A Populist Perspective
with Lawrence Goodwyn and William Greider
remarks presented on the occasion of the 100th anniversary of the Populist Sub-Treasury Plan for financial reform, Dec. 9, 1989, St. Louis, Missouri.
by Tom Schlesinger
Director, Southern Finance Project
It was a resigned, plaintive-sounding analogy but it spoke volumes about
the roaring '80s. "I don't think it is healthy to have this dramatic
concentration of financial power," investment banker Felix Rohatyn
told the New York Times in 1988. "But it's just like the nuclear
age, you can never uninvent the atomic bomb any more than you can uninvent
these astronomical capital markets."
Maybe so. But Mr. Rohatyn's financial world, for all its explosive effects
on American society in the past decade, has proven to be eerily fragile
as well as inordinately powerful. In fact, that world is no more permanent
than those created by the crop lien system in the 1880s or stock watering
in the 1920s.
To reckon with a system that appears to have spun so majestically out of
control, it helps to consider America's historical record of financial disorders
-- and of ordinary citizens organizing themselves to "uninvent"
the problem. There's no more telling example than the Gilded Age and the
biracial agrarian firestorm it provoked called Populism.
The Populist movement built itself on a model of economic cooperation intended
to combat the two sources of financial pressure that plagued farm communities
100 years ago -- vise-like credit conditions and a pinched, inflexible currency.
By the end of the 1880s, hundreds of thousands of Americans had been drawn
to Populism's organizational seedbed, the Farmers Alliance, through its
cooperatives and vibrant system of grassroots education.
In December 1889, Alliance representatives met in St. Louis along with leaders
of the Knights of Labor in an attempt to coalesce the great urban and rural
organizations of America's "producing classes." That gathering
knit the ties that would underpin Populism's insurgent moment on the stage
of national politics in 1890 and 1892. But what made the St. Louis convention
memorable was the report of its Monetary Committee, an audacious program
for financial reform authored by Texas Alliance leader Charles W. Macune.
Macune's Sub-Treasury plan, based on years of cooperative experience, was
both visionary and intensely practical . It proposed that the federal government
establish a warehouse to store crops after harvest in every county that
raised at least $500,000 of farm produce each year. These "sub-treasuries"
would become the instrument of money creation -- a way for farmers to borrow
against their crops and land at low interest or to sell those crops at market
value and be paid in a new national currency. Money supply would rise or
fall flexibly, in tandem with the nation's productive capacities. The cost
of credit would shrink as farmers borrowed through their own national government
rather than a restrictive private banking system. And agricultural prices
would rise from their crushingly depressed levels.
Macune's plan to harness the monetary authority of the nation on behalf
of its citizens formed the centerpiece of Populism's battle for economic
opportunity. Conventional minds derided it mercilessly -- "the wildest
idea conceived by sober man" sniffed the New York Times. But
broader thinkers like Richard Ely, founder of the American Economics Association,
and John Maynard Keynes applauded its viability. Indeed Macune's ideas anticipated
Keynes' commonsense premise that monetary policy must support production
of real goods. Though they were watered down, even twisted, in execution,
Macune's notions also informed the establishment of the Federal Reserve
System in 1913 and the New Deal's farm programs two decades later.
Today's collective memory of the nineteenth century populists and their
financial reform efforts is fuzzy at best. "Populism" itself has
become a debased currency, pasted at random by all manner of labelers on
all manner of political figures and phenomena. Alexander Cockburn in the
Nation and Alexander Haig in the 1988 New Hampshire primary agree
that "populism" means pandering to popular prejudices. Pundits
across the ideological map decree that Lee Atwater, chairman of a party
committed to enhancing the fortune of creditors, is a "populist"
-- perhaps because his proper upper-middle class upbringing occured in South
Carolina instead of Georgetown or Sutton Place.
After being subjected to so much reflex sneering and romanticism, so much
journalistic laziness and political confusion, the "P" word, for
all practical purposes, may be unsalvageably disconnected from its roots.
But if populism can still be about anything real today it must surely be
about democratic money.
In 1990, America is not a nation of small agricultural producers. But we
are more than ever a nation of debtors -- families, businesses and governments
in hock at record-high real interest rates that have transferred staggering
amounts of wealth from borrowers to creditors and magnified the hazards
of recession and even higher interest rates.
We don't have a crop lien system or an inelastic currency, either. However,
after a decade of unbridled financial dominance of the real economy, America
is a land rich in "highly confident" letters and land-flipping
expertise but poor in manufacturing innovation and in affordable housing.
Financial firms claim a growing portion of our public resources--like the
S&L bailout--and provide pitifully little of public benefit in return.
