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.