General Sherman, Meet Mr. Keynes

The word ‘reconstruction’ has a special significance in 19th and 20th century American, not to say world, history. Like the word ‘construction’ that it modifies, it of course connotes building – actual physical assembling and ‘making.’ But it also connotes more – it suggests social, political, and economic renewal. In a word or two, healing and growing

The post-Civil War Reconstruction here in America is the first modern example of what I’m referring to. On the one hand, entire cities, farms, nascent manufactories and landscapes were literally destroyed by the war. These things had to be rebuilt. But so did families, the nation, and sub-federal units of government. Most importantly of all, a huge segment of our population had been barbarously, legally ‘owned,’ and now had to be enabled to own and produce for themselves rather than for piratical plantation owners who’d bought them or their ancestors from kidnappers.

The word ‘Reconstruction’ subsequently reappeared in official parlance with President Hoover’s establishment of our Reconstruction Finance Corporation (RFC) in 1932 as the Great Depression inexorably worsened – a remarkable institution that in its day was by far the world’s largest financial institution. And again the aim, especially once President Roosevelt intensified and expanded Hoover’s institution, was both to rebuild and to heal the nation…

On the one hand, after all, there were entire industries to rescue and restore once the Depression became ‘Great.’ On the other hand there were tens of millions of unemployed Americans whose lives were destroyed, as well as vast backward tracts of the nation’s geography that had never known economic ‘development’ at all. The RFC, like the post- Civil War Reconstruction itself, accordingly rebuilt individual, familial, and community lives as much as it did critical industry and infrastructure.  

The RFC and its operations in turn served as models for the final great ‘Reconstruction’ project of the 20th century – the International Bank for Reconstruction and Development (IBRD), which you probably know under the name ‘World Bank’ (‘the Bank’). The Bank was established specifically to rebuild and repair, respectively, war-torn economies, polities, and societies worldwide after the calamity that was the Second World War – a calamity brought on by the Great Depression itself.


Many of the World Bank’s projected European projects were of course folded into the U.S.’s Marshall Plan. This enabled the Bank to attend more to helping develop former colonialized societies in the so-called ‘Third World,’ much as the American post- Civil War Reconstruction had aimed to assist with the economic development of formerly enslaved African American communities, and as the Reconstruction Finance Corporation had helped to develop under-developed regions of the U.S. – e.g., the Tennessee Valley – even while rebuilding the already-developed but then-recently destroyed sectors of our economy.

Which brings us full circle – and to the title of this column…

You’ve heard the slogan ‘Building Back Better,’ introduced by President Elect Biden and Vice President Elect Harris to name their comprehensive … reconstruction … plan for an American economy devastated by pandemic, racialized violence, civil breakdown, and literally decades of industrial and infrastructural degradation. Like me, you might also have tipped your hat to the slogan for its sheer catchiness on the one hand, and its compactly capturing the entire idea of upper-case ‘R’ Reconstruction that I’ve just described on the other hand. What you might not have known is where that slogan came from…

It was coined at the aforementioned International Bank for Reconstruction and Development – the World Bank – in collaboration with other global development banks! In light of the histories to which I’ve just alluded, this is of course an intriguing connection. But wait, there is more …

If you think about it, the challenge that our republic now faces post-Trump and post-Covid (these two catastrophes are of course wedded) are reminiscent not only of those that first we, then the world, faced during the Great Depression and after the Second World War, but even more of those faced after our Civil War. That is to say that the ‘Reconstruction’ that we must now start is not merely that carried out by the Reconstruction Finance Corporation and the International Bank for Reconstruction and Development during the 1930s and after, but the one we began, then prematurely aborted, during the late 1860s and 1870s.

What do I mean by that? Well, to begin with, note a few further parallels between the sets of challenges in the two periods. After the Civil War, as hinted above, there was both devastation and deep political division that had to be repaired. Relatedly and by far most importantly, there was a huge segment of our entire citizenry that had been barbarously ‘owned’ and had never itself owned. Our African American sisters and brothers, in other words, had neither productive assets with which to produce, nor experience producing for their own wealth and welfare rather than the wealth and welfare of the descendants of those who had ‘bought’ their ancestors from kidnappers decades or centuries earlier. How were we to remedy this literally ‘existential’ challenge to renewed nationhood?

