William McKinley, Presidential Leadership, and the Developmental State

• In Event: Presidential Leadership and the Makings of Public Policy

Abstract

How and why does presidential leadership matter for US economic performance, if at all? This paper examines the little-studied presidency of William McKinley (1897-1901) for answers. The McKinley presidency was a transformative event in American political-economic development. During the 1890s, the US suffered its worst financial crisis and economic depression to date. The Democratic party fractured. Anarchists, socialists, and other anti-democratic groups enjoyed a resurgence. Violent labor uprisings plagued the nation’s rails, factories, and mines. From this chaos emerged a powerful inflationist movement, led by a norm-busting demagogue, who was ultimately only defeated by McKinley, the champion of the longest protectionist trade regime in US history. McKinley went on to become one of the most economically successful presidents in American history. Wages rose. Agriculture prices stabilized. Industry revived and the service sector flourished. Yet inflation was tame. Perhaps most importantly at the time, US debt and deficits fell, while the trade surplus boomed. As a result, gold flowed back into the country in record amounts and US gold inventories quickly recovered from their fatal lows reached under his predecessor, Grover Cleveland. All told, by the time McKinley was assassinated in 1901, America possessed the wealthiest economy in world history, far outstripping its rivals in Europe. But how much credit should go to McKinley? After all, any president elected during a recession might simply ride up the inevitable return to normal economic conditions. Alternately, the resolution of a tumultuous election tends to improve market psychology; and the presidential campaigns of 1896 were historically divisive. Long-term and international factors also played important roles in fin de siècle economic performance. Industrialization and technological change, foreign demand for American exports, new gold discoveries, a rising consumer culture, and increased globalization and urbanization, each contributed to growing the US economy. So perhaps McKinley’s part in the economic boom was minor. This paper suggests otherwise. McKinley’s predecessors had created a catastrophic imbalance of monetary, fiscal, and trade policies. The result was a battery of currency and financial crises that culminated in the Panic of 1893 and years of economic hardship. President McKinley’s solution was to embrace what political-economists today call the “developmental state”: export-led industrialization shielded behind a protectionist wall and supported by strategic government intervention in finance and exchange rates. Its success forever vanquished the classic small-government liberalism championed by almost every other 19th century president. But it was not an easy sell. This paper shows how McKinley’s innovative leadership style and his commitment to a fairly specific political-economic vision were key to its implementation.

Author

• Zak Taylor, Georgia Institute of Technology