America’s Fiscal Frontier, Part I: The Foundations of Our Budgetary Dysfunction

The existence of an area of free land, its continuous recession, and the advance of American settlement westward, explain American development.

– Frederick Jackson Turner, “The Significance of the Frontier in American History” (1893)

[W]e might justifiably regard Turner’s famous paper as being, in essence, a study of the significance of abundance in American history.

– David M. Potter, People of Plenty (1954)

Americans have never liked limits; limits require difficult choices. “People of plenty,” they regard abundance as a birthright and have little experience with scarcity.¹ Their heavy reliance on money creation and borrowing in the last two decades is a contemporary expression of the long-standing American impulse to transcend limits through expansion—in this case fiscal and monetary expansion—in order to avoid reckoning with internal problems. These attempts find moral justification only by pretending away their victims. Their politics are complex, not falling along a neat left-right axis.

The avoidance of limits over the course of U.S. history helps to explain why Americans are experiencing so much dysfunction today—in their politics, their culture, and, not coincidentally, their budget process. Thanks to the development of competing power centers, especially China, limits are closing in on the United States, and it has little historical experience to help it cope.

More than a century ago, at another moment of intense national strain, the historian Frederick Jackson Turner looked to the past to provide illumination for the present. His seminal 1893 work, “The Significance of the Frontier in American History,” attempted to explain American history according to the “frontier thesis”—that is, the argument that the movement of the frontier through territorial expansion across the continent accounted for the exceptional nature of U.S. development. This essay takes a cue from Turner but broadens his concept of the “frontier” beyond territory, and seeks to update him by drawing on the scholarship about U.S. empire produced since his time.

The approach taken here has been informed (or deformed) by several convictions. The first is that the artificial disciplinary boundaries that frequently separate the study of economics from the study of diplomatic history, and of the domestic U.S. political economy from the global political economy, have obscured significant connections with the potential to reshape our understanding of America’s rise to global power. The second is that discussions about domestic U.S. fiscal and monetary policy, past and present, do not take sufficient account of geopolitics. And the third is that contemporary analysis of U.S. political dysfunction tends to understate the importance of U.S. budgetary dysfunction. This essay seeks to offer a corrective on all counts.

Part I of this series traces the establishment of an expansionist consensus in the early American republic, its shattering over slavery, and its reconstruction on new lines in the late 19^th century. Part II examines the destruction of competing power centers in the two world wars, the transformation of the United States from British free rider to global hegemon, Americans’ adoption of monetary expansion to avoid difficult decisions about resource allocation, and the unilateral U.S. decision to end the Bretton Woods system in 1971. Part III explores how both the political Right and Left have come to embrace not only monetary but also fiscal expansion as an alternative to solving problems within existing limits, at a moment when the erosion of the United States’ relative power makes this course of action riskier.

Through fiscal and monetary expansion, Americans have adapted their past experience with territorial and commercial empire to a new realm. What makes the modern expansionism imperial, like the old, is the power imbalance between those “doing” empire and those having empire done to them. The description of the United States as an empire may seem jarring, but it is commonplace among historians, and rightly so. Calling the United States an empire does not mean claiming that it has been empirically or morally equivalent to all other empires. It does imply that however exceptional the United States may be, its exceptionalism does not lie in the avoidance of empire.

The U.S. empire, like many other empires, has ranged from the murderously violent, as in the case of Native Americans, to the relatively benign, as in the case of Western Europe after World War II—but it has always been structured by power imbalances. Whereas territorial and commercial expansion exported American problems to less powerful non-Americans in the present, fiscal and monetary expansion seeks to export contemporary American problems to less powerful generations of Americans in the future through borrowing and money creation. In short, fiscal and monetary expansion is the latest chapter in what the historian William Appleman Williams called “empire as a way of life.”

Escaping Time through Space

As soon as European settlers arrived on the Atlantic coast, they began expanding the frontiers of settlement. Their land hunger was freighted with ideological meaning. Many of the new Americans not only regarded westward expansion as a divinely ordained right, but also saw it as essential to the type of virtuous society they hoped to establish.²

Steeped in republican thought, they believed that ownership of productive property, especially land, was a precondition for civic virtue; put differently, economic independence was a prerequisite for political independence. Men who did not own property were—like women, children, indentured servants, and slaves—economically dependent on others, and therefore vulnerable to manipulation and corruption.

