Chapter Eight will look at the rise of the interest group society, which accelerated after the Great Depression. It will serve as a fulcrum for the final half of this book. The New Deal/World War II period saw the government do more than ever to promote the economy, regulate the economy, and provide groups with direct subsidies. All of this provided further incentives for factions to organize or, in the case of businesses, to improve their extant organizations. The result of this rapid process was the rise of what has since become known as the interest group society. Today, public policy is often the product of the push and pull of organized pressure groups. Contrary to the optimistic assessment of some pluralist theories of governance, this has had a profoundly negative effect on the body politic, ultimately producing the rampant corruption of the current period. The shady bosses of the Gilded Age may be long gone, but corruption is now as problematic as ever thanks to this new way of doing government business.
The remainder of the book will expand on the argument of Chapter Eight to evaluate various contemporary policy domains to see the ways in which factions dominate the government, manipulating legislation and regulations toward their own ends. Chapter Nine will explore farm subsidies to show how noble federal intentions to support disaffected groups devolved into naked payouts to well-connected industries. Chapter Ten will look at the modern “pork barrel,” or the ways that members of Congress raid the federal treasury to reward local voters, donors, and themselves. Chapter Eleven discusses Medicare, detailing the ways that pressure groups representing senior citizens, doctors, hospitals, and others ensure that an unsustainable status quo is nevertheless retained. Chapter Twelve reviews how crony capitalism has become a durable, regrettable feature of the body politic, as politicians misuse their power to support the national economy. It will give special attention to the tax code; originally a progressive innovation designed to undermine the crooked regime of protective tariffs, the income tax is now rife with rewards for well-heeled interests. Chapter Thirteen will look at regulations, particularly those governing Fannie Mae and Freddie Mac, to show how adept interest groups can be at capturing congressional committees and executive regulators to ensure that their bottom lines are protected.
While no single chapter will be dedicated to the effect of governmental growth on the constitutional structure, those four themes (an incompetent Congress, a denuded republican principle, a partisanized presidency, and novel, ad hoc institutions) will be apparent. We will see Congress mishandle and abuse the nationalist powers it has been granted. For instance, in Chapter Eleven we will see how the legislature, at the behest of powerful interest groups, has been totally incapable of reforming the welfare state, despite clear knowledge that reforms are urgently needed. We will see the public struggle to comprehend the policies that legislators in Washington are promoting, and how in turn that enabled them to get away with corrupt practices they otherwise never would have. For instance, in Chapter Five we will see how Nelson Aldrich, senator from Rhode Island and chief Republican defender of the tariff, used the arcana of the law to pay off scores of interest groups, most notably the sugar trust, without any public rebuke. We will see the politicization of the presidency due to electoral pressure, and the attending problems that creates. For instance, in Chapter Seven we shall document FDR’s efforts to misuse federal resources to secure his reelection in 1936 against recalcitrant urban party bosses, and later to purge conservative Democrats from the Senate. We shall see how quasi-independent institutions often create corrupt practices because they fail to fit properly into the Madisonian schema. For instance, in Chapter Two the debauched story of the Second Bank of the United States will clearly illuminate the dangers of chartering an institution whose role in the system is ambiguous. Chapter Thirteen, by looking at Fannie and Freddie, will make a similar point.
After the Constitutional Convention was finished with its work, delegate James McHenry reported that, as Benjamin Franklin left Independence Hall, a woman asked him, “Well, Doctor, what have we got? A republic or a monarchy?” Franklin replied, “A republic, if you can keep it.” The argument in the pages to follow essentially boils down to: we couldn’t keep it.
We couldn’t keep it because we failed to remember something that Madison had so well understood, which is that the design of a government is essential to its success, and that when one goes about redesigning a government—as he and the Framers did in 1787—one must be careful to do it properly. Indeed, never in world history had a people dedicated so much of its efforts to debating a structure of government, rather than the policies the government would produce.
Today, we have forgotten that almost entirely, and we hardly give a second of critical thought to our government’s design. Generation after generation has altered that design in subtle but important ways without considering the effect on the broader schema. That makes the Madisonian concept of checks and balances almost like a meaningless catechism nowadays. We dutifully and solemnly repeat it, but we forget about what inspired it in the first place. Implicitly, we assume that Madison solved the problems of factionalism and corruption once and for all. As this work will show, he did not. Even so, he delineated a method for us to solve it. We have to think carefully about how the various institutions within the government exercise the power they have been granted, and we have to adjust those institutions accordingly, so that they do not fall prey to corruption. We have not made a real effort to do so since 1787, which means that, even as we acclaim the singular genius of Madison, we are in actuality anything but Madisonian.
Madison, Hamilton, and the First Bank of the United States
AMERICANS NOWADAYS are wont to speak about the Founders, the men who led the way against the British to forge a new nation at the end of the eighteenth century, as a unified group. In many senses of the phrase, they were. They shared disgust with the heavy-handed treatment the colonies received from the English; they believed that the colonies would be better off independent; and they pledged their lives, fortunes, and sacred honor to see that through to the end.
But there were wide disagreements between them on many matters, some peripheral but others quite vital. Nowhere was this divide more evident than in the views of James Madison of Virginia and Alexander Hamilton of New York during the early days of the new republic. While the two were in agreement on the superiority of the Constitution over the Articles of Confederation, they had deep disagreements about the nature of the new government that was to be implemented. Though not at issue during the period of ratification, their philosophical clash dominated the American political scene for the first decade under the Constitution, and remained an important dividing line for forty years thereafter.
The flashpoint for the controversy was Hamilton’s proposal to charter a Bank of the United States. Hamilton saw the Bank as a vital economic institution that could secure the prosperity of the nation in the face of foreign competition. Madison, on the other hand, made his strongest arguments against the Bank on the philosophical front. He and Thomas Jefferson saw it as an unconstitutional expansion of federal power that placed the legislature in hock to the executive branch and favored wealthy, northeastern merchants over the rest of the country.
It is important to note that the Bank was actually never as bad as Madison feared it might become. This is not so much because Madison was wrong, but because of the singular genius of Hamilton, who expertly navigated the nation through a financial panic in 1792. Later on, the able stewardship of Albert Gallatin, who served as secretary of the treasury during the early 1800s, ensured that the Bank did not threaten the national interest.
Even so, the Bank was problematic in the ways Madison argued, and it does serve as a microcosm of the argument in this book: the