wall Street Journal on running to the right can be found on April 29, 1988. The media talk about “small regional donors” misses the main point that is, perhaps, a little easier to see now that the Democratic list of major soft money donors has become public—that such a structure is one way people in the elite sample I analyze actually manifest clout.

37. Some friendly readers of a draft of this essay wondered whether they should worry about industries that contributed to both parties. In my view, the answer is no, for reasons that are discussed in my “Party Realignment” (chapter 1 in this volume), and “From ‘Normalcy’ to New Deal: Industrial Structure, Party Competition, and American Public Policy in the Great Depression,” (chapter 2 in this volume). Bipartisanship happens; it is not a universal phenomenon, but is limited, as these data show again, to certain industries. In analyzing the modern Democratic Party, therefore, one does well to recognize that comparatively few firms and industries of any size give anything to the party, and then to focus sharply on those who do. I should also note that intra-industry factors are certainly at work here in many cases (this is particularly obvious in the case of investment banking, where the interest of the bond houses in the deficit and Glass-Steagall is openly avowed, in contrast to, for example, sellers of retail stocks); I have not yet discovered a method to reveal this kind of cleavage, however, without constructing a catalogue of cases.

38. These are not in the sample of “large” investors analyzed here. In the general election, the Democrats also received substantial funds from various trial attorneys, who were organizing against Bush’s anticipated restructuring of the legal rules on liability in response to a demand by major segments of his business constituency.

39. The Boston Globe, May 24, 1988.

40. Most of the scenes in the Democrats’ 1988 passion play are so well known that specific references are redundant. But one or two aspects of this quite carefully written description might raise questions. See in particular, on the broken commitment to Jackson and the Dukakis campaign’s hostility to voter registration (aside from a few states where local leaders insisted), the excellent reporting of Andrew Kopkind in the Nation and James Ridgeway in the Texas Observer and the Village Voice; on Dukakis and labor, cf. the Boston Globe, September 4, 1988. I personally know of one case in which a top Dukakis campaign operative declined—late in the campaign—to make any use of excellent data suggesting growing U.S. inequality. And one well-known Cambridge academic acknowledged to be very close to the campaign was telling some business groups that the governor had placed most discussion of Japan and the trade deficit off limits—which should be obvious to anyone who followed the campaign.

The surveys cited come from the CBS/New York Times poll; see the discussion in Barbara Farah and Ethel Klein, “Public Opinion Trends,” in G. Pomper, et al., eds., The Election of 1988 (Chatham, NJ: Chatham House, 1989). The turnout data come from Walter Dean Burnham, personal communication. Note that among modern elections, 1924’s overall turnout certainly ranked lower—but that was in an era in which Southern turn-outs were carefully held down.

Chapter Six

1. This episode has not received the publicity it merits. The only written reference known to me is an editorial in The Nation, December 7, 1992, p. 1; complaints from the ranks of organizations affected by this development were sharp, but no one could afford to speak for the record.

2. On the fact that Clinton and his aides were well aware of the problem during the campaign, cf. the Boston Globe, January 10, 1993, and the New York Times of the same day. For the Wall Street Journal interview, see that newspaper for December 18, 1992.

3. See Financial Times, December 16, 1992; the quote is from that paper’s description of Rubin’s own comments. Note that against many European currencies, the U.S. dollar might well have been slightly undervalued in January of 1993. For Dornbusch, see his “The U.S. in the World Economy,” n.d., which indicates that it is an expanded and edited version of his remarks before the Little Rock conference. For Summers, see Boston Herald, January 9, 1993, which also discusses the reception of Dornbusch’s suggestions in Little Rock. For the aides’ comments on Bergsten, see the Boston Globe, December 17, 1992; note, however, Bergsten’s subsequent role in the yen/dollar contretemps.

Since many opponents of devaluation are fond of erecting scarecrows, it should be noted that no one advocated a policy of continuous or regular devaluation. Dornbusch, for example, compared the case for a one-time devaluation against Asia to the early-seventies devaluation against Europe, which adjusted for the more rapid growth in productivity as these economies revived after the war.

4. See Office of the President of the United States, A Vision of Change for America, February 17, 1993.

5. For the truly overwhelming poll numbers on jobs vs. the deficit, see e.g., William Schneider, “The President’s ‘Call to Arms’: What Answer?” Boston Herald, February 19, 1993, p. 23. On various occasions, Dr. Schneider has indicated polite disagreement with my views on the role of public opinion in the making of public policy. I look forward to his explanation of how this article can be reconciled with the fate of the stimulus proposal.

6. See, e.g., the series of New York Times/CBS polls on the president’s approval rating recorded as part of the press release on their poll fielded June 1–3, 1993. This shows a 53 percent approval rating in February, rising to 55 percent the following month, and then a steep plunge to 38 percent in June.

7. The original campaign-finance proposal failed to regulate most of the major ways in which big money influences elections. After sharp criticism, the White House advanced another plan which sounded better, but which would still permit very large sums of money—up to, I believe, about the median value of soft money contributions in the 1992 race—to flow as before. See, e.g., Ellen Miller, “The Senate’s Sham Reform Plan,” Washington Post, June 28, 1993.

8. However, the program as finally passed by Congress did significantly increase the earned income tax credit for the working poor. It also eliminated the ceiling on earnings subject to the social security-medicare tax, which had shielded richer Americans from this levy. For the affluent, this step represented an additional tax bite of perhaps 2.9 percent.

9. See Paul Davidson, “Clinton’s Economic Plan: Putting Caution First,” The Nation, March 1, 1993, pp. 260–62; and especially Robert Eisner, The Misunderstood Economy, Boston: Harvard Business School Press, 1994. It is instructive to compare the behavior of some prominent economists on the stimulus question with their behavior during the Gulf War, when many rushed to reassure us that the United States could easily afford an extra $100 billion or so for a small war.

10. See the discussion of Perot’s plan in James Galbraith, “A Two-Track Growth Program,” Challenge, January-February 1993, p. 5.

11. The behavior over time of various measures of earnings, hourly pay, income, working hours, and other common indicators of economic welfare have been the object of much discussion. For a devastating review, see Lawrence Mishel and Jared Bernstein, The State of Working America, 1992–93, Armonk, N.Y.: M. E. Sharpe for the Economic Policy Institute, especially chapters 3 and 4.

12. Compare the graph on p. 256 of H. W. Stanley and Richard Niemi, Vital Statistics On American Politics, Washington: Congressional Quarterly Press, 1990, with the various figures summarized for Bush in, e.g., the press release to the New York Times poll of July 8–11, 1992.

