Harvard University Press Blog

The Fracturing of the American Corporate Elite

Like many Americans, Mark Mizruchi had grown increasingly distressed by the state of our politics. He was unhappy with the gridlock in Washington, the inability to accomplish even the most routine tasks of government, and the intransigence of those who have managed to hold the nation hostage to their extreme views. In trying to understand the problem’s roots, Mizruchi came to see the issue as a lack of national leadership from a group that had previously played a major and constructive role in developing solutions to new problems and keeping American politics mostly centric: the leaders of large American corporations. His goal in The Fracturing of the American Corporate Elite, new this month, is to explain how this relatively cohesive group emerged, what sustained it, how it declined, and the consequences of its demise. In the book excerpt and video below, he outlines his argument.

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I argue that the leaders of the largest American corporations, to whom I refer as the American corporate elite, once played an important role in addressing, if not resolving, the needs of the larger society. Since the 1970s, the members of this group have largely abandoned their concern with issues beyond those of their individual firms. This abandonment, I suggest, is one of the primary causes of the economic, political, and social disarray that American society has experienced in the twenty-first century. In earlier decades, the United States had a corporate elite that, however imperfect, was willing to see beyond the short-term interests of the firms that its members directed. Today this is no longer the case. The corporate elite that exists today is a disorganized, largely ineffectual group. Paradoxically, I argue, individual American corporations have more political power in the early twenty-first century than at any time since the 1920s. As a group, they are fragmented, however. Unlike their predecessors in earlier decades, they are either unwilling or unable to mount any systematic approach to addressing even the problems of their own community, let alone those of the larger society.

In this book I examine the rise and fall of the American corporate elite, from its pinnacle in the 1945–1973 period, through its period of turmoil and transition in the 1970s and 1980s, to its present state, in which the group is only a shadow of its former self. I argue that the decline of this elite is a significant source of the current crisis of American democracy and a major cause of the predicament in which the twenty-first-century United States finds itself.

In making this claim, I do not want to imply that the corporate elite of the postwar period was uniformly altruistic or public spirited. On the contrary, business leaders during that age were strongly protective of their interests, as they have been in every historical era. Nor am I suggesting that postwar America was a society that we should attempt to emulate in every respect. Social and cultural norms have become far less oppressive since that time. Our society today is far more tolerant and accepting of difference than it was half a century ago. Innovation, especially in the area of information technology, has improved peoples’ lives in many, albeit not all, respects. Consumer products in general are more plentiful and less expensive than in earlier years. There is no returning to the past, nor should this be an ideal to pursue. Yet for all its problems, the postwar United States had a number of qualities that are lacking today: an expanding economy with a high level of upward mobility, declining inequality, a relatively high level of security, a well-functioning political system, and a widespread belief that problems were solvable. And underpinning these forces was a corporate elite that provided a degree of leadership and vision that are not in evidence today.

Is the Financial Crisis Over?

Gérard Duménil and Dominique Lévy are the authors of The Crisis of Neoliberalism, which is new in paperback this spring. The book examines the financial crisis in the context of neoliberal globalization, arguing that repairing our economy will require a dramatic reversal of the free market ethos that’s enveloped most of the world over the past few decades. Below, the authors take stock of the movement toward “recovery” since their book’s original 2011 publication.

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The last quarter of 2008 was a key period in the progress of the current crisis in the United States and Europe. It marked the culmination of the financial component of the crisis, with the failure of major institutions in the United States, the beginning of the “great contraction,” and the export of the crisis worldwide. The trough was reached in the second quarter of 2009, a 4.6 percent fall of GDP in the United States (from the second quarter of 2008 to the second quarter of 2009), and 5.1 percent in the euro zone (from the first quarter of 2008 to the second quarter of 2009). The slow recovery of output that followed is commonly interpreted as the final stage of “the crisis.” This optimistic assessment is, we believe, erroneous.

A first observation is that the recovery was obtained at the cost of dramatic government deficits, 8.6 percent of GDP in the United States (for the third quarter of 2012), much less in the euro zone, but still 4.4 percent. Beginning with the contraction of output, then, the crisis entered a second phase, the “crisis of sovereign debts.” The growth of these debts peaked at 40 percent (annualized rate) in the third quarter of 2008 in the United States, and 18 percent in the third quarter of 2009 in the euro zone. At the end of 2012, in the United States, this growth rate was still larger than 10 percent, much more than the growth rate of GDP.

