Judging Freedom - Cronyism: Liberty vs Power in America

Episode Date: January 12, 2022

Patrick Newman joins Judge Napolitano to discuss his latest book. Cronyism: Liberty vs Power in America, shows the neglected side of history the mainstream consensus doesn't want you to know: how politicians routinely dipped their hand in the public trough to benefit themselves and their supporters.See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

Hello there everyone, Judge Napolitano here with Judging Freedom and my guest today, Professor Patrick Newman. Professor Newman is a professor at Florida Southern College. He's also a colleague of mine at the Mises Institute and Andy's a fellow New Jerseyan. Andy's a good friend. He's a gifted and brilliant economist who has also written gifted and brilliant historical works. His most recent is called Cronyism, Liberty Versus Power in Early America, 1607 to 1849. Patrick, welcome to Judging Freedom. Thanks a lot for having me on, Judge. I'm really excited to be talking about my book, and I couldn't be more happy to be talking about it with you.

Okay, well, you know I've read the book because I was privileged to be one of your readers, and it's right up my alley. But what, in a a nutshell is cronyism? So cronyism refers to policies that benefit special interests and political and financial elites at the taxpayer's expense. So it's not policies that benefit the public interest, though they're often advocated in terms of that, but it's redistributions that take money away from taxpayers to well-connected politicians and businessmen. And what kind of cronyism developed in the early stages of the country? I mean, you start in 1607. I don't think the pilgrims had even arrived yet. Was there this type of corrupt with lowercase c interaction between ordinary people and the government so that select groups were favored at the expense of the ordinary people?

Absolutely. Unfortunately, the colonies were really created to be extensions or to facilitate British cronyism. So mercantilism, feudalism, and even absolutism. England and then later Great Britain had designed the colonies to basically be these raw export markets that would operate under a variety of regulations that privileged British manufacturers and shippers. But as Americans, we resisted that and we, of course, revolted. We seceded from Great Britain in the Revolutionary War. But even during that time, you started to see the development of American cronies, most notably Robert Morris, the noted financier of the Civil War. Tell me about Robert Morris's cronyism.

What did he do? What did he do that harmed the average colonist? And how did he do it? Sure. So what Robert Morris did was he first was head of important various committees relating to war financing and the distribution of war contracts. So he always managed to siphon those contracts to his own firm, as well as other firms, clearly benefiting himself. And most notably, he was very important, promising in getting our country's first central bank created, really a proto centralcentral bank, the Bank of North America, which was given this big monopoly charter by the Congress. So basically,

Morris's bank was given a monopoly and other banks couldn't compete. So we were already creating a very large sort of banking oligarchy that would benefit from the government, hurting the average person who wouldn't be able to acquire financial facilities and so on. I'm kind of interested in what he did with respect to war material. I mean, would this be akin to someone in the Defense Department directing federal assets to purchase military equipment from a company that this person in the defense department owned or had a substantial financial interest in absolutely that's a that's a great modern example of what morris did and that that's it drew a lot of uh a lot of criticism because

robert morris was basically steering defense contracts although they weren't called that during the Revolutionary War, to himself and to his firm, Willing & Morris, as well as other financial firms he was related with. And of course, the head of the Bank of North America, the president, was his own investment partner, Thomas Willing. So it's very clear that he has a cozy, he had a cozy relationship with the government during the Revolutionary War and after that he used in order to benefit himself. Now, where were the giants of that era on this? Where was Washington on this? Where was our buddy Thomas Jefferson? Where was Hamilton, other than probably wanting to participate in it?

Forgive my chip on my shoulder about Hamilton. But was this generally known that it was happening? And did any of the revolutionaries who believe that your property is your own rebel at this? Well, so Washington was sort of affiliated with Robert Morris at this time. And Hamilton was working with Washington. And Hamilton became very close with Morris. So those guys are kind of out. Um, Thomas Jefferson and others, I think they, they, they knew about this as the James Madison, they knew that Robert Morris was, was benefiting, but Robert Morris was always able to argue it in the name of the public interest by saying,

oh, this is what we have to do to, uh, you know, facilitate the war effort. Everything's in the name of the public interest by saying, oh, this is what we have to do to facilitate the war effort. Everything's in the public interest. My companies, they're the only ones who can do this, et cetera, that it's not convincing in hindsight, but of course, he can use a crisis emergency to increase power for himself. Okay. So the American Revolutionary War is over. We won it. The War of 1812 is over.