13. Gary Langer, “Clinton Reclaims the Center—But It Remains Wary,” ABC News briefing paper: The 1992 Exit Poll, November 18, 1992—update of November 6, 1992, repons that 42 percent of voters identified the economy as the most important issue in their vote. The next two choices named by large numbers of voters, the deficit (named by 21 percent) and health care (named by 20 percent), are obviously economic in a broader sense intended in note 11, above.

See also my discussion of Ray Fair’s well-known economic model (and my prediction that it would be wrong, as, indeed, it was) in “George Bush as Lazarus: On Presidential Comebacks,” The Texas Observer, September 18, 1992, p. 9. Recently proposed revisions of the GNP accounts for President Bush’s term do nothing to ease the Fair model’s situation: the revisions are in the wrong direction. (Nor, incidentally, do the revisions shake the conclusions about the poor performance of the economy under Bush compared to other post–World War II presidents.)

14. Some analysts also suggest that the Gulf War confused the Fed by complicating the interpretation of economic statistics. As discussed in this chapter, this is plausible for a few months, but no more.

15. For much of what follows, see the discussion in Thomas Ferguson and Joel Rogers, Right Turn: The Decline of the Democrats and The Future of American Politics, New York: Hill & Wang, 1986, chapter 4; and Thomas Ferguson, “By Invitation Only: Party Competition and Industrial Structure in the 1988 Election,” chapter 5 of this volume.

Following Davidson’s post-Keynesian analysis in his “Is Free Trade Always The Right Policy?” pp. 238–40 of The Collected Writings of Paul Davidson, Vol. II: Inflation, Open Economies & Resources, New York: New York University Press, 1991, I would now stress the difference in relative growth rates rather than the fact of the overvalued dollar as the driving force. But the dollar mattered, too.

16. On the Fed and Bush, see especially James Galbraith and Michael Mandler’s, “Overview: Economic Policy,” pp. 19–28, and James Galbraith’s “Monetary Policy,” pp. 88–99, in Mark Green, ed., Changing America, New York: New Market, 1993. Also helpful is Gary Dymski, Gerald Epstein, James Galbraith, and Robert Pollin, “Report Card on the Greenspan Fed,” Economic Policy Institute briefing paper, February 1992.

17. Discussions by David Hale and others of the Japanese contribution to the Bush reelection effort attracted some public attention in 1988; but see the startlingly direct admission by a former Bank of Japan official in the New York Times, January 21, 1994: “We asked life insurance companies to continue to buy U.S. bonds, especially right before the election.” There was, he said, “a lot of administrative guidance.” After the election, when the market turned, many of these firms suffered large losses.

18. For real estate interests in 1984, see Ferguson and Rogers, Right Turn, p. 150 and the appendix, which uses statistical evidence to rule out some alternative hypotheses. For 1988, see Ferguson, “By Invitation Only.” This analysis indicates that Democratic primary candidates who received disproportionately high rates of donations from real estate received disproportionately low rates of donations from aircraft companies, and vice versa—striking evidence, indeed, that these constituencies were at cross-purposes.

19. Note, for example, that Caspar Weinberger was among the large group of (highly partisan) dissenters who collectively ensured the failure of the bipartisan National Economic Commission in early 1989—a body which had surely been created to give the president political cover to act on the deficit as he came into office.

20. For Rostenkowski, cf. the entry for one short period of time in Larry Makinson’s highly instructive Open Secrets, 2nd ed.; Washington, D.C.: Congressional Quarterly, pp. 168–69, 1044–45. For the Democrats in general, see the discussion in this chapter.

21. This Democratic strategy tended to push up the percentage of party-line votes in Congress, leading some political analysts to conclude, rashly, that party differences were sharpening at that time. What was actually happening is a good deal more complex, and is a warning against the use of simple-minded quantitative indices. Party differences sharpened, but against a background of increasing conservative consensus on many public policy issues among the leadership of both major parties. (Not that the parties are identical, as the debates over health care and social security attest.) The party polarization evident in the early months of the Clinton administration was similar—Clinton is both a center-right Democrat and different from Reagan and Bush.

22. For voters’ lack of interest in taxes and far greater interest in growth in 1992, see Langer, “1992 Exit Poll.” Also note the insignificant (3 percent) number of voters who responded with the answer, “taxes,” to an open-ended query in a New York Times poll of October 2–4, 1992 about what it was that most bothered them about reelecting George Bush to a second term. On voter views of taxes in general, see Benjamin Page and Robert Shapiro, The Rational Public, Chicago: University of Chicago Press, 1991, chap. 4, which indicates how variable views about taxes have been, but also the analysis in Louis Ferleger and Jay Mandle, No Rain, No Gain, New York: Twentieth Century Fund, 1992, pp. 22–33. I do not, accordingly, see any reason to modify the views expressed on the question in Ferguson and Rogers, Right Turn, chapter 1.

It is difficult to believe that if, for example, the Clinton administration succeeded in substantially raising the rate of growth and improving the level of public services that it would fail in a reelection bid because of a moderate tax increase. Indeed, 1992 exit polls, cited above, show that most voters who voted for Clinton disbelieved his promises that he would not raise taxes on most Americans.

On the blocking of cross-cutting appeals by Democratic elites in the 1980s, see, e.g., Ferguson and Rogers, Right Turn, pp. 185–86, 189.

23. See Galbraith and Mandler, “Economic Policy,” p. 21.

24. On prominent supply-siders’ attraction to Perot, see, e.g., the references to Forstmann and Wanniski in the Boston Globe, July 12, 1992; though the best way to follow the supply-side romance with the Texan was in Wanniski’s newsletter during the campaign. A particularly detailed discussion by Wanniski of his and Forstmann’s relations with Perot appeared in an issue of his newsletter of late June 1992. (The date on a fax copy indicates June 26, 1992.) After Perot withdrew and Bush held the line, Forstmann came back into the Bush campaign and helped raise substantial sums.

25. The best known of these is perhaps Thomas Edsall and Mary Edsall, Chain Reaction, New York: Norton, 1991, apparently written to explain in advance why George Bush would win the 1992 election. A certain amount of wry amusement can be gleaned by tracing subsequent efforts in the Washington Post to explain away what happened. See, e.g., Thomas Edsall’s article of October 8, 1992, which, despite the wave of urban unrest, isolates a “new breed” of big-city mayor, who is described as able to transcend the racial and ethnic divisions that only a few months before the book had identified as crucial to the success of the GOP.

Some Democratic analysts have claimed that Clinton’s celebrated rebuffs of Jesse Jackson played a major role in his victory. While a full discussion of this issue will require reference to the National Election Survey for 1992, I believe what really happened is already evident. First, there is no question that Clinton and his advisers went out of their way to reject Jackson. That was a message they wished to send. Second, there is also no question that some voters liked, or could be induced to like, that message. It is improbable, however, that many votes changed as a result of that message.