The Reconstruction’s answer, which was ended so quickly that most Americans know scarcely anything about it any longer, was downright Hamiltonian in its brilliance of conception and detail of design. (President Lincoln was a massive Hamilton ‘fanboi.’) First, General Sherman’s renowned Field Order 15, effectively ordered by President Lincoln and Treasury Secretary Salmon Chase, confiscated the plantation land of those who had made war on the United States and enslaved its African American citizens. It distributed 40-acre parcels of these lands, along with surplus army mules to help work the lands, to the ‘freedman’ who now became the bulk of our African American citizenry. (Hence, of course, ‘Forty Acres and a Mule.’)  

What initially happened once Field Order 15 was implemented was an ‘economic miracle’ beyond even the post-war ‘German Miracle,’ ‘Japanese Miracle,’ ‘European Miracle,’ and later ‘Third World Miracle’ enabled by the ‘Reconstruction and Development’ efforts of the U.S. and the World Bank from 1945 onward. Our African American citizens, who knew how to ‘work the land’ as well as if not better than anyone, quickly made their own land parcels not only productive, but bounteous. In effect, they became ‘Homesteaders’ on a par with their White namesakes given federal lands five years earlier through the Homestead Acts (yes, there were multiple Homestead Acts).

But the miracle didn’t end there. With productive independence came both more real, rather than just formal, political independence, as well as both social development and the prosperity that underlay it. African American communities built schools, public libraries, and other social infrastructures that benefitted as many Whites as they did Blacks. African American legislators filled state houses and peopled the U.S. Congress, while throughout the South Black sheriffs and other law enforcement officials proliferated. Black schoolteachers, Black clergy, Black veterans and our first sizable cohorts of Black citizens with advanced educations formed a natural civic leadership class, guiding their communities with remarkable speed toward parity with White communities nationwide.   

Washington, for its part, didn’t engage simply in benign neglect. President Lincoln established a network of Freedmen’s Bureaus throughout the South, providing federal assistance – legal, financial, medical, resettlement, and other forms of assistance – to all freedmen who required it. Collaborating with the pre- Civil War Union League chapters of Southern slavery opponents and Black Union Army veterans (who wisely kept their rifles), these Bureaus helped counteract mounting racialist terrorism perpetrated by former plantation owners, Confederate veterans, and ultimately the newly formed KKK.  

While data is sketchy, had the original Reconstruction continued, the Black freeholder economy would likely have vastly outperformed the feudal plantation economy that had preceded it, not to mention the returned feudal economy that was restored under Jim Crow once our federal government, in a shameful betrayal, prematurely withdrew from the South and ended the Reconstruction. Why? Because freeholder, or ‘yeoman’ economies – that is, economies that distribute productive resources and opportunities broadly over productive citizenries rather than concentrating the owning of productive resources among feudal lords or plantation owners for whom all else must labor – have always been more productive.

This is effectively an economic-historical constant, and it’s not hard to see why. A republic of owners is a republic of independently productive stakeholder-citizens, working for themselves rather than for ‘the man’ and hence working both harder and smarter. Such freeholders also quite rationally come to feel stakes in their communities and their nations, hence to invest and participate actively and think for themselves rather than as dictated by big business interests on which they depend for employment – that is, by those who now rent them instead of owning them (wages are labor rental prices).

Before the modern era, in which once-unified ‘political economy’ became separate ‘politics’ and ‘economics,’ this linkage between productive and political autonomy was well understood. It was the history of both pre-imperial Rome and the early modern Venetian, Florentine, and Dutch republics, after all. This is why our Founders, who incessantly spoke of us as ‘a Republick,’ developed both a political constitution and sets of economy-building laws aimed at establishing a yeoman republic of not only politically independent, but also productively independent ‘freeholders’ – holders of land, then our most productive input.

