Wolf-PAC Money in Politics Series Part #1A: The History of Money in Federal Politics

Posted on March 14, 2013

2


© Josh Sager

Over the next few weeks, a four-part series focuses upon money in politics throughout United States history will be released. In the first article, I explain how money influenced federal politics in our country’s history as well as the attempts by the government to address the problems created by money in politics. The second article in this series will focus on state-level fights over money in politics and will present historical examples of state-level corruption related to the issue of money in politics. The third article in this series will focus on the attacks on campaign finance regulations by the Supreme Court during the past few decades—a phenomenon which culminated in the Citizens United decision. The fourth article in the series will describe the post-Citizens United political landscape and the return to a political climate where money is allowed to steamroll through politics.

Introduction

At the founding of our republic, no laws or regulatory bodies oversaw political donations or contributions and it was left up to individual candidates and political parties to choose how to raise money and spend it. It took over a century for the first campaign finance regulations to pass on the federal level. Eventually, laws governing political campaigns passed in our country because of public outrage over the corruption that is created when money is allowed to buy power.

election-cost-chart.png

image from: thedailybeast.com

Before talking about the history of money in politics in the United States, it is important to mention that political campaigning, and thus the uses of money in political campaigns, is radically different now from how it was in the past. Advances in technology and changes in campaign laws have led to drastic transformations in the use of political money and in the need for funds to operate a political campaign.

Before the 20th century advances in mass-media technology (radio, TV, and internet), political campaigns spent most of their money buying food, drinks, and “gifts” in attempts to entice potential voters. Political campaigns would stage events and distribute refreshments to citizens during the campaigns and would try to win them over. For example: In his 1758 Virginia House campaign, George Washington spent over 90% of his campaign budget buying approximately 160 gallons of alcohol to distribute to voters on election day.

Most of the media that focused upon the political campaigns during the early years of our country was newspaper (and later, radio). During these years, there was less of a campaign focus on buying huge amounts of media coverage/advertisements. Political candidates would utilize a combination of public speaking appearances, gatherings, and supporter-submitted newspaper stories to spread their names. In some situations, these newspaper ads were bought, but in many, they were simply a product of supporters.

After the rise of mass-media technology, campaigns became much more expensive and money became increasingly focused upon buying media exposure. In the modern national political campaign, hundreds of millions of dollars are spent per election, primarily on the purchase of media advertising.

Despite the changes in campaign strategy and fundraising over the centuries, one aspect of money in politics has remained constant: those with resources and power inevitably try to use their resources to influence politics. Whether it is the slave-owning southern elite, the trans-national railroad corporations, or the modern oil corporations, people with money have attempted to buy political power from politicians for centuries; as politicians are human, thus are corruptible, such attempts are often effective.

  Money in Politics: The Pre-20th Century Era

For most of our country’s history, few, if any, barriers impeded the flow of money in American politics. Unfortunately, relatively little systematic evidence has been recorded about the specifics of campaign financing in the pre-regulatory years of American campaigns (before mandatory disclosures and reporting were enforced on campaigns). No central body for recording campaign expenditures or donations existed and there was no compulsion for campaign to disclose their sponsorship to the government.

Despite the lack of specific information on many aspects of money in politics during the early years of our country, there is clear evidence that money has had a significant effect on our country’s political outcomes. Of these situations, I have selected several examples to illustrate issues of both corporatism and cronyism in our political history.

Corporatism: When money is allowed to infiltrate politics, businessmen or corporations with money are able to influence or gain control over politicians. Those with money attempt to sway policy to benefit themselves economically or to gain more power within society. In historical politics, we have seen numerous examples of corporatism, including during the post-civil war convict leasing programs and the 19th century “Trusts”.

Cronyism: In situations where political candidates become beholden to individuals for their office, there is the great potential for these individuals to compel favors; sometimes, these favors constitute political appointments and state-funded positions of power. In historical American politics, this phenomenon was illustrated in the “spoils system”.

 

Barriers to Political Activity

In addition to issues of corporatism and cronyism caused by money in politics, it is important to note that money once acted as a barrier to entry for voters in the early years of our country. Prior to the 1820s, there were often property requirements for voting rights. Voting rights were administered by the states and most states prevented those without property or taxable assets to vote—in addition to these people, African Americans, Native Americans and women were also denied franchise, but this is unrelated to the issue of money in politics. Such a restriction was justified through the argument that only those who have put into the government through taxes (at the time there was no income tax) should have a say in political decisions.