Little reliable quantitative evidence has been offered on how many votes are actually affected by calculations of this type in national (as opposed to particular state or local) elections. (Reliable evidence can be defined as the sort that meets objections of the type Stanley Kelley advances against conventional approaches to the role of the economy in the 1980 election in his Interpreting Elections, Princeton: Princeton University Press, 1983, chapter 9). Mostly we are given various results plucked from forced choice or other closed-ended questions, with little or no effort to investigate whether the considerations discussed actually affected voters’ decisions. That voters had heard of the rebuff of Jackson, for example, or even whether they approved, is simply not sufficient. When a properly designed analysis is performed, as for example, by John Geer, in his “The Electorate’s Partisan Evaluations: Evidence of a Continuing Democratic Edge,” Public Opinion Quarterly 55, no. 2, summer 1991, pp. 224–26, the results are disastrous for the claim that race is a uniquely crucial stumbling bloc to Democratic victories. Race is revealed to play a role, but not a very large one. Indeed, its influence appears to have been stronger in the 1960s, when Democrats were winning elections. I doubt that any of the obvious objections to Geer’s results (which parallel Kelley’s) are valid and I believe it is possible to rule out, for example, the perfectly reasonable suggestion that the open-ended questions seriously mismeasure the effect prejudice has on voting decisions in national elections. Given the economic conditions of 1992, any plausible Democratic challenger had an excellent chance of defeating Bush with or without Jackson—and I believe that once the survey data becomes available, this will become a (retrospectively) testable hypothesis that can be approached in explicit quantitative terms.

See also the interesting analysis in Alan Abramovitz, “Issue Evolution Reconsidered: Racial Attitudes and Partisanship in the American Electorate,” a paper prepared for delivery at the annual meeting of the Southern Political Science Association, Atlanta, Georgia, November 5–7, 1992.

26. On long-run trends in opinion toward race, see e.g., Page and Shapiro, Rational Public, chapter 3; for opinion following the unrest, see the various CBS/New York Times polls, e.g., the press release for their poll fielded May 6–8, 1992.

27. Table 6.1, like table 6.2, has been compiled along the lines of my “Industrial Structure and Party Competition in the New Deal,” chapter 4 of this volume; the statistical appendix to Right Turn; and “By Invitation Only,” chapter 5 of this volume. As in the 1988 statistical study, however, the sample size is vastly larger than that for Right Turn: It includes 1,945 individual entries from 948 firms. Readers seeking more detailed discussions of the methodology for constructing the sample should also consult my review essay on “Money and Politics” in Godfrey Hodgson, ed., Handbooks to The Modern World—The United States, vol. 2, New York: Facts on File, 1992, pp. 1060–84, which attempts to indicate the limitations of existing data on campaign finance.

In contrast to virtually all other election studies, my research attempts to include not only contributions from political action committees, but individual contributions and soft money as well. (For Bush and Clinton in 1992, PAC contributions were relevant only as sources of soft money, which is channeled through the parties, since each made the grand but empty gesture of refusing PAC donations to their formal campaign accounts.) I compile a systematic sample of top officers of firms at the apex of the American economic pyramid—the largest 200 Fortune industrials, top 20 commercial banks, 15 largest insurance firms, etc., from the Fortune service list, but also the largest firms on Wall Street, which do not necessarily appear on these other lists, and the Forbes 400 list of richest Americans for the year preceding the election. Then, by hand (the only way it can really be done) the individual and soft money contributions are pulled out of the Federal Election Commission files, along with contributions from their firms.

These data are then analyzed; typically the procedure is to identify industries (or other groupings, including sets of firms) which are disproportionately aiding various candidates. The typical test involves chi-square tests in which particular industries are tested against the rest for statistically significant differences in rates of contribution to particular candidates. As discussed in “Industrial Structure and Party Competition in the New Deal,” the results need to be carefully interpreted; in particular, I would call attention to the facts that noncontributors are left in to avoid an impression of inflated (primarily Democratic) totals, and that some firms give to both sides.

At the time this analysis was completed, the Federal Election Commission still had not released its (delayed) final report on the 1992 election. Accordingly, the tables in the essay provide figures for individual, soft money and PAC contributions from the individuals and firms in my sample to the Bush and Clinton campaigns (including soft money given to the parties in Clinton’s case after March 21, 1992, when he was incontestably the most likely nominee; and in Bush’s case, all GOP soft money) reported by the FEC through late October, 1992. This includes the great bulk of all money ever taken in by the two chief candidates, and is thus unlikely to require major revision. Note, however, that the tables do not record contributions to the other primary candidates. My discussion also draws on a survey of early money I prepared in the spring of 1992, but aside from the principal candidates, small numbers of contributions make statistical generalizations hazardous. I accordingly have not sought to present a statistical treatment of the primaries now, and the remarks in the text about the primaries (other than for Bush and Clinton) should be interpreted as preliminary.

Two other points require mention. My 1984 and 1988 studies reported results for individuals within industries. As explained in “Industrial Structure and Party Competition in the New Deal,” this procedure makes sense where there is reason to believe that corporations have an incentive to spread donations among more than one individual, as they did when the FEC limits on individual contributions still meant something. The enormous growth of soft money, however, has rendered this point moot. This was not a problem in 1984, and, after checking, I believe my 1988 results do not require significant correction. By 1992, however, the raising of soft money was formalized and endemic, incorporated into everyone’s political strategies and reported to the FEC. Accordingly, I revert to the practice of reporting results by firms, as in my study of 1936. This has one bad consequence: by reducing cases, it decreases reliability. Since I use 2 × 2 chi-square tests, when the expected values in any of the cells goes below 5, I report the results of Fisher’s Exact Test for the level of significance and mark it with an asterisk to call attention to it in table 6.2. (Here I follow K. H. Jarausch and K. A. Hardy, Quantitative Methods For Historians, Chapel Hill: University of North Carolina Press, 1991, p. 109).

28. For reasons of space, I have not analyzed the Buchanan campaign here. My impression, based on the incomplete survey of early money I performed in the spring of 1992, is that his campaign was built around an unstable coalition of two distinct constituencies. The first was the (protectionist part of) the American textile industry, to which the notion of putting America first is as attractive in the nineties as it was in the thirties. The second—undoubtedly larger—group, by contrast, might be termed not the “America First” but the “Me First” constituency. This group consists of a broad array of conservative, very well-heeled private investors (who nevertheless rarely show up on the Forbes listings) and second-tier figures (virtually none occupy top slots) working in firms in all sorts of industries, from finance to services. Dissatisfied with the “Tory Wet” caution that increasingly marked the Bush administration, they appear to have wanted two things above all: another big cut in capital gains taxes, and, of course, still further cuts in domestic spending.