In the new republic, supporters of Thomas Jefferson yoked the availability of Western lands to a radically democratic vision of socioeconomic opportunity. Their ideas formed in opposition to Alexander Hamilton and the Federalists, who hoped to create a society of ranks and stations based on a diversified, complex economy. Elites would maintain their position at the top through control of the public debt and paper money, while westward expansion would be orderly and controlled by the federal government.

Jefferson’s supporters, known as Democratic-Republicans, imagined a political economy diametrically opposed to Hamilton’s. Pushing beyond Jefferson himself (who was no modern democrat), Jeffersonians envisioned a society in which the conditions of one’s birth did not determine one’s place and unprecedented numbers of white men could become property owners. To prevent the possibility of any corrupt alliance between public and private power that would freeze class structure, Jeffersonians wished to keep the federal government weak, public debt at a minimum, and the use of hard money (i.e., specie and coins rather than paper) at a maximum.³

Their ideal economy would be predominantly agricultural, built around the landowning yeoman farmer whom they lionized as the ideal republican citizen. Although they saw small-scale manufacturing as a necessary and even welcome complement to the independent yeoman household—farmers would need tools, after all—they regarded large-scale “manufactories” (as well as the concentrations of money necessary to finance them and the cities necessary to house them) as threats to republican virtue.

The problem for Jeffersonians was that history suggested their goal was impossible. On the prevailing theory of the day, as evidenced by ancient Rome, republics experienced a political-economic life cycle of birth, growth, and decline. Beginning in a state of agrarian simplicity, they diversified their economies over time to include manufacturing and banking, reaching heights of wealth and luxury that eroded republican virtue, before collapsing into decadence and decay. In other words, republican political economy seemed to have a built-in tendency to become Hamiltonian rather than Jeffersonian.

Wanting to avoid this cycle for the new American republic, Jeffersonians found a solution in territorial expansion. By spreading across the seemingly limitless continent, the United States could remain a republican idyll of economic independence and political virtue. As land and other forms of property became unaffordable in the settled East, Americans could achieve socioeconomic mobility and become good republican citizens by acquiring land out West. Rather than the orderly, top-down process of westward expansion envisioned by Hamiltonians, Jeffersonians sought a pell-mell rush, facilitated by the federal government (especially its army) but led by local settlers on the frontier. Indeed, the very rapidity of the expansion would prevent the federal government from effectively controlling large swaths of the country.

Jeffersonians perceived that overseas commercial expansion likewise had a crucial role to play in arresting the republican life cycle. Hard-working, virtuous yeoman farmers were sure to produce an agricultural surplus beyond what they needed to feed their families or could sell locally. Yet domestic markets could come only from the sort of urbanized, large-scale manufacturing centers that were anathema to the Jeffersonian vision of agrarian simplicity. Foreign markets could provide a solution to this dilemma.

Thus, Jeffersonian expansion was an attempt to disrupt the space-time continuum. By expanding across space, Jeffersonians hoped to escape time. So long as the United States kept its territorial and commercial frontiers moving, it could avoid the political-economic decay that other republics in history had experienced over time. Quite literally, Jeffersonians believed that the American republic could not survive within its existing limits.

Of course, the imperative to expand beyond its limits brought the United States into conflict with those who inhabited the spaces Americans wanted. To justify their sense of entitlement to those spaces, Americans developed a series of stories.

For territory on the continent, the main stories were that it was either unoccupied (the so-called “virgin land” myth) or not properly occupied. On the latter logic, Native Americans did not deserve the land because they were uncivilized barbarians who failed to meet European notions of private-property ownership, part and parcel of their racial and cultural inferiority; while the European empires did not deserve the land because they were oppressive and failed to protect Americans from cross-border raids.

For markets overseas, the American story was that the European mercantilist restrictions that denied them access were an offense to liberty. When the French Revolutionary Wars began and the belligerent powers intensified their restrictions on neutral trade, Americans told a story about “freedom of the seas.”

These stories attempted to deny or justify the damage that Americans did to others’ interests for the sake of their own—to pretend away or rationalize, in other words, Americans’ gains at non-Americans’ expense. This is not to say that the interests of non-Americans were more legitimate than those of Americans, nor that Americans did not sincerely believe the stories they told themselves. It is to say that Americans’ stories aligned with their perceived expansionary interests.