But the worst of everything is that the distinct paths in the two regions testify to the relationship between the levels of deficits and the levels of growth rates. Only government deficits can support demand levels. In the United States, consumer borrowing (which sustains the consumer spending that drives so much of the economy) is still nearly negligible compared to the average 8.9 percent of GDP it represented between 2003 and 2006, and the rate of default in households’ mortgages did not significantly decline from its peak value. In Europe, government deficits are much lower and a deflationary policy is conducted to further reduce them. Thus, instead of the low growth rates (1.5 percent for 2012) in the United States, the euro zone is entering into recession (-0.9 percent in 2012). Practically the entire zone is affected. Unemployment is soaring and the political situation is deteriorating. Overall, the alternative is between the U.S. model thus far, namely the preservation of (poor) growth rates thanks to record expansion rates of sovereign debts or, the euro model, the contraction of deficits and the new plunge.

The Historiography of Capitalism

This Sunday the New York Times offered up that rarest of birds: front page coverage of historiography. The piece, by Jennifer Schuessler, looks at historians’ growing study of the history of capitalism, a pursuit that predates but has been invigorated by the global financial crisis. Since Harvard’s Sven Beckert taught what’s believed to be the first seminar on the subject in 1996, courses and programs on the study of U.S. capitalism have been developed across the country.

Well, as the scholars go, so go the books, and Schuessler highlights a nice group of ours in her story, all of which were brought to HUP by Joyce Seltzer, our Senior Executive Editor for History and Contemporary Affairs. Among them is 2007’s A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States, by Stephen Mihm, who explains that respect for these areas of inquiry has grown greatly since the crisis left people asking “Oh my God, what has Wall Street been doing for the last 100 years?”

Another scholar whose work speaks directly to that question is Julia Ott, whose position at the New School is thought to be the academy’s first professorship in the history of capitalism. Ott, author of When Wall Street Met Main Street: The Quest for an Investors’ Democracy, calls attention to the often overlooked truth that markets and financial institutions “were created by people making particular choices at particular historical moments.” Her work has the effect of denaturalizing economic conditions that are usually taken for granted, such as when she took to our blog to explain that, despite today’s politicized panic over government deficits, during WWI many Americans welcomed the vastly enlarged national debt, believing that federally-issued war bonds would lead to a better postwar society in which all had a “stake” in the nation. As such, Ott argues, the War Loan programs “invited Americans to imagine the nation as a financial market,” which in turn fundamentally altered the common citizen’s conception of and engagement with financial instruments.

Study of the history of capitalism incorporates the concern with race and gender that has driven so much of the work of historians in recent decades, and Schuessler points to Bethany Moreton’s award-winning To Serve God and Wal-Mart: The Making of Christian Free Enterprise as an example of a work that focuses on gender.

Whether they come from HUP or our sister university presses, many of the books considered in the piece are their author’s first, which serves to highlight the persistent value of UPs in our commitment to young scholars and emerging disciplines. We’ll leave you, then, with a deeper look at one of those first books the piece mentions, Jonathan Levy’s Freaks of Fortune: The Emerging World of Capitalism and Risk in America. Levy spoke with us last year for an episode of the HUP podcast, which you can listen to via the player below.

 

The Economics of Voting Rights

Last week the U.S. Supreme Court heard arguments in Shelby County v. Holder, a case challenging a major provision of the Voting Rights Act of 1965. That provision, Section 5, holds that before making changes to voting procedures, jurisdictions in all or part of 16 states must convince the federal government that the changes won’t amount to “denying or abridging the right to vote on account of race or color.” Despite the law having been repeatedly upheld by Congress—with overwhelming support as recently as 2006—Shelby County, Alabama, argues that the law is outdated, unnecessary, and unfair.

After oral arguments and questioning made the position of the Court’s conservative Justices clear, it’s widely assumed that Section 5 will be struck down, in what Court-watcher Linda Greenhouse characterizes as an all but certain “evisceration” of the Voting Rights Act. For those seeking to understand the case, its place in the Roberts Court’s pattern of rulings on the “sordid business” of race, and how it’s happened that the Court now seems poised to give itself a power that should reside with Congress, Greenhouse’s reporting is a great place to start.

Here though, we’d like to consider a recent study of the Voting Rights Act that shows its effects to have been even broader than is often understood. The Act’s standing as a watershed moment for the extension of civil rights in this country is of course a given, but in a new book, economic historian Gavin Wright shows that the VRA was also extremely significant to the advancement of economic equality in the covered regions. In Sharing the Prize: The Economics of the Civil Rights Revolution in the American South, Wright outlines the commonly overlooked connections between the civil rights movement and the struggle for economic justice, arguing that breakthroughs like the VRA were an economic boon to African Americans with no commensurate setback for southern whites.