Various newspaper stories during the later stages of the 1992 campaign suggested that big business began turning to Clinton in large numbers only very late in the campaign. Because I divided my data on soft money to the Democrats as described in note 27 above, I can compare how the sample behaved toward the Clinton campaign before and after the spring of 1992. It is plain that a marked turn toward Clinton occurred well before the highly publicized problem of the Bush campaign during and after late summer.

29. See, e.g., the sources cited in note 15.

30. Once again, see, e.g., the sources cited in note 15.

31. See Ferguson and Rogers, Right Turn, pp. 150 and the appendix; for Rubin and Altman’s visit, cf. pp. 185–8.

32. See Ferguson, “An Unbearable Lightness of Being—Party and Industry in the 1988 Democratic Primary,” in Benjamin Ginsberg and Alan Stone, eds., Do Elections Matter? 2nd ed.; Armonk, New York: M. E. Sharpe, 1991, pp. 237–54, and Ferguson, “By Invitation Only”.

I lack the space to analyze the direct responses of voters in 1984 or 1988, but these do not appear to have been very complicated. As discussed in the appendix to this volume. “Deduced and Abandoned: Rational Expectations, the Investment Theory of Political Parties, and the Myth of the Median Voter,” I essentially accept the analysis of actual voters’ reasons for casting their ballots developed in Kelley, Interpreting Elections, and “Democracy and the New Deal Party System,” in Amy Guttmann, ed., Democracy and The Welfare State, Princeton: Princeton University Press, 1988, and by John Geer, who has continued Kelley’s work in a notable series of recent papers. See Geer’s “The Electorate’s Partisan Evaluations: Evidence of a Continuing Democratic Edge,” Public Opinion Quarterly 55, no. 2, summer 1991, pp. 218–31, and “New Deal Issues and the American Electorate, 1952–88,” Political Behavior 14, no. 1, 1992, pp. 45–65.

Their analysis of the electorate’s behavior in these two elections, particularly the stress they both lay on the way the Democrats forfeited their ancestral identification as the party of prosperity, is entirely consistent with my analysis of the changing business base of the Democratic Party. The investment approach explains why the party kept offering only conservative economic messages—which the voters kept rejecting. (Note that Mondale in 1984 offered little but a tax rise, while Reagan at least talked about growth and was riding a huge political business cycle.) As mentioned earlier, the Democrats’ lack of a strong economic message (memorably summarized in 1988 as an emphasis on “competence” rather than “ideology”) also helps to open the space for Republican racial and religious appeals.

33. See the discussion in Ferguson and Rogers, Right Turn, pp. 63–66, chapter 5, and pp. 198–200; the budget figure is on p. 142. See also Ferguson and Rogers, “Corporate Coalitions in the 1980 Campaign,” Ferguson and Rogers, eds., The Hidden Election, New York: Pantheon, 1981, pp. 21–24.

Interestingly, along with its highly touted program of subsidies to high tech (discussed in this chapter), the Clinton administration has also announced special programs to aid two very highly unionized sectors: automobiles and construction. See the Frankfurter Allgemeine Zeitung, February 24, 1993, p. 15.

34. Ferguson and Rogers, Right Turn, pp. 53–57, 70–73. I fear that most writing on “new social movements” in both the United States and Europe fails to recognize that the unwillingness to agitate against austerity is a major factor in accounting for the acceptability of such groups within the political establishments of various countries.

35. A good study of the DLC is William Crotty, “Who Needs Two Republican Parties?” in J. M. Burns, et. al., The Democrats Must Lead, Boulder, Colo.: Westview, 1992, pp. 66–70. On the Northern financing, see, inter alia, Paul Starobin, “An Affair to Remember?” National Journal, January 16, 1993, pp. 120–22.

36. See Lawrence Longley, “The National Democratic Party Can Lead,” in Burns, et. al., Democrats Must Lead, pp. 29–55.

37. Compare the percentages for 1984 in Ferguson and Rogers, Right Turn, appendix, and for 1988 in Ferguson, “By Invitation Only,” this volume, table 5.2, with the nonentry for real estate in 1992 in table 6.2 of this essay. As explained above, note 27, this last table reports results for “firms,” where that term refers both to individual and corporate entities. But in fact, for all three years, all the real estate entries are for individuals (or families, where the kin work together), and all come from the Forbes 400 lists. They may, accordingly, be compared directly with one another.

In chapter 9 of his The Power Elite and The State, New York: Aldine, de Gruyter, 1990, G. William Domhoff claimed that an analysis of campaign contributions in the 1936 election by one of his students ran counter to my work on the New Deal. He also argued that Right Turn’s analysis of 1984 data, according to which real estate and investment banks disproportionately supported the Democrats, confounded ethnic and economic factors. In both these sectors, he suggested, Jewish Americans were represented in large numbers, and these tend to favor Democrats.

But my “Industrial Structure and Party Competition in the New Deal” (chapter 4 in this volume) showed in detail that his claims about my New Deal work were untenable and that the campaign finance data for 1936 strongly confirm my earlier conclusions. In regard to the 1984 case, his analysis of individual contributions slipped past our point that our conclusions rested upon an analysis of both individual and PAC contributions from investment houses; the latter cannot possibly be written off as purely individual, or, accordingly, ethnically based, since the large houses in question, while unlikely to be mistaken for model equal opportunity employers, now draw partners from many different backgrounds.

The real estate results for 1992, in addition, are powerful, and quite devastate views that the industry’s politics were ethnically driven. The Bush administration’s relations with American Jews were rocky indeed, far more so than Reagan’s. Yet real estate fell out altogether from the ranks of industries disproportionately supporting the Democrats. While I am sure the industry changed between 1988 and 1992, no plausible “circulation of elites” can account for this; the industry really changed its politics.

While I think these new results are dispositive for the cases at issue, I should note that there is no reason why weak ethnic effects, along the lines of the second-order regional effects my New Deal study identified, should not also sometimes be present. But—as the varying percentages of industry contributions across elections and candidates should caution us—slow-changing factors like ethnicity are unlikely to drive free enterprise economies. They are more likely to register strongly in the mass electorate, though even there I believe most voting analysts underestimate the influence of economics, because they so rarely test directly for economic influences other than social class.

The most obvious place for regional effects to show in the 1992 data is in the contributions to Clinton. I therefore tested for South/non-South differences, and found none at all. This underscores the point made earlier about Northern support for the DLC.

38. The source for this information was a top aide to a leading Democratic governor, who complained about this at a small meeting around the time of the Democratic convention.

