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Monetary reform in the United States

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Monetary reform in the United States refers to proposals and movements to change how money is created and regulated in the financial system. Reform efforts have emerged periodically in US history due to concerns about economic stability, banking practices, debt, and concentrated power.

History

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Colonial era and early republic (1600-1860)

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Colonial monetary systems were idiosyncratic,[1] with individual colonies having their own currencies.[2] This gave colonies significant economic independence.[3]

The struggle for monetary control continued after independence. In 1781, the Bank of North America became the first incorporated bank in the United States,[4] serving several functions of a central bank.[5] After the Pennsylvania legislature annulled its charter in 1785,[6] a later charter was limited to 14 years and $2 million total assets.[7]

The Constitution granted Congress specific monetary powers, including "To coin Money, regulate the Value thereof".[8] Thomas Jefferson argued the Constitution did not give Congress the power to establish a bank. Alexander Hamilton argued implied powers permitted it for the general welfare.[9] This was followed by the First Bank of the United States (1791-1811), no central bank (1811-1816), the Second Bank of the United States (1816-1836).[10]

President Andrew Jackson was a prominent critic of the central bank, arguing it concentrated financial power in a single institution and enriched wealthy interests with special privileges.[11] He objected to it transferring power from elected officials to unelected bankers and foreign influence in monetary policy.[12] Jackson's successful campaign against the Second Bank of the United States reflected broader populist monetary policy concerns.[13]

In the "free banking" era from 1837-1862, anyone meeting minimum capital requirements could open a bank.[14] Thousands of different bank notes circulated, making fraud difficult to prevent.[15] This decentralized monetary experiment fed later debates about central control[16] and innovation.[17]

The path to the Federal Reserve (1860-1913)

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The absence of a central bank during the mid-19th century[18] led to frequent financial panics and economic instability,[19] while also creating space for innovative monetary reform movements, including the Greenback movement,[20] which emerged from American Civil War financing.[21]

The Greenback Party

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During the Civil War, Congress passed the first Legal Tender Act on February 25, 1862,[22] authorizing the issuance of $150 million in United States Notes.[23] Between 1862 and 1865, the U.S. government issued more than $450 million in paper money not backed by gold to finance the war effort. These notes were called "greenbacks" because of their distinctive green ink.[24]

The success of greenbacks in financing the war inspired a broader movement advocating continued use of fiat currency.[25] Following the Panic of 1873, laborers, farmers, and businessmen organized the Greenback Party in Indiana in 1874[26] to urge the federal government to inflate the economy by expanding the money supply with greenbacks.[27]

Farmers turned to third parties like the Greenback Party for economic relief[28] and reduce the power of financial elites.[29] They were concerned about falling prices, an inadequate money supply, and huge debt burdens.[30] Eastern financial interests advocated for the gold standard to ensure currency stability and prevent inflation.[31]

The Greenback Party achieved notable political success as a third party. The party's platform focused upon repeal of the Specie Payment Resumption Act and use of non-gold-backed United States Notes.[32] In 1876, they nominated Peter Cooper for president, and merging with labor reform groups in 1878 they polled a million votes and won 14 seats in Congress. In 1880, the Greenback Party nominated James B. Weaver, receiving just over 300,000 votes.[33]

Financial panics and the push for central banking
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In the 1890s, the People's Party opposed the gold standard and demanded monetary reforms including unlimited silver coinage.[34] The 1892 platform addressed silver demonetization,[35] and James B. Weaver, the People's Party nominee, received over 8% of the Presidential vote, winning 5 states.[36] Silver advocates called it "the people's money."[37]

In 1890 the Sherman Silver Purchase Act passed, requiring the Treasury to buy 4.5 million ounces of silver each month[38] and issue new Notes redeemable for silver or gold. Speculators redeemed Notes for gold leading to the Panic of 1893 and the repeal of the Sherman Silver Purchase Act. Despite the famous Cross of Gold speech, William Jennings Bryan lost the 1896 election, ending silver's role as an official currency in the United States.[39]

The continued absence of a central bank led to recurring financial crises throughout the late 19th century.[40] The Panic of 1907 showed the need for a more stable monetary system as a credit crunch dried up business funding sources. J.P. Morgan functioned as a one-man central bank, spurring interest in establishing a central bank.[41]

A key moment in American monetary history occurred in November 1910, when Senator Nelson W. Aldrich, Assistant Secretary of the Treasury A. Piatt Andrew, and financiers Frank A. Vanderlip, Henry Pomeroy Davison, Benjamin Strong Jr., and Paul Warburg met at the Jekyll Island Club to discuss monetary reform.[42] This secretive meeting produced the initial draft legislation, which shared key aspects with the Federal Reserve Act.[43] The Federal Reserve System represented a compromise between a centralized system and diffused control, with twelve regional Federal Reserve Banks overseen by a Board of Governors.[44]

