At the beginning of the American Revolution, the continental United States belonged to the countries of England, Spain, France, Russia and also to the Native American tribes. As the revolution became real, with fighting and deaths on the eastern seaboard, the two generally recognized political parties were the Tories, who supported the British government rule, and the Whigs, who wished to become independent.
Once independence was achieved, most histories refer to the "party" of the Washington administration as Federalists, with those in opposition called Antifederalists. There were no real national political parties at that time, although some states made loose coalitions along of the lines of cosmopolitan versus localist. George Washington, himself, was not a member of any party. He just accepted the leadership, as himself, as he accepted the post of Commander in Chief of the Revolution.
At the beginning of the fifth Congress, those people who had supported the policies of the Washington administration became known as Federalists because they supported a strong national government as a counterweight to the growing number of States. Those who had been in opposition became known as Republicans, because they felt that defending the sovereignty of the States against encroachment by the Federal Government was a truer essence of the federal republic known as the United States of America. The Federalists, feeling that their contrary vision of what a federal republic should be was more "Republican" in spirit, derisively referred to the Republicans as "Democrats." At that time "Democrats" had connotations of the mob rule associated with the then-still very recent Reign of Terror following the French Revolution of 1789.
John Quincy Adams was elected as a Republican in the 1824 campaign. Supporters of Andrew Jackson did not view Adams as a "legitimately elected" holder of the Presidency, and the Republican party split into two factions: pro Adams/anti Jackson and pro Jackson/anti Adams. When Andrew Jackson became the next President, the Republican party was split in two - they were now the Democratic Republicans and the National Republicans. The Democratic Republicans (who had supported Andrew Jackson) took their name from their identification with the democracy they urged on behalf of "the common man." The National Republicans (who had supported John Quincy Adams) adopted their name from the nationalizing policies that Adams had pushed in his administration. Neither group was willing to release their ties to the "old" Republicans prior to 1824.
At the beginning of Andrew Jackson's second term as President, the Democratic Republicans became generally known as Democrats. The National Republicans, however, became Whigs; they saw themselves as a bulwark against the "excesses" of the administration Jackson and his Vice president Martin Van Buren, and were proud to use the name of the group of men who had "stood up to" England.
The issue of slavery was the death of the Whigs. The Compromise of 1850, which first adapted the concept of "squatter sovereignty" to the problem of the extension of slavery to the territories,was lost in the battle over the Kansas-Nebraska Act of 1854, which first extended this principle north of the northernmost limit of slavery under the Missouri Compromise of 1850. By this time there were multiple smaller political parties that had developed locally and nationally.
In 1854, in the wake of the fallout from the Kansas-Nebraska Act, Free Soilers and Conscience Whigs joined forces with the Free Democrats and the Know-Nothings to form what is, today, the Republican Party. Other Southern Whigs joined in with the Democrats; while Old Whigs formed the Constitutional Union Party. This last party died quietly after the election of Abraham Lincoln to his first term.
Currently, the Democratic and Republican parties are the two largest political parties in the United States.
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