Free Money

Campaign finance "loopholes" are the best part of the system.

Once again we are preparing to choose federal, state, and local officials to preside over governments that redistribute about 38 percent of the GNP, enact and administer thousands of criminal laws, and assert an open-ended right to regulate every aspect of our lives. And once again the subjects of this power think they should be allowed to influence the outcome. People want to donate money to the candidates they favor, tell potential voters about candidates and issues, expand the channels of information beyond the conventional media, form organizations with others of like mind, establish Internet sites, and, in general, participate.

This desire to participate upsets most journalists, many politicians, and a large percentage of the nation's intellectual and financial elites. The Web site of Common Cause (, the organization that for 25 years has been the mainspring of the campaign for election finance reform, features alarmist headlines such as "Ka-Ching: National Parties Raise Record $160.5 Million in Soft Money Through First 15 Months of 2000 Election Cycle." The Committee for Economic Development (www., a voice of the business establishment, is equally concerned, blaming the "vast sums of unregulated `soft money'" for all the ills of the current electoral process and advocating fundamental reforms to "restore trust and balance."

During this year's Republican primaries, John McCain used the campaign finance issue to harvest great media acclaim and boost his candidacy. The topic played poorly with the nonestablishment parts of the Republican Party, both social and economic conservatives. They understood that McCain was telling the party to commit suicide, since his reforms would have disarmed Republican constituencies while leaving the power of labor unions, government employees, and celebrities untouched.

Still, the issue has enough media traction that George W. Bush has made reform noises. He proposes a ban on "soft money" contributions to parties by unions and corporations, along with stronger protections for union members who don't want their dues used for political purposes with which they disagree. These changes would affect Democrats as well as Republicans, so they will never pass. Al Gore, of course, favors reform, as long as he gets to define it. He would eliminate all "soft money" but allow everyone, including unions and corporations, to contribute to a nonpartisan fund that would be used to pay for the campaigns of congressional candidates who agree to spending limits.

As reflected in Gore's plan, critics of the current system tend to focus on the "loopholes" they believe undermine noble but inadequate attempts to control corruption. In particular, they decry "soft money" contributions to political parties, which are not subject to statutory limits, and spending by groups that care deeply about particular issues and want to communicate their concerns to candidates and the public. Yet almost everything the reformers say about "loopholes" is flat-out wrong. The practices branded as loopholes are not only legitimate, they are the best part of the system. Every lover of democracy and freedom should be working to expand them until they swallow the absurd rules that currently govern campaign finance. Given the inevitable failure of the Federal Election Commission's dithering efforts to regulate political speech on the Internet, that day may not be far off.

Evil Influence

In the campaign of 1789, George Washington spent [sterling]39 on "treats" for the voters. This was not much, but he was the only candidate and there weren't many voters. Washington may have been the last president not to be subjected to complaints about the evil power of money. By 1800, when Jefferson beat Adams, the financial power of banks played a role. By the post-Civil War era, both parties were shaking down public employees for contributions; in Pennsylvania during the 1870s, Republicans demanded 2 percent of their salaries. After civil service reform dried up this revenue source, the parties turned to the newest pot of wealth, big corporations.

The election of 1896 is generally cited as the great watershed in campaign finance. Mark Hanna, an Ohio industrialist, raised $7 million ($100 million in today's dollars) to help William McKinley beat William Jennings Bryan. The money came from corporations dedicated to the gold standard and protective tariffs, and Hanna asked them to contribute their "fair share," reflecting their stake in the general prosperity. His approach struck another modern note, says historian Thomas Fleming: "Hanna refused to promise any specific favor or service; rather, he sold the glittering concept of 'access' and a government that smiled on corporations."

Sympathy for Bryan is not entirely in order, because the populist's backers were wealthy individuals, notably financier Augustus Belmont of New York. But Hanna's tactics prompted a public outcry, and after McKinley's assassination in 1901 corporate America got Theodore Roosevelt, who was willing to ride the rising public concern about business money. A $50,000 check from New York Life to Roosevelt's 1904 campaign received unpleasant publicity, so, in another modern touch, he learned from his mistakes and proposed a ban on all political contributions and the funding of campaigns by the government.

Congress did not go that far, but it did ban corporate contributions to federal elections in 1907, require disclosure in 1910, impose expenditure limits in 1911, and require yet more disclosure in 1925. During the New Deal, Republican fears of the new army of bureaucrats brought about the Hatch Act of 1939, which limited government employees' political activity. As a balancer, caps were imposed on individual contributions to campaigns and on expenditures on presidential elections. The rising power of unions was attacked in 1943, when they, like corporations, were forbidden to contribute to federal campaigns.

It did not take long to find loopholes in these reforms. For example, the parties quickly decided that the 1939 limits on contributions and expenditures applied only to individual committees and that there was no limit on the number of committees a party could form. The 1940 election was characterized by multiple committees, no real limits on either contributions or expenditures for anyone who knew enough to write more than one check, and a new record for money spent on a presidential election: $21 million, or $257 million in 2000 dollars.

Costs kept rising--Johnson vs. Goldwater cost $60 million in 1964, Nixon vs. Humphrey $100 million in 1968 ($331 million and $492 million, respectively in current dollars)--and the issue finally erupted in the 1970s. In 1971 Congress passed a mild bill, directed mostly at disclosure. The election of 1972 set new records for spending ($400 million for all parties in all races, or $1.6 billion in current dollars) and was followed by the post-Watergate disclosures of sleazy tactics. With the public aroused, the result was the Federal Election Campaign Act of 1974.

It was promptly challenged by one of the oddest coalitions ever to enter a courtroom. The plaintiffs included conservative New York Sen. James Buckley (brother of William F.), liberal Sen. Eugene McCarthy, the American Civil Liberties Union, the Mississippi Republican Party, and the Libertarian Party. In Buckley v. Valeo, the U.S. Supreme Court rightly found that large chunks of the law violated the First Amendment right of free speech. Other provisions were upheld, though, based on distinctions not readily apparent to the naked eye.

Buckley was quickly followed by important decisions of the new Federal Election Commission (which had been established by the 1974 law) and then by more congressional action in response to both the Court and the FEC. When the dust settled, we had pretty much our current system, though there have been some tweaks since, largely in the form of FEC and judicial interpretations of the '74 law.

Speech Impediments

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