Despite the depth of our financial wounds, a smug orthdoxy rules the intellectual,
journalistic and political roost just as complacently as it did 100 years
ago. However, beyond this ruling myopia, many Americans are ready to challenge
our nation's financial status quo and repair the damage it has inflicted.
A century after Charles Macune unveiled his sub-treasury plan, two dozen
leaders of farm, labor and civic groups convened in St. Louis to discuss
a contemporary program for financial reform. Nearly all the participants
came to the meeting through their involvement in the Financial Democracy
Campaign, a grassroots effort that came together seeking a fair and sensible
solution to the savings and loan collapse.
As Congress deliberated the S&L bailout, hundreds of organizations representing
millions of citizens joined the Campaign. So did thousands of individuals
who tuned in to radio and tv talk shows, signed petitions in churches, shopping
malls and conferences. What attracted them was the Campaign's insistence
that the beneficiaries of financial deregulation ought to pay for its ruinous
consequences. It also insisted that any solution to the S&L mess had to
be a solution to the nation's housing problem -- the very need S&Ls were
created to address.
Eventually grassroots pressure helped convince Congress to add provisions
to the bailout that reduce mortgage borrowing costs for many average citizens
and give many more a first option to acquire or rent foreclosed homes in
the burgeoning federal inventory. The legislation also made it more difficult
for lenders to arbitrarily redline borrowers.
Despite this silver lining, most Americans took a licking in the bailout.
Taxpayers were handed the bulk of a $300 billion-plus damage bill inflated
by deceptive and unnecessary financing schemes. Meanwhile, wealthy individuals
and financial firms received a treasure chest of benefits. The lasting lesson
of the Financial Democracy Campaign was that citizens have a long way to
go in assembling the themes, strategies, policies, projects, intellectual
wherewithal and sustained political energy to broadly change the customs,
laws and practices -- both domestic and international -- that define the
marketplace for credit, capital, currency and other financial products.
Real financial reform isn't likely be realized quickly; it probably won't
be accomplished at all without an appreciation of its rich antecedents in
American history. So to commemorate the 100th anniversary of the Populists'
St. Louis convention, we presented a panel discussion of "Democratic
Money: Past and Future" at the end of last December's strategy session.
The featured speakers were historian Lawrence Goodwyn and journalist William
Greider, two writers who through their tenacity, investigative skill and
independence, share the rare distinction of persuading American culture
to think twice about some embedded habits of thought.
Lawrence Goodwyn is professor of history at Duke University where he co-directs
the Oral History Program. A native of Texas, Goodwyn was an editor of the
Texas Observer and a member of U.S. Senator Ralph Yarborough's staff.
In 1976, Goodwyn published his landmark history of the Populist movement,
Democratic Promise. The book shattered a one-dimensional historical
consensus that had written off Populism as a reactionary hayseed campaign
for free silver. By showing the Farmers Alliance as a complex and sophisticated
insurgency, Goodwyn's book set a new standard for understanding social movements
William Greider is national affairs correspondent for Rolling Stone
and a correspondent for PBS' Frontline documentary series. For many
years a reporter and assistant managing editor at the Washington Post
Greider has written several books including The Education David Stockman.
With the 1987 publication of Secrets of the Temple, Greider singlehandedly
revived, enlivened and deepened a dormant public discussion about one of
America's most powerful public institutions, the Federal Reserve System.
Cutting through the familiar bromides and expert fogs that obscure monetary
policy, Greider's book painstakingly casts light on the Fed's political
roles and the consequences of its economic decisions on citizens' daily
To pay their respects to Mr. Macune, both presenters took time from longstanding
writing projects. Lawrence Goodwyn is completing a book on Poland and the
rise of Solidarity that will be published by Oxford University Press late
in 1990. William Greider is beginning an ambitious book on how America is
really governed. In addition to them, we also thank Local #36 of the Sheet
Metal Workers International Association for providing the "Democratic
Money" panel its excellent facilities. LeRoy Kraemer, business representative
for Local #36, was especially helpful in St. Louis as were Art Martin, Ben
Senturia of the Center for Active Citizenship, John Hickey of ACORN and
Pat Harvey of the Missouri Citizen/Labor Coalition. Ken Meter, Kay Alexander
and Bob Hall rendered invaluable assistance in producing this booklet.
Let me say that in my profession, you get acquainted with error. Historians
study error. You might even say we study the continuity of error. It is
a very sobering occupation. We discover that it is more consoling to develop
a long angle of vision. If you focus just on one generation you may not
find enough there to warm the spirit. Better to have four or five hundred
years in your gaze and be judiciously selective within that period.
All kidding aside, there are certain rhythms that become clear over the
long view. First of all, in all human societies, almost all the people,
have deep, substantial grievances. That's rhythm number one.
