If free-market advocates could resurrect a U.S. president to deal with today's problems, many would choose Grover Cleveland.
He understood economics — a rare commodity among presidents.
Even so-called conservatives who talk free market often deliver the opposite. Richard Nixon gave the nation wage and price controls. George W. Bush expanded the central planning of Medicare to include prescription drugs.
Contrast that with Cleveland. He vetoed hundreds of spending bills, refusing to succumb to political temptation whether it was wrapped in patriotism or sob stories.
After the Civil War, raids on the U.S. Treasury disguised as patriotism were routinely approved. For example, Union military veterans had become a powerful special interest group. Expenditures on their pensions increased about 500% over 20 years, Alyn Brodsky wrote in "Grover Cleveland: A Study in Character."
Who could say no to a patriotic veteran seeking a little additional compensation?
Cleveland could.
When Congress passed a bill granting pensions to veterans for injuries not caused by military service, he vetoed it.
Who could say no to a hard-working American farmer seeking a smidgen of government help?Another time, a drought ruined crops in Texas. So Congress passed legislation in 1887 to appropriate $10,000 — worth $237,000 today — to buy seed grain for farmers.
Cleveland could.
In his veto message, he wrote: "I can find no warrant for such an appropriation in the Constitution, and I do not believe that the power and duty of the general government ought to be extended to the relief of individual suffering."
He added, "The friendliness and charity of our countrymen can always be relied upon to relieve their fellow citizens in misfortune."
Man Of The People
Cleveland had an advantage that other presidents since have lacked — namely an electorate that had a better grip on Thomas Jefferson's concept of limited government.
"The Jeffersonian viewpoint was very prevalent in Cleveland's time, and it would not have been hard for him to educate himself in it," Thomas DiLorenzo, an economics professor at Loyola University Maryland, told IBD in an email.
Cleveland had another edge that many modern politicians lack: courage. He vetoed 414 bills during his eight years — 1885-89 and 1893-97 — in the White House, forcing Congress to curb its appetite for spending.
Cleveland, a Democrat, also rejected the Republicans' stance on foreign policy.
According to Brodsky, the GOP said "it was the nation's inherent right to colonize the continent westward and southward to its geographical limits, and then push ever westward across the waters."
To Cleveland, this was nonsense. If meddling on the domestic front was unwise and often unconstitutional, how could it be legitimate to meddle in foreign affairs?
Cleveland had a simple approach to foreign policy. He said America should "never get caught up in conflict with any foreign state unless attacked or otherwise provoked."
Stephen Grover Cleveland (1837-1908) was born in Caldwell, N.J., the fifth of nine children. He was raised in upstate New York. His father, Richard, was a Presbyterian minister. His mother, Ann, was from Baltimore.
The boy grew up in Puritan fashion. Richard made sure the family worshipped every night, and on Sunday it attended two church services and a prayer meeting.
The Puritan training didn't stick with Cleveland. As a young bachelor and lawyer in Buffalo, N.Y., he was known for enjoying "good lager, good music, good food and not-necessarily-good women," Brodsky wrote.
Circumstances and savvy aided his career climb. He was sheriff of Erie County, N.Y., then mayor of Buffalo and governor of New York.
Cleveland served twice in the White House, the second term delayed by Benjamin Harrison's win. Cleveland lost the 1888 election in the Electoral College, despite winning the popular vote, 48.6% to Harrison's 47.8%.
Four years later, he reclaimed the presidency by defeating Harrison 46% to 43% in a three-way race.
Cleveland inherited a big mess. Harrison was "a terrible president" on economics, according to Lawrence Reed, president of the Foundation for Economic Education in Irvington-on-Hudson, N.Y.
Harrison's inane policies led to an economic train wreck.
In those days, a president was inaugurated in March. Cleveland retook office March 4, 1893. The National Bureau of Economic Research pegs January 1893 as the beginning of the recession. By June, the jobless rate was 16%. The collapse became known as the Panic of 1893.
How did Harrison's policies lead to the Panic of 1893?
Reed discussed the Panic of 1893 in a June lecture at the Austrian Economics Summer Seminar. The lecture is on YouTube, but IBD also interviewed Reed by email.
Off-Track
The Panic of 1893 is little understood, even among historians, according to Reed. The conventional explanations often pin the blame on "too many railroads" and laissez-faire capitalism.
According to the conventional explanation, the problem could've been avoided if America just had more central planning. "The kernel of truth in the railroad argument is this," Reed wrote. "Railroads probably were overextended, but it's easy to see why. They were the biggest recipients of government subsidies of the day."
Many lines were built less for economic reasons than for the generous subsidies the government provided, and "these subsidized lines were destined for failure," according to Reed.
The chief factor behind the panic had nothing to do with railroads.
The mischief began with a piece of legislation signed by President Harrison called the Sherman Silver Purchase Act of July 1890.
The law made the Treasury buy 4 1/2 million ounces of silver every month — "the entire output of U.S. silver mines," Reed said.
By a law dating to 1834, the exchange rate was pegged at 16 ounces of silver for an ounce of gold. There was only one problem. Due to a rise in the world supply of silver, the market ratio ran as high as 30 ounces of silver for an ounce of gold. In effect, the law forced the Treasury to offer an ounce of gold at nearly half the market rate.
Whether the politicians were truly stupid enough not to understand what that meant, or whether they simply wanted to transfer wealth to the silver mining industry, the results were disastrous.
120 Years Ago
In those days, British capital was the smart money flowing to America. But capitalists are a savvy lot, especially compared with politicians. Smart money could recognize a disaster in the making.
"After 1890, they said, 'We're getting out of here. These people are nuts,'" Reed said.
And so British capital did a U-turn "because the feeling is America has its financial house in terrible shape," Reed said. "They're not going to be able to maintain redemption of gold for this money."
This was the disaster the returning president faced. The Treasury was being drained of gold, and smart money was fleeing America. Cleveland "played a key role in fixing this problem," Reed said.
The solution was to get Congress to repeal the Sherman Silver Purchase Act. But the move took longer than Cleveland wanted because he came down with cancer.
Matthew Algeo describes the situation in his book, "The President Is a Sick Man." Cleveland knew the financial panic would deepen if the market learned he had cancer.
So Cleveland had surgery on a yacht off Long Island.
Amazingly, the cancer battle was kept secret for 24 years.
"There were a lot of rumors floating around," Algeo told IBD. "He really had a reputation for honesty." So when Cleveland denied he had cancer, people believed him.
After recovering, Cleveland won repeal of the Silver Purchase Act in October 1893.
The recession ended in June 1894, according to the National Bureau of Economic Research.
Algeo calls Cleveland "the last true libertarian president."
And the president has his admirers today. "Ron Paul actually keeps a picture of Cleveland in his office," Algeo said of the Republican Texas congressman.
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