Let me issue and control a nation's money and I care not who writes the laws.
– Mayer Amschel Rothschild
Money is the ultimate social construct. Unless comprised of some valued commodity, money has no value outside the political economic system which created it. As a part of political economy, money is an element of power. How money is defined and how it is created are essential questions for the architecture of power and the the stability of any system of political economy using money. Outside a brief period in the 1930s, when the issue of the gold standard and the question of the government's role in creating debt popped into political debate, the money question in United States was settled with the defeat of the Populists in the 1890s.
The Populists were a broad coalition comprising many elements of late 19th century American landscape, but the majority were small and mid-size farm owners, joined by workers and the small businesses reliant on the established farming system. The Populists rose up out of the great deflationary period transpiring from the end of the Civil War until the 1890s. Deflation is a complex phenomenon, but its impact on the small American farms of the era was felt with the decreasing of crop prices every year. Many farmers would often borrow at the beginning of the year to gain the seed and other materials needed to plant and grow, paying back at harvest. However, if you were borrowing based on prices from last year and the next year's prices were less, you'd soon end up in an ever increasing spiral of debt. Additionally, the railroads, as the main means of transportation to bring crops to market, were increasingly exerting their power over farmers. The railroads manipulation of the system through prices and other means could quickly bankrupt a farmer. Bill Gates and Microsoft's manipulation of the personal computer industry was nothing new to the railroad barons of the 19th century.
Organizing together in the Farmers Alliance, the farmers figured out two things. The new railroad technologies and a money system based on the gold standard were combining with other forces to create ever falling prices and ever increasing debt, destroying the farmers' independence and their lives. The Farmers Alliance decided regulation of the railroads was needed. They also developed a completely practical and ingenious system for allowing a democratic definition, creation, and control of money. Instead of money being simply based on gold, and its creation controlled by the burgeoning industry of finance--Wall Street and the banks--the Populists devised a “sub-treasury system”, allowing them to gain credit based on one thing, the fall harvest – their crops.
The idea was as practical as it was simple. Sub-treasuries would be set up in large counties across the country. Into these treasuries farmers could deposit grains, which they could then draw money, credit, provided by the federal government. Instead of gold being the only money standard, the Farmers Alliance had devised a system in which the farmers themselves could create money, just like a bank, based on their crops. Not only were they basing money on very concrete and useful commodities, such as corn and cotton, which, unlike gold had real utility, they were in effect making each farmer a banker. Each farmer could create money.
The Populists lost. Over the next two decades, the banks and Wall Street gained control over the creation and definition of money, a control sealed with the creation of the Federal Reserve in 1913. The loss of any ability to control money doomed the small farm in America. Every year for over a century, there have been less small farms. Today, they are close to extinction. There was absolutely nothing deterministic about the death of the small farms, America could have just as easily industrialized, keeping 10 or 20% of the population as small farmers, instead today we have less than 1%. It was and is purely an issue of power, and power in agriculture, finance, and most every other aspect of American political economy has done one thing over the course of the last century, become ever more centralized.
The idea of tying the value of money to useful commodities was not lost with the Populists. In his 1930 Treatise on Money, none other than John Maynard Keynes would promote what he called an international Tabular Standard for money – "representative money" – based on over 60 commodities, including cotton, pork, potash, copper, and coal, the basic components of modern industrial society. Instead, after WWII there was a revitalization of the gold standard.
Without a democratic money system, there will never be much democracy. If we are going to have a revival and evolving of democracy in this country, we need to rethink the money system. Keynes himself well understood the political implications of what money was and how it was controlled, writing in his 1930 Treatise:
Thus the gold standard is...part of the apparatus of Conservatism. ...gold, originally stationed in heaven with his consort silver, as Sun and Moon, having first doffed his sacred attributes and come to earth as an autocrat, may next descend to the sober status of a constitutional king with a cabinet of banks; and it may never be necessary to proclaim a Republic. But this is not yet – the evolution may be quite otherwise. The friends of gold will to have be extremely wise and moderate if they are to avoid a Revolution.
Gold was dethroned in the early 70s, though there's certainly many old courtiers clamoring for its restoration. But, we have an even greater problem at this point with our money system. With an unchecked Fed, Wall Street, and ever increasing concentration of banking power in several corporations, we have the most autocratic money system in our republic's history.
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