Rhythm number two is that despite this universal sense of loss and injustice
and injury, the number of large-scale social movements that exist in human
history is very small. In our country the CIO mobilization of the '30s and
the Agrarian movement of the 1890s -- Populism -- were the only movements
after the Revolution that achieved genuine scale, if one measures movements
by their level of internal organization.
It's possible to say, "my goodness, the history of agriculture in America
has been one of a systematic exploitation of people on the land by people
who lend them money and by people who sell their products." Can it
be that only in the 1890s farmers got together to try to do something? How
about the 1870s or the 1840s, or what about 1924 or 1935? Looking back over
the history of workers in America, one encounters an absolute agony in the
industrial heartland from the end of the Civil War through the Great Depression.
Is it only in the 1930s that "workers got mad" and decided to
do something about it?
How do we explain the fundamental disjunction in human history between the
widespread existence of grievance and the very rare collective assertion
that we find? The answer to this is appallingly simple: Large-scale movements
happen when they're organized. They happen no other way. And the reason
that they're not organized more often -- we have people in the audience
whose lives will verify this--is that large-scale movements are agonizingly
difficult to put together. The entire culture of a society is arrayed against
the idea of large-scale collective assertion.
The first duty of a revolutionary when he comes to power is to put down
his gun -- that is to say, his immediate objective is to proceed with the
business of creating a society where he can put his gun down. The first
step is to take control of the past and use it to justify the revolution.
American history in that sense begins with the Declaration of Independence.
There are 32 paragraphs in that document and 29 of them denounce King George
III as a tyrant. It is a classic historical justification of a revolution.
We can look back on this and say, "You know, among European monarchs
in the eighteenth century, old George was pretty benign. How about the Hohenzollerns?
How about the Bourbons?" Well revolutionaries are not in the business
of judicious distinctions. In 1776, in the name of the social objectives
of the Revolution George III is a tyrant, 29 times a tyrant.
The second duty of a revolutionary is to create a culture in which ideas
beyond those of the revolution are impossible to have, a culture in which
it becomes difficult for people to imagine structural change. If this condition
is not achieved, those who rule need lots of guns and secret police to keep
everybody in line. Social space evaporates and society becomes rigid. Of
course those in power don't look at it this way; they prefer to name the
Rigidity can also be the governing reality in societies without ubiquitous
secret police forces, in societies that pride themselves on their flexibility
and openness. Future historians will look back and see much more of this
rigidity in the societies of the twentieth century than we ourselves can
summon the poise to see. They will see enormous systems of centralized bureaucracy
atop an economic structure of large-scale production, and they will say,
"What a narrow century the twentieth century was. It was the least
creative political century of the last three."
Future historians will be able to say that for most of the twentieth century,
until around 1990, there were only two ways to think. One was either a communist,
whatever that meant, or one was a capitalist, whatever that meant. The highly
stratified industrial societies of the twentieth century were characterized
by anxiety, deep brooding anxieties that intruded into and suffused the
lives of hundreds of millions of people. They wore social masks to conceal
their private anxiety. Publicly, people announced that they lived in the
best society in the world, that they were "practicing democracy"
or "building socialism." But privately they said, "You can't
fight city hall ... the rich get richer and the poor get poorer...all politicians
sell out," or (with their teeth considerably more grimly set when they
said it) "You can't fight the Party...the Party gets all the goods...the
I do not suggest for a minute that the social distinctions between life
in a Leninist party state and life in a corporate-dominated state are inconsequential.
As a result of long centuries of political struggle culminating in the Revolution
of 1776, one has a Bill of Rights that has authentic cultural meaning in
the daily lives of the citizenry and the other does not. But it is also
necessary to say -- as future historians will be at pains to point out --
that these differences, while vastly important, do not mean that one society
has achieved democratic social relations while the other had not. Congratulating
ourselves for past achievements is not helpful if such folkways have the
practical effect of blinding us to the political implications of the alienation
that pervades our daily lives.
Observe what happens if we put aside public pretense and apply serious democratic
standards to twentieth century life. Democratic social relations: can we
conceptualize a democratic marriage? A democratic workplace? Can we conceptualize
a democratic system of money, credit and exchange at the heart of all our
material relations, operating not for the benefit of bankers but for the
benefit of society?
Judging by the politics of the twentieth century up to now, future historians
will have to conclude that these concepts were not politically admissible
within the received culture of American democracy. People did not act politically
as if they thought they were admissible.
So it's a very narrow century, politically speaking. Well, 112 years ago,
a small group of people, not very different from the people in this room,
met together. At their first meeting, they had seven people. Despite the
fact that they had a number of deep economic anxieties, they had a sense
of self and they talked to each other about trying to do something about
their lives and their plight. They created what they called the Farmers'
Alliance. And in due course they titled it (they were Texans and that introduces
certain regional malfunctions) "The Grand State Farmers' Alliance."
