Since the collapse of Lehman Brothers in 2008, central banks have broken historical norms and funneled trillions into the banking system to support global finance and depositor savings from Germany to Hong Kong. The Corona crisis has only accelerated this emancipation. In April, the Bank of England helped the Johnson government finance an ambitious holiday plan, while the European Central Bank stepped up its longstanding quantitative easing program and returned liquidity to the banking sector. In the United States, state banks established swap lines, while the latest European stimulus plan ratified an extension of the emergency purchase program due to the pandemic. Adam Toozepourall as "a remarkable display of technocratic energy and imagination in Western financial centers," needed to "control the epidemic" and "restore the world economy."
Among these institutions, none is as glamorous as the US Federal Reserve. While other banks falter or bow to political leadership, the Federal Reserve acts swiftly and decisively, guarding against financial collapse at home and protecting assets abroad. Not surprisingly, the Fed is often cited as one of the greatest triumphs of capitalist politics, from its founding in 1913 under Woodrow Wilson to its pivotal role in the neoliberal counterrevolution of the 1980s under Paul Volcker. But while the bank appeared deeply conservative in the intervening period, its proactive capacity was fully asserted in 2008, when Timothy Geithner's New York Federal Reserve almost single-handedly rescued the global financial system from collapse.
Such demonstrations of comprehensive and decisive action even encouraged some leftists for the power of the central bank. Rather than reject the institutions created by the capitalist class, progressives have recently called for the use of the power of the central bank for reinvented social ends. like benjamin brownwrittenin a representative contribution "Central bank planning is already there." The task is "to make the financial system a utilitarian sector oriented to the common good." Quinn Slobodian toopresentsCentral banks are easing the transition to "economies where uncertainty and distress are reduced even after the coronavirus ends." The Fed may serve as a capitalist savior today, but tomorrow it could become a weapon for progressive finance.
What would that mean besides cash injections and conditionality clauses? And to what extent can we reasonably expect "technocratic energy and imagination" to deliver them? The silent consensus is that central bank stabilization is still necessary for the survival of today's economy. However, by pushing for stabilization, central bankers are also widening existing inequalities and strengthening economic elites around the world. Even if today's central banks can be democratized, this "democratization" alone will not be enough if their scope remains restricted and they move away from a more ambitious redistributive mandate and redirection of long-term investment.
The full possibilities and limitations of contemporary calls for central bank reform become clear when examined in light of the radical campaigns of the American populist movement of the late 19th century. In fact, the first proposals for a federal agency that could seize the power to print money and redistribute credit came not from bankers or people of credibility, but from an agrarian population desperate for credit and investment: the Farmers Alliances of the 1990s. 1870 and 1880. and the American People's Party of 1890. As long as the Fed is, in Ann PettiforsWords, the "irresponsible central bank of the world" and its governor, the "technocratic leader of the world," some of the Fed's early supporters were not elitist satraps. Agrarian radicals in the United States articulated bold visions of people-run central banks as a vehicle for capital allocation, government development policies, and, ultimately, a transformed political economy.
The US populist movement seems an unlikely precursor to today's Federal Reserve. Out of a thriving cooperative movement rebelling against low grain prices, credit crunches, and high shipping rates, emerged a coalition of agrarians, mostly from the South and Midwest, the Populists, and their People's Party. The party ran for president in 1892, for Congress in 1894, and merged with the Democrats in 1896, after which it spread across the political spectrum.
More than any of their contemporaries, the Populists were obsessed with questions of centralization and monetary control, and their rebellion against the prevailing liberal orthodoxy encouraged a highly experimental approach to the "money question."1It was not unprecedented. Ever since President Lincoln introduced greenbacks to finance the Civil War in the 1860s, the idea that the US state could use its authority to control the money supply of private banks has captured the imagination of radicals. Populists extended these efforts to the dollar in the 1880s. One of the most pressing problems of the decade was the credit and currency crunch in rural areas, unleashing a hellish spiral of deflation and falling prices. Populists claimed that loosening and expanding the monetary base would boost productive investment, raise farm prices and break the power of established traders, whose mastery of the currency often went hand-in-hand with price gouging.
The dollar's most common response to the problem of deflation, driven by businessmen, small farmers, and intellectuals, was a more elastic money supply and so-called fiat currency, ending America's peg to the gold standard. Once this dogma of "sound" money was broken and the monopoly of private banking ended, a fully public bank was freed to issue money and relax the strict lending conditions of merchants and corporations. Accessible credit would return to regions and sectors neglected by existing private arrangements. Here, central bank reform and opposition to the gold standard formed a natural pairing.
Breaking America out of that pattern was a bold move in itself. He called on the United States government to recover the prerogatives of private banks and start issuing money. Populists have developed a specific version of this public money proposal. The most interesting of these was developed by the self-taught Texan businessman and heterodox economist Charles Macune. In the late 1880s, faced with the failure of a more voluntary approach based on farmer cooperatives, Macune began to reconsider the role of the American state as a creditor in what he called an "under-treasury" scheme.
