US History

Did competing visions of the proper role and size of government drive the pivotal economic debates of the last 200 years? U.S. History is a history of arguments. What were these about? Was the early 19th century debate over re-chartering the Bank of the United States and the late 19th century debate about the gold standard about differing visions of the nation or were they an expression of conflicting economic self-interest? Did Social Security and Medicare represent a new paradigm, a new way of thinking about the role and responsibility of government, or were they an extension of traditional American values and commitments? To what extent have economic decisions been a principled response to the question of what kind of country we are and want to be, and to what extent have they been an extension of the way compromises between competing interests and priorities have shaped U.S. history since the Constitution? In the U.S. History section of the Understanding Fiscal Responsibility Curriculum, students will study how leaders and public policy makers understood their own principles and priorities and the purposes of those with whom they disagreed.

This section contains the following lessons:

The History of Social Security

ESSENTIAL DILEMMA:

Social Security Act of 1935: Did the creation of federally administered old-age pension program support or threaten American values and traditions?

INTRODUCTION:

…security was attained in the earlier days through the interdependence of members of families upon each other and of the families within a small community upon each other. The complexities of great communities and of organized industry make less real these simple means of security. Therefore, we are compelled to employ the active interest of the Nation as a whole through government in order to encourage a greater security for each individual who composes it.

-President Franklin Roosevelt, Message to Congress, June 8, 1934 (Social Security Administration, n.d.e.)

I fear [Roosevelt’s Social Security policies] may end the progress of a great country and bring its people to the level of the average European….It will discourage and defeat the American trait of thrift. It will go a long way toward destroying American initiative and courage.

-Senator Daniel O. Hastings (R-DE), 1935 (Williams, 2011)

As of June 2010, over 53 million people, or about one in every six U.S. residents, collected Social Security. Seventy-seven percent of them received benefits as retirees or elderly widow(er)s, 19 percent received disability benefits, and 4 percent received benefits as young survivors of deceased workers (Center for Budget and Policy Priorities, 2010). Social Security is underwritten by money that retirees and their employers contribute through payroll taxes. Money paid into the Social Security trust fund by current workers maintains the fund balance from which retirees collect their benefits. With some adjustments, this system has been in place since President Franklin Roosevelt signed the Social Security Act on August 14, 1935. The fund has usually run a surplus. Now, because of the large number of retirees in the baby boom (the increase in the number of babies born in the approximately 20 years following World War II), the number of workers in the labor force relative to the number of retirees changing (from 5:1 in 1960 to 3:1 in 2009 to a predicted 2.2:1 in 2030). It is projected that, without increased revenue or other changes in the program, by approximately 2036, Social Security will be able to cover only 75% of the monthly benefit retirees have been promised.

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The History of Medicare

ESSENTIAL DILEMMA:

Medicare 1966: President Lyndon Johnson’s “American way,” or Ronald Reagan’s “advance wave of socialism”?

INTRODUCTION:

The Social Security health insurance plan, which President Kennedy worked so hard to enact, is the American way. It is practical. It is sensible. It is just.

-Lyndon B. Johnson, 1964 (DeWitt, 2003)

Don’t ever argue with me [about health]. I’ll go a hundred million or billion on health or education. I don’t argue about that any more than I argue about Lady Bird [Mrs. Johnson] buying flour. You got to have flour and coffee in your house. Education and health. I’ll spend the goddamn money. I may cut back some tanks. But not on health.

-Lyndon B. Johnson, 1965 (New York Times, 2009)

Having given our pensioners their medical care in kind, why not food baskets, why not public housing accommodations, why not vacation resorts, why not a ration of cigarettes for those who smoke and of beer for those who drink?

-Barry Goldwater, 1964 (Nichols, 2011, p. 16)

In 1966, with the active leadership and support of President Lyndon B. Johnson, Congress passed Medicare, a program of government-sponsored health insurance for those age 65 or older (and, starting in 1972, the disabled). Versions of federally sponsored healthcare insurance had been unsuccessfully put before Congress three times under President Truman and three additional efforts were made while John F. Kennedy was president. President Johnson presented Medicare as part of his larger set of Great Society initiatives–initiatives that demanded an end of poverty and racial injustice as “just the beginning.”

