U.S. Presidency - History of Business in the U.S.
Definition: Office of the chief executive of the United States government
Significance: The president of the United States guides the federal government, oversees the implementation of laws enacted by Congress, and recommends legislation to Congress. Since 1921, the president has been required to submit an annual budget to Congress suggesting the proper federal expenditures and revenue streams for the fiscal year. The presidency has also come over time to be seen as linked to the national economy, and presidents are often given credit for good economic performance and blamed for poor economic performance.
The U.S. presidency was partly created for the economic purposes of protecting property rights and economic liberty, promoting economic growth, ensuring the payment of RevolutionaryWar debts, and improving the financial status of the United States government and American business with European governments and banks. As American history progressed and the American economy became more complex and interdependent, Americans developed higher expectations of the U.S. presidency regarding such issues as the development of the West and a national infrastructure for transportation, inflation, bank failures, stock market crashes, unemployment, international trade, unfair business practices, social welfare benefits, consumer protection, monopolies, and agricultural prices. By the late twentieth century, there was often a direct correlation between a president’s public approval rating and the nation’s economic condition.
A literal interpretation of the U.S. Constitution suggests that Congress, not the president, holds most of the federal government’s powers to influence the American economy. In The Federalist (1787- 1788), Alexander Hamilton—the first secretary of the treasury and the primary author and advocate of the office of president among the Founders— noted that, while the president wields “the power of the sword,” Congress has “the power of the purse.” Furthermore, a literal interpretation of the president’s constitutional powers in general and those pertaining to the economy in particular suggests that they are mostly inferior and reactive to those of Congress. This pro-Congress, antipresidency interpretation of the Constitution regarding the economy is bolstered by the assumption that most Americans during the late eighteenth century preferred a laissez-faire, free market economic approach with minimal intervention, regulation, or leadership by the federal government.
A major purpose for writing, ratifying, and implementing the U.S. Constitution, however, was to provide greater order, uniformity, and direction to the American economy from a new national government, including the presidency. Among the Founders, Hamilton was the most skeptical of laissez-faire capitalism and the most favorable toward British-style mercantilism, in which executiveled, government policies would promote, protect, and subsidize a more self-sufficient, interdependent, and stable economy. In explaining and advocating the creation of the presidency in 1787 and 1788, Hamilton argued that the advantages of a powerful chief executive included the president’s ability to provide “singular accountability,” “energy,” and “unity” in leading the nation toward long-term policy goals and vetoing legislation that threatened property rights and individual liberties.
From Washington to Jackson
As President George Washington’s secretary of the Treasury, Hamilton developed, promoted, and helpedWashington secure congressional passage of an economic policy agenda that included a national bank, “hard” currency, the payment of war debts, protective tariffs to raise revenue and nurture American manufacturing, excise taxes, and federal spending on interstate roads and other “internal improvements” to facilitate interstate commerce. Some ofWashington’s Hamiltonian economic policies proved to be bitterly divisive and controversial, especially the national bank and the Army-enforced collection of excise taxes on whiskey.
Differences about the federal government’s proper role in the economy quickly became a major source of ideological, coalitional, and policy differences among presidential and congressional candidates and within the emerging two-party system. The Anti-Federalist Party, later known as the Democratic-Republican Party and then the Democratic Party, was established by future presidents Thomas Jefferson and James Madison. In contrast to the Federalist Party of Alexander Hamilton and John Adams, the Anti-Federalist Party and its successor parties opposed a national bank and high protective tariffs. It favored a more laissez-faire strategy for American capitalism until the early twentieth century.
Jefferson’s presidency also saw the first major use of economic policy as a foreign policy weapon. To assert U.S. neutrality in the wars between Britain and France and to protest the British practice of “impressing” American sailors into service, Jefferson secured enactment of and vigorously enforced the Embargo Acts of 1807 and 1809, which President James Madison continued. The resulting embargo devastated the local economies of major port cities, especially in New England, and motivated some New England Federalists to consider secession.