I think they got the word "grand" in the title because they were
Now the opportunity they possessed 112 years ago was that they could talk
about the society and the system of finance. There was an existing literature
called the Greenback doctrine. But they had a recruiting problem. This is
sort of a big kitchen that we're in today, and we're sitting around the
kitchen table analyzing American society. We're grumbling about the Republican
Party and the Democratic Party and the local institutions that are not functioning.
We could say such things to ourselves as, "Well, there are three institutions
in America that house American workers. The Roman Catholic Church, the black
church, and the American trade union movement. Those three institutions,
plus us, are victimized by structures of hierarchy in the United States
that systematically transfer income from the very poorest to the very richest.
And the name of this structure is American democracy."
Sitting around the kitchen, we may tell ourselves that these three institutions
that house victims are not internally organized to do anything about it.
They're not quite sure who stole the goods. It's sort of awesome to say
that both major parties stole the goods. It's sobering to think that something
called "Wall Street" stole the goods. We wouldn't want to speculate
that that great reform institution -- a product of populist agitation but
certainly not anything the populists wanted -- the Federal Reserve System
now persists as an instrument of stealing the goods. We can't have people
who donate money to the Episcopal Church and then pay their taxes and wear
proper top hats and coats being part of the structure of stealing the goods.
The reason we don't want to make this indictment is that it's too sweeping.
It breaks the paradigm in which we are trained to think. It produces speculations
that are not culturally admissible around dinner tables or even kitchen
tables. To the extent that we can create a conversation in a room like this
and develop a level of candor, of analysis; to the extent that we think
there's nothing we can speculate about that would be subversive or unpatriotic;
to the extent that we can create intellectual space to be serious about
our society -- then two contradictory things occur. Number one, we're enhanced
by the sheer authenticity of the conversation. Second, we're depressed by
the discovery; if what we know is true, how are we going to persuade those
people out there, otherwise known as the Americans, to think seriously about
the state of the Republic?
We have a recruiting problem. Here we are in the kitchen, sitting around
the table, talking, and out there are the suffering multitudes. What is
the connecting link between us? Well, let us go back to 112 years ago. Their
situation is perfectly analogous to ours. They looked for a recruiting device
and they found one. The collective problem of farmers was lack of access
to credit they could afford. They were paying 30, 40, 60, 80 percent --
sounds unbelievable, but you might be paying more for credit today than
you know; we may have reached the Biblical level of usury some time ago.
In any case, these co-ops they created were going to try to do for the farmers
collectively what they could not do individually: gain access to credit.
People joined the Alliance Co-op and the Alliance grew. In a county there
would be hundreds of suballiances of 20-50 people each. And each one had
a lecturer who would help them analyze the world. And there were 250,000
members in Texas and 140,000 in Kansas and 130,000 in North Carolina. Eventually
the Alliance penetrated into 42 states and there were 2 million people who,
in effect, developed a new way to think.
Along the way, in their struggle to get large-scale co-ops functioning,
they discovered that the banking community in America did not cooperate.
They discovered, too, that that the problem of the Alliance was the problem
of individual farmers: lack of access to credit. One of their number, Charles
Macune, felt the pressure of this failure more acutely than anyone else,
because as spokesman for the Alliance he had made projections for people
-- "join us, and collectively we'll try to change the way we live."
And he was not able to deliver on his promise. He'd tried a thing called
the joint note plan and it hadn't worked; again the bankers wouldn't cooperate.
So in the summer of 1889, brooding about the political trap he was in, brooding
about the plight of the nation's farmer, brooding about the structure of
the American economic system, he came to the Subtreasury Plan -- which doesn't
need to be explained in detail here. What needs to be suggested is the Plan's
one compelling breakthrough, which is just as logical and humanitarian and
democratic now as it was then. He thought you could mobilize the capital
assets of the nation in an organized way to put them at the disposal of
the nation's people.
That is a democratic conception that is not on the stage of contemporary
debate. It is too broad; it is beyond our imagination. That is not on the
agenda of the Democratic Party or the Republican Party. In fact, we're in
an era where those tiny pieces of the capital assets of the nation that
somehow were smuggled to sectors of the society that are not rich are slowly
being shipped away. Since 1980, the lowest 20 percent of the American people
in income have had a real income drop of 9 percent. And the top 20 percent
of the American people in income have had a real income gain of 19 percent.
And the top 10 percent of that 20 percent have had a real income gain of
In the last nine years we have witnessed the largest redistribution of income
in American history; that is, from the very poorest to the very richest.
And there's no institution of large scale in the country that says this
central economic fact of our decade should be at the center of public discussion.