The Great Depression and the Chicago Plan (1913-1945)

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The Great Depression of the 1930s sparked intense debate about monetary policy and banking reform.[45] The most significant proposal to emerge from this period was the Chicago Plan, developed by economists at the University of Chicago.[46] The plan proposed ending fractional reserve banking by requiring banks to hold 100% reserves against demand deposits, effectively separating money creation from commercial banking.[47]

Proponents argued that this reform would reduce the severity of business cycles,[48] eliminate bank runs, and give government greater control over the money supply.[49] While the plan was not implemented, it continues to be referenced by reform advocates.[50]

Post-war developments (1945-2008)

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The Bretton Woods system tied the dollar to gold and other currencies to the dollar.[51] The system collapsed in 1971 when President Nixon ended gold convertibility,[52] leading to the fiat era.

Post-2008 financial crisis

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The 2008 financial crisis revealed major banks had taken excessive risks, with taxpayer bailouts protecting "too big to fail" financial institutions[53] while bank profits remained privatized.[54] Massive Federal Reserve interventions during and after the crisis, like quantitative easing, raised questions about the central bank's role and independence.[55]

On the progressive left, Dennis Kucinich introduced the NEED Act,[56] which would transfer money creation from private banks to the US Treasury.[57] On the libertarian right, Ron Paul advocated for returning to the gold standard and "End the Fed."[58]

Bitcoin critics say its significant price fluctuations make it unsuitable as the mainstream payment method worldwide, suggesting a cryptocurrency based on special drawing rights,[59] though wide use of cryptocurrency could create systemic risk.[60]