39. See e.g., the breakdown reported in the press release for the New York Times poll of June 17–20, 1992 for the import question. The Times poll of July 8–11 indicates that 55 percent of the respondents described the trade agreement with Mexico as a “bad idea,” versus 27 percent who thought it was a “good idea.” In the course of the campaign to promote NAFTA as this book goes to press, it is to be expected that such numbers will bounce around. See also the discussion in the appendix of this volume.

For what follows on the primary (aside from the discussion of Clinton), see my “The Democrats Deal for Dollars,” The Nation, April 13, 1992, pp. 475–78; the newspaper account linking Volcker (and Warren Buffett) to Senator Bob Kerrey’s campaign comes from the Boston Globe, February 16, 1992. Note that Kerrey, in response to his critics, took pains to say that he generally favored an open economy.

As note 27 cautioned, the statistical results reported in the tables are for the Clinton-Bush race only, and not other primary candidates.

40. See Ferguson, “Democrats Deal for Dollars.”

41. For Altman, Hillary Rodham Clinton, and the Children’s Television Workshop, see Boston Globe, Jan. 10, 1993.

42. For Nunn’s early endorsement, see Starobin, “An Affair,” p. 121. The subsequent history of relations between the Clinton White House and Senator Nunn raises the question of what went wrong. One might reasonably suggest that the move toward a more hawkish position on the deficit accounts for at least some of the later difficulties. The additional tilt in the direction of Wall Street, in other words, ultimately cost Lockheed and the rest of the defense industry.

43. For Clinton and natural gas in Texas during the campaign, see Christian Science Monitor, November 23, 1992.

44. The utilities reference is mostly to, for example, telephone companies, rather than power stations. While it is equally feasible to break down the GOP contributors along the lines of table 6.2, there is little point in doing so, because of the very high overall mean. See the discussion in Ferguson, “Industrial Structure and Party Competition in the New Deal,” chapter 4, this volume.

45. See, e.g., for high tech in general, Washington Post, September 17, 1992; for specific quotations and a discussion of high-tech executives’ meetings with Clinton, see the New York Times, October 29, 1992; note that Sculley said he still thought of himself as a Republican; for Magaziner and the Council on Competitiveness, Boston Globe, November 15, 1992, which adds more details.

46. See e.g., Boston Globe, November 15, 1992; or the discussion in Susan Dentzer, “Clinton’s High-Tech High Wire Act,” U.S. News and World Report, March 29, 1993, p. 44.

47. For Sculley, see New York Times, December 15, 1992. The push for a yen revaluation is not costless. Because most other Asian currencies peg to the dollar, running up the yen lowers the costs of overseas Japanese acquisitions in that region. It may also open a rift with Wall Street, since Japanese holders of American bonds will be tempted to sell.

48. An example of the vogue in some circles for “organized capitalism,” complete with higher tax rates in the upper brackets, is the interest in Michel Albert’s Capitalism vs. Capitalism, New York: Four Walls Eight Windows, 1993. This American edition of a study by a French insurance executive who now serves on the board of the new, independent Banque de France carries a foreword by Felix Rohatyn of Lazard, Frères.

49. A very illuminating discussion of the early efforts by the Washington Post and the New York Times to puff Clinton is Tom Rosenstiel, Strange Bedfellows, New York: Hyperion Books, 1993, pp. 47ff. Rosenstiel, a Los Angeles Times reporter, notes how the major media used candidates’ abilities to raise large sums of early money as a cue for intensive coverage. This point is particularly interesting, given the virtual noncoverage of financing in the press.

The media’s differential coverage of Clinton and Bush in 1992 has stimulated considerable interest. Everett Ladd, for example, suggests that while “the press had no master plan to elect Clinton . . . a majority of journalists simply felt closer to the Democrats’ stands than to those of the Republicans.” See his “The 1992 Election and the Clinton Administration,” special [supplementary] chapter for his The American Polity, New York: Norton, 1993, p. 18. This suggestion inevitably raises doubts. For example, what about the publishers? To whom did they feel close? More importantly, are we to suppose that the reporters’ feelings suddenly changed after the election, when they finally began to cover Whitewater?

Though for reasons of space the question cannot be pursued here, it would probably be more fruitful to analyze the media explicitly in investment theory terms, as for example, Erik Devereux has done for the 1964 election. See his quantitative study of “Media Coalitions in the 1964 Campaign: A Political Investment Analysis,” Working Paper 92-38, H. J. Heinz School of Public Policy and Management, Carnegie-Mellon University. From this standpoint, much of the media, and especially the elite newspapers—which can hardly abandon their respective metropolitan areas—strikingly resemble many other firms that supported the Clinton campaign. While they favor an open world economy, they nevertheless have no realistic prospects of moving substantially offshore.

Unlike Ladd’s approach, such a view is not weakened by subsequent coverage of Whitewater. There is no reason all or even most such businesses need to sign on to the specific version of the Clinton health plan, which, it may plausibly be argued, occasions the virtual hysteria within the Beltway over a set of business transactions that pale beside Watergate or Iran-Contra. No less importantly, a realistic, investment-oriented account of the press would expect that business mobilizations as broad and intense as that triggered by the Clinton health-care proposals (which, as indicated in this essay, do have some influential business support) would inevitably gain far more sympathetic access to free enterprise–oriented media than, say, movements for increasing the minimum wage.

50. Starobin, “An Affair,” p. 123. The presence of so many investment bankers so early around the Clinton campaign, along with the statistical results on his campaign’s financing reported in this chapter, provide powerful support for subsequent denials by the White House that President Clinton had somehow been lately converted by Fed Chair Alan Greenspan to the cause of fiscal austerity. This interpretation had gained currency following publication of Bob Woodward’s The Agenda (New York: Simon & Schuster, 1994).

51. For the social composition of the voter in the Southern primaries see the New York Times, March 11, 12, 1992. Note that turnouts in most of the Democratic primaries were low. Not surprisingly, the Clinton campaign’s periodic reports on fundraising, filed with the Federal Election Commission in Washington, show total donations to the campaign rising sharply in this period.

52. Party chairs normally strike a neutral pose in primaries with no incumbent running. But not Ron Brown, who repeatedly attacked Jerry Brown. See, e.g., the New York Times of March 27 or March 28, 1992. Jerry Brown, for his part, raised hackles by frequently challenging Clinton to agree to abide by the Brown campaign’s $100 limitation on individual campaign contributions. Backers of Clinton and Tsongas eventually struck a deal just before the Democratic convention with the aim of denying Brown much media exposure. See New York Times, July 15, 1992.

53. For a striking review of press coverage of the Brown campaign, see Fairness and Accuracy in Reporting’s Extra, June, 1992, p. 14. This suggests that “no presidential candidate in recent memory has been more tarred and feathered with media putdowns and epithets than Jerry Brown.” Cf. also the New York Times articles of March 26 and March 27, 1992, on the flat tax.

