'The Communism of Pelf': Grover Cleveland and the Concentration of American Wealth

0:00Well, let me first thank the Institute and Dr. Salerno for giving me this great opportunity to speak here today. It's a very humbling experience to be associated with such extraordinary minds, which makes me wonder how I got in, particularly now that I'm following the great Tom Woods, who I have a tremendous amount of respect and admiration for. If you've not read his books, you need to read every one of them. I'm currently finishing my doctorate in American Political History at the University of Southern Mississippi in Hattiesburg. Now, given the state of academia, professional historical academia, you might think that perhaps Southern Miss would be a bastion of sanity, right, from all the craziness. Nothing can be further from the truth. We have our quota of crazies who I often clash with, although I did get lucky because my conference, my committee The chair actually likes Murray Rothbard. So I got lucky with that one. But as the joke goes around our department, most of them are to the left of Abby Hoffman, but old Walters

1:07is somewhere to the right of Genghis Khan. They actually tell incoming professors that when it's time to hand out TA assignments. But the title of my paper is The Communism of Health, Grover Cleveland and the Concentration of American Wealth. Cleveland is the subject of my doctoral dissertation, the defense of which will be later this year, which I expect to be quite spirited. I also have an upcoming book coming out on Cleveland sometime later this month. It's called The Last Jeffersonian, Grover Cleveland and the Path to Restoring the Republic. And I noticed in the bookstore out here, there's not any books on Cleveland, and that's probably I think there's probably a good reason for that because there's not really any good ones. So hopefully I can rectify that pretty soon.

1:54I could have easily, because there should be books on Cleveland. We ought to study this man a lot more. I mean, I could have easily entitled my book The Last Austrian President. But that probably would only serve to confuse people. Right, because he was not from Austria, which most people probably don't know what we're talking about. about but as professor D Lorenzo has called him Cleveland was really the Ron Paul of his day and since his two terms in office if you recall he served two non-consecutive terms in the late 19th century our president since him have moved further and further to the left closer to socialism and further away from free-market principles now some of you probably asking yourself what in the The word in the world is PELF. That's okay. I had to look it up myself. And I ran across it in Cleveland's letters. PELF simply means ill-gotten gain or wealth derived dishonestly.

2:53The phrase comes from a letter that Cleveland wrote to a Mississippi congressman and it describes his theory on wealth concentration, which I'll get to momentarily. Now today in our political discourse, if you've been following it, we've got this Occupy Wall Street Movement that's ginned up. And of course, you know the argument. I don't have to go into it. This whole 1%, 99% business, the 1% have everything. We don't have, the rest of us have nothing. And so the government needs to come in and take it away from them, right, and give it to the rest of us. And with Mitt Romney, probably the GOP nominee, this Obama Romney battle, we're going to see this throughout the fall campaign. I mean, this whole notion. I mean, that's all Obama's going to talk about. You can be assured of that. But as good historians and a What economists know, and what these idiots don't know, is that a high concentration of wealth develops not from the excesses of the free market, but from overbearing government policies.

3:51When government power is centralized, society's wealth becomes centralized and concentrated at the top. And what I like to do is look at present events through the prism of history, which is what I do in my book and during the late 19th century, President Cleveland dealt with the same issue of wealth concentration and redistribution and he was a strict Jeffersonian and he steadfastly believed in the cardinal principle of equal and exact justice to all men even though these idiotic historians say that he was in the back pocket of Wall Street and the big banks and all that it's all ridiculous but this was not meant just for political rights this was economic rights as well He lost his 1888 bid for re-election, and after he lost the election, he used his fourth annual State of the Union message on December the 3rd to discuss the great disparity of wealth in his time.

4:47So allow me to quote liberally from this message, but I promise this will be the only time that I'm actually liberal up here today. Upon careful inspection, we find the wealth and luxury of our cities mingled with poverty and wretchedness, he wrote. The vast fortunes realized by our manufacturers are no longer solely the reward of sturdy industry and enlightened foresight, but the discriminating favor of the government and are largely built upon undue exactions from the masses of our people. As a result, the gulf between employers and the employed is constantly widening and classes are forming rapidly, one comprising the very rich and powerful while in another are found the toiling poor. The wealthy existed under trusts, combinations and monopolies while the citizen is struggling far in the rear or is trampled to death by an iron heel.

