Arms, Revenue, and Entitlements. William Mannen
turned in an uninterrupted string of surpluses, even with bouts of depression and deflation. The size of government was much smaller back then, and economic growth was robust in most years, despite deficiencies in the country’s monetary system. The government did not restore convertibility to gold until 1879 after having issued paper greenbacks during the war, while railroad booms turned to bust and caused panic in the major financial centers. Yet the railroad booms also fueled investment across the country. The transcontinental railroad, partly subsidized by the federal government, was completed in May 1869 with the last golden spike driven into the ground at Promontory, Utah. Capital and wealth became far more concentrated as businesses merged at an accelerating rate at the turn of the century. Over 1,000 firms vanished just in the year 1899.[3] As behemoths like U.S. Steel and Standard Oil wielded ever greater monopoly power in the business sphere, the political class responded with initiatives that marked the dawn of the regulatory state. Congress established the Interstate Commerce Commission in 1887, the first federal regulatory agency, and charged it with overseeing the railroads. It was followed three years later by the Sherman Anti-Trust Act, which outlawed combinations and conspiracies that unduly restrained competition. The corruption and other maladies of the Gilded Age aroused a full-scale progressive movement that led to additional reforms like the Pure Food and Drug Act of 1906 and the Fair Trade Commission in 1914 for more aggressively pursuing anti-trust violators. The regulatory state did not cause or lead to the deficit normative state per se, but it did increase discretionary spending to the extent of larger administrative expenses for running the new agencies.
The entitlement state as we know it today did not exist, but a forerunner of modern entitlements, pensions for Civil War veterans, did alter the trajectory in spending and affected budget balancing by the 1890s. The original pension program for veterans enacted in 1862 extended eligibility only to those Union soldiers who suffered a disability inflicted during the war, in addition to their widows and other dependents. The program remained fiscally limited through the 1870s until Republicans and Northern Democrats, pressured by lobbying groups like the Grand Army of the Republic veterans’ association and lawyers handling disability cases, started dramatically expanding benefits. Congress first passed an Arrears Act in 1879, which retroactively paid out benefits to veterans whose determination of disability due to wartime service occurred well after the war itself had ended. By the late 1880s, with calls for increased benefits and even universal pensions growing louder, Congress tried to pass legislation extending eligibility to veterans with disabilities suffered after the war. President Grover Cleveland, a Northern Democrat who had incidentally avoided service in the Union Army, regularly resorted to his veto pen in stifling this legislation, but he was defeated in the next election by Benjamin Harrison, a former brevet Union general who fully pledged his support to expanding the program. In 1890 Congress passed the Dependent and Disability Pension Act, extending eligibility to veterans with postwar disabilities that impaired their ability to perform manual labor. The legislation vastly increased the government’s annual spending, with pensions now constituting 40% of total outlays.[4]
The Civil War pension program has often been likened to modern day entitlements because it imposed uniform rules of eligibility to a vast swathe of the population. Like entitlements it led to increased spending that affected the government’s ability to regularly generate surplus revenue. The budget turned in a deficit by 1894, only four years after passage of the Dependent Act but only one year after a financial panic that crippled the money market and led to economic depression. The budget had still managed to balance just after previous panics in 1873 and 1884, but now a devastating crisis, with the U.S. economy again integrated into the international gold standard, combined with the dolling out of some $140 million in pensions, produced a series of deficits for the rest of the 1890s, culminating in spending to fund the Spanish-American War. The budget at this could point could still not yet be described as deficit normative. The Civil War pension program was by definition transitory and subject to natural attrition. A stronger economy in the early 1900s, fueled by increased gold production and higher rates of inflation, also eased the budget back into surplus during expansions.