54. What follows on Perot draws in part on an earlier essay I wrote on Perot during the campaign. The Nation magazine assisted me in defraying some of the costs for what became a large-scale review of documents in presidential libraries and vast numbers of previously published articles. The Nation published a shortened version of my essay on August 17/24, 1992, pp. 168–76; the longest version ran in The Texas Observer of August 7, 1992, pp. 1–9. Since the earlier pieces are readily available, I have reserved the footnotes below for new material and specific references of particular interest. Richard Armitage’s pithy description of Perot appeared in the Washington Post, July 15, 1992.

An example of how leading conventional political analysts could miss major trends in 1992 is the ill-timed study by Raymond Wolfinger, et. al., of The Myth of The Independent Voter, Berkeley: University of California Press, 1992.

55. Most of these documents came from presidential libraries and papers, though several reports on EDS from various government agencies were also consulted. The Texas Observer’s back files on Perot were also very helpful and contain valuable articles on Perot’s early career. Robert Fitch’s “H. R. Perot: America’s First Welfare Billionaire,” in Ramparts, November 1971, pp. 42 ff. is another excellent early piece, though from the perspective of two decades I rate Perot’s business performance much more highly than he does.

56. Perhaps the best review of the evidence on Perot and the Nicaraguan Contras is Joseph Albright’s for the Cox News Service, Austin American-Statesman, May 15, 1992; Perot himself says he turned down requests to help the Contras. I examined the declassified parts of Oliver North’s diary, but this has so much material blackened out that it is useless.

57. Washington Post, October 25, 1987.

58. Perot, speech to the Economic Club of Detroit, December 8, 1986, quoted in Tony Chiu, Ross Perot In His Own Words, New York: Time Warner, 1992, p. 41. Some apologists admit the abuses Perot analyzes, but claim that more active institutional investors can cure the problem. I think it is already clear that this counter-tendency is too weak.

59. On Perot and GM, see the contrasting accounts of Todd Mason, Perot: An Unauthorized Biography (Homewood, Il: Dow Jones-Irwin, 1990) and Doron Levin, Irreconcilable Differences: Ross Perot versus General Motors (Boston: Little, Brown, 1989).

60. It is only fair to note that Hillary Rodham Clinton’s performance as head of a group charged with reforming the Arkansas education system was roughly comparable, and that it was her husband who appointed her.

Robert Fitch, “How Perot Made a Quarter Billion Dollars by Running for President,” The Perot Periodical 1, no. 1 fall, 1993, p. 1 ff. links the large holdings of bonds disclosed on Perot’s financial disclosure form for the Federal Election Commission to his concentration on the deficit. While his piece is characteristically insightful, I would not accept his implication that Perot was less interested in industrial restructuring or restarting economic growth than he claimed. Both his campaign statements and the admittedly conservative portfolio, in my judgment, reflect Perot’s anxiety about the future of the United States and his oft-repeated doubts about the overvalued U.S. stock market. If driving up bond values had been his chief concern, it would have been simple enough to have financed agitation on the deficit, or even invested in Clinton’s campaign, as a number of prominent Wall Street deficit hawks actually did.

61. The reference is to the celebrated case of Graef S. Crystal, in years past probably the leading consultant on compensation questions to American businesses. See the New York Times, February 25, 1992.

62. Perot complained repeatedly during the campaign that his opponents leaked material to the press. At least some such leaks certainly occurred. The text of his now-famous letter to President Reagan reporting on his talks with the Vietnamese about normalizing relations, for example, was assuredly highly classified until the day it broke in the New York Times. See the New York Times, July 5, 1992.

63. See “Committee Confidential, Deposition of H. Ross Perot, Wednesday, July 1, 1992,” for the U.S. Senate Select Committee on POW/MIA [Prisoners of War/Missing in Action] Affairs, Dallas, Texas. This transcript was made available by committee staff in October 1992 and handed out to, it appears, anyone who asked for it.

No one should have been surprised when Richard Fisher, Perot’s foreign policy coordinator, trumpeted the need for a radical rethinking of U.S. foreign policy and restructuring of decision-making structures. Toward the end of the first campaign, Perot’s foreign policy emerged as an issue when Paul Nitze, famous as the principal author of NSC 68, raised questions. See Washington Post, July 15, 1992.

64. Probably the best discussion of the long controversy and what appear to be the facts is H. Bruce Franklin, M.I.A. or Mythmaking in America, New York: Lawrence Hill, 1992. Note that on p. 7, Franklin does not dismiss the possibility that a “few dozen at the very most” may have remained behind. From newspaper reports, this appears to be a conclusion supported by new material unearthed by the Kerry committee; it does appear that Laos and perhaps Cambodia were the suspected sites. For Walters’ comment, see Monika Jensen-Stevenson and William Stevenson, Kiss the Boys Goodbye, New York: Penguin, 1990, p. 3.

65. This exchange appears in my essay in The Texas Observer, p. 6; and comes from a transcript supplied by the committee.

66. Quoted in Ferguson, Texas Observer, August 7, 1992, p. 6.

67. On the strange history of the manuscript, compare carefully what Monika Jensen-Stevenson writes in her letter to Senator John Kerry of October 6, 1991, with the discussion as recorded in the relevant parts of the hearings. Her letter appears on pp. 2–4 of part 2 of Hearings Before the Select Committee on POW/MIA Affairs, United States Senate, 102nd Congress, First Session (1991).

68. See the United Press International story on Perot dated May 21, 1981 (available through various computerized retrieval systems).

69. “Deposition of H. Ross Perot,” pp. 122–135.

70. Ibid., pp. 144–55.

71. See the almost unbelievable story recounted by Perot about his efforts to squeeze out information on possible CIA involvement in one case in ibid., p. 171 ff.; for another involving the Defense Intelligence Agency, pp. 178 ff.

72. Jensen-Stevenson and Stevenson, Goodbye, p. 245; their p. 237 puts at least some of Perot’s alleged fears for his safety in quite a different light than that suggested by the media during the campaign.

73. See Alfred McCoy, The Politics of Heroin: CIA Complicity in the Global Drug Trade, New York: Lawrence Hill, 1991.

74. Jensen-Stevenson and Stevenson, Goodbye, p. 337.

75. “Deposition of H. Ross Perot,” p. 197. Perot continues, saying that he told Bush this during one of a series of personal visits to report on the progress of his investigation. On the next page, saying that the CIA has “a lot of fine, dedicated people,” Perot says: “No, that’s not fair, to say CIA agents. It’s not that crisp in who they are. I said specifically—her quote is not accurate. To say I bump into drug and gun trafficking, then that would be accurate.” Here one must note, however, that the actual quote is never used by the investigators, so that exactly what is being affirmed or denied is obscure. Perot appears to be reacting to the words the interrogator is using.