5:40So he's saying the system is unjust and the government's favoring just a few people. He said this will result in a communistic system, what he called the communism of combined wealth and capital, the outgrowth of overweening cupidity and selfishness, which insidiously undermines the justice and integrity of free institutions. Now as Cleveland biographer Alan Brodsky has noted in his book, Grover Cleveland, A Study in Character, which I do not recommend for the Institute's bookstore, he said no other Another president before or since had spoken so radically on the disparity between the haves and the have-nots. Now obviously this is before Obama. He says, Cleveland prepared to see the imposition of stringent curbs upon wealth. Now some of you may be thinking, Ryan, you said Cleveland could be considered an Austrian. And when you read Brodsky's analysis, it sounds very left-wing. It makes Cleveland, when you take it together with his message, which sounds like a socialist, but Brodsky's analysis is simply flat out wrong and grossly

6:48inaccurate to put it mildly. No program to limit the accumulation of wealth was ever enunciated by Grover Cleveland. So you may ask, well, how did the wealthy get all these riches unjustly? The government, Cleveland said, mainly through a system of high tariffs, burdensome taxation and Direct Subsidies aided the wealthy in gaining more. The situation would soon cause vast social unrest, he believed, and when fully realized will surely arouse irritation and discontent. The working classes who were struggling in the race of life with the hardest and most unremitting toil will not fail to see, in spite of misrepresentations and misleading fallacies that without compensating favor they are forced by the action of the government to pay for the benefit of others such enhanced prices for the things they need that the scanty returns of their labor fail to furnish their support or leave no margin for accumulation.

7:49Now by compensating favor, he doesn't mean that the government needs to do the same thing for the poor that they do for the rich. That's not what he's talking about because, you know, he vetoed all these bills to help the poor. He wouldn't allow that either. One of the things he's talking about, if you've read Burton Folsom's book, The Myth of the Robber Barons, which I highly recommend reading, there's a difference between what he calls a market entrepreneur, somebody that uses the free market and free enterprise and that kind of thing to make good products that people want, and a political entrepreneur, somebody that uses the government favoritism and favors lobbying and things to make themselves rich. Recall, Solyndra and Sun Power. What's the Obama administration doing? They're favoring this discriminating favor of the government. The auto bailout, which was really a what?

8:35A union bailout. The bank bailout bill, which was what happened. All these big bank executives gave themselves big bonuses, over $100 billion. So that's what he's talking about, this discriminating favor of the government. So to correct the imbalance, Cleveland says the government should To cut taxes, cut tariffs, and end the system of subsidies, end it all. All the government paternalism should be ending. He advocated the free market, that we use free market principles. Not redistribute wealth, but end all the taxes, not all the taxes, but bring them down and end the paternalism. Don't aid any more of these people to become rich. Don't give them favors and subsidies. Now the main form of this program was the high protective tariff. This was an early form of corporate welfare, and this was the heart and soul of the Republican Party's economic program at the time.

9:26But Cleveland believed they were simply too high, as domestic industry was in no need of further protection. He said that they've got enough protection, the industry is no longer infantile, it stands on its two feet, it dominates the world, we don't have to keep these tariffs there. And furthermore, these tariffs make goods more expensive for average, everyday people. So it hurts the poorer classes to do this. So these high tariffs then were simply political payoffs to mercantilist fat cats who bankrolled the GOP. Now the New York Times opined in 1894, it was actually a conservative paper at the time, if you can believe that. They actually endorsed Cleveland for president three times. They said the Republican tariff was an abomination, which every monopolist and tax eater in the land has been pouring into the corruption fund of the Republican Party, a part of the iniquitous tax he has been able to levy through Republican favor.