The Crisis of Industrial Capitalism

The election of 1800 sounded the death knell of Hamiltonianism and marked the decisive victory of Jeffersonianism. It became impossible for mainstream politicians to speak the Hamiltonian language of a natural hierarchy. Everything that happened afterwards occurred within the framework of Jeffersonianism. Even bitterly divided political parties, like the Democrats and the Whigs, argued from the shared premise that U.S. citizens should enjoy an unprecedented degree of socioeconomic mobility. Accordingly, one of the few things they agreed on was the importance of westward expansion. When Americans could no longer agree on whether the new Western territories should be slave or free, the nation plunged into the Civil War.

The Civil War reshaped the course of westward expansion by enabling the free-labor North and Republican Party to guide it. “Free soil”—that is, Western land where slavery was outlawed—had been part of the party’s founding slogan in the 1850s. It regarded the availability of free soil as necessary to the continued achievement of the Jeffersonian dream of a nation of virtuous, property-owning republican citizens. If another part of its founding slogan, “free labor”—that is, the right to control one’s own labor, for instance by quitting one’s job, unlike a slave—did not enable men to earn enough money to purchase property of their own in the expensive East, they could always move westward and buy cheap land there.

Beginning in the 1870s and cresting during the 1890s, however, the Republican promise of socioeconomic mobility came under pressure from three directions. First, enormous new concentrations of wealth in the private sector, especially in railroads and banking, made freedom of labor seem ever less capable of delivering on the republican promise of economic independence. Even with chattel slavery destroyed, the new barons of industry and finance owned so much productive property that it became effectively impossible for many Americans to acquire some for themselves, no matter how hard they labored.

Second, Americans perceived that the Western territorial frontier had closed. In reality, the closure was soft rather than hard: the West remained far less densely populated than the coasts. But the United States had indeed reached its continental limits, and Western settlement was now a process of in-filling within the existing frontier rather than of expansion beyond it. The psychic effect of this apparent closure, famously voiced by Frederick Jackson Turner in 1893, was profound. With class structure becoming more frozen in the East, the Jeffersonian expectation of endless cheap land in the West could not have collapsed at a worse time.

Third, and less commonly noted, the overseas commercial frontier also appeared to close. Amidst the global depression of the 1870s, the availability of the American agricultural surplus at cheap prices imperiled the economic future of European farmers. The process began in Prussia, where the politically powerful Junkers (who constituted the landed wealth of the country) pressured their government for relief. In an effort to maintain sociopolitical stability in their own societies, European nations imposed high tariffs on agricultural imports. Their move redirected such instability to the United States. With American farmers struggling to sell their surplus abroad and farm bankruptcies multiplying, it seemed to them that the commercial frontier had closed at the worst possible time.⁴

As class structure ossified under the weight of industrial capitalism and the old frontiers seemed to close, grassroots pressure for two new expansionist safety valves began to build, especially among farmers. Within the political-economic context of the day, this pressure came mainly from the left—that is, from those who sought to restore the old Jeffersonian dream of a republic of small property-owners amidst the neo-Hamiltonian specter of a frozen class hierarchy.

One of the two new safety valves was to consist of a geographical reorientation of the old commercial expansionism. Farmers called for the U.S. government to open markets in Asia and Latin America. In effect, they imagined jettisoning the Atlantic economy that had endured from the colonial period through the 19^thcentury in favor of a new global economy.⁵

The other new safety valve was to be an altogether new type of expansion: not territorial or commercial, but monetary. Many farmers in the capital-starved South and West traced the source of their economic misery to the gold standard, which (in theory, though frequently not practice) required the maintenance of a fixed ratio between gold reserves and paper currency.⁶ The gold standard, they believed, artificially constrained the supply of money and credit so as to benefit the interests of creditors (like the Eastern and British bankers they loathed) and damage those of debtors (like themselves). A bimetallic gold-and-silver standard would expand the supply of money and credit.⁷

