The nation’s political structure, however, proved ill equipped to deal with the problems created by the economy’s rapid growth. Despite its expanded scope and powers arising from the Civil War, the federal government remained remarkably small by modem standards. Activities from education to medical care, business regulation, civil and criminal prosecutions, and many others were almost entirely under the control of local and state governments or private institutions. The federal workforce in 1880 numbered 100,000 (today, it exceeds 2.5 million).

A political cartoon shows Grover Cleveland leading the Democratic Party in an assault against Republican high taxes.

Nationally, both parties came under the control of powerful political managers with close ties to business interests. Republicans strongly supported a high tariff to protect American industry, and throughout the 1870s they pursued a fiscal policy based on reducing federal spending, repaying much of the national debt, and withdrawing greenbacks—the paper money issued by the Union during the Civil War—from circulation. Democrats opposed the high tariff, but the party’s national leadership remained closely linked to New York bankers and financiers and resisted demands from debt-ridden agricultural areas for an increase in the money supply. In 1879, for the first time since the war, the United States returned to the gold standard—that is, paper currency became exchangeable for gold at a fixed rate.

By reducing competition from foreign manufactured goods and leaving the banks, not the government, in control of issuing money, Republican economic policies strongly favored the interests of eastern industrialists and bankers. These policies worked to the disadvantage of southern and western farmers, who had to pay a premium for manufactured goods while the prices they received for their produce steadily declined.

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