A key contribution of Wright’s book is the simple reminder that, on the ground and in the moment, economic concerns were always part of the push for equal rights:

From the bus boycotts of the 1950s to the sit-ins of the early 1960s, demands for equal access to services were almost always coupled with demands for jobs providing those services. In December 1955 the Montgomery Improvement Association called for “employment of Negro bus operators in predominantly Negro residential sections,” a demand that was actually quite radical for the time because of the quasi-legal powers bus drivers held. Flyers like the one [pictured below] from Warrenton, North Carolina, were circulated during public accommodations disputes throughout the region. The appeal for “equal opportunity for employment” and the complaint that stores “do not hire any Negroes in responsible jobs” are, if anything, more prominent than the demand for fountain service. In Birmingham, pickets wore sandwich boards reading “Don’t buy where you cannot be a salesman” and continued their pressure until each downtown department store hired at least one black clerk.

“Ranges are for cattle. Give me a number.”

Much of the work of crafting and enacting public policy is dependent on predictions of the outcomes of the policy being considered. Such outcomes can’t actually be known with certainty—as any responsible researcher understands—yet there’s a drive to arrive at the concrete forecasts often demanded by legislators. A perhaps apocryphal story about Lyndon Johnson illustrates the pressure economists can feel to draw strong conclusions. The tale has an economist describing the uncertainty of his forecast to LBJ, and offering a range of values rather than unsupported precision. “Ranges are for cattle,” Johnson is said to have replied. “Give me a number.”

True or not, the anecdote as recounted by Charles F. Manski in Public Policy in an Uncertain World goes a long way towards explaining how the modest findings of cautious researchers become the bold assertions of self-sure politicians. In Manski’s experience, economic consultants understand policy makers to be “either psychologically unwilling or cognitively unable to cope with uncertainty.” And so researchers feel compelled to offer precise predictions that they understand may not be credible.

Following John Kenneth Galbraith’s popularization of the term “conventional wisdom,” Manski offers “conventional certitude” to describe predictions that are generally accepted as true but that may not warrant the certainty they’re afforded. He uses the Congressional Budget Office (CBO) as a case study of conventional certitude in action.

The CBO was established in the Congressional Budget Act of 1974, which includes language usually interpreted as mandating the CBO to provide precise predictions of the budgetary impact of pending legislation. These CBO “scores” are passed on to Congress without accompanying measures of uncertainty, as Manski explains, even though the legislation they assess is often far too complex to allow for the precise forecasting of budgetary implications. And so everyone involved takes for granted what they should surely understand to be fudged, and CBO scores are widely accepted. Even today they’re eagerly awaited by both sides of the aisle in our dysfunctionally contentious Congress.

Computerized Trading and “Internet Democracy”

In his 2009 book The Cultural Logic of Computation, David Golumbia argues against the still-common notion that internet access and rampant computerization will be inherently democratizing forces. Rather, he says, it’s just as likely that the undeniable empowering effects of computerization will serve to exacerbate imbalances of wealth and power. Or, as he summarizes the argument in a new essay on High-Frequency Trading: “it is probably correct that the rising tide of computerization does in fact lift all boats, and there is no reason to think that computerization comes along with some kind of built-in circuit breaker that prevents it from empowering the most powerful.”

Golumbia uses the rise of automated High-Frequency Trading (HFT)—drawing on real examples as well as its dramatization in the film Margin Call—to demonstrate the fallacy of assumptions about “internet democracy.” Web-based tools for automated financial trading are said to have leveled the playing field, allowing individual investors the same access to the markets that the high-powered brokerages and banks have long enjoyed. Just as critical as the ability to trade has been access to requisite information like real-time prices, trading volume, etc. And yet, these same seemingly-democratizing developments (automated trading, freely available information) are also what have allowed the market to become dominated by the algorithmic designs of the world’s top engineers, in the employ of its most highly-capitalized banks.

So, just as computerization lowers the barriers to entry in market trading, it underwrites a transformation of financial mechanisms on a scale such that the newly-welcome individuals haven’t a chance of keeping up. Just because all boats are higher doesn’t mean the smallest won’t still drown in the wake of the large.