While property requirements for voting rights are not related to campaign finance, such restrictions are intrinsically linked to the interactions of money and political power. When only those who have property—thus demonstrating a certain level of wealth—are allowed to vote, the elected politicians will represent the wealthy as their sole constituency. Voting is the method of accountability in our government and, when only the rich can vote, there is no way for the poor to convince the government to act in their interests. Politicians can simply ignore their poor constituents’ needs, and there is no way that the poor can vote them out of office.

Eventually, a series of legislative pushes by politicians in the early to mid-19thcentury led to the reform of the voting requirements in the states and an expansion of the voting franchise. During this fight, Benjamin Watkins Leigh, a politician in the Virginia House of Representatives, made the following observation about money and property in the sphere of governance:

“Power and Property can be separated for a time by force or fraud, but divorced, never. For as soon as the pang of separation is felt…Property will purchase Power, or Power will take over Property.”

This observation makes the critical point that, when money is not allowed to directly control the government, it will attempt to “purchase power”. If they are unable to restrict the power to vote to simply themselves, self-interested wealthy individuals will simply utilize their power (money) to gain control over those who are elected by the general population.

In modern politics, we see a political “barrier to entry” problem emerging within our political system on the politician’s end, rather than the voter’s. To get elected on the federal level, politicians need to raise exorbitant sums of money to fund their campaigns. This money could potentially come from a lot of small donors, but it is simply far easier for the politicians to approach big-money donors and get their funding in lump sums. If a politician is unwilling to “play ball” and court wealthy donors, they are not included in the political process and are unlikely to be able to compete on the federal stage (See the example of Buddy Roemer during the 2012 Republican Presidential Primary).

By giving the wealthy massive power in determining who the general population will be able to vote on, modern political laws have created a situation similar to the one at the creation of our country. Almost everybody is able to vote, but they will only be able to vote for those who have been approved by the wealthy elite that fund the campaigns. In short, the American people have become restricted to voting for their preference of two political candidates that the wealthy place in front of them.

Post-Civil War “Convict Leasing”

One of the sharpest examples of the problems created by money in federal politics during the history of the United States can be found in the immediate aftermath of the Civil War. After the passage of the 13th Amendment, the wealthy elite and business interests which had previously relied upon slave labor needed a cheap labor force to replace the newly freed slaves. In addition to those who had previously owned slaves, the rising mining, railroad and steel industries added to the desire for a cheap labor pool. To populate the cheap labor pool, these interests used a loophole within the 13th Amendment and their control over southern politics to implement a massive and highly lucrative “convict leasing” program.

“Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.—The 13th Amendment

As is clear in the reading of the 13th Amendment, slavery could continue to exist in the United States only through the use of prisoners. Unfortunately, this loophole in the 13th Amendment created a situation where wealthy interests had a compelling interest to corrupt the criminal justice system.

The convict leasing programs of the 19th century consisted of arrangements between the government and private entities to sell convicted prisoners as slave labor. Upon being convicted of a crime, criminals would be rented by the state to private businesses or farmers in lieu of simply incarceration; the interests renting prisoners would pay for the costs of feeding and housing the prisoner and would receive the ability to compel the prisoner to work for free. Within a decade of the abolition of slavery, most southern states had enacted convict leasing programs that allowed their industry to survive the loss of the free labor of slavery. Many businesses that relied upon large quantities of hard labor—including logging, railroads, mining, farming, and textiles—were able to make huge profits in convict leasing states.

The entire system of compelling free labor from convicts benefitted both the government and the wealthy interests. Instead of paying to incarcerate somebody, the government found itself making a profit on each person that it imprisoned. Businesses enjoyed extremely low-cost inmate labor and were able to depress working conditions to deplorable levels; unlike with normal labor, convict laborers were unable to leave their “job” and were left to simply tolerate unsafe working conditions (or die, as many did).

Once it became obvious to business interests and wealthy individuals that they could create a cheap labor pool through increasing incarceration rates, they began supporting laws to target African Americans for incarceration. The passage of “black codes” that made it very easy for African Americans to be picked up for minor offenses (ex. loitering, petty theft, or “vagrancy”), making it very easy for southern law enforcement to simultaneously advance the interests of their rich benefactors and exercise their racism.