This was our nation’s primary political-cum-economic vision all the way down to the 1880s and after. It explains both the presence of the ‘Guarantee Clause’ in our 1787 Constitution and why the first aim of the early American labor movement till past a century later was to end ‘wage slavery,’ along with chattel slavery, and retain an economy of worker-owners in the emerging industrial sectors as we had labored so hard to do in the agricultural sectors. (Remember ‘small family farms’? That’s where we get the more modern cult – honored in word more than deed – of ‘small business.’)

It also explains early American land law reform, the Homestead Acts, the Land Grant Acts (source of my own University, Cornell), and … yes, the post- Civil War Reconstruction itself, as described just above. You can read more of this in my forthcoming Republic of Owners (Yale U. Press, 2021) or the excellent work of ‘development’ economist Ha-Joon Chang. But let us come back to the present…

So what does this all have to do with the present? Well, recall what I noted a few paragraphs back. We’re now in a state much like that of the late 1860s and 1870s – partly because we didn’t finish what we began then. Political division that maps almost perfectly onto that between North and South in the past, rooted partly in both industrial and infrastructural degradation that’s brought productive degradation, has now come to a head. Mr. Biden and Ms. Harris must commence a vast ‘Reconstruction 2.0’ – or even just finish the 1.0 version – if our republic is to be saved and endure.

This means massively coordinated re-industrialization and infrastructural renewal along earth-friendly lines. It also means special attention to profound inequalities of productive opportunity and never-closed racial wealth gaps tracing back literally all the way back to the first Reconstruction. Building Back Better has to mean that – it has to mean Reconstruction 2.0, or even 1.0, since the first Reconstruction was never completed.

Joe Biden and Kamala Harris ‘get’ this. It is why they adopted that International Bank for Reconstruction and Development’s slogan. It is also why my and my New Consensus colleagues’ proposed institutional means of Building Back Better – means that require no Senate majority or even Executive Orders – begins with our proposed National Reconstruction and Development Council. While the incoming Administration and many others understand this, however, some others might not. They might think that Building Back Better’s ‘expensive’ or ‘zero-sum,’ involving ‘unsustainable debt,’ ‘inflation,’ or ‘socialist redistribution.’ That would be way, way wide of the mark. Indeed it is not only untrue, but is ‘180 degrees opposite’ the truth, as it were.

Telling you why tells you why Keynes figures into our story and this column’s own title – and brings us back even more fully ‘full circle.’ You see, the aforementioned World Bank was designed partly by John Maynard Keynes, deservedly the 20th century’s most celebrated economist, who worked in the British Treasury during the Second World War and thus helped design most of the post-war world’s principal institutions. Keynes is significant to the cause both of Reconstruction 1.0 and Building Back Better for two primary reasons.

The first reason is that Keynes understood how artificially imposed public austerity crushed economies and led to social breakdown and war. He had served in the British Treasury during and after the First World War too, after all, and had prophesied the implosion of the full global economy in response to the draconian austerity imposed by the Treaty of Versailles in 1919. His brief on this, The Economic Consequences of the Peace (1919) made him an unlikely global celebrity.

But far more important than fame was that Keynes was right. The global Depression sparked by the Wall Street crash of 1929 stemmed directly from Versailles, and issued in breakdown and renewed world war exactly in the ways Keynes had predicted. This is precisely why Keynes called so many of the shots after the Second World War in designing the postwar institutions that included the International Bank for Reconstruction and Development.

Reconstruction, in short, is the polar opposite of austerity, and is the only way to heal and thus end repeated economic, social, and political disaster.              

The second way Keynes figures into this discussion stems from the reasons that he was right in those just-noted prognostications and postwar prescriptions. These are reasons that must speak to us now if we are to heal and, prerequisite to that, successfully explain to the untutored why we must finish our late 19th century Reconstruction. What are those reasons?