Who knows if we won it, but we know the British went home. James Madison, who resisted the First National Bank of the United States and did so in one of the greatest speeches in the history of the country, known as the Bank Speech, was persuaded to change his mind. And at the tail end of his second term as president, he signs into law the second National Bank of the United States. What does that do for cronyism? Well, the second bank of the United States, much like Hamilton's first bank, was a great illustration of cronyism.

The interests behind the second bank of the United States were wealthy Philadelphia merchants and businessmen, notably John Jacob Astor and Stephen Gerard. So what they wanted to do is they had bought a lot of depreciated government securities during the war of 1812, and they wanted to make those government securities exchangeable for bank stock, much like what happened with the first bank of the United States. So this would increase the demand for their financial investments and allow them to make a huge windfall gain. So they pushed this bank through, the second bank of the United States, through Congress. And once the bank opens, there's a tremendous amount of cronyism. The Baltimore branch in particular is illegally

lending themselves money. this bank generates an enormous speculative boom that leads to the panic of 1819 ruining everyone but the bank which led william gouge a famous economist to famously state at the time the bank was saved and the people were ruined all right now you you are an economist by, even though you are a pretty good historian. Take us beyond 1849. Take us where your book ends. Take us beyond the Civil War. Bring us up into the 20th century. that by the time of the institution of the Federal Reserve, the federal income tax, the administrative state, World War I, all those awful things that happened in the progressive era about which you have also written, that cronyism was indelibly American and almost accepted as normal. Absolutely. So by this time period, cronyism was firmly established. The supremacy of the federal government was established over the states and you had various financial

interests that had a commanding influence in the economy. So at the time of the Federal Reserve in World War I, this was JP Morgan and of JP Morgan and company. It's no surprise that the investment bank pushed for the Federal Reserve and the investment bank was also an enthusiastic proponent of getting the United States to be involved in World War I because it was the major underwriter of British and French bonds in America and had supplied many munitions contracts for them. So cronyism was firmly established in really the 20th century is just a brilliant illustration time and time again of how political and financial elites have plundered the general taxpayer. Is this hopeless or is it going to take another revolution to get the leeches of cronyism off the

skin of liberty? How'd you like that line, by the way, Patrick? I immediately have to look at my forearms to make sure if there's any leeches on me. So that was a great line, very vivid. Is it hopeless? I, of course, don't want to be pessimistic, but I would say it's looking quite bleak. I think the only way to reform the system is to separate from the system. You can't reform D.C. We tried to do it in the past. It's unreformable. I think promoting more states' rights and local governance is the solution. Potentially, you know, some sort of states' right movement

to secession, various forms of nullification, you know, states breaking away, joining other states. I think that's the only sort of solution because previous attempts have just not worked. Got it, got it. I guess we're kind of stuck with this. I mean, let me take you to your crystal ball. Where's the federal government going to be in 10 years? It can't pay its bills today. You think a time is going to come when it will just collapse of its own weight? No one will lend it money. No one will want to use its worthless fiat cash? That's a great question. I think that day could come, though. I think the federal government will go kicking and screaming. No one might want to use its money, but they can

certainly keep the printing press up and they'll be able to convince a number of citizens, unfortunately, to use their money. I think they'll definitely try and crack down on alternate currencies or prevent various states' rights reforms from getting underway. But it's not looking good. We've got a lot of entitlements. The bills have to be paid. The population is aging. You're seeing more and more proposals for worldwide cronyism, a minimum corporate income tax. I think you're going to see wealth taxes and those will start at the richest Americans, but much like income taxes, they'll be spread to everyone. And eventually the wealthy will be able to avoid those, et cetera. So it's not looking good.

The government, there's a lot of issues that need to be reformed and it doesn't look like politicians in DC are going to do anything about it. Patrick Newman, the book is Liberty versus Power in Early America, 1607 to 1849. I am a rare book reviewer who has actually read every page of the book and it's terrific. So I encourage you to get it. Patrick, it's always a pleasure. I hope we see each other before the summer in Alabama. Yeah, absolutely.

Thanks for having me on. Okay. All the best.