Throughout the south, corrupt politicians and law-enforcement agents would take bribes or favors from wealthy interests in exchange for criminalizing enough people to sustain labor levels. A vast majority of those victimized by this practice were African Americans, leading some to call it “slavery by another name” (also the title of an exceptional PBS documentary on the subject). If a group needed labor and didn’t want to pay fair wages, they would simply pay a kickback to civil servants and induce them to arrest more people who would then be sold as captive labor.

In a system that is eerily similar to the modern system of prison labor and prison privatization, the “convict leasing” programs of the 19th century illustrate one of the dangers with letting money into politics: corporatism. By allowing those with money and a profit motive for controlling policy donate to political campaigns, policy is shifted from benefitting the people to benefitting the controlling interests. In the case of convict leasing, the wealthy gained a cheap labor pool (and could exercise their racism) by increasing the imprisonment rates of African Americans; the state was made complicit with this scheme because they would benefit from “rental fees” and personal bribes to public officials.

 

The Spoils System

For much of our country’s history, politicians and political machines utilized patronage to pay off campaign donors and supporters. Despite radical changes in technology, methods of campaigning and political issues during our country’s history, the concept of patronage has persisted in one form or another for centuries.

Political patronage is the practice of distributing government posts and contracts to favored individuals in repayment of debts, rather than based upon merit. To repay campaign supporters for goods, funds or services and to help out allies, some politicians give out patronage jobs. A patronage job is a public sector job that is given to a political supporter of a politician once they are elected. As such jobs are dependent upon the patron staying in power,  the politician can count on continued support from their donors—if the politician loses power, the appointee will likely be replaced (often with the next politician’s patronage appointee) and they will lose the income/access that comes with the job.

Patronage is a serious problem for several reasons: first, it promotes political appointments rather than merit appointments and leads to a bloated, less effective government. Second, patronage helps corrupt politicians by giving wealthy donors an incentive to prop up those who will repay their donors. Finally, patronage harms low-level civil servants by allowing politicians to threaten consequences if the worker refuses to donate to the incumbent’s political campaign. Politicians gain the ability to extort their employees with the threat that, if they don’t give money or support, they may be replaced by people who are political donors (regardless of qualifications).

Before the early 19th century, patronage in the federal government was not an issue that was significantly visible to the general public—it is almost certain that it existed, but it was not a topic that was commonly discussed. Unfortunately, patronage radically increased during the early 19th century, eventually leading to a critical point with the election of Andrew Jackson in 1828.

After the 1828 election, President Andrew Jackson engaged in a massive overhaul of the federal payroll, and replaced almost 10 percent of federal service posts with his appointees. President Jackson’s extreme use of patronage set the tone for decades, as numerous successive presidents followed his example.

The term “Spoils System” was coined by William Marcy in 1828 as a defense of President Andrew Jackson’s widespread use of patronage appointments. This label stuck in the minds of the public and became that era’s label for the entire idea of patronage. For much of the 19th century—until the Pendleton Act of 1883—the spoils system led to presidents appointing huge numbers of political appointees and perpetuating an extremely corrupt system of federal appointees.

A political patronage system is relevant to campaign finance because it creates an environment where government workers are intimidated into supporting the incumbent party. If they fail to provide economic support for the party that has power over their jobs, then there is an increased likelihood of them losing their posts to political donors. People who are willing to pay what amounts to a kickback of their public sector salary to their patron will replace those who do not, even if they aren’t as qualified. This incentive structure allows political parties to compel large amounts of money from government workers with which they are able to fund their campaigns and enrich party leadership.

The spoils system allowed political parties to raise large sums from the contributions of those who were on the government payroll and reduced the need of politicians to raise money from outside of the government payroll. In a situation where the party in power has so much ability to compel donations from employees, the election system becomes imbalanced—the incumbent has a large, inherent fundraising advantage and is able to get a head start on campaign fundraising through their appointees.

Eventually, discontent with the spoils system, as well as the negative effects that it had on government efficiency, led to reform which made political patronage much more difficult. Unfortunately, these restrictions are by no means perfect, and we still see political appointees in all levels of our federal government; consider George W. Bush’s appointment of Michael “heck of a job” Brown as head of FEMA, despite his absolute lack of credentials.
The Trusts

In the past, just as we see today, those with power and money have been able to gain extraordinary influence over political structures and politicians. During the late 19th century, numerous corporate “trusts”—large monopolistic interests which consolidate power under a single owner—began to form and influence politicians. These trusts existed in a wide variety of industries and some of the more powerful ones were Standard Oil, US Steel, and the American Sugar Refining Company. Such interests controlled huge and profitable sectors of our economy and were able to exert considerable power.

