Want to understand Donald Trump's rise in the GOP? Look to the financial crisis — of 1873

Donald Trump will probably mark a turning point in the ideological history of the Republican Party. A party that since 1964 has been all about free trade and tearing up the welfare state has nominated as its presidential candidate a trade skeptic who promises to protect Social Security and Medicare.

He is also a deranged racist, of course. But as Arlie Hochschild shows in a long profile of various Trump supporters, this willingness to embrace government handouts (delimited by race, of course) is a genuine shift in many Republicans' ideology — and one which is confusing and annoying to more traditional conservatives.

But this isn't the first time the Republican Party has been cracked apart by this issue. The party confronted a similar ideological crisis after the Panic of 1873, the largely forgotten financial crisis that precipitated a grueling depression at the end of the 19th century. The way Republicans responded provides a lesson for both parties — namely, that a ruling political party must use government policy to provide widely-shared material security.

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After the Civil War, the Republican Party enjoyed total political dominance in America. They based their postwar policy on the "free labor ideology," which they counterposed against the slave system of the antebellum South. They argued that the free labor system — portrayed as a society of small farmers, artisan craftsman, and small businesses, where men have the opportunity to earn economic advancement — was modern, fair, and free compared to the tyrannical and antiquated slave system.

So after some bitter political scuffles immediately following the war, the party settled on two major principles for postwar Reconstruction: universal male suffrage, and classical liberal economic policy. No unions, strict defense of property rights, fiscal austerity, and the gold standard were thought to provide a level economic playing field, where blacks and whites alike could get a fair chance at prosperity. It was rather different in detail from today's conservative ideology — especially in the South, where Republicans were building state governments basically from scratch — but the general thrust was quite similar.

There were some obvious problems with this from the start, from unfairness of thinking former slaves — most of whom had been denied education and wages for their entire lives — would be able to compete on equal terms with white laborers without government assistance, to the disturbing fact that most new jobs seemed to be in huge, centralized city factories.

These problems could be papered over for a time. Despite the fact that Republicans failed to assist the freedmen in any real material sense, they did fiercely defend their voting rights during Reconstruction. This meant regular use of federal troops and law enforcement to suppress the gangs of white terrorists who were constantly trying to violently overthrow Republican state governments in the South and replace them with white supremacist ones.

But the Panic of 1873, a financial crisis which kicked off a six-year depression, shattered the free labor ideology. Suddenly with mass unemployment and wrenching poverty everywhere, it became impossible to credibly argue that classical liberalism was working for the average schlub. But instead of ditching their economic beliefs, and endorsing some government action to attack the depression, many Northern Republicans abandoned democracy. Liberal "reformers," publishing in outlets like The Atlantic Monthly and The Nation, became obsessed with corruption and the supposed incompetence of average voters — especially blacks.

As the party became more elitist and racist, it became less and less willing to support the use of federal force against white terrorism. Finally, when President Ulysses S. Grant ordered federal troops to unseat five Democrats in the Louisiana state legislature who had been fraudulently seated there in an attempt to seize power, respectable Northern opinion reacted with stunned outrage:

The failure to deal with the recession, coupled to Republicans' partial abandonment of their most loyal voting demographic, wrecked Republican political fortunes in the 1876 election. Capping off their betrayal of the freedmen, they agreed to pull troops out of the South in exchange for the presidency. Democrats would abandon their (fraudulent) claims to have won the election, and Republicans would abandon Southern blacks, elevating Rutherford B. Hayes to the presidency — and consigning blacks to nearly a century of Jim Crow terror.

At issue here is the undeniable fact that small-government, conservative economic policy simply does not work for most people — and if fiscal austerity and hard money was a bad policy back in 1874, it's bananas today, in the era of fiat currency and federal spending accounting for a fifth of the economy.

Republican politics for the last half a century has channeled conservative social resentment into policies that mainly benefit the very pinnacle of American society. For many decades they could paper over this fact. But the crisis of 2008, brought on by grotesque private sector excess, cracked this facade — and now Donald Trump has broken it wide open.

Trump demonstrates that a big chunk of Republican primary voters, perhaps a majority, simply do not care about the estate tax or deregulation. They want the state to act so as to ensure a decent standard of living — perhaps not for everyone, but at least for their own tribe. This means, of necessity, soaking the rich.

It's quite funny to see Republicans going through such a crisis. But Democrats should not sit back on their heels. The Obama presidency, for all its many benefits, has had a sickly economy and left a significant fraction of the population in outright desperation. If Democrats cannot change the fact that a tiny minority is enjoying virtually all the benefits of economic growth, and the rest of the population is treading water or worse, they will eventually lose to someone improving on the Trump formula. It's either that, or abandon democracy to protect the rich from taxation.