The abstract of Golumbia’s article, forthcoming in Social Semiotics:

The development of High-Frequency Trading (HFT)—automated trading of stocks, as well as bonds, options, and other investment instruments—provides a signal example of the political effects of computerization on a discrete social sphere. Despite the widespread rhetoric that computerization inherently democratizes, the consequences of the introduction of HFT are widely acknowledged to be new concentrations of wealth and power, opacity rather than transparency of information flows, and structural resistance to democratic oversight and control. Even as computerized tools undoubtedly provide individual investors with more power relative to what they had before, they also provide powerful actors with relatively more power as well, in some cases effectively excluding the majority of individuals from insight or meaningful participation whatsoever, especially with regard to the political impacts of market activities. Reports on recent financial crises, and the 2011 film Margin Call provide narrow windows into the operations of HFT and the challenges it poses to democracy; these in turn raise significant problems for the view that computerization inherently democratizes.

At Golumbia’s website you can also read a pre-press version of the full paper.

Poverty Reduction Is a Growth Strategy

All through the American election season we saw fierce debate and even fiercer backroom speechifying on governmental “entitlement” spending. Medicaid, Medicare, Social Security, family services, housing assistance, unemployment; all were pilloried for undermining our economic recovery and fostering a culture of dependency. And the rhetoric didn’t end with the election, of course, as entitlements swiftly took center stage in the ongoing fiscal cliff negotiations.

Though they represent opposing views on the worth of these programs, both the mainstream right and the mainstream left essentially accept the terms of the debate. For the right, these are programs that we simply cannot afford, and it’s morally bankrupt of us to mortgage our children’s futures in order to provide for people who should be able to take care of themselves. For the left, the structure of our economy leaves some people needing assistance through no fault of their own, and so these programs are expensive but necessary, and we must abide by the moral compulsion to preserve them. One side thinks “us” and the other thinks “them,” but in both cases entitlement spending is essentially construed as a public burden that we can either accept or reject; neither side seems to countenance the possibility that there could be economic arguments for the maintenance or even extension of the American welfare state.

Underlying the fights over entitlement spending is one of the central questions of comparative political economy: why is there so much more poverty in the United States than in any other developed country? As Monica Prasad explains in The Land of Too Much, for a century scholars in sociology, political science, and economics have invariably come to the same conclusion: the United States has more poverty because the American government doesn’t do anything about it. This explanation rests on the received wisdom that the United States is a “liberal” or laissez-faire country that distrusts the state and favors the free market.

However, as Prasad shows, this common notion of America’s minimal state intervention has by now been thoroughly dismantled. So, faced with the conundrum of persistent American poverty in spite of a willingly-interventionist state, in The Land of Too Much Prasad offers a new explanation, a demand-side theory of comparative political economy. It’s a brilliant and complicated analysis of agrarian statism, mortgage Keynesianism, American productivity, European protectionism, financial collapse, and credit-based consumption that we won’t even attempt to do justice here today. Instead, we’ll share just a couple of Prasad’s concluding policy recommendations that—while offered with respect to recovery from the 2008 financial collapse—seem particularly germane to these fiscal cliff fights:

Exit, Voice, and Revolution

Esteemed social scientist Albert O. Hirschman died this week at 97, having lived a fascinating life shaped by war, migration, and an iconoclastic perspective on conventional wisdom. He’s best known for Exit, Voice, and Loyalty, a 1970 book that many consider one of the twentieth century’s most influential works of political economy. In his famous formulation, “exit” and “voice” represent two contrasting responses of consumers or members of organizations to what they sense as deterioration in the quality of the goods they buy or the services and benefits they receive. To exit is to simply leave, usually in favor of another firm or organization perceived to be better. Voice, on the other hand, is the act of agitating from within with the goal of recuperating the quality judged to have been lost. Exit is essentially a private decision, whereas voice is typically a public activity. A key theme of the book was that exit often works to undermine voice, as easy availability of exit will undercut any instinct to use one’s own voice or to organize a chorus of others. “The presence of the exit alternative,” he wrote, “can atrophy the development of the art of voice.”

Decades after the publication of Exit, Voice, and Loyalty, Hirschman revisited his famous framework in an essay for 1995’s A Propensity to Self-Subversion. He’d learned that it’d become common to use his thesis to explain the Eastern European uprisings of 1989, and he spent a year in Berlin considering its applicability. As evident in the passages excerpted below, Hirschman had both the confidence to assess the validity of his career-making insights, and the humility to accept the ways in which they were wanting.