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The Federal Reserve System: Overview Lesson

Because of its thematic importance, this lesson is not framed as an inquiry-driven dilemma, but instead, as a collection of resources that can be used as part of an informational lesson directed by the teacher or made available to students for independent study.

INTRODUCTION

Do financial markets know best? Left alone by the federal government, would the markets benefit the
nation’s economy and, through self-regulation, the American people as a whole, or would they benefit a
narrower group of people? Do the markets care about how well the economy is serving the American people
and, if they don’t, does the government have an important role to play in achieving outcomes that benefit
all Americans? One way to look at U.S. history is that it reflects the efforts of a politically open society to
manage concentrations of political and economic power in ways that advance the common good with a
minimum of government intervention. The story of the Federal Reserve System (also known as the Federal
Reserve Bank, the Federal Reserve, or the Fed) can be told in these terms because the very need for a
central bank has always been identified with the needs of private bankers—a group that has represented a
concentration of economic power. The debate about Hamilton’s First Bank of the United States illustrates
this struggle, and this same struggle has continued throughout U.S. history. The controversy surrounding
the Second Bank of the United States (the 1819 McCulloch v. Maryland U.S. Supreme Court case and
President Andrew Jackson’s veto of the bank’s charter renewal), the various financial panics of the 19th
century and accompanying debates about the gold standard versus “free silver,” and, right up to the
present, the debate about the role of the Federal Reserve during and after the 2008 financial crisis, all
illustrate this issue’s enduring nature. Recurring debates about national priorities, the proper role and
scope of government, and the virtues and limitations of the free market are faces of the struggle to manage
concentrations of power, though in detail and tone they reflect the historical peculiarities of the time period.

The role of the Federal Reserve is based on the assumption that a smoothly running economy benefits
everyone and that, in order to run smoothly, the economy needs a stable currency, no more than a 4–5%
level of unemployment, and the right amount of available credit—not too little and not too much. Keeping
things running smoothly is the job of the Federal Reserve, a mostly autonomous, public/private system
overseen by Congress. The Federal Reserve sets the nation’s monetary policy in part by either increasing or
reducing the amount of money in circulation.

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The Panic of 1893 and the Election of 1896

ESSENTIAL DILEMMA

Were the contradictory responses political leaders had to the panic of 1893 driven more by economic/political self-interest or by differing visions of what kind of country they wanted the United States to be?

INTRODUCTION

“Wall Street Topsy-Turvy, The Famous ‘Street’ Passes Another Eventful Black Friday. . . . It is said at the Treasury that the time has passed when the Government can aid Wall Street.”

Arkansas Gazette, May 5, 1893 (McMillan, 2010)

In August 1893,  President  Grover Cleveland called a special session of Congress to deal with the financial panic that had hit the United States. If he couldn’t solve the crisis, he could at least assign blame. Although historians have since taken a more complex view of the causes of the panic, in his message to the special session,  Cleveland looked back  3 years  to the  previous  administration,  and  named  the  Sherman  Silver Purchase Act as the cause  of the panic:

Our unfortunate  plight is . . . principally chargeable to Congressional  legislation touching  the purchase and coinage of silver by the General Government.

This legislation is embodied  in a statute  passed on the 14th  day of July, 1890,  which was the culmination  of much  agitation on the  subject  involved, and  which may be  considered a truce, after a long struggle, between the advocates  of free silver coinage and those intending to be more conservative. (Cleveland, 1893)

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President Jackson and the Veto of the Second National Bank

ESSENTIAL DILEMMA

Could the conflict over the Second National Bank have been resolved in a way that supported the values advocated by both President Jackson and Congress?

INTRODUCTION

Get money out of government.

—Occupy Wall Street poster (Callari, 2012)

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes.

—President Andrew Jackson, 1832 message to Congress explaining his veto of a bill to recharter the Second Bank of the United States (Peters & Woolley, 2012)

Although made 180 years apart, the statements above both reflect a sentiment that goes back to the earliest years of the Republic—allowing monied interests  to influence government  is a bad  idea. But just as not everyone agrees  with the Occupy Wall Street protestors,  some  Americans  thought  Andrew Jackson  was wrong. Those on both sides  of the Bank War—the battle between  President  Jackson  and  supporters of the Second Bank of the United States in and out of Congress—had strong views on what was right for the United States and its people; both also had political motivations. The following pages  provide a review of key events in the run-up to the battle.

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