76. See Barron’s, February 23, 1987, pp. 34–35.

77. The deposition, Jensen-Stevenson and Stevenson, and many additional sources may be consulted about the Perot-Armitage controversy. Note that some observers, including Jonathan Kwitney, strongly defend Armitage. From this distance, it is simply impossible to judge. Not the least of the puzzles surrounding this controversy is the startlingly different tone in Jack Anderson’s columns before and after the campaign started. Compare, for example, his column in the Dallas Morning News of February 2, 1987, with those he coauthored in the Washington Post for July 5, 1992 and July 7, 1992.

78. For Gargan, see, e.g., Christian Science Monitor, October 12, 1990. In Vermont, the core of Perot’s volunteer efforts came from the the failed campaign for the Democratic presidential nomination by Tom Laughlin (of Billy Jack fame). See Gail Russell Chaddock, “Perot’s Volunteers,” Christian Science Monitor, May 12, 1992. Perot opposed a balanced budget amendment during the campaign, only to endorse it afterward.

Perot’s suggestions for changing the system of campaign financing amount to little in the way of serious reform proposals. According to Common Cause, in 1974 he was the largest single individual contributor to congressional campaigns. See the illuminating review of Perot’s history of political investment by Ross Ramsey in the Houston Chronicle, May 10, 1992.

79. Among the first to urge Perot to run for president, for example, was John J. Hooker, a wealthy business figure from Tennessee. An aide to Jackson in the 1988 campaign, Hooker had also run twice for governor and remained very active in Southern politics. See the Washington Times, May 8, 1992. Another important figure behind the scenes was a well-known Southern banker, one Bert Lance. See the column on this notable “undeclared supporter” of Perot and his discussions with Jackson, Hamilton Jordan and others, by Rowland Evans and Robert Novak in the Chicago Sun-Times, June 28, 1992.

80. Some suggestive evidence exists about Perot’s influence on the perception of Bush. The CBS/New York Times poll, for example, occasionally asked whether respondents thought “George Bush has strong qualities of leadership.” Between March and April of 1992, the number saying “yes” dropped 14 points. See the press release for the poll of April 20–23, 1992. While other things were happening besides Perot’s attacks on the president, it is difficult to believe that his influence was not felt. Unfortunately, this question was only rarely repeated.

Most survey indicators of interest in the race ran well above 1988’s level: More people said they were interested, more people reported talking about the race, etc. Some of this new interest probably derived from the economic crisis, and thus should not be entirely attributed to Perot. Still, overall turnout in both the Democratic and Republican primaries was down as a percentage of the voting-age population, suggesting that much of this new interest was not coming from enthusiasts for Bush or Clinton (or anyone else in the major parties). In addition, the move upward in many of these indicators appears broadly to coincide with Perot’s rise.

One wants to be careful about the frequently repeated assertion that Perot voters would have split down the middle between Clinton and Bush if Perot had not been on the ballot. It is a fair guess that a good percentage of such voters would not in fact have voted at all had Perot been absent from the ticket (more, that is, than those who claimed to pollsters that they would not have). Gallup’s experience in its final polls also suggests that most undecided voters cast their vote for Perot at the end, instead of going to Clinton as they otherwise would have.

Though it is harder to show, I believe that in the spring, Perot also protected Clinton by drawing Bush’s fire at a time when Clinton was vulnerable indeed.

81. The reference is to the now well-attested apparent effort by GOP operatives to disrupt the Massachusetts State Democratic Convention in 1990.

Perot’s celebrated comments during the campaign about Citicorp (in whose stock he reportedly held a short position) and the banking system, while reflecting a real trend, suggest that he did not completely grasp Fed Chair Greenspan’s strategy for dealing with the weakness in the banking sector. The Fed was clearly using a variety of tools, including the federal funds rate, to help the banks recapitalize. It was, in other words, virtually guaranteeing the profitability of the banking sector. This extraordinary development merits more attention than it has received; particularly as the United States recommends “free enterprise” to other countries.

82. See Perot to H. R. Haldeman of Feb. 24, 1970, quoted in Ferguson, Texas Observer, August 7, 1992, p. 8.

83. See my discussion in ibid., pp. 8–9.

84. For Tsongas on Perot, see the Boston Globe, June 27, 1992.

85. For the Toshiba warning, see “Perot cautions careful use of trade sanctions,” United Press International, April 21, 1987.

86. Perot’s substantial rise in the polls following the first debate leaves little doubt about his relative success in that first round. See the New York Times, October 15, 1992. The roundup of polls following the second debate reported in the Boston Globe of October 16, 1992, suggests that Clinton might qualify as the likely winner of the second debate. Polls split following the third debate over whether Clinton or Perot had won. See the Boston Globe, October 20, 1992. But perhaps the most important detail to watch is the difference between a candidate’s support and the percentage of viewers suggesting he had won. Because these surely are normally highly correlated, a substantial number of people conceding that the less popular candidate won indicates a strong performance indeed.

87. For sharply contrasting versions of the CBS end-of-campaign interview with Perot, see the Boston Globe, October 28, 1992. Selective leaking to the press also complicates evaluation of other stories in the campaign, for example, those in which Perot was suggested to have engaged in practices, such as employing detectives, that are unfortunately widespread in American business.

88. See the Boston Globe, January 27, 1993.

89. E.g., Rubin, formerly of Goldman, Sachs, chairs the National Economic Council; Rubin formerly served as personal financial adviser to Bentsen, the former Texas senator who now serves as secretary of the treasury. (See the New York Times, March 7, 1993.) Bentsen’s first deputy, Altman, formerly of Blackstone, worked with Rubin for many years in both state and national Democratic Party fund-raising. (See, e.g., note 31 above.)

90. Walter Dean Burnham, private communication.

91. For the poll results on the population’s (brief) optimism, see the New York Times, January 31, 1993.

92. A preliminary analysis of the final budget legislation by H&R Block, dated August 12, 1993 (distributed to me by the Office of Management and Budget), suggests that poor Americans are net beneficiaries of the bill’s tax provisions, middle-income and most elderly taxpayers acquire no new burdens at all, and only the wealthiest Americans are likely to pay more. I think it is fair to say that the impression conveyed by most critics of the bill was quite different and that this misinformation affected the polls. The Congressional Budget Office and the Office of Management and Budget disagree somewhat on the exact numbers by which the deficit will be reduced. See, e.g., the unsympathetic analysis in Investor’s Business Daily, September 9, 1993. But all the various tax, deficit, and GNP estimates imply reductions in federal spending as a percentage of GNP. Over time, these reductions add up to substantial sums. See, e.g., DRI/McGraw-Hill, Review of the U.S. Economy, September, 1993, pp. 73–79.