More so than Jefferson and Madison, Democratic president Andrew Jackson regarded himself as the champion of the “common man,” especially frontier settlers, laborers, and small farmers, in both politics and economics. Jackson perceived the national bank as biased in favor of the mostly Whig northern bankers and merchants. Consequently, Jackson vetoed a bill to recharter the national bank. He also withdrew federal funds from the national bank and distributed them among state banks. The U.S. economy would not have the equivalent of a central bank until the creation of the Federal Reserve system in 1913.
The Turn of the Twentieth Century
During the remainder of the nineteenth century, U.S. presidents often assumed leading roles in promoting the population growth and economic development of the West. Government subsidies of free land encouraged railroad and telegraph construction, mining, farming, and homesteading in the West. The Democratic and Republican Parties and their presidential candidates continued to differ on tariffs, the gold standard, and the extent of federal regulations on the economy. The first regulatory commission, the Interstate Commerce Commission (ICC), was established in 1887, initially and primarily for the purpose of regulating railroad rates. Despite the ICC, various economic protest movements developed among struggling farmers and rural businessmen, especially in the upper Midwest, the West, and hill country areas of the South. Furthermore, miners and railroad and factory workers increasingly believed that the president should redress their economic grievances, such as low pay, long hours, unsafe working conditions, and antiunion business practices.
Responding to these economic grievances, especially those of farmers, the Democratic and Populist Parties nominated William Jennings Bryan for president in 1896. Bryan advocated the free coinage of silver, lower tariffs, and government ownership of the railroads. Portraying Bryan as a dangerous economic radical, the Republican Party nominated William McKinley on a platform of high tariffs and maintaining the gold standard and easily won the presidential and congressional elections of 1896. Republican economic policies mostly prevailed until the New Deal of the 1930’s.
McKinley was assassinated in 1901, and Theodore Roosevelt became president. Roosevelt engaged in a more vigorous, personalized type of presidential intervention in the economy. He threatened to seize control of coal mines with Army troops to end a coal strike in 1902. He directed the Justice Department aggressively to prosecute violators of the Sherman Antitrust Act of 1890, especially the Northern Securities Company and the “beef trust.” Roosevelt also used the status and rhetorical position of the presidency as a “bully pulpit” to pressure Congress to pass the Elkins Act of 1903, which criminalized the giving or receiving of rebates on railroad rates, and the Hepburn Act of 1906, which gave the ICC the power to fix railroad rates. Nicknamed the Trust Buster, Roosevelt also pioneered the roles of the president as an environmentalist and a consumer advocate.
During the United States’ participation in World War I, Democratic president Woodrow Wilson greatly expanded the president’s powers to lead and manage the American wartime economy for foreign and defense policy purposes. He created several new executive agencies and boards to convert agricultural, mineral, and industrial production and labor relations from civilian to defense purposes and issued nearly two thousand executive orders. President Franklin D. Roosevelt relied on the precedent ofWilson’s actions during World War II. During the Korean War, the Supreme Court asserted constitutional and congressional limits on a president’s wartime economic powers in its 1952 decision against President Harry S. Truman in Youngstown Sheet and Tube Co. v. Sawyer.
From Roosevelt to Carter
The Great Depression and the implementation of the New Deal during the 1930’s greatly increased the influence of the president’s fiscal and budgetary policy on the U.S. economy. New Deal public works and relief programs reduced unemployment and poverty and stimulated consumer spending, while the Social Security Act of 1935 provided old-age and unemployment benefits. In an effort to reduce growing budget deficits, President Franklin D. Roosevelt made later budget cuts that contributed to the 1937-1938 recession. The New Deal also expanded the federal government’s regulatory powers and responsibilities to include oversight of the stock market, bank deposits, agricultural production and prices, labor relations, and rural electrification.
