Grant Administration

Once the Civil War ended, the powerful forces of capitalism brought the United States new prosperity remarkably quickly. Most countries, not benefiting from the free enterprise that exists in the United States, would take 50 to 100 years to recover from such a devastating Civil War. But the United States recovered in less than 10 years. By 1875, the United States had a budget surplus (taking in more money than it spent), and it enjoyed a budget surplus for every year until 1893! In contrast, rarely has there been a budget surplus in the United States since 1975.

The first president elected after the Civil War ended was, not surprisingly, the Union General credited with winning it: Ulysses S. Grant. He won the presidency in 1868 (after President Andrew Johnson completed his term) and served two full terms, through 1876. Grant was a Republican who favored the "gold standard" for the economy, which means he preferred "hard money" (gold) over "soft money" (paper that can lose its value due to inflation). Grant, however, was considered a weak executive for not properly supervising the bureaucrats who worked for him. Specifically, Grant is blamed for having a corrupt Administration, even though he was not corrupt himself.

His presidency was at the beginning of the "Gilded Age," a name given by the writer Mark Twain to describe a period that appeared golden on the surface but was the opposite underneath. This period, and the Grant Administration, is criticized for corrupt business and government dealings. We will discuss the Gilded Age more in the next lecture.

But the truth is that the American economy prospered enormously during this period, particularly in the 1870s and 1880s. There was almost no government regulation that burdens businesses so much today. It was a spectacularly creative and industrious period, with many of the greatest inventions (e.g., light bulb, telephone, motion pictures, and phonograph) developed then.

Nevertheless, historians emphasize business and government scandals that occurred in the absence of modern regulation. In 1869, for example, there was the "Fisk-Gould Scandal," in which financiers ("Wall Street" types) tried to corner (monopolize) the gold market. This caused "Black Friday," with the price of gold first going way up, and then going way down. The Grant Administration broke up the scheme by selling gold reserves.

Debate: Is there anything wrong with speculation, or prices going way up and then way down?

Next government corruption occurred in the Credit Mobilier scandal, which consisted of bribery with a construction company that had been created by the powerful Union Pacific Railroad in the period of 1865-69. This scandal, first uncovered in 1872 by Congress, symbolized the government corruption of the Grant Administration. Specifically, owners of the Union Pacific Railroad formed a new company, the Credit Mobilier of America, in order to award it with profitable contracts to build a railroad out West. Then stock in this construction company was given to influential congressmen, who next approved spending taxpayer money to pay for the railroad construction. The result was huge profits for the owners of the railroad and the congressmen, at the expense of taxpayers. A New York newspaper publicized the scandal just before the 1872 elections, and the Speaker of the House (the Republican James Blaine of Maine) set up congressional hearings to investigate and publicize the scandal. The hearings lasted into 1873 and discredited the government.^[20]

Another scandal, the Whiskey Ring, was even worse. It consisted of many government agents in the Grant Administration participating in a conspiracy or scheme to steal whiskey taxes for themselves. To help pay for the Civil War, federal liquor taxes were increased to very high amounts. But many distillers bribed officials in the Department of the Treasury to reduce the cost of their tax stamps. An investigation resulted in the conviction of more than 100 officials in the Grant Administration, and even Grant's private secretary, Orville Babcock, was accused (but he was never convicted).^[21] As a result of these scandals, there was growing public pressure to end the "spoils system" first established by President Andrew Jackson.

In 1873, the Republican-controlled Congress doubled the salary of the president to $50,000 a year (a great deal of money in those days), and increased the salary of many other officials in government. The public was outraged, and their outcry caused a partial repeal.

Grant had to deal with a big problem caused by the Civil War: inflation. Wars are expensive. Remember the French and Indian War and how Britain taxed the colonies afterward? Somebody has to pay all the bills from a war: the hospitals, the weapons, the food, the transportation, and even the meager wages for soldiers.

The revenue from tariffs was not enough to pay for the Civil War. Lincoln started an income tax for the first time (it expired in 1872). He suspended the payment by the government to citizens in gold and silver, to protect its reserves. He taxed manufacturers and the public through sales taxes. But most of all, Lincoln financed the Civil War by issuing "greenbacks", similar to our green dollar bills today. This was a change from monetary practices under Alexander Hamilton, when all currency was backed by gold or silver. Lincoln's greenbacks were not backed by anything at all. The government simply printed and distributed them.