by Robert Teitelman | Published December 17, 2010 at 2:17 PM
In The New York Times today, Floyd Norris conjures up the unquiet ghost of Texas Congressman and Federal Reserve-hater Wright Patman in a column about similarly unquiet, if clearly alive, Fed-hater Ron Paul. You could see this coming; not to beat my own hollow chest, but I wrote about the inimitable Patman with the first populist stirrings four years ago. What Norris does well is elucidate the differences between Patman, who died in 1976 after the high tide of post-Watergate liberals swept into Congress and took away his perch running the House Banking committee, and the libertarian Paul. Both hated the Fed for its secrecy and what they viewed as its vast reach and power; both saw the central bank as a particularly pernicious outgrowth of economic freemasonry. But Patman wanted the Fed to loosen, to print money and to inflate; this position didn't do him much good in the '70s when inflation was raging and the economy was failing. Paul is a classic hard-money zealot. He believes the only true store of value exists in gold and silver, and he would like to replace paper money, the Fed and anything else that separates mankind from the metaphysical bedrock of monetary value.
What's interesting here is how these two Texans -- Patman and Paul -- represent extreme versions of two opposed notions in American history: loose money and hard, inflation and deflation, paper money and gold. This dispute most famously erupted in the great battles between silver (Democrats, famously William Jennings Bryan) and gold (Republicans) in the late 19th century. The opposing sides in that great battle, which remains mysterious to most students of American history, consisted of Western interests, which wanted the free mining of silver in order to inflate the economy and fuel development of vast tracts of land and the hard money gold-bugs of Wall Street and banking, which wanted to restrict the money supply. This was really an argument from self-interest. Indebted Western interests, built on agriculture and ranching, would see their debt fall in an inflationary climate. Wall Street at the time, a tight oligarchy, wanted to retain the value of its wealth.
This is of more than simply antiquarian interest. Since the '20s, Wall Street has edged away from its obsession with gold and hard money. The Federal Reserve after World War II received the mandate to achieve full economic growth, and adopted Keynesian countercyclical monetary policies. The gold standard fell in the '30s, and Nixon snipped the last link to a gold-backed dollar in the '70s. Wall Street itself, particularly after the '70s, developed into a vast liquidity machine, which eventually proved to be a bubble generator. The argument against Wall Street in the Gilded Age was that it was the province of rich misers; today it's that it's a free-flowing, out-of-control casino.
In short, while Patman lost his job in the mid-'70s, the world has become more Patmanesque, in a monetary sense, than not. What was the mortgage bubble but among other things leverage-related, a vast attempt to provide homes to the less well off by creating asset inflation? (There's an interesting line of descent here. Patman was replaced on House Banking by another Texas Democratic Congressman -- my there are a lot of them -- Henry Gonzalez, a Lyndon Johnson disciple whose real political mission was, well, housing.) The fact is, for all the current hand-wringing, liquidity is generally a popular political platform, and has been since the decline of the hard-money Republicans with the coming of Franklin Roosevelt. (Hoover was really the last of a line, but even he had fallen from the hard-money heights of McKinley, who of course defeated Bryan and his "cross of gold.") In a mass democracy, a loose monetary policy is always appealing to many, many people. The great example: As soon as the banks got bailed out, skirting disaster, the cries that they were not lending began to be heard. This urge was the source of a classically liberal theme going back to the Progressives: If private interests won't do what's necessary, then public interests must step in. It's the argument behind regulation and the administrative state.
All this is a long excursion to get to a point that's pretty obvious: Despite the Tea Party, Paul's notion of gold- and silver-backed currency is a nonstarter in this democratic (small "d") wonderland of ours. It has to frighten his Republican brethren to death, because they know that that kind of draconian step an unleashed Paul might take would tighten lending to such an extent that unemployment would soar, companies would fold left and right, growth would stall, and we would be faced with a situation that resembled 2008 all over again, without the means to escape: a credit crunch without end. It's electoral suicide. For all the comparisons between our benighted era and the Gilded Age -- and many are valid -- there is one huge difference: We like our money loose and very liquid. We're not going back. Somewhere, Wright Patman is smiling. - Robert Teitelman Share: blog comments powered by Disqus