93. On the likely contractionary effects of cutting the deficit, see particularly Eisner, Misunderstood Economy. Another excellent discussion is Robert Blecker, “Low Savings Rates and the ‘Twin Deficits’: Confusing the Symptoms and Causes of Economic Decline,” in Paul Davidson and J. A. Kregel, eds., Economic Problems of the 1990s, Brookfield, Vt.: Edward Elgar, 1991, pp. 161–93. See also his Beyond the Twin Deficits, Armonk, N.Y.: M. E. Sharpe, 1992.

94. See James Galbraith, “A Two-Track Growth Program,” pp. 5, 11.

95. For the Kennedy administration’s efforts to work with and on the Fed. see, e.g., E. Ray Canterbury, Economics on A New Frontier, Belmont, Cal: Wadsworth, 1968; Walter Heller’s papers, now at the John F. Kennedy Library in Boston, contain much material on this question. A view of this sort implies a rejection of the fashionable view that the U.S. economy is now so open that the government cannot reasonably expect to do anything but please “the market,” or, in some versions of the argument, only the capital markets. Such claims grossly overgeneralize from some celebrated cases of the seventies and eighties. It is obvious that governments cannot introduce socialism into open economies, but that was clear in the thirties. Current orthodoxy on this question resembles the debate over the “capitalist” state of a decade or so ago, which suffered sadly from neglect of the variety of historical forms capitalist societies can take. International economic forces are indeed powerful and need to be dealt with, but recent experiences with the European Monetary System show that countries like Britain and Italy can break with conventional wisdom and increase their rate of growth without the roof falling in. But more of this another time.

96. Lewis B. Kaden and Lee O. Smith, “Just Leave Laura Tyson Alone,” the New York Times, January 17, 1993, draw a clear connection between efforts to address “structural” problems of competitiveness and the avoidance of devaluation. The authors were the chair and the executive director of a commission whose best-known report was signed by, among others, Robert Rubin. While I lack the space for a full discussion, it seems clear that no Japanese government is likely to find it very easy further to open its markets to foreign goods and investment. And it seems no less evident that many American analysts overestimate the strength of the very real forces in Japan that would like to bring about such a transformation.

97. A number of foreign analysts have raised pointed questions about the unwillingness of the American media to discuss potential balance-of-payments problems with the Clinton economic plan. See, in particular, the Frankfurter Allgemeine Zeitung, February 21, 1994. This also raises the possibility of an eventual flight from the dollar depending upon whom the president nominates to the Fed board of governors.

98. Because I broke the industry down into comparatively small subsegments to search for patterns, the results are not always statistically significant. Thus I do not report them in a table.

But the pattern is very striking. In most parts of the industry, rates of contribution to the Democrats approach zero. But in certain other segments, the rates of contribution to the Democrats are much higher.

Nursing homes, for example, are very highly mobilized. A great many firms on my list contributed—about half of them to Clinton or the Democratic soft money funds. (On the boards of such concerns, one also encounters rather a lot of political figures, including Mondale and top Bush campaign operative Frederic Malek.) Even more strikingly, every single contribution that I have been able to identify from the part of the industry concerned with long-term health care went to the Democrats. Upon examination, a single factor may explain most of this: these industry segments have been hurt badly by or fear further cuts in Medicaid or Medicare.

Another big bloc of Democrats comes from staff and administrators of many top research and teaching hospitals—where many of the Clinton campaign’s health policy advisers appear to come from. Though some health policy analysts suggest that factors like the Clinton’s campaign’s emphasis on “choice” attracts such people, I am very skeptical that this explains anything. (The private sector as a whole does not appear to differ much on this dimension, for example.) The research hospitals, are, first of all, nonprofit. They fought a running battle with the Bush administration over the allocation of basic research support between them and the for-profit sector. Second, they are hugely dependent on subsidies for their teaching and research functions, and often in close touch with many foundations that are concerned that the present health-care system is collapsing. Because the status quo is a situation that figures every year to squeeze their high-cost research and training activities more and more, they must change the system before the system changes them.

Some Democratic contributors also turn up among the health maintenance organizations (HMOs). My sample of these, however, is very small, and I am checking further to see if this result is perhaps a statistical mirage or represents a clear subsector, such as nonprofits.

It may also be worth noting that many “nonphysician” providers—including nurses, psychiatrists (who, of course, do hold medical degrees), psychologists, and chiropractors show up as Democratic contributors. (Other studies indicate that their trade associations have historically been very heavily oriented to congressional Democrats.) One can conjecture that insurance coverage figures as an issue in several of these cases, as well as the ubiquitous question of relations with the heavily Republican physicians.

Finally, there are the special cases of pharmaceuticals and insurance. Overall, of course, these industries were highly mobilized in favor of Bush. Both industries were subsequently attacked in public by the Clinton campaign. In mid-summer, however, came reports of meetings between the insurers and the Clinton campaign. In the late stages of the campaign, Clinton gave a major campaign speech at the headquarters of a large drug company.

The administration is now reported to be eyeing a bill regulating pharmaceuticals recently introduced by Senator David Pryor of Arkansas, a close Clinton ally and friend. That bill relies on tying research-and-development tax credits to prices. As a consequence, large drug firms with big flows of new products generating rapid unit volume growth—such as the one which played host to Clinton during the campaign—would gain relative to smaller firms that rely more on price increases for revenue growth.

Note that for some years, Perot Systems has been striving to employ technology that could create the possibility of a “paperless hospital.” See Dallas Observer, April 30, 1992, p. 9.

99. Vicente Navarro, “Swaying the Health Care Task Force,” The Nation, September 6–13, 1993, pp. 1 ff.

100. Mishel and Bernstein, State of Working America 1992–93, chapters 3, 4, and 6, present a wide variety of data on the squeeze on ordinary Americans. Particularly striking is their table 3.1, which shows how hours of work have risen sharply as Americans have tried to cope with the pay squeeze. This stratagem can maintain annual incomes, particularly as women with families enter the labor force, but the process obviously also has inherent limits.

101. Both major parties, and indeed virtually the whole of the American establishment, now appear to consider unemployment of between 5-1/2 and 6-1/2 percent as “full employment.” To the extent this view represents anything more than pure cynicism, it expresses a now fashionable conservative claim about an alleged “natural” rate of unemployment. But the underpinnings of this claim are flimsy indeed. Almost never is it treated as, for example, an empirical hypothesis subject to evidence. But as Eisner emphasizes, the view does have testable implications—and the evidence tells heavily against it. See his discussion in Misunderstood Economy, especially chapter 8.