See also

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References

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  1. ^ Polski, Margaret M. (2012-12-06). The Invisible Hands of U.S. Commercial Banking Reform: Private Action and Public Guarantees. Springer Science & Business Media. ISBN 978-1-4615-0441-2.
  2. ^ Ernst, Joseph (2014-01-01). Money and Politics in America, 1755-1775: A Study in the Currency Act of 1764 and the Political Economy of Revolution. UNC Press Books. ISBN 978-0-8078-3971-3.
  3. ^ Jo, Tae-Hee; Chester, Lynne; D'Ippoliti, Carlo (2017-07-28). The Routledge Handbook of Heterodox Economics: Theorizing, Analyzing, and Transforming Capitalism. Routledge. ISBN 978-1-317-48029-7.
  4. ^ Jr, James W. Ely (2016-10-28). The Contract Clause: A Constitutional History. University Press of Kansas. ISBN 978-0-7006-2307-5.
  5. ^ Chaudhuri, Ranajoy Ray (2016-10-15). The Changing Face of American Banking: Deregulation, Reregulation, and the Global Financial System. Springer. ISBN 978-1-137-36121-9.
  6. ^ Jr, James W. Ely (2016-10-28). The Contract Clause: A Constitutional History. University Press of Kansas. ISBN 978-0-7006-2307-5.
  7. ^ Bodenhorn, Howard (2003). State Banking in Early America: A New Economic History. Oxford University Press. ISBN 978-0-19-514776-6.
  8. ^ Lomazoff, Eric (2018-11-07). Reconstructing the National Bank Controversy: Politics and Law in the Early American Republic. University of Chicago Press. ISBN 978-0-226-57945-0.
  9. ^ Rasmus, Jack (2019-02-28). Alexander Hamilton and the Origins of the Fed. Bloomsbury Publishing PLC. ISBN 978-1-4985-8285-8.
  10. ^ Wright, Robert E. (2024-10-28). FDR’s Long New Deal: A Public Choice Perspective. Springer Nature. ISBN 978-3-031-74141-8.
  11. ^ Matson, Cathy D. (2006-01-01). The Economy of Early America: Historical Perspectives & New Directions. Penn State Press. ISBN 978-0-271-02765-4.
  12. ^ Kiewe, Amos (2024-01-12). Andrew Jackson: A Rhetorical Portrayal of Presidential Leadership. University of Tennessee Press. ISBN 978-1-62190-448-9.
  13. ^ Kiewe, Amos (2024-01-12). Andrew Jackson: A Rhetorical Portrayal of Presidential Leadership. University of Tennessee Press. ISBN 978-1-62190-448-9.
  14. ^ Mason, James E. (1997-12-01). The Transformation of Commercial Banking in the United States, 1956-1991. Routledge. ISBN 978-1-136-74725-0.
  15. ^ Gorton, Gary (2015). The Maze of Banking: History, Theory, Crisis. Oxford University Press. ISBN 978-0-19-020483-9.
  16. ^ Poynter, Gavin (2020-11-25). The Political Economy of State Intervention: Conserving Capital over the West’s Long Depression. Routledge. ISBN 978-1-000-22580-8.
  17. ^ Jones, Geoffrey; Kirby, M. W. (1991). Competitiveness and the State: Government and Business in Twentieth-century Britain. Manchester University Press. ISBN 978-0-7190-3276-9.
  18. ^ Wood, John Harold (2005-06-06). A History of Central Banking in Great Britain and the United States. Cambridge University Press. ISBN 978-0-521-85013-1.
  19. ^ Leab, Daniel (2014-01-15). Encyclopedia of American Recessions and Depressions: [2 volumes]. Bloomsbury Publishing USA. ISBN 979-8-216-04679-0.
  20. ^ Sanders, Elizabeth (August 1999). Roots of Reform: Farmers, Workers, and the American State, 1877-1917. University of Chicago Press. ISBN 978-0-226-73477-4.
  21. ^ DeCanio, Samuel (2015-01-01). Democracy and the Origins of the American Regulatory State. Yale University Press. ISBN 978-0-300-19878-2.
  22. ^ Finkelman, Paul; Kennon, Donald R. (2018-02-02). Congress and the People’s Contest: The Conduct of the Civil War. Ohio University Press. ISBN 978-0-8214-4616-4.
  23. ^ Oliver, Willard M. (2019-07-16). The Birth of the FBI: Teddy Roosevelt, the Secret Service, and the Fight Over America's Premier Law Enforcement Agency. Bloomsbury Publishing PLC. ISBN 978-1-4422-6504-2.
  24. ^ Finkelman, Paul; Kennon, Donald R. (2018-02-02). Congress and the People’s Contest: The Conduct of the Civil War. Ohio University Press. ISBN 978-0-8214-4616-4.
  25. ^ Brehm, Victoria (2023-05-22). Constance Fenimore Woolson’s Subversive Politics. Bloomsbury Publishing PLC. ISBN 978-1-6669-2154-0.
  26. ^ Ritter, Gretchen (1999-06-13). Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America, 1865-1896. Cambridge University Press. ISBN 978-0-521-65392-3.
  27. ^ LaFantasie, Glenn W. (2006). Gettysburg Requiem: The Life and Lost Causes of Confederate Colonel William C. Oates. Oxford University Press. ISBN 978-0-19-533131-8.
  28. ^ Cherny, Robert W. (2014-10-30). A Righteous Cause: The Life of William Jennings Bryan. University of Oklahoma Press. ISBN 978-0-8061-7738-0.
  29. ^ Moran, M. (1990-11-15). The Politics of the Financial Services Revolution: The USA, UK and Japan. Springer. ISBN 978-0-230-37789-9.
  30. ^ Utter, Robert F.; Spitzer, Hugh D. (2013-04-11). The Washington State Constitution. OUP USA. ISBN 978-0-19-994616-7.
  31. ^ Ritter, Gretchen (1999-06-13). Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America, 1865-1896. Cambridge University Press. ISBN 978-0-521-65392-3.