The plan's structure was as radical as it was simple: The sub-treasury would allow American farmers to store their grain and other staples in government-run warehouses and issue them interest-related coupons valid for up to a full year, depending on the amount. . of grain they stored. These tokens would circulate like money, like gold, freeing farmers from expensive credit and allowing them to bide their time to sell their crops. The plan implied a system of state banks that could maintain this deposit system and divert capital to agrarian communities. Macune based these writings in part on French socialist Pierre-Joseph Proudhon's proposals for a "people's bank", which was also intended to facilitate credit creation throughout society.2Macune envisioned a democratic credit system and hoped to translate Lincoln's vision of a small farming community into a corporate age.
None of these measures was carried out. The Macune treasury was ridiculed in polite society as financial illiteracy, and the United States remained on the gold standard for more than twenty years. For the populists, however, there was partial victory in defeat. Congressmen in the early 20th century relied on large farm voters, and state legislatures were still filled with many former populists.
Populist legacies continued to permeate American politics, ensuring that the central bank debate did not become the preserve of bankers and financiers, who focused strictly on market volatility. Instead, it remained a highly politicized arena, with a wide range of participants asserting the enormous developmental and distributional implications of the institution. As Nadav Peer has shown, farm legislators sought not only to shore up the country's troubled financial system, but also to reshape the US economy by reallocating credit across sectors and geographies.3The policymakers who created the Federal Reserve sought to end privileged corporate access to national bank reserves, which circulated through Wall Street stockbrokers. They resisted the gravitational pull of the American banking system and sought to move resources from New York to rural communities across the country.
To carry out this action, congressmen from the agricultural periphery shot down the “Aldrich Plan” for a private central bank, drafted in collaboration with New York bankers and Harvard economists. Instead, as Elizabeth Sanders has shown, they pushed for a highly decentralized public system, with semi-autonomous regional reserve banks providing funds across the country.4Its goal was to provide cheap credit to non-corporate borrowers, particularly in the Midwest and South. They also urged the Fed to accept farmland as collateral (which central banks are prohibited from in the existing domestic system) and to lend against ubiquitous instruments of exchange in the agricultural parts of the economy. Its explicit goal, as one of its supporters explained, was "to move the country's reserve funds out of congested money centers and to make them readily available for commercial purposes in the various parts of the country to which they belong."
President Wilson's temperament and background did not match the radical tendencies of these reformers. So did the American Bankers Association, which (in a position shared by respected economists, the New York Times, and other elite bodies) condemned these proposals as cruel and "socialist." However, as the Federal Reserve Act moved through Congress, issues of economic distribution (of power and resources, not just economic volatility) remained in the spotlight. Wilson's Secretary of State, William Jennings Bryan (former bimetallic presidential candidate), along with Democrats and Republicans from credit-poor and rural states, promoted the old populist line. They insisted that US banks were not suffering from overzealous peripheral land banks, a criticism that called for tighter supervision by a central authority. Instead, control of credit was monopolized and had to be assumed by a select group of bankers from the Northeast. So they lobbied Wilson to include local banking regulations and more dispersed lines of credit in the law. They wrote provisions into the bill that lowered gold reserve requirements and authorized farm documents and warehouse receipts for discounting at regional reserve banks. Ultimately, they successfully negotiated for the federal state banks, which greatly expanded the availability of credit to farmers at low interest rates.
The final Federal Reserve Act was not the pure expression of a single faction. On the contrary, it presented the characteristics of an extraordinarily contentious legislative process. The bankers warned that this would put the credit of the "American people" behind anyone who could "subscribe and sign a bargaining chip." For their part, the agrarians pointed out that the law provided the bankers with a powerful system that would be relatively insulated from democratic control. The bankers turned out to be the most reluctant party. Congressmen from urban manufacturing regions with strong business influence voted against the bill. Farm representatives from both parties in Congress overwhelmingly supported it and eventually passed it through Congress. As an origin story, the genesis of the bill exudes a deep historical irony. The luxurious and resilient Fed inherited by the elites (and eventually co-opted after World War I) was not an institution of its own design.
This agro-populist origin story may explain why celebrating the Fed's ability to stabilize seems historically limiting. But "stabilization" is precisely why technocrats have celebrated the Federal Reserve's actions at home and abroad. He bolstered a struggling American financial system during the Great Financial Crisis, and in 2009 went overboard and created swap lines for troubled European banks. The move heralded an even more ambitious global role, in which the Fed expanded its reach to nearly every banking system on the planet. This pushed a shrinking US ruling class into the role of global financial hegemon, losing its industrial capacity while gaining strength in its money supply. (As a recent reviewerthe leg is, “The United States is not a country with a central bank; is a central bank with a country").