Now that's stability. That is the creation of a culture so narrow that no
one in the seats of the mighty need tremble because some serious people
have gathered in a union hall in St. Louis on a Saturday morning to speculate
on the possibilities of a democratic society. They are not nervous on Wall
Street this morning. And if they are it's because of their concerns about
their own actions, not ours.
There is another society in our time -- what we call "the East,"
what we sometimes call "actually existing socialism." For about
40 years, since Stalin imposed this system on whole populations, an idea
floated around in people's heads over there, in "the East." The
idea was, "We will try to create some space where we can talk to each
other and affect the world we live in. To do that, we're going to have to
combat the leading role of the Party. We're going to have to find some way
to get around the fact that all the social space in society is occupied
by the Party."
This idea would float around kitchen tables on the Baltic coast in the 1950s
and 1960s. And workers in shipyards would say to each other, "We have
got to create a trade union independent of the Party." Now that is
an unsanctioned idea. And they knew it was frightening even to say it out
loud; you'd only say it around the kitchen table, around carefully selected
brethren and sistren. And the idea would go away, because it was unsanctioned.
But then there would be another horrible accident in the shipyard, another
insane adjustment of work routines, and the idea'd come back, simply because
it was the only idea that made any sense. "Work organized by the Party
is insane, Poland is insane, our social life is insane. We've got to have
a union free of the Party."
Over 35 years of self-activity the world has not known about -- any more
than the world knew very much about how the Farmers' Alliance organized
Populism -- they found out how to do it. And in 1980 they did it. There's
a certain logic in history every now and then. The single most experienced
organizer in the shipyard in Gdansk, Poland, who spent 12 years organizing
and brooding about a union free of the Party, who had gone to jail scores
of times in the decade -- learning each time a little bit more about how
power worked in his society -- the one single most credentialed worker with
other workers based on his own activity, is Lech Walesa. There is every
now and then a certain justification in history.
Because that movement existed, even though it was repressed by the government
after 15 months, it sent a wave of hope across Eastern Europe. What Solidarnosc
combatted, by its simple existence, was mass resignation. This resignation
was the dominant political reality in Hungary, Czechoslovakia, East Germany
and Poland until the shipyard workers of Gdansk became the nucleus of a
mass movement, one of those rare moments in human history when people get
back in touch with their own subjectivity. That is to say, they don't lie
in public. They say what they mean. And they try hard to say it clearly.
They're not trying to make a speech, they're not trying to be an orator.
They're trying to be clear, like two people in a marriage struggling not
to be political with each other but to be honest. One of those rare democratic
moments when reality is projected.
Because Solidarity stayed alive during the years of martial law, and because
a man named Brezhnev who put down Solidarity passed off the stage of history
and another man named Gorbachev who would not put down Solidarity came on
the stage of history, the leading role of the Party this very week is going
into the dustbin of history all over Eastern Europe.
What if we were to suggest to the American people that we can't do anything
about the homeless, we can't attack the crisis in the cities, we can't do
anything about the inability of the children of unionized workers to own
a home of their own because America has been sold to foreign creditors,
because it's being de-industrialized -- we can't do anything about any of
these matters if we don't democratize the financial system in this country?
In other words, we can't do anything until we get back to being as advanced
as we were in 1889 in this city when the subtreasury system was first introduced.
We can't suggest it because that idea is too much. It's too advanced; it's
not properly modest. "Why, you people sound as if you're as crazy as
those people in Eastern Europe who want to overturn the leading role of
the Party." But if you have the long-distance view, if you say,"Give
ourselves 20 years. Let's see if we can begin the process of educating ourselves
and the American people about the idea of a democratic system of money that
will save what is left of the American family farm, that will pump life
into the cities, that will permit the young to dream that they might own
a home of their own, that might somehow begin to chip away at the culture
of corruption that is now the norm in public life..."
If we can do that, if we can say what we know clearly and endeavor to act
quickly and firmly on what we say, then I think we're living a valid political
life. We may not change the world. But then again we might. Some Polish
shipyard workers offer us an intelligent guide to authentic politics. The
choice -- to speak clearly, to act -- is ours alone. As for result, we'll
let future historians judge that. Our work is now.
We sat in this room, about 25 of us, for the last two days looking at those
words "democratic money" and talking about exactly what they mean.
Pat Barry from Seattle said, "Well, I know democratic money; it's money
I can put my hands on!" And you know, that's not bad for a shorthand
It is perfectly plausible for the financial system of this country to put
money into people's hands, to make credit available for ordinary Americans
at rates they can afford. The economy could be managed prosperously and
equitably, serving all groups -- not perfectly, but with some sense of justice
that we would all recognize.
