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And he did support several progressive regulatory reforms. However, he was also an ardent racist, even by the standards of the day.
My view of the two parties histories is this: Republicans were clearly the progressive, even radical party in the 1860s, although by the 1870s and 1880s, both parties had been captured by their pro-business, "moderate" wings. Nevertheless, if you look at the parties' positions in the 1880s and 1890s, Republicans were still the party that typically supported greater federal government expenditures, internal investments, trade barriers, etc. And although neither party did much for Civil Rights, the Republicans were clearly more sympathetic to that issue and also were generally the party that social reformers joined. Republicans of the late 19th Century were also the party that passed most antitrust legislation and whatever few regulations existed at the time.
The 1896 Election is significant because in William Jennings Bryan's Democratic-Populist fusion candidacy, for the first time, the Democratic Party became a party of active reformers and statist interventionists. The result was that lots of rural reformers and "progressives" came into the party, breaking with the party's small government, anti-statist history. However, Bryan's coalition was still very different from the classic Democratic reform coalitions of FDR and the New Deal and was even pretty different from Woodrow Wilson's coalition. Bryan's support was strongest in rural areas and the South and had a very strong socially-conservative component. Bryan was fairly opposed to church-state separation, and most "liberal" professionals and urban voters voted for the Republicans.
However, the result of Bryan's candidacy was that there was now a progressive, reformist wing in the Democratic Party. And you started to see that during Teddy Roosevelt's term, many of his initiatives actually garnered more support from Democrats in Congress than Republicans. By 1912, even a former Bourbon Democrat like Woodrow Wilson was calling himself a "progressive" and embracing some of the ideas that Bryan had proposed and also some of Teddy Roosevelt's initiatives.
By the 1920s, both parties had retreated into laissez-faire, technocratic, anti-statist philosophy. Both parties still had progressive wings, however.
My own feeling is that it was really the Depression and the New Deal that definitively turned the Democratic Party into the more progressive of the two parties. By the time of FDR's second term, northern liberals - many of them former Republicans like Harold Ickes, for example - were firmly in control, although conservative southerners were still a fairly large contingent. That meant that in the 40s and 50s, Democrats were basically an unwieldy coalition of two parties - a northern liberal party and an archconservative Southern party, which had little support at the national level but was strong in Congress. The US party system was a strange beast - Democrats basically encompassed both the most conservative and the most liberal politicians, with Republicans holding the center.
Following the '60s Civil Rights upheavals, the Johnson presidency, and the Republican "Southern strategy", the Southern conservatives joined the Republican Party, which had already grown more conservative in opposition to Johnson. Thus, the two parties had completely flipped from their original orientations.
An interesting counterfactual is this: Al Smith was basically fairly anti-statist. Had he been President in 1929, would the Republicans have ended up coming to power in 1932 and imposing something like the New Deal? That would have resulted in the Republicans being the "liberal" party to this day.
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