The problem with all of the monetary reforms — and lack of
reforms — at which we looked at Monday was they were all Currency School, that
is, based on past savings. This tends to
limit both how much can be done, and who can do it.
How much can be done?
Logically, nothing. If the pool
of past savings is the only source of financing, how much can be financed
depends on how much has been withheld from consumption . . . which traps you in
the paradox of the economic dilemma.
That is, producers only invest in new capital in response to increases
in consumption, but if the only source of financing for new capital is decreases in consumption, there is
either no financing, or no need for financing. . . .
Who can do it? Either
the rich, who don’t need it, but who have the capacity to save where the rest
of us don’t, or the State, which can simply take what others have in the way of
savings, either directly through the tax system, or indirectly by inflating the
currency. Either way, those who own no
capital end up with the short end of the stick.
The only hope for maintaining a standard for the currency
lies in the Banking School, based on both past and future savings, the former
being that which has been withheld from consumption in the past, the latter the
present value of that which can be produced in the future. More simply put, past savings are based on
reductions of consumption in the past, while future savings are based on
increases in production in the future — and which one makes more sense?
As noted in the previous posting in this series, the Panic
of 1893 surfaced the dire need for monetary reform in the U.S., but the reform
effort was derailed by the presidential campaign of 1896 and William Jennings
Bryan’s platform centered on “the silver question,” which was itself derailed
by the split in the populists and the Democratic Party due to agrarian
socialist Henry George’s “single tax” proposal.
It was not until the Panic of 1907 provoked effective action that reform
came to the fore.
Even then, it was touch-and-go, and almost immediately
nullified, at first partially by the First World War, and then completely by
the New Deal.
Woodrow Wilson managed to get elected president in 1912,
defeating the Old Guard Republican candidate William Howard Taft, the
Progressive Party candidate Theodore Roosevelt, and the Socialist Party
candidate Eugene C. Debs. He
accomplished this by bringing conservative Democrats back by talking a lot
about tariff reform, appealing to moderate Democrats by adopting the
progressive platform, and, especially, by corralling the populists, liberal
Democrats, and moderate socialists by persuading William Jennings Bryan to abandon
silver, endorse him to save the party, and regain the White House and Congress.
By appearing to be “all things to all men,” Wilson managed
to steal votes away from Taft, who worked harder at not getting elected than
others did to gain office, but especially from Roosevelt, who had the moderate
Democrats sewn up until Bryan abandoned his emphasis on free silver and swung
over to a Roosevelt-style progressivism, and appealed to party loyalty. He was elected in part on the strength of his
promise to carry out reforms of the tax and monetary systems, and very nearly
managed to avoid keeping any of his promises.
Had it not been for the combined efforts of Congressman
Carter Glass of Lynchburg, Virginia, and Bryan, Wilson would have sold out to
the Old Guard Republicans (and almost did, several times) and acquiesced in the
creation of a reserve system directly under the control of Rockefeller,
Aldritch, and Morgan. Even then, he
bemoaned the fact that the money powers of Wall Street had not maintained
direct control, and considered the Federal Reserve Act of 1913 a disaster . . .
for his capitalist supporters.