There is no physical reason in economics why that can't happen. There are
huge, intimidating political reasons why it did not happen in our history.
In fact, at the very center of our politics is this subject, called "money
and the regulation of credit, that we have been told we can't talk about.
We are, all of us, literally educated into ignorance on this subject. We
are told we don't have the credentials, the expertise, the language to talk
about these things. A few minutes ago, I spoke with two people in the back
of the room who told me things about the St. Louis economy and asked questions
about monetary policy that were right on the money. But both of them felt
the necessity to say, "I'm not an economist." Let me turn that
around: We are all economists, in the true sense of the word.
What stymies us is the notion that there is some great economy in the sky.
There's a larger economic calculus that, even though it doesn't work for
us, somehow works for society as a whole. It's just that we don't understand,
or appreciate, its superior logic.
Finance isn't simple. It'd be silly to pretend otherwise. But everybody
in this room, if they had the time and the commitment, could understand
the conceptual structure of our financial system or how the Federal Reserve
functions. If you can understand pro football, you can understand monetary
As practicing economists, what do you bring to the discussion of money and
credit that the experts often don't? Each of us has our own sort of native
values, common sense, what we learned from the Bible as children, what we
learned from our mothers about what's right and wrong. Those are all economic
ideas, though the way economics is organized all of those things are excluded.
However if you bring what you already know to the subject of finance, it
will lead you to the conclusion that this system is not only not functioning
in our interest, but it really offends our deepest values in profound, continuing
Let's look at an example. We have a housing crisis in this country. It's
on the streets of every city and town in America. And it cuts across the
broad middle class because the younger generation is literally being priced
out of owning a home. In the last decade, the so-called "baby boomers"
entered the housing market and we fell way, way short of housing to accomodate
them. The results have pushed every way through the society, up and down.
Nobody got up and asked, "Shall we abandon the commitment to home ownership
this country made after World War II?" It just happened, mainly through
the deregulation of finance and the Federal Reserve tromping on the economy
for 10 years. You haven't read it in your local newspaper or in the Washington
Post or the New York Times, but the chairman of the Federal Reserve has
confirmed in open testimony that the interest rates of this decade in real
terms -- that is, when discounted for inflation -- are the highest of this
century. To most of you that probably sounds counterintuitive. You've been
told over and over that after Jimmy Carter left town, interest rates plummeted
and everything was OK. Literally the opposite is true.
By pushing real interest rates up, the government -- through its policies,
without debate -- is worsening the housing crisis. High interest rates drive
people out of homes and suppress the demand for housing construction. Homeowners
and homebuilders can't carry the load. Even the barriers to credit that
bankers have erected for have-nots -- "You don't have enough cash,
you don't have a reliable income"--are just another way of saying,
"You can't afford these interest rates."
Where's the debate on these issues? As the Federal Reserve raises rates
and the housing industry sinks, the only discussion is among economists
haggling, "If the housing industry is off by 25 percent, is that a
recession? No, that's not a recession because it was much worse in 1982.
And besides, most of the people who want houses already have bought one."
Take another example. We need an economy expanding at a pace that creates
jobs and allows real wages to rise instead of fall. We all know wages in
real terms have been falling for the last ten years and more. But at a certain
level of our society -- namely, at the Federal Reserve and Wall Street investment
houses and other places I've been as a reporter -- the decline of real wages
is cited as one of the triumphs of the 1980s. Those who are less subtle
will say, "Those workers in Pitttsburgh and Detroit and St. Louis all
have three cars. They're going to be fine."
Others will say, more sympathetically, "It's a shame that real wages
have to decline, but that's the only way for this country to get through
the next 25 years." And they're not joking about the next 25 years.
They believe that American workers must adjust to world wage standards driven
by the labor market in Bangladesh.
I say to them, as the bleeding-heart reporter, "Do you have any idea
what that's doing to people in this country? Have you been to any of the
places where the most visible consequences of your actions are playing out
in lives? And whether you care about those lives or not, don't you see yourself
setting up a really ferocious political fight in this country when people
finally wake up to what the game is?"
And their answer is: "Well, it's been going on now for 15 years. We
keep electing Republicans and everything seems to be holding together pretty
well. In fact, the American people have been real grown up about this. They've
absorbed the decline without much of a squabble."
You know what? They're right, on that political point. I still believe that
their day of reckoning is coming; but I have to concede it ain't here yet.
Meanwhile, the real policies our government sets -- and I distinguish the
real policies from the rhetoric of political debate -- is making this problem
worse at this very moment. A year ago, I was talking to a United Auto Workers
group and said with total confidence, "You are going to get layoffs
in the summer and fall. You're heading into a big contract season and you're
going to be in the worst possible position because of what the Federal Reserve
is doing right now. And you're not even privy to a debate over the Fed's
decisions." Now we are seeing the prediction fulfilled.