But does the current economy deserve stabilization? In a world of massive inequality and concentrated asset ownership, central bank stabilization is inflating corporate balance sheets and bursting housing bubbles. The results are to be proud of. The Fed bailouts solidified the power of the financial classes in countries like Brazil and Turkey and fueled an authoritarian backlash. In Europe, QE has increased wealth inequality and empowered shareholders. From the US to the UK and beyond, stock markets were buoyed by massive share buybacks. To rid the economy of systemic risk, central bank crisis relief supports a fundamentally unfair and irrational market system.
Just as stabilizers often do not question what is worth stabilizing, democratizers tend to ignore the question of which institutions are worth democratizing. Bottom-up funding schemes often aim to democratize an agency whose capacity is little more than a cash flow modulator with no power to allocate capital. If they envision an expanded democratic central bank mandate, they do so without a strong sense of expansion in the broader transformative sense that underpinned the populist period, when “people's banks” were only one part of a broader repertoire of anti-oligarchic politics. Given this history, it is still hard to imagine a truly democratic central bank.
Today's Federal Reserve is not the "People's Bank" that the populists had in mind. The Macune Sub-Treasury was more of a public investment bank than a global lender of last resort. The populist view emphasized the Volksbanken's ability to significantly alter the allocation of credit in the market and proactively channel capital flows, activities that today's central banks go to great lengths to minimize. as margaret myers5As he explained in his canon work, one of the main priorities of the agrarians was to provide not only trade credit for barter, but also "long-term credit for the development of new lands and new industries." This sense of urgency to invest in fixed capital made sense in a settler society with a rapidly expanding frontier. As representatives of the periphery (farmers and landowners, but also small manufacturers) repeatedly explained during congressional hearings on the Fed, their shared prosperity rested not only on increased liquidity, but also on the availability of guaranteed long-term credit. for land. livestock and future crops. This idea of a central bank - anathema to conservative bankers in the city - was very similar to the financial institutions operated by many of the developing countries of post-war Europe.6and in other places7which served to stimulate productive investment and prevent capital from entering an unproductive rentier mode. By the end of the 19th century, American states also had at their disposal a host of such instruments of development, from railroad commissions to antitrust laws to statutory controls on corporate behavior.8
Reading the populist banking proposals offers three important perspectives on the history of central banks. On the one hand, it destabilizes a harsh dichotomy between responsibility and non-responsibility: the question ofto controlabout central banks is still important, of course, but it should not obscure the equally important question of which central banksAgain. As a rising coalition of peasants and workers, the populists cared deeply about popular opinion and control; The passage of the 1892 referendum and the popular recall of Supreme Court justices spoke to this legacy, as did his continued skepticism about the prerogatives of a growing administrative state. But the idea of direct control over this bank could never trump plans for its ability to operate, especially when it comes to capital lending. For that reason, when the pressure ended, populist lawmakers agreed to cede some power to a discretionary agency. In terms of content, a democracy-deficit Fed was better than no Fed.
The history of the Fed's populist plans also shifts the debate from stabilization and redistribution to earmarking. American farmers in the late 19th century took advantage of relatively good access to credit, facilitated in part by political means, to integrate agricultural improvements such as plows, threshers, combines, and fertilizers. This process not only fostered a highly productive agricultural sector relative to other expanding frontiers around the world, but also increased rural demand for manufactured goods, creating the famous "agribusiness complex" that transformed the United States into a highly industrialized economy. .9Likewise, an enlarged and truly democratic central bank would change the conditions under which the political economy operates.
Finally, the populist story gives historical weight to some recently launched reform plans. Central bank planning may already be there, waiting for democratization, but it's almost unheard of. Rather than being a historical starting point, the democratic empowerment of central banks could satisfy deeply entrenched democratic aspirations articulated by peasants, workers, and artisans in the turmoil of the First Golden Age.
- Sklansky, Jeffrey.market sovereign. The question of money in the early United States. Chicago: University of Chicago Press, 2018.↩
- The proud plans for universal "free credit" aroused the particular ire of Karl Marx, whoseblueprints of the floorThe notebooks show Proudhon as the main enemy.↩
- Orian Peer, Nadav, „Lender of Last Resort Bargain: The Federal Reserve Act of 1913 as Debate over Credit Assignment“, Tulane Public Law Research Paper, Nr. 18-8, 2018.↩
- Sander, Isabel.Roots of the Reformation: Peasants, Workers, and the American State, 1877-1917. Chicago, IL: University of Chicago Press, 1999.↩
- MEYERS, Margarita G.New York money market. New York: Columbia University Press, 1931.↩
- Monnet, Eric.Credit Control: Central Banks and Post-War French Planned Economies, 1948-1973. Cambridge University Press, 2018.↩
- Amsden, Alice H.The Rise of the "Rest": Challenges to the West from the Late-Industrializing Economy. Oxford: Oxford University Press, 2004.↩
- Stephen Link, Noam Maggor, „The United States as a Developing Country: Reviewing the Specifics of American History“,Past present, Volume 246, Number 1, February 2020.↩
- MEYER, David R.”Industrialization of the Midwest and the American industrial belt in the 19th century.” Das Magazine of Economic History 49, No. 4, 1989.↩