One of the more burning issues of the presidential campaign of 1912 was the need for fundamental monetary and fiscal reform. The Panic of 1893 had revealed serious weaknesses in the financial system. The push for reform, however, was sidelined by the drive to involve the government in direct relief efforts (e.g., Coxey’s Army), and — even more so — by the “Silver Question” during the presidential campaign of William Jennings Bryan. When the country pulled itself out of the Great Depression of 1893-1898 (by the fortuitous — for America — circumstance of crop failures in Europe and bumper crops in the United States), the push for financial reform was marginalized and forgotten in most circles
By 1910, however (especially in light of the Panic of 1907), thoughtful people realized that something would have to be done. The capitalists had virtual total control of the industrialized and commercialized east, and — through control of the railroads constructed with government subsidies — were rapidly gaining control over the agricultural west, as Frank Norris’s 1901 novel, The Octopus: A Story of California, the first volume in his uncompleted “Epic of Wheat,” attests. This was largely the result of a number of factors coming together.
• By 1893, the land frontier had effectively closed. “Free” land was, to all intents and purposes, no longer available to anyone who wanted it. Ordinary people were unable to acquire ownership of landed capital on easy terms.
• As access to capital on easy terms became closed off for those whom Hilaire Belloc called “the small man” (which included women), more and more people became enmeshed in the wage system. Populism, which started as a movement of small proprietors, became indistinguishable from socialism.
• Even before the “free” land under Lincoln’s 1862 Homestead Act ran out, farmers and small businessmen, being limited to the rapidly shrinking pool of existing savings, had a serious problem financing development. Ownership of land began to be concentrated as banks were forced to foreclose on farms, to be sold to those with cash or credit: the rich.
• Capitalists — especially the railroads (“the octopus”) — could obtain all the credit they wanted or needed by drawing bills of exchange. This concentrated ownership of the phenomenal growth of commercial and industrial capital in fewer and fewer hands, and allowed a small elite to control distribution of the goods produced by landed capital, the only capital broadly owned.
• The money supply based on existing savings, consisting of United States Notes and National Bank Notes backed by government debt and redeemable in gold, gold and silver certificates redeemable in specie, and the coinage, was “inelastic,” i.e., it could not expand and contract directly with the needs of commerce.
• The money supply based on the present value of existing and future marketable goods and services, consisting of mortgages and bills of exchange, was elastic,” i.e., it could expand and contract with the needs of commerce . . . but only the rich had the existing wealth and the creditworthiness to back these instruments.
The Panic of 1907, while it revealed weaknesses in the financial system that had been ignored since 1898 and the return to prosperity, at least provided an incentive to start pushing for reform once again. Unfortunately, within the framework dictated by widespread acceptance of the belief that only past savings can be used to finance capital formation, most people were not prepared for any solution that is neither capitalism nor socialism, nor the unholy mixture of the two known as the Welfare or Servile State.
Most people, that is. One man stood out from the crowd with a genuinely progressive vision: Theodore Roosevelt.