Trusts formed through the consolidation (merging) or numerous smaller entities into one gigantic corporate entity which controls a vast majority of the market. Because a trust is so large, it is able to distort the market price for goods and inflate prices above the market level to increase profits. In addition to distorting prices, trusts often engaged in monopolistic control over the markets and used their power to drive competitors out of business. For example: the Standard Oil corporation, controlled by J.D. Rockefeller was a trust that controlled a vast majority of the oil in the United States during the late 19th century and early 20th. In order to maintain this power, Standard Oil undercut competitor pricing, gained unfair control over oil pipelines, made secret deals with railroads, and engaged in political cronyism.

As gigantic aggregations of power and resources, trusts were in strong positions to affect federal policies—they had enough resources in order to affect many politicians, across numerous states, and a desire to control their portion of the American economic markets. Trusts and their owners gave incredible amounts of money to political organizations and candidates in order to gain their support. This support could be used to influence laws, stop legal actions regarding anti-monopoly legislation, and even assist in putting competitors out of business.

In 1896, the McKinley vs. Bryan presidential race became the most expensive political race in American history due to the increased spending by corporate entities (ex. trusts). In order to win the election, McKinley and the Republican Party spent over $4 million dollars—mostly raised from corporate donors. At the time, $4 million dollars was an absolutely unheard of amount of money to spend on a political campaign (with inflation taken into account, this record would not be broken until 1960).

By the end of the 19th century, public opinion was mobilized against trusts. People had realized that the trusts had far too much political power and that something needed to be done to break up their ability to control American politics. John Keppler’s famous cartoon “The Bosses of the Senate” from 1889 perfectly illustrates how sick the general public was of the trusts. The image of the fat and moneyed trusts standing over the small senators, overseeing the political process, was powerful imagery and perfectly indicative of the political climate at the time. The money and influence of businesses had brought the political infrastructure to its knees and had rendered elected politicians subservient to the powerful economic forces (does this sound familiar anybody?)

 

congress1.jpg

 

The public disgust at the power of the trusts was one of the major factors which led to the passage of anti-trust laws and the first campaign finance reforms. In 1902, President Teddy Roosevelt began a major push to use the Sherman Antitrust Act to “bust the trusts” and limit their power over the markets (as well as politics). Over the next decade, trusts were broken apart until they lost enough cohesion that they were unable to dominate entire segments of the market.

While the trusts may be gone, the type of influence they wielded remains. Large corporate interests and wealthy individuals, possessing huge capacities to manipulate the market, exist in today’s economy and still attempt to manipulate corruptible politicians. By donating to political campaigns and leveraging “job creation”, these corporations are able to compel politicians into supporting their interests. If Keppler’s cartoon were updated for 2013, nothing would need to be changed except for the names of the moneyed interests that have power in politics: instead of copper, steel and railroads, the controlling interests would be banking, defense, insurance, agribusiness, pharma, oil and many others.

Perhaps the best modern analog for the 19th century trusts are the big banking entities (ex. JP Morgan). The big banks control such high percentages of the banking industry that they have become “too big to fail.” If any of the major banks were to fall, they could potentially take the entire economy into a nosedive and crash our economic system. Because of the terrible potential for harm to society if a bank were to fail, the government feels compelled to cater to the interests of the banks and to mitigate any potential harm that might befall the banks. In 2008, when the banking interests’ use of leveraged capital and reckless behavior almost crashed the banking system, the American government bailed out the banks and enabled them to survive the consequences of their own bad behavior. Unfortunately, the constant stream of political donations from banking interests to political actors has precluded any significant talks about breaking up the banks, and has preserved the dangerous vulnerability that exists in our financial markets. As the final insult of this situation, the banks managed to not only avoid consequences for their mortgage fraud, but also were allowed to keep victimizing the homeowners who had not already succumbed to the market crash.

 

Due to the length of this article, I have split it into two halves. The second half, focusing on the 20th century pushes to reform money in politics, will be posted tomorrow (3/15/13) at this address: http://theprogressivecynic.com/2013/03/14/the-history-of-money-in-federal-politics-part1b (you can simplify getting this by going to the sidebar and following my blog so that the article is automatically emailed to you as it is posted).