  32. ^ Calhoun, Charles W. (2007). The Gilded Age: Perspectives on the Origins of Modern America. Bloomsbury Publishing PLC. ISBN 978-0-7425-5038-4.
  33. ^ Moore, John L. (2013-12-16). Elections A-Z. Routledge. ISBN 978-1-135-93870-3.
  34. ^ Berman, David R. (2011-05-18). Radicalism in the Mountain West, 1890-1920. University Press of Colorado. ISBN 978-1-4571-0983-6.
  35. ^ Valelly, Richard M.; Mettler, Suzanne; Lieberman, Robert C. (2016). The Oxford Handbook of American Political Development. Oxford University Press. ISBN 978-0-19-969791-5.
  36. ^ Austin, Erik W.; Clubb, Jerome M. (1986). Political Facts of the United States Since 1789. Columbia University Press. ISBN 978-0-231-06094-3.
  37. ^ Marsh, Alec (2011-09-23). Money and Modernity: Pound, Williams, and the Spirit of Jefferson. University of Alabama Press. ISBN 978-0-8173-5695-8.
  38. ^ Elliott, Russell R. (1987-01-01). History of Nevada. U of Nebraska Press. ISBN 978-0-8032-6715-2.
  39. ^ Postell, Joseph; Watson, Bradley C. S. (2011-01-01). Rediscovering Political Economy. Lexington Books. ISBN 978-0-7391-6660-4.
  40. ^ Hein, Eckhard; Detzer, Daniel; Dodig, Nina (2015-04-30). The Demise of Finance-dominated Capitalism: Explaining the Financial and Economic Crises. Edward Elgar Publishing. ISBN 978-1-78471-507-6.
  41. ^ Wallace, William H. (2014-01-04). The American Monetary System: An Insider's View of Financial Institutions, Markets and Monetary Policy. Springer Science & Business Media. ISBN 978-3-319-02907-8.
  42. ^ McCash, William Barton (1989). The Jekyll Island Club: Southern Haven for America's Millionaires. University of Georgia Press. ISBN 978-0-8203-1070-1.
  43. ^ Humpage, Owen F. (2015-03-05). Current Federal Reserve Policy Under the Lens of Economic History: Essays to Commemorate the Federal Reserve System's Centennial. Cambridge University Press. ISBN 978-1-316-30071-8.
  44. ^ Jones, David M. (2002-10-31). Unlocking the Secrets of the Fed: How Monetary Policy Affects the Economy and Your Wealth-Creation Potential. John Wiley & Sons. ISBN 978-0-471-44562-3.
  45. ^ Rawski, Thomas G.; Carter, Susan B.; Cohen, Jon S.; Cullenberg, Stephen; Sutch, Richard (1996-04-03). Economics and the Historian. University of California Press. ISBN 978-0-520-91086-7.
  46. ^ Cord, Robert A. (2023-01-01). The Palgrave Companion to Chicago Economics. Springer Nature. ISBN 978-3-031-01775-9.
  47. ^ Yamaguchi, Kaoru; Yamaguchi, Yokei (2025-02-25). Public Money: The Systems Solution to End National Debt, Banking Crisis, Built-In Inequality, Inflation and Control by CBDC. Springer Nature. ISBN 978-981-97-6564-5.
  48. ^ Muzio, Tim Di; Robbins, Richard (2017-03-16). An Anthropology of Money: A Critical Introduction. Taylor & Francis. ISBN 978-1-315-45344-6.
  49. ^ Niemira, Michael P. (2023-07-10). Practical Macroeconomics for Non-Economists: A Question-and-Answer Approach. Taylor & Francis. ISBN 978-1-000-89538-4.
  50. ^ Askari, H.; Iqbal, Z.; Mirakhor, A. (2014-12-16). Challenges in Economic and Financial Policy Formulation: An Islamic Perspective. Springer. ISBN 978-1-137-38199-6.
  51. ^ Acheson, A. L. Keith (1972-06-18). Bretton Woods Revisited: Evaluations of the International Monetary Fund and the International Bank for Reconstruction and Development. Springer. ISBN 978-1-349-01521-4.
  52. ^ Eichengreen, Barry; Reis, Jaime; Macedo, Jorge Braga de (2005-07-28). Currency Convertibility: The Gold Standard and Beyond. Routledge. ISBN 978-1-134-82569-1.
  53. ^ Wolfson, Martin H.; Epstein, Gerald A. (2013-01-07). The Handbook of the Political Economy of Financial Crises. Oxford University Press. ISBN 978-0-19-932407-1.
  54. ^ Grauwe, Paul de (2017). The Limits of the Market: The Pendulum Between Government and Market. Oxford University Press. ISBN 978-0-19-878428-9.
  55. ^ Maguze, Tracy C. (2024-01-11). The Governance of Macroprudential Policy: How to Build Regulatory Legitimacy Through a Social Justice Approach. Bloomsbury Publishing. ISBN 978-1-5099-6841-1.
  56. ^ Yamaguchi, Kaoru; Yamaguchi, Yokei (2025-02-25). Public Money: The Systems Solution to End National Debt, Banking Crisis, Built-In Inequality, Inflation and Control by CBDC. Springer Nature. ISBN 978-981-97-6564-5.
  57. ^ Yamaguchi, Kaoru; Yamaguchi, Yokei (2025-02-25). Public Money: The Systems Solution to End National Debt, Banking Crisis, Built-In Inequality, Inflation and Control by CBDC. Springer Nature. ISBN 978-981-97-6564-5.
  58. ^ Weber, Beat (2018-05-17). Democratizing Money?: Debating Legitimacy in Monetary Reform Proposals. Cambridge University Press. ISBN 978-1-107-19581-3.
  59. ^ Zeng, Leo (2024-03-23). A Study on the Creation, Impact and Legal Issues of Crypto Special Drawing Rights. Springer Nature. ISBN 978-981-99-9975-0.
  60. ^ Savona, Paolo; Masera, Rainer Stefano (2023-08-18). Monetary Policy Normalization: One Hundred Years After Keynes' Tract on Monetary Reform. Springer Nature. ISBN 978-3-031-38708-1.
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