Although it may feel like a distant memory in a time of Brexit and mass data harvesting, not too long ago big banks and those employed by them were, for a brief historical moment, probably the most publicly reviled group in Western society. The financial crisis of 2008 blew apart the notion that the system we rely on for our use of money is somehow natural or fixed. The public realised with horror how dependent it had become on such enormous, unaccountable institutions. Many rightly asked: how did we get here? Surely things don’t need to be this way?
The crisis of 2008 was not the first time grassroots politics has taken aim at high finance. That the structure of the monetary system is not immutable has previously been the motivating principle for political movements throughout history.
Take the so-called American Populists – the People’s Party, founded in 1891. The Party was built out of the organising efforts of farmers in the South, infuriated at the scales slowly tilting in favour of city-dwelling financiers and industrialists. Populist politics was, as all politics is, a function of the trends and tensions of the age. North-South ties were scarred by the Civil War, which ended only a quarter-century earlier. The abolition of slavery was more recent still.
In many ways, though, the movement was a reaction of the downtrodden, similar to what we see today — a protest against economic inequality caused by powerful vested interests and technological change. Poor farmers in the South faced the trials of sharecropping, whereby wealthy landowners allow tenants to farm small plots of land in exchange for a share of their crop. The farmers were squeezed by rapid industrialisation and falling prices for their crops. The railroad, all-important for transporting goods and materials, was still privately owned – the Populists wanted it nationalised and regulated by government.
Populist thinking went beyond economics – drawing on Protestant values and warning of ‘moral, political, and material ruin’ – and views on their legacy among historians are mixed. Yet money was at the heart of the People Party’s platform. The US was still on a version of the gold standard: currency in the form of gold-minted coins and paper notes, a proportion of which were backed by gold bullion reserves. For the first half of the century the nation had been minting coins out of silver as well as gold – until Congress had legislated silver coins out of existence. Yet a glut of silver in the early 1890s meant that the restriction to gold kept the economy under deflationary pressure that the farmers felt unnecessary and unjust.
The sharecroppers of the South wanted silver back. Minting coins out of silver would expand the money supply and cause inflation. To get there, the Populists sealed an alliance with the Democratic Party and took a run at the presidency. In 1896 their firebrand champion, William Jennings Bryan, secured the Democratic nomination. Bryan’s renowned ‘Cross of Gold’ speech at the Democratic Convention seamlessly fused Christian zeal with monetary reform. He lashed out at the “idle holders of idle capital”, proclaiming: “you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”
In the end, Bryan lost the race for the presidency to the Republican ticket. His nomination proved a Pyrrhic victory for the Populists, as the pull of members into the Democratic Party destroyed the People’s Party. Industrialisation continued apace and the passage of time saw many Populist reforms becoming legislation anyway – except for monetary reform.
Why did gold-induced deflation enrage the farmers? A common explanation – one that echoes in today’s post-crisis fault lines – refers to the repayment of debts. Urban financial centres had already begun to profit from interest paid by the indebted rural population. Inflating the money supply would shrink the real value of the debts burdening farmers. The Populist leader Tom Watson claimed that “an industrial system founded on debt is not a factor of real prosperity. It breeds the extremes of wealth and poverty… to teach that it is a blessing is un-Christian – it is untrue.”
Another potential cause has more to do with the politics and economics of international trade. A paper by Jeffry Frieden casts doubt on the debt narrative, suggesting instead that farmers stood to gain from a depreciation of the dollar if the US came off the gold standard, which would drive up exports of their crops. Looking at votes in Congress from the time, he finds that “higher constituency debt levels were not associated with opposition to gold, whereas mining and agricultural production were.”
Regardless of whether debt or trade motivated hostility to gold, the experience of the Populists recalls a truth campaigners have been trying to bring to light over the past decade: the design of the monetary system is inherently political.
Free market ideology completely ignores this fact, treating prices and incomes as the ethically and politically neutral outcomes of free exchange. But prices, incomes, wealth and debt – which determine who gets what in our society – all depend on the design of the monetary system (and much else besides).
Positive Money campaigns for reform of the current system because it fuels inequality, high levels of debt, and environmental destruction. The dominance of a handful of commercial banks is by no means a historical necessity. There are alternatives. Occasionally, a glance back at history itself serves to remind us of that.