The most important of them are, again, two in number, and received their canonical articulation in another of Keynes’s renowned works, this one as theoretical as practical – his General Theory of Employment, Interest, and Money (1936). The first is that only productive, not monetary or financial, constraints are real constraints on national growth and prosperity. So long as national investment finances production, not speculation, it is always ‘affordable.’ The second reason is that the aforementioned investment will yield far more production bang for the buck if you start near the bottom, not the top, of the nation’s wealth and income ladders. Let me conclude by now quickly elaborating.

On Keynes’s first lesson, the key point is that one can spend money productively or unproductively. When you spend productively, you invest. And one invests profitably, by definition, precisely when investment produces more than it consumes. What this means for a republic like ours is that it can issue debt instruments in financing its productive mobilizations ad infinitum for as long as those instruments finance real production. This is true irrespective of what kind of financial instrument – in our case, Federal Reserve Notes (i.e., ‘Dollar Bills’ – note that ‘Note’ abbreviates ‘Promissory Note’) and Treasury Notes (along with ‘Treasury Bills’ and ‘Treasury Bonds’) – we issue.

If we issue Federal Reserve Notes (again, dollars), these are absorbed in the purchase of newly produced goods and services, meaning there need not be any inflation – no ‘too much money chasing too few goods’ problem. (Remember, boys and girls, ‘inflation is a relation.’) If we issue Treasury Notes (or Bills or Bonds) instead, those are readily redeemed with the heightened public revenue always generated by more economic growth. Either way, then, for reasons long known but canonically articulated by Keynes, austerity during Reconstruction is – literallycounterproductive. It prevents production, and hence paradoxically makes inflation, ‘stagflation,’ or growing debt more, not less, likely. And that is because, as I said, only productive constraints are real constraints.

On Keynes’s second lesson, the idea again is readily intuited. If you have ten yachts, your eleventh yacht probably won’t yield much ‘marginal utility,’ as the choice theorists and micro-economists call it. For this reason, those who are already wealthy have long ago maxed-out on consumption, and devote their expenditures to ‘investments’ instead.

The problem potentially afflicting this perfectly natural tendency is that, if the non-wealthy have too little income to buy much, then the most profitable ‘investments’ available to the wealthy are not productive investments, since no one out there has enough income to buy what’s produced, but speculative investments – Wall Street gambling. This is precisely why we have lurched from bubble to bubble and bust to bust in the last several decades. It is because wealth and income inequality have lingered at levels not seen since … you guessed it, 1929

Do you see what this means, then? It means that Building Back Better will be most effective – most productive and thus wealth-generating – precisely if it begins with the least wealthy among us.

And that of course means, or at any rate conspicuously includes, our citizens of color. In this sense, President Lincoln, Secretary Chase, and General Sherman were, consciously or not, American Keynesians long before Keynes. (So of course was Hamilton, whom Lincoln and Chase worked to channel). Field Order 15 in effect started precisely where it had to do to spark rapidly reconstructive economic growth in the American South. And that is where we must begin as we resume and complete our great Reconstruction – our Building Back Better.

Don’t think of this simply as a requirement. Think of it as a promise – as money itself is a promise. (Remember? ‘Federal Reserve Note’ abbreviates ‘Federal Reserve Promissory Note.’) If we begin Building Back Better with a Reconstruction 1.0, we will spark economic growth of a magnitude that we have not seen for ages – indeed since before most Americans were born. We will all of us become richer as we bind our own national wounds and close our own social and economic gaps. Investing massively in our communities of color – business, education, environmental remediation, and more … – we’ll be investing not only in justice (long delayed justice) but in prosperity too. Our prosperity – literally all of our prosperity.

May I close, then, with a big mutual introduction or reintroduction? President Lincoln, Secretary Chase, General Sherman, Dr. Keynes, Mr. (and Dr.!) Biden, Ms. Harris, all incoming Members of Congress and all past leaders of our first Reconstruction, our Reconstruction Finance Corporation, and the still-flourishing International Bank for Reconstruction and Development, greetings! You lot all have lots to talk about now! Let us get started, and let us start reconstructing and building back better – together – at once!

Comments are closed.