10:19So the government favored industry, which were protected by high tariffs. They were getting all the money because of the protection. They were taking part of it, dumping it back into the Republican Party, which did what? Stayed in power, kept the tariffs in place. So it was this cycle in perpetuity he wanted to break. Now in his first term, he failed twice to do this, there were two tariff bills, both of them failed. Now in his second term, when he came back into office, he had a Democratic Congress, but he was battling the panic of 1893, but he took on the tariff, this Republican sacred cow head on. And they put out a bill in 1894, it was the Wilson-Gorman Tariff Act. The House had actually passed a version of the bill, cut the tariff by about 15% across the board, but they included an income tax, a first peacetime tax in American history, pushed by people like William Jennings Bryan.

11:13This was the progressives who wanted to redistribute wealth. The Senate took up the bill. It was loaded with protectionists, the Senate at the time. They tacked on 634 amendments that raised tariffs back up. This was sort of a political trade-off. We'll leave the income tax alone, but we want to raise tariffs on certain goods. So the final bill came out, and it didn't lower tariffs by just a few points. Not very much. Really a bad bill that Cleveland hated. Now, this income tax of 1894 was just 2% on incomes of $4,000 or more. It also applied to corporations. Now, listen to this, its proponents claimed it would effectively exempt 99% of the population. Only the rich 1% would be affected.

12:00Sound familiar? Exactly. Now, critics used the income tax and they attacked it as socialism. They said, this is nothing but socialism. One New York senator said he blamed the tax on little squads of anarchists, communists and socialists from Europe infecting America with foreign ideas. But supporters pointed to the massive concentration of wealth to make their case. This is what one congressman said, he said, the tax proposed on incomes is but a light touch on the monumental piles of wealth. Now, how many times have you heard the government say, oh, this will just affect it just a little bit, it won't bother us very much, just a light touch on the monumental piles of wealth. And if we don't do it, he said, there's going to be an upheaval, not unlike the French Revolution. There was another political economist named Thomas Shearman who studied this concentration of wealth and he published a paper in a magazine called The Forum in 1889. It was titled The Owners of the United States of America. And he argued in favor of income tax and he said

12:58only 70 people in the country own a combined wealth of $2.7 billion. 50,000 families own half the nation's wealth while four-fifths of the people earn less than $500 a year. Now, Sherman was this rich guy. He was a lawyer and some of his clients were Rockefeller and Ford, Jay Gould, people like that. He was kind of like Warren Buffett, hey, we need to tax the rich more and to redistribute this wealth. Well, Cleveland didn't like it and said, I'm not going to sign this bill because it's so bad. He said, this represents party dishonor. He called it a deadly blight of treason. And this is what he blamed the passage of the bill on. He said the wealthy and their influence over the legislation, he said it's the trust and combinations, the communism of PELF, whose machinations have prevented us from reaching the success we deserved.

13:51And he did not sign the bill. It became law without his signature. But he had faith in the Supreme Court. This is a time when the court actually looked out for the Constitution. He had actually appointed the Chief Justice, a man named Melville Fuller, who is a great Chief Justice if you ever study him. In 1895, the court threw the income tax out as unconstitutional. The case is Pollock v. Farmer's Loan and Trust, 5-4. One of the justices in the case, Stephen J. Field, prophesied about the future days of class warfare in a harsh, concurring opinion. He saw the real danger in an income tax. He said, the present assault on capital is but the beginning. It It will be but the stepping stone to others, larger and more sweeping, till our political contest will become a war of the poor against the rich, a war constantly growing in intensity and bitterness.

14:42Now does that not sound like what we're going through today with this administration and what this upcoming campaign is going to be all about? So let me close with this. The concentration of wealth was a major issue in Cleveland's time. I actually believe, I mean it may be worse today, I don't really know, I hadn't looked of the Numbers, and I don't know that it even matters. But I think it's probably bad because the government with its oppressive economic policies has made it so. The more the government taxes and regulates, the more the rich hoard and hide their wealth rather than, who wants to invest it in this economic environment? Lower taxes and regulations mean more investment, which means the creation of more jobs and more opportunities for others. This is the only sure-fire way to grow the money pie and raise the standard of living for everybody.

15:31Cleveland's economic policy sought to return to what he called the principles of true democracy. For they are founded, he said, in patriotism and upon justice and fairness towards all interests. He sought a system that favored no one and a government that treated everyone fairly and equally. This ideal alone would ensure an equitable system. That was Grover Cleveland's only gold, and it should be ours as well.