The United States owes its very existence, in part, to trouble with money. The Constitution's predecessor, the Confederacy, permitted each member State to pursue its own coinage. Economic chaos and disaster ensued. In Federalist Paper No. 44, Alexander Hamilton, who deplored paper currency, included this rather flowery defense of stripping the States of their mints and money presses under the proposed new Constitution:
The extension of the prohibition to bills of credit must give pleasure to every citizen, in proportion to his love of justice and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace, from the pestilent effects of paper money on the necessary confidence between man and man, on the necessary confidence in the public councils, on the industry and morals of the people, and on the character of republican government, constitutes an enormous debt against the States chargeable with this unadvised measure, which must long remain unsatisfied; or rather an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice, of the power which has been the instrument of it.
If you know
Alexander Hamilton, and who doesn't, then you know he is talking here about profits and commerce. Businessmen find it very taxing and frustrating when they can't effectively game the system because they can't pin down the value of the stuff they are trading in. The Constitution was ratified and Hamilton got his way and got federal control over American money. That was by no means the end of the trouble with money, which persists to this day as an ever present undercurrent of American politics.
Follow me out into the tall grass if you want to know what happened after Hamilton got his way.
As America's first Secretary of the Treasury, Hamilton rammed through his vision for a different American economic order than he started with, tilted decidedly toward the moneyed interests. He established a national bank modeled on the Bank of England. Under Hamilton's influence, the first building constructed by the new government was the Mint in Philadelphia, then the nation's seat of government. Upon Hamilton's recommendation, coinage was strictly limited to silver, copper and gold. This necessarily restricted the national money supply. People who already had a lot of money liked this. It preserved and guaranteed the value of what they already had. People who didn't have any money wished there was a damn sight more of it in circulation so they would have more chances of getting some. The Great Divide we now call Income Inequality in America was firmly established.
Until 1862, the American Currency supply remained limited to what ever amount of metal the government could acquire. Expansion was slow and the lack of coin was a thorn of particular painfulness to Western freeholders and pioneers, especially as their dependency grew on railroads and manufactured goods from the East, which required cash payments. Pressure on the federal government to print greenbacks grew in the West for years, but without any political clout. The Civil War changed that.
Lincoln issued almost half a billion dollars in Greenbacks backed by nothing except the full faith and credit of the, then, truncated United States of America. The Slave interests in control of Southern politics would have opposed printing money, but they were gone now, so what was left of Congress went along with it. In the open market, the full faith and credit of the, then, truncated United States of America turned out to be worth from $0.40 to $0.67 on the dollar, despite the government's intent to circulate the bills at parity with gold backed notes.
After the War a debate broke out quickly about what to do about the existing Greenbacks, along the lines of More vs. Less, or Print vs. Buy Back. But the political landscape had totally changed. The controlling interests in the South faced a totally different economy without Slavery. Now their economic interests more closely aligned with the West. In the face of a growing political coalition over money supply, the Supreme Court poked in its nose. In one of the finest examples of irony in Supreme Court decisions, Lincoln's former Treasury Secretary (heir to Hamilton, as it were), Salmon P. Chase, having risen to the Supreme Court, ruled unconstitutional the issuance of money bearing his own likeness and signature.
After Reconstruction, the money troubles would not go away as national parties began to form over monetary policy. It began with the Grange movement in the Plains and other rural areas and grew until monetary policy dominated national politics in 1896, when the "Great Commoner" from Nebraska, William Jennings Bryant, orated that "You shall not crucify America on a Cross of Gold!". Bryant was running for President for the first of three tries, running as a Democrat, which is what he was, and on the Populist Party's free silver ticket, albeit with a different Vice Presidential nominee. America had returned to the Gold Standard in 1873, to the great economic distress of the West and the South.
Free Silver coinage, basically a proposal to double the national money supply, failed in the election of 1896, as one of the David Koch's of his time, Cleveland industrialist, Marc Hanna, made certain that the virtually clandestine campaign by William McKinley would elevate the Ohioan to the White House. Under McKinley and Hanna's leadership, Republicans in Congress told freeholders in the South and West and working people everywhere to stuff it, passing the Gold Standard Act of 1900 and making gold the sole basis of all American money. Soon thereafter, McKinley was shot by an anarchist during a trip to Buffalo, New York. And that solved the trouble with money. Not.
In 1929, the Gold Standard failed America. President Hoover and the Republicans were nearly clueless, their few ideas being mostly bad ones. The California Gold Rush was ancient history by then. Likewise, the Yukon. The nation could expand its gold supply through successful international trade and other sources, but it was slow, too slow to sustain public, and more importantly, institutional confidence in a rapidly expanding economy.
In 1932, FDR and the Democrats were nearly clueless, but they had lots of ideas, some of them very good ones, others, not so much. FDR took America off the Gold Standard in his first 100 days in office in 1933. It expanded the available money supply which had an immediate and beneficial effect on the needful and a slightly inflationary effect on money that slightly diluted wealth holders' interests. America has remained off the Gold Standard since. FDR's fundamental repudiation of Hamiltonian economics in favor of Keynesian inspired thinking marked a genuine divide in the history of American money. But it did not reverse the basic nature of the Great Divide in wealth that Hamilton originally sought to preserve and foster, naively thinking that prosperity for the rich is good enough for everybody. However, it did seem to temporarily slow down the growth of income inequality. It most certainly did not end the trouble with money.
After the New Deal, the Republicans and their alliance of the old Hamiltonian interests didn't really grab a good foothold on national politics until Reagan in the 1980's. As they sank their fangs and tentacles ever deeper into the national fisc, the American and World economies fell apart in 2008 when markets suddenly realized that the government had been letting Wall Street create virtually worthless paper and treat it as the same as money. Liquidity vanished, the money supply shrank and the modern version of Hamilton's beloved Treasury Department had to spin up the money presses to warp speed.
Which brings us to the new Glass Stegall Act sponsored in the U.S. Senate by Elizabeth Warren, D, MA and several of her colleagues from both sides of the aisle. This legislation doesn't reverse the Great Divide anymore than the New Deal did. But like it's namesake back then, this proposal will help restore balance.
If you read Senator Warren's wonderful Daily Kos post on the rec list, you saw what I want to see on a bumper sticker, and soon: "Banking should be Boring". To that, I add my own contribution: "Let Banks be Banks". Banks and Wall Street have legitimate roles in relation to one another, but it is bad for America to let them be the same thing. American money has enough trouble being where it needs to be. New Glass Steagall helps with this problem and deserves to have all of us promote it where ever and with whomever we can.