The reason I knew that was quite simple. The Fed was deliberately pushing
up rates in 1988 and into early 1989; once they've pushed up short-term
interest rates to a certain point, the experience is predictable. The consequences
feed through the economy and hit those industries -- particularly manufacturing
and agriculture -- that are very sensitive to interest rates. They retreat
from the marketplace. They don't have any choice; they literally get priced
out of the market by their own government.
That's what the Fed wants to happen. They have a long, elegant argument
as to why that's good for all of us. But if the government is going to do
this to people -- and do it to certain sectors with considerable harshness
-- in a democracy do we not at least owe those people fair notice? Is that
too much? Couldn't these various parties who are about to be victims of
government economic policy at least be told that certain things make this
Now, of course, the opposite is the case. The Fed understands perfectly
well that if it announced what it was doing, it would set off certain reactions.
People would say, "Hey, wait a minute, let's go back and look at your
reasons a little more closely. We know what's happening to us. Let's sit
down at the table and argue a little bit about what's really good for the
That debate, like the others I mentioned, does not occur in any place, in
any form. And that's not an accident. Once you recognize that this great
big ball in the sky called economics is in fact politics, you recognize
it's an argument that in a democracy has to occur among different perspectives,
different interests, different levels of wealth and status.
There are many places where the argument can be joined. The closest thing
that exists in America to a public debate over the Federal Reserve and monetary
policy is the credit markets column in the back of the third section of
the Wall Street Journal. Unfortunately the only people in the debate are
bond traders on Wall Street. If you follow that column, one of the things
you read repeatedly is, "The economy is too healthy, the economy is
too healthy. We're in danger of too much growth. Unemployment is falling!"
They're talking to themselves. None of us are listening, right?
Well, what if you called up the reporters who write that column and say,
"Hey, you know what the sheetmetal workers think about monetary policy?"
I guarantee you, they would say, "Well, gee, why do you care?"
Then you could explain it for them; since they're decent human beings, they'd
listen to you. They might even quote you in the credit markets column.
Those of us who believe in the idea of democracy are confident that once
a large number of informed citizens join the financial debate, we'll get
a profoundly different outcome than the one we have now.
What would democratic money look like? For starters, we need to re-regulate
the financial system. That means reinstating limits and controls on financial
institutions--not just S&Ls but commercial banks, investment houses and
all the other players.
Those rules would do two things. First of all, they would impose some safety
and soundness so we don't have to keep bailing out these guys time after
time. We want a sound financial system, nobody's quarreling with that, but
it's out of control because of deregulation. The smart people on Wall Street
Second, the rules would reassert principles that were alive in this country
30 or 40 years ago. Finance is a part of the social fabric of this country.
It is not a free marketplace that allows accumulation on one side at the
utter ruin of the other side. In a democracy, the financial system has to
reflect national priorities and social values.
Exactly what are those priorities? I mentioned housing. If you're familiar
with the housing industry, you know that from World War II on, S&Ls and
limits on interest rates were designed with a social purpose--to stimulate
housing construction. The goal was to make home ownership as universal as
possible. And for 40 years it worked.
It is not complicated to adjust the financial system today to make sure
there's enough capital available for housing. You do it by driving down
interest rates for first-time home buyers and by building a lot of housing
in cities so that we get homeless folks off the streets. Those things are
all quite doable.
We can also design a new set of controls to curb inflation without punishing
the wrong people. The system we have now literally scapegoats certain sectors
in the society--manufacturing, labor, farmers, oil, a few others--when somebody
else is inflating their prices. Attacking inflation selectively, in the
appropriate areas of our economy, also is very doable.
Those are the simplest kind of social goals but there are many others --
industrial redevelopment, community development. We could all make a fairly
lengthy list of our priorities for this society and design the ground rules
that compel the financial system to serve these priorities rather than subverting
Finally at the core of this, I mentioned the Bible. Larry mentioned usury.
The evolution of capitalism involved societies overcoming their moral inhibitions
and convincing themselves that lending at interest is a creative process.
That's what they argued about in the Middle Ages.
For several generations, we've been taught by economists that usury is an
archaic word that has no real meaning in economics. Their view is that usury
is a crime without victims. "If somebody wants to lend me money at
100 percent interest, I'm a free citizen; I can take it or leave it. If
I go blooey, nobody gets hurt but me."
The reality of our economy, of course, is that most people don't have a
choice. In the 1880s, farmers didn't have a choice of whether they would
pay 35 percent, or 50 percent or 100 percent to plant their crops. Not paying
the interest rate meant not farming.