Opening Doors Abroad, Closing Them at Home

In this late 19^th-century context, the politics of monetary expansion were reversed from a century earlier. Then, Jeffersonian (and later Jacksonian) advocates of socioeconomic mobility favored hard money and opposed increases in the supply of paper money, associating the latter with elite dominance of a frozen class structure. Over the course of the 19^th century, however, the triumph of Jeffersonian ideas had brought about political-economic conditions very different from those his supporters had expected. The neo-Jeffersonian agrarian movement now looked to the federal government as the only institution capable of standing against the barons of industrial capitalism. Through monetary expansion, the federal government would redistribute resources from elites to small producers, restoring the socioeconomic mobility that Jeffersonians had originally fought for.⁸

There was a good deal of magical thinking in the new agrarian expansionisms, to be sure. Europe, with its financial and industrial centers, needed to import primary products; Asia and Latin America were comparatively more agrarian, like the United States, and therefore needed to export them. This symmetry did not promise much in the way of the Ricardian comparative advantage on which trade depends. Moreover, in the short-to-medium term, switching to a bimetallic standard would have caused enormous economic hardship—not least for farmers—because the United States would have found it far more difficult to trade with its most important existing partners (in Europe) and to acquire the foreign (i.e., European) capital that was funding its industrial growth. But the farming lobby was desperate.

Its desperation, coupled with growing industrial labor militancy, made wealthy elites fear that revolution was imminent. From their perspective, threats came fast and furious in the early 1890s. The Populist Party, calling for the abandonment of the gold standard, ran its first candidate in the presidential election of 1892; the Panic of 1893 plunged the nation into depression again before it had fully recovered from the Panic of 1873; a huge strike by railroad workers paralyzed the country in 1894; the gold standard nearly collapsed in 1895, as European investors who feared its abandonment repatriated their money; and then the forces of bimetallism took over the Democratic Party for the presidential election of 1896. (When people say that America’s current divisions are unprecedented, the 1890s—along with a number of other decades—say “hold my beer.”) To Secretary of State Walter Gresham, the situation “seemed . . . to portend revolution.” To an influential financial columnist, “industrial unrest seemed to assume proportions of anarchy.” To a popular writer on economics, “the laboring classes . . .  are every year showing themselves to be more and more ready to resort to violence.”⁹

Clearly, those who benefitted from the existing distribution of wealth and power in the United States needed to do something to save themselves. Expanding the money supply by adopting a bimetallic standard would wreck their position. But the other form of expansion promoted by farmers—overseas commercial expansion reoriented from Europe to Asia and Latin America—seemed possible. By absorbing the surplus (“overproduction”) of capital and goods that Americans could not consume at home, new markets abroad might break the boom-and-bust cycle that seemed endemic and endogenous to industrial capitalism. With renewed economic expansion, economic growth would be unlimited: The boom could be made to continue indefinitely, without any bust.¹⁰

While the new imperialism looked to expansion through space in order to escape time just as the old Jeffersonian expansion did, its political-economic character was quite different. Where Jeffersonians had looked to expansion to escape the republican life cycle, the elites who coopted the agrarian call for new overseas markets looked to expansion to escape the industrial-capitalist business cycle. Jeffersonians were champions of ordinary white men, seeking to maximize socioeconomic mobility on his behalf and to prevent dominance by elites. By contrast, the elites behind the new expansionism had essentially Hamiltonian aims: They were trying to freeze their position at the apex of the existing political economy.

That said, in order to do so, they judged that they had to enable a greater degree of socioeconomic mobility. If they did not find a safety valve for the pressure building, the United States would explode into revolution. So from a fundamentally different starting point, elites reached a position of partial overlap with that of farmers and laborers: Overseas expansion was necessary. As an alternative to an “open door” through which resources might be redistributed at home—say, by expanding the money supply—Americans would seek an open door abroad for the fruits of their enterprise.¹¹

In short, Americans would once again export their domestic problems rather than solve them at home.

The result was a new chapter in the history of American imperialism. While the United States continued to engage in the old-fashioned political annexation of territory—in Hawaii, the Philippines, and Puerto Rico rather than on the American continent—the goal was no longer to settle the new territories and admit them as states into the Union as rapidly as possible. Rather, it was to keep them in an extended state of second-class belonging—that is, as colonies.

At the same time, the United States also adopted methods to keep foreign nations in a state of sovereignty-eroding dependence without formally annexing them so as to ensure U.S. access to their markets. Examples include the Platt Amendment, which gave the United States enormous control over Cuba’s foreign and fiscal policy; the takeover of the Dominican and Haitian customs services; and numerous military invasions of Latin American nations and China.