Going to war with Spain and intervening on behalf of Cuban independence signified another factor impacting the continuity of the surplus normative state. The U.S. emerged as a rising power in the late 1800s, and such a new role compelled more military spending inevitably affecting the budget. This effect on the budget was not at first dramatic. For a while in the early 1890s, pensions exceeded the combined expenditures for the Army and Navy. But the U.S.’s entry into the global military arena was bound to drive up costs. Benjamin Harrison proposed a shipbuilding program in 1889 that would rectify the Navy’s dearth of battleships. In his annual report for 1889, Navy Secretary Benjamin Tracy laid the case for an Atlantic and a Pacific fleet each composed of battleships to secure the nation’s coastlines. Instead of describing a modern navy as an instrument of empire, he recast seapower in largely defensive terms, seeing it as the only viable way for the U.S. to defend itself against belligerent European powers and a modernizing Japan. In armored warships the U.S. Navy severely lagged other nations and did not even rank as one of the world’s top maritime forces. To remedy the dangerous imbalance in power, he called for a Navy of “20 battle-ships, 20 coast-defense ships, and 60 cruisers, or 100 vessels in all, which is believed to be a moderate estimate of the proper strength of the fleet.”[5]
Tracy’s recommendations reflected the thesis of Alfred Thayer Mahan in his seminal, soon to be published tome on seapower that large, blue water navies shape the course of world history. Some naval strategists would even go so far as to call the U.S. an “island nation” because of its long coastline on two different oceans. A modern navy with battleships was also bound to cost money. Yet Harrison’s shipbuilding did not send the budget into deficit. It was much smaller than the pension program, and Harrison in fact presided over four straight years of surpluses. To put matters in perspective, by 1891 naval expenditures, including the costs of shipbuilding, totaled $26.1 million, compared to $48.7 million in Army-related spending, pensions costing $124.4 million, and a budget surplus of $37.3 million.[6] Naval expenditures, in other words, were that year smaller than the entire federal surplus. But revenue greatly fluctuated depending on the state of the economy, and the next year, just prior to a terrible financial crisis, naval spending marginally rose to $29.2 million while the surplus dropped to $9.9 million.[7]
Shipbuilding still put added pressure on the budget, regardless of the economy’s gyrations. From a strategic vantage, shipbuilding ensured that the Navy had a modern fleet in being at the outset of the Spanish-American War. That war marked the high point of jingoism, an aggressive strand of patriotism contrary to the admonitions of defensive naval strategists, with the U.S. winning colonies and a new presence in the Pacific. These developments bore consequences stretching into the 1940s. The country was now obligated to defend the Philippines, Guam, and Wake, not to mention the recently annexed territory of Hawaii, and it more than ever needed the Navy to fulfill this function. Theodore Roosevelt launched the Great White Fleet in late 1907 to demonstrate American naval might just after the Japanese navy’s decimation of the Russian fleet at Tsushima Straits only two years before. The U.S. was indeed hardly alone in the Pacific. The British, French, and German Empires all controlled islands throughout the region, with Japan seizing German Pacific territory during World War I. The Navy considered Japan its chief Pacific rival and formulated War Plan Orange as a desperate attempt to relieve the garrison holding Manila Bay after defeating Japanese naval forces in a decisive surface action somewhere in the western Pacific. The plan never came to fruition after Japan’s surprise attack on the Pacific fleet battleships in Pearl Harbor while the previously underappreciated aircraft carriers remained fortuitously at sea.
The U.S.’s entry into the Pacific and the Caribbean at the end of the 1800s provides greater context for understanding isolationism. As a twentieth century phenomenon, isolationism was magnified by the bloodbath in Europe starting in 1914 and then the fear of another European war by the 1930s. This isolationism towards the horrendous slaughter going on in Europe or the prospects of another such slaughter was unsurprising, but it also did not necessarily signify rejection towards the rest of the world, especially other regions outside of Europe such as Latin America. Isolationism should be mainly thought of in relation to Europe and the World Wars. The U.S. emerged as a more engaged global power by the dawn of the twentieth century, and this new role did at times