Our society is organized very much in the same terms. Not only at the individual
level but within corporations, where most of us live. For most enterprises,
the decision to accept or reject the interest rates of this decade is really
a decision of shall they continue in business or shall they throw in the
towel. Most individuals and most businesses, not surprisingly, choose to
go on and take their chances. Many were destroyed.
Here's an illustration of how this works across the economy. If the level
of real interest rates that everybody is paying every year on their borrowed
money is running at five percent, and the economy -- everybody's return
and output--is growing year after year at, say, three percent, there's a
two percent gap. We've got to reach in our pockets as a nation, every year,
and pay an extra two percent out of our savings to make up that gap. To
cover those lost savings, we then have to borrow again the next year at
five percent and our return--that is, the growth of the economy--will once
again only reach three percent. Year after year, you have to come up with
more money to pay the interest. That's why America's assets are being sold
to foreign investors.
The farm crisis in the 1980s was a classic case of what I'm describing.
Corporations that have been taken over in highly leveraged transactions
are up to their ears in debt, and every month they've got to pay the banker.
They don't have any choice, any more than you or I have a choice. How do
they pay the banker? They cut costs. What does that mean? It means close
the factory, sell the equipment and send the workers home. And go borrow
So the coporation is getting smaller and less productive in order to keep
up with its lender. Sure, there are some corporations, just as there are
some individuals, who stay ahead of the game. But if you do that long enough
across a whole society, the economy will sink under the burden.
That's literally what's been happening in this decade. It's an inexorable
process. If it continues, we will continue to see financial crises, failures,
recessions either regional or national in scope and all the other deleterious
effects as more debtors fail. I think that's an inescapable formula. Most
economists, while they would have a much rosier view than mine, would not
dispute the logic.
But I have a better authority than them. If you strip away the different
definitions of usury advanced by Judaism, Christianity and Islam, the essence
of each is that it's immoral to allow an ongoing credit transaction which
is guaranteed to doom the borrower. Roughly speaking, that's what we are
permitting now. It's happening in a less distinct way than in the 1880s,
so people have a much harder time seeing it. But like most of the great
moral principles articulated in the Old and New Testaments, this one is
grounded in social reality. A society cannot endure under such a self-devouring
Reason would tell us we've got to find a way out of that regime. Unfortunately,
you can't very easily go to a congressional committee and make the usury
argument in the words I have used. If you tried, it would fall on utterly
opaque minds, because they are also very ignorant. And I say that with some
sympathy; politicians are trapped in this system as much as anyone else,
and they too have been educated into ignorance. They don't see the way out
Most people at the very top of our government -- presidents, their economic couselors, the Congress--are utterly innocent of how this system works. As a reporter I've seen that again and again. The closer you get to the inner room, the more you see human confusion, error, misguided intentions. They're as fallible as the rest of us.
At most three dozen members of the House and Senate genuinely understand monetary policy. The system is designed that way. Constituents will come to their representative's office and say, "The Fed is closing our plants, it's crushing our farmers," and he'll say, "That's terrible, I'm with you." Then he'll take to the floor of the House and denounce the Federal Reserve in the most flamboyant language. Well, the Fed understands that part of its role in the system is to be the public scapegoat occasionally for doing things politicans would get un-elected if they did.
Most members of Congress are quite unconscious of how they play out these charades. As soon as the Fed changes course and a recession begins to subside, the Congress falls silent and nothing has been changed. They haven't reformed the Fed, they haven't democratized it, they haven't pursued any of the questions their constituents wanted pursued. Until the next recession when they make the same speech again.
I don't think our political leaders are going to see their way out, frankly, by reading my books, or Larry's, or by listening to our speeches. The only way you can educate them is to begin humbly in places like this by convincing average people that they're perfectly capable of taking this stuff on if they trust their own common sense and values and have the guts to assert them. If enough people begin to do that, you'll then have a voice that can speak to the system with the logic of truth.
I don't think I'm revealing anything when I say that reformers wading into this turf put themselves up against the most powerful political interests in this country. As Larry said, you look at the reality and you get depressed. Amen. That is the first reaction, but there is this counterweight.
If you ventured round the country, you would realize you are not alone -- that there are many different interests, not just trade unions, workers or poor people but corporate CEOs, homebuilders, insurance agents who share your views. There's a world of people out there that if presented the same six facts, would agree with you on five of them, maybe six.
That's the counter to entrenched political power. It may sound naive, but I read Larry's history books and I believe them: if you can tell the truth about these things, that can become power.
Copyright 1990, the Southern Finance Project of the Institute for Southern Studies.
Progressive Populist Home Page
News | Current Issue | Back Issues | Essays | Links
About the Progressive Populist | How to Contact Us
Copyright © 1995-1996 The Progressive Populist