The new imperialism called for new stories to deny or justify it. If it was empire, then it was a different kind from the nasty European empires—not oppressive, but liberating. The Americans had kicked out the Europeans (from the Philippines, Cuba, and Puerto Rico), who had only their own best interests at heart, and would now govern with the locals’ best interests at heart, just until they were ready for full independence. Americans told themselves that actions like retaining rights to Guantanamo Bay, controlling the directors of Nicaragua’s national bank, and so forth did not really constitute imperialism because those other nations retained formal sovereignty and thus were not vulnerable to imperial exploitation.¹² Americans were not hurting anyone, these stories went—or if they were, the victims had it coming.

Thus, from its beginning, the American republic relied on expansion at the expense of weaker populations to ameliorate conditions for its own. The new imperial ventures overseas in the late 19^th century achieved buy-in across the political spectrum because they offered benefits to both elites and non-elites. Enlarging the pie for all Americans by taking it from non-Americans tended to dampen domestic fights over the relative size of each group’s respective slices. What looks to the modern liberal eye most admirable in U.S. history—the commitment to the expansion of economic and political freedom for an unprecedently large number of people—is inseparable from what looks most shameful: namely, the suppression of equivalent freedom for other groups of people, both inside and outside the United States. This inseparability has proven enduring.

Katherine C. Epstein is associate professor of history at Rutgers University-Camden.

Image: An 1868 lithograph by Frances Flora Bond Palmer, "Westward the Course of Empire Takes its Way." (Mellon Collection, National Gallery of Art)

America's Fiscal Frontier series by Katherine Epstein:

· Part I, The Foundations of Our Budgetary Dysfunction

· Part II, The Peace Dividend

· Part III, The Monetary Soul of Empire.

I have accrued numerous debts in writing this piece. I thank Carolyn Biltoft, Frank Costigliola, Steve Deal, Marc Flandreau, Maya MacGuineas, and Jay Sexton for commenting on it in draft. I am especially grateful to Eugene Steuerle for providing me with detailed feedback despite disagreeing with parts of my argument. Finally, I thank Jeff Gedmin, Carolyn Stewart, and the team at American Purpose for their willingness to publish something that does not conform to their usual model.  Any errors are my own.

[1] David M. Potter, People of Plenty (1954), pp. 144–5.

[2] The following account of early American political economy draws primarily on Drew McCoy, The Elusive Republic: Political Economy in Jeffersonian America (1996), and Andrew Shankman, Original Intents: Hamilton, Jefferson, Madison, and the American Founding (2017), which synthesize a great deal of literature in addition to the authors’ own important research.

[3] On Jefferson and hard money, see (in addition to Shankman, Original Intents) Donald F. Swanson, “‘Bank-Notes Will Be but as Oak Leaves’: Thomas Jefferson on Paper Money,” Virginia Magazine of History and Biography (January 1993).

[4] William A. Williams, The Roots of the Modern American Empire: A Study of the Growth and Shaping of Social Consciousness in a Marketplace Society (1969), 22–25.

[5] Williams, Roots, 25–31.

[6] See Barry Eichengreen and Marc Flandreau, “Introduction,” in The Gold Standard in Theory and History, ed. idem, 2^nd ed. (1997), 1–21.

[7] Richard Franklin Bensel, The Political Economy of American Industrialization, 1877–1900 (2000); Edward Crapol, America for the Americans: Economic Nationalism and Anglophobia in the Late Nineteenth Century (1973).

[8] Elizabeth Sanders, Roots of Reform: Farmers, Workers, and the American State, 1877–1917 (1999); Charles Postel, The Populist Vision (2007).

[9] Qtd. in Thomas McCormick, China Market: America’s Quest for Informal Empire, 1893–1901 (Ivan R. Dee, 1967), 25.

[10] Carl Parrini and Martin Sklar, “New Thinking about the Market, 1896–1904: Some American Economists on Investment and the Theory of Surplus Capital,” Journal of Economic History (September 1983).

[11] The classic statement of the “open door thesis” is William Appleman Williams, The Tragedy of American Diplomacy (1972).

[12] Emily Rosenberg, Financial Missionaries to the World: The Politics and Culture of Dollar Diplomacy, 1900–1930 (2003), esp. 71–76.