The end of the Great Depression and World War II did not initiate a reduction of presidential powers and responsibilities in the U.S. economy. President Harry S. Truman and Congress created the Council of Economic Advisors (CEA) in 1946 to provide the president with economic research and advice for benefiting the nation’s “employment, production, and purchasing power.” The CEA also helps the president prepare his annual economic report to Congress and provides economic advice to business. The Council of Economic Advisors was instrumental in persuading Presidents John F. Kennedy and Lyndon B. Johnson to support the enactment of a major income tax cut in 1964 to stimulate greater economic growth.
The effects of high defense spending during the Vietnam War, the 1964 tax cut, and higher domestic spending through new social welfare programs such as Medicaid and Medicare contributed to high inflation, a weaker American dollar, and slower economic growth by the 1970’s. Consequently, President Richard M. Nixon briefly imposed wage and price controls and removed the American dollar from the gold standard. A sharp increase in oil prices further aggravated the so-called stagflation of the 1970’s, as the American economy suffered from high rates of both inflation and unemployment. In 1979, President Jimmy Carter appointed Paul Volcker as chair of the Federal Reserve Board. Volcker’s policies of high interest rates and a tighter money supply aggravated the 1981-1983 recession but also contributed in the long term to low inflation, greater economic growth, and lower unemployment for the remainder of the 1980’s.
From Reagan to George W. Bush
Elected president in 1980, Ronald Reagan was the first president since the 1920’s who wanted to significantly and permanently reduce the role of the federal government in the U.S. economy. Strongly influenced by monetarism and supply-side economics, Reagan’s economic policy agenda included major tax cuts, less domestic spending, and deregulation of industries. While Reagan achieved tax cuts and deregulation of major industries, Congress rejected Reagan’s proposals for major domestic spending cuts, Social Security reform, and welfare reform. Appointed chair of the Federal Reserve Board by Reagan in 1987, Alan Greenspan was determined to continue long-termeconomic growth with low inflation and low interest rates. He served as chair of the Federal Reserve until his retirement in 2006.
The Reagan administration presided over sharp increases in federal deficits and the national debt. Elected president in 1992 partly because of the effects of the 1990-1991 recession, Bill Clinton, a Democrat, restrained congressional proposals for higher domestic spending as an economic stimulus and achieved congressional passage of tax increases to reduce the deficit and reassure the bond market. Clinton reappointed Greenspan and helped achieve the first federal budget surplus in thirty years. President GeorgeW. Bush sought to increase economic growth during his first term through tax cuts and to reduce inflation and high budget deficits during his second termwith domestic spending cuts. Toward the end of his presidency, Bush’s economic policies were hampered by opposition froma Democratic Congress, rising oil prices, a mortgage crisis, and the expense of the Iraq War (started in 2003).
Campagna, Anthony S. U.S. National Economic Policy, 1917-1985. New York: Praeger, 1987. Useful survey of economic policies fromWilson to Reagan.
Light, Paul C. The President’s Agenda: Domestic Policy Choice from Kennedy to Clinton. Baltimore: Johns Hopkins University Press, 1999. Detailed analysis of presidential tactics and strategies in achieving their domestic policy goals, including tax cuts, budget bills, and deficit reduction.
McDonald, Forrest. The American Presidency: An Intellectual History. Lawrence: University Press of Kansas, 1994. Excellent study of the origins of the U.S. presidency and Alexander Hamilton’s influence on this office.
Rosenberg, Samuel. American Economic Development Since 1945: Growth, Decline, and Rejuvenation. New York: Palgrave, 2003. Broad study of changes in the American economy since 1945; includes an examination of presidential influence.
Stein, Herbert. Presidential Economics: The Making of Economic Policy from Roosevelt to Clinton. Washington, D.C.: American Enterprise Institute, 1994. Examines the similarities and differences among presidents from 1933 to 1993 in developing and promoting their economic policies.
See also: First Bank of the United States; Second Bank of the United States; U.S. Congress; New Deal programs; taxation.