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Origins of the Crash: The Great Bubble and Its Undoing

When Genius Failed: The Rise and Fall of Long-Term Capital Management

Buffett: The Making of an American Capitalist

On Christmas Eve 1825 , Thomas Jefferson let loose an anguished cry. The government of the country he had helped to found, half a century earlier, was causing him great distress. It was assuming vast powers, specifically the right to construct canals and roads, and to effect other improvements. Jefferson thought of the federal government in the most restrictive terms: as a compact or a confederated fabricthat is, a loose affiliation of practically sovereign states. He was roused at the age of eighty-two to issue a Solemn Declaration and Protest against what he termed the usurpation of power by the federal branch. Jefferson was so agitated that he declared that the rupture of the United States would be, although a calamity, not the greatest calamity. Even worse, reckoned the sage of Monticello, would be submission to a government of unlimited powers.

This ideological debate had been raging since the Revolution itself. Federalists led by Alexander Hamilton had sought to establish a strong central government to marshal the countrys finances and develop its infrastructure and commercial potential. Jeffersonians adamantly objected.

And by and large, Jefferson won. No fewer than six of his successors vetoed or thwarted federal legislation to build roads and canals, improve harbors and riverways, maintain a national bank, fund education, and even care for the indigent mentally ill. In 1860, just before the election of Abraham Lincoln, the latest of these, James Buchanan, struck down a project to deepen a water channel in Michigan and vetoed a bill for federal homesteads.

Had Jefferson survived until 1860, the federal government of the day would not have displeased him. Its main vocation was operating the postal service and collecting customs duties at the ports. Its army consisted of a mere sixteen thousand troops scattered mostly among a series of isolated forts west of the Mississippi River. Those functions aside, the states were essentially on their own. The federal payroll was modest in the extreme. The civilian bureaucracy in Washington consisted of a mere two thousand employees. Its administrative scaffolding was threadbare, its financial capabilities primitive.

The modest federal purse was supported by tariff duties and a smattering of land sales. Federal taxes (an unpleasant reminder of the English Parliament) were reflexively scorned.

Then came the rupture.

The Republicanselected on the eve of the Civil Warvastly enlarged the government, not only to defeat the Confederacy but to carry out an agenda for industry and growth, and to foster opportunity, especially for those at the bottom. They accomplished a revolution that has been largely overlooked.

Though their purposes stretched well beyond those of the Founders, Lincoln and the Republicans did not think of themselves as countering the original American revolution. More nearly, they were completing it. These Republicans revered the FoundersJefferson includedbut they scarcely resembled them. They owned no plantations nor slaves, had not been born to wealth, generally had not traveled to England or France. For the most part, the Republican leaders were self-made men, many forged in a crucible of hard experience. John Sherman, a leading congressman, was the son of a lawyer who had died when John was six, leaving his mother to raise eleven children in poverty. Salmon Chase, the Treasury secretary, on whom fell the Bunyonesque burden of raising more money than had been expended in total since the beginning of the Republic, had been plagued by hardship and personal losses. Horace Greeley was born to poor farmers in New Hampshire.

Prototypical was Thaddeus Stevens, born with a clubfoot in a remote hamlet in Vermont to a cobbler father who abandoned him. Confronted with prejudice as well as poverty, Thaddeus developed a protective shield of sarcasm, enrolled in Dartmouth, and established himself in Pennsylvania, where he practiced law and operated an iron foundry. Stevens typified both sides of the Republican rags-to-riches ethossupport for the common classes combined with mercantile ambition. Early in his career, he distinguished himself by fighting for free public schools, which Pennsylvania established before any other state. During the legislative fracas, Stevens mocked opponents of public education with the derisive barb that it was easier to pass a bill to improve the breed of hogs than that of men. In Congress he became the scourge of the South, the bitter enemy of the slave masters.