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The year 1989 was greeted with something of a yawn. Its first half would be marked by the elaborate, far-flung, and infinitely wordy bicentenary commemoration of the French Revolution. Everything was laid out well in advance, and the schedule of events was strictly followed up to the appointed climax, the celebrations of the Fourteenth of July in Paris. Thereafter, with the bulk of festivities, conferences, and speeches over, people would return to their usual pursuits. But then, as though the spirit of revolution, once invoked, assumed a life of its own, came the surprise, the “divine surprise” of that year: a series of totally unexpected political and popular movements broke out in rapid succession in Eastern Europe—from Poland, Hungary, East Germany, and Czechoslovakia to Bulgaria and Romania—overturning the hitherto uncontested power of the Communist parties and thereby altering fundamentally the seemingly stable bipolar world order of the preceding forty-five years.

The most radical of these changes took place in the German Democratic Republic, where the internal convulsion led in short order to the extinction of the political entity in which it occurred. The East German state was unable to survive the collapse of Communist power and was absorbed (geschluck, or “swallowed,” is the expressive term often used) by its outsize twin, the Federal Republic of Germany, within a year of the opening of the Berlin Wall.

Despite a considerable outpouring of articles and books—including some autobiographical accounts by key actors—a great deal about the events of 1989 remains poorly understood. The very fact that they came as a total surprise to both spectators and actors suggests that our capacity to comprehend large-scale political and social change remains utterly underdeveloped. Under the circumstances, any conceptual tool that holds out the promise of providing a handle on the enigmatic events is likely to be eagerly seized. This is what happened in Germany to the concepts of “exit” and “voice,” which I had proposed in a book published in 1970.

The German translation of that book was published in 1974, under a title that means, literally, “outmigration and contradicting.” This was a daringly free, though apt, translation of the terms exit and voice, and it may have been chosen by the translator because even then migration and would-be migration were characteristic alternatives to actual resistance in the German Democratic Republic. So the title, with its accent on migration as a primary form of exit, may have contributed to making the book appear particularly relevant to the commotion of 1989. In any event, only six days after the spectacular opening of the Berlin Wall on November 9, 1989, the Frankfurter Allgemeine Zeitung, Germany’s most respected daily newspaper, published an article by Henning Ritter, director of the social science and humanities section, with the title “Abwandern, Widersprechen: Zur aktuellen Bedeutung einer Theorie von A. O. Hirschman” (To exit, to voice: On the current relevance of a theory of A. O. Hirschman). According to Ritter, my 1970 thesis was being tested “experimentally on a large scale” by the upheaval in East Germany. Since then, several political scientists and sociologists have made extensive, if on occasion conflicting, uses of the concepts of exit, voice, and loyalty in interpreting the events of 1989, now generally called die Wende (the turn). Eventually the topic even received a degree of official sanction as the Deutsche Forschungsgemeinschaft (German Research Association), an agency of the Federal Republic, listed the exit-voice approach to the analysis of the Wende among the research projects eligible for its grants.

These Things Called "Ideas"

This fall, with its American presidential election leading right into the fiscal cliff/curb/cudgel, has given us all ample time to consider the ethical implications of free market capitalism. It’s a system to which inequality is inherent, and the debate we’ve been having is ostensibly over the extent to which government should help to ameliorate the harm our economy visits on many. Which, of course, means we’ve just been stuck in a prolonged moment of inertial uncertainty on a pendulum that’s been swinging since at least the early 20th century.

Throughout these months we’ve also been treated to a rare appearance on the public stage of these things called “ideas.” The word’s usage this fall, so often in rhetorical connection to that Republican idea-man Paul Ryan, has mostly been so emptied of meaning as to depress anyone who’s ever actually had one. “Idea,” in its employment this political cycle, has been code for the stripping down of recycled policy proposals to their “big,” “brave,” or “bold” kernel.

Nevertheless, their brief center stage has provided fine occasion to think on the role of ideas in politics and public opinion, as has the timely publication of Angus Burgin’s The Great Persuasion: Reinventing Free Markets since the Depression, a history of the evolution of conservative economic thinkers in the decades after a global economic crisis forced a reconsideration of their worldview. See? Timely.

Burgin’s focus is the Mont Pèlerin Society, an international association founded in 1947 by Friedrich Hayek and later helmed by Milton Friedman. Burgin shows that, in contrast to the popular telling, an awful lot changed in the transition from Hayek to Friedman, both in the particulars of conservative economic opinion and in the assumed role of the economist in its dissemination:

Friedman shared Hayek’s understanding of the importance of ideas and the long horizons of ideological change, but they parted ways on the question of rhetoric. Friedman’s public utterances, unlike those of his predecessor, are marked by their near-total instantiation of [British constitutional lawyer Albert Venn Dicey’s] warning against qualifications in the presentation of an economic philosophy. While Hayek remained aloof from politics and confident in the influence of his ideas unaided by his public persona, Friedman embraced the reductive language of the American public sphere as one more lever in the provocation of ideological change. He recognized the absence of limitations in his advocacy of laissez-faire as a primary source of its polemical strength.

Earlier this year we spoke with Burgin about that evolution, and Friedman’s turn towards the public:

 

When you consider the multiplying effect of each generation consciously stripping nuance from the public presentation of their ideas, and the ensuing game of reducti-phone, well, today’s political sphere becomes far more intelligible. Nevertheless, as Burgin explains, the history of the Mont Pèlerin Society should be read as “an extended plea for the relevance of the history of ideas to the history of politics,” and should also help us to understand that ideas themselves are “sites of contestation” subject to reformulation, not merely the static tools for which they’re often taken.

“What is now in the past was once in the future.”

Thomas K. McCraw

We were saddened this week by news of the death of historian Thomas K. McCraw, with whom we’ve worked for decades. McCraw’s Prophets of Regulation, for which he won the Pulitzer Prize in 1985, remains a seminal study of the development of American economic regulation and a sterling example of biography-as-history. McCraw’s latest book, published just last month, continues in a similar vein, analyzing the ways in which Alexander Hamilton, Albert Gallatin, and other immigrants, with their direct knowledge of financial instruments then uncommon in the United States, shaped the financial system of their new nation. In the excerpt below, McCraw highlights the conflict over the young nation’s national debt, and makes explicit the contingency of each step in the story he traces—a fitting reminder on this American morning after.

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The writings of the founders are so rich that putting them aside even for a moment becomes difficult, and rereading them often sways the reader first one way and then another. But the outcomes of the founders’ battles with one another are quite clear. During the period 1789–1816, the Federalists under Washington, Hamilton, and Adams won every important fight for the initial twelve years. Then the Republicans under Jefferson, Madison, and Gallatin did the same for the next fifteen years. Throughout these twenty-seven years, there was ceaseless, fervent, and bitter conflict among the founders. The spirit of compromise had peaked at the Constitutional Convention in 1787, and did not return to that level until about 1817, by which time the Federalist Party lay in ruins.

During the Washington administration—when Hamilton served as secretary of the treasury, Jefferson as secretary of state, and Madison as de facto leader of the House—Hamilton won and Jefferson and Madison lost every battle: over funding the national debt at par, over federal assumption of state debts, over the creation of the Bank of the United States, over the building of the six frigates for the navy, and over the Jay Treaty and the use of trade sanctions against Britain. Madison and Jefferson pushed this latter policy very hard. Hamilton fought it on the grounds that the Treasury, burdened with interest payments on the colossal national debt, could not sustain the loss of revenues from tariffs on British imports.

These patterns of the founders’ thinking—and of outcomes—continued unchanged for several years after the three men left office: Jefferson in 1793, Hamilton in 1795, and Madison in 1797. During the years when they were ostensibly out of power, all three remained extremely influential. Jefferson served as vice president from 1797 to 1801, and although he had little clout within the government, he continued to build an opposition party outside it.

From 1794 to 1796, the Jay Treaty dominated national politics. In the eyes of Washington and Hamilton, the success of this treaty represented the only chance to avert war with Britain and avoid a catastrophic blow to the Treasury. By contrast, for Jefferson and Madison the Jay Treaty symbolized the Washington administration’s favoritism to the British at the expense of the French. For them, it provided further evidence of Hamilton’s attempts to introduce British ways of corrupt government into the purified American system.

Hamilton’s forces won this crucial fight, though only through the direct intervention of Washington. There was nothing inevitable about this result. Hamilton and his allies prevailed with the bare minimum of the required two-thirds vote for ratification of the treaty by the Senate (20 to 10), and a very narrow House vote of 51 to 48 for providing funds to implement its terms. The Federalists triumphed yet again in passing their ill-advised Alien and Sedition Acts of 1798, but again only by an initial 52-to-48 House vote. Thus, during each of the three Federalist presidential administrations from 1789 to 1801—two terms under Washington, one under John Adams—the Federalists won every big political fight. But they could easily have lost some of them.