Last night was a night in which the families gathered for the bi-weekly Sunday evening dinner, an event which has preceded the birth of a now-fourth grader and is seeing the eldest of the two broods’ half-dozen kids interview for a graduate position in chemical engineering. As kids now move in and out with college and schedules, it’s fascinating when the elder ones return because you can gauge how their thinking is changing. The eldest, the soon-to-be college graduate, was in town and as happens with his presence, the conversation moved to national politics. He’s a conservative republican cut from the Alex Keaton mold (yeah, Google that one) but his politics have mellowed a bit as he’s encountered more of the real world.
We discussed the Republican field and it became clear that despite his preference, he was most interested in a Republican who was best able to beat the incumbent. My own opinion is framed by a sense that we’ve officially entered a new age of Robber Barons – yes, I plan to read Janet Tavakoli’s The New Robber Barons after finishing Matthew Josephson’s 1962 history, The Robber Barons – as the MF Global mess has demonstrated how badly the rule of law has been damaged. In this view, the best means of handling the situation and beginning to heal is to aggressively mete out perp walks to those found guilty of fraud and financial malfeasance. The young man looked at me and while I stated that I would prefer another of all of the present candidates, my own preference for a candidate was Andrew Jackson. We’re at the stage that the fraud and financial control has become so entwined with governance and the economy that remedying it will require significant pain, akin to undergoing tapeworm removal without benefit of anesthesia; any leader willing to perform such a surgery is someone with a firm sense of right and wrong, the ability to understand the repercussions of not doing the surgery and the courage to withstand the coming firestorm of criticism. I can’t speak for any of the others, but I do know that Jackson did handle a similar situation in our history with the Second Bank of the United States. At a minimum, it contributed to the Depression of 1837, which was itself called the Great Depression by those prior to the 1929 event.
The Second Bank of the United States, a Federal period forebear of the Federal Reserve System, was chartered in 1816 to act as a bank for the nation; it’s charter confirmed that it’s role was to help maintain and regulate a strong currency so that the scattered individual state banking laws were strengthened and standardized. It provided credit to many state banks and held their deposits as well. Like today’s Federal Reserve System, it was an entirely private entity and was perfectly capable of turning a profit for its shareholders and directors. Unlike today’s Federal Reserve System however, the Second Bank of the United States was far more conservative in its management of the currency; today’s Fed governors would be akin to the frontier state bankers and politicians who favored the easier creation of money to fund the exploration, expansion and settling of the frontier. The kicker to the bank’s creation was an that it’s charter was only for twenty years, a political feature designed to placate the original opponents; at the end of twenty years, the charter would be renewed by Congress if it deemed the bank’s performance successful. The federal government itself provided much of the Second Bank’s backing by making it the sole depository of all federal government funds, giving it a huge leg up on everyone else.
Fast forward to the early 1830s and a congressional committee found that the bank had fulfilled its function. However, Jackson – a populist democrat – was bothered by commentary from the bank’s directors as to how much power and pull that they truly exerted and felt that leaving such a function in the hands of a private entity was ultimately fatal to the public good. He vowed to veto the charter’s reapproval. The final conflict came when the bank’s chairman, Nicholas Biddle, decided to put the screws to Jackson for his stance and actually began to pull the credit that it had extended to a number of smaller banks. Cut off from funds, these banks were unable to meet the demands of depositors and a series of bank runs – directly resulting from Biddle’s actions – ensued. An enraged Jackson, and it didn’t take much to anger him in the first place, responded by pulling the government’s deposits from the Second Bank, thus radically diminishing the bank’s strength and ability to extend credit even when necessary. The Second Bank lingered on for several more years before it finally went bankrupt.
Present scholars still debate whether Jackson’s actions actually caused the Panic and Depression of 1837 and some dismiss it as a sideshow, pointing to purely technical factors such as the collapsing price of cotton and/or the capital flow from London. Others ignore the technical side and focus solely on Jackson’s act, placing the blame squarely on his shoulders and absolving Biddle’s actions.
What I take from the episode and its relation to America’s present structure is different however. Our society places great emphasis on specialization and the role of experts, believing that things are better run when the experts are in control. Bloggers such as Yves Smith have well-documented how the economics profession has managed to repackage itself into a Whitman chocolate product, wrapping a soft science center inside of a hard science shell and the result has been that many have simply begun to think of economic and monetary policy as being solely the province of the economic technocrats. We’ve both forgotten and ignored the fact that the control of a currency is ultimately a political function as it fully impacts all members of the society. Statistics can be used to quantify measurements, but it is ultimately impossible to quantify human behavior in both good and bad forms.
As before, we’ve placed the control of our currency and banking into private fully private hands and it’s now clear that the public interest is being sacrificed by these private interests. The government retains regulatory functions, but these have been neutered by campaign purchase of the political system. Eyes have been averted as unsupervised hedge funds have used high-capacity computers and advanced algorithms to turn the stock market into a literal casino as huge blocks of shares are traded based upon mere price points being reached. The market’s integrity has been affected as on multiple occasions, mechanistic computerized trading has caused the buying pool for a particular company to simply evaporate, resulting in a "flash crash" in which the share price declines dramatically for no rational reason. A private Federal Reserve System has, to keep a self-interested financial sector afloat, willingly punished savers by pursuing and maintaining artifically low interest rates and willingly pursues expansion of the money supply to devalue the currency so that we can continue to spend profligately and yet manage the massive public debt.
What does any of this have to do with fatherhood and the family? Wouldn’t a Jacksonian response – bringing the monied interests to heel and the Fed under government control – create economic devastation and destroy families as happened in 1837? It certainly would, but it would also bring the monied interests back under public supervision so that such singularly self-interested policies were discontinued. The reality is that this is already contributing to the destruction of families as the American Middle Class is whittled away and the opportunities for our children are eliminated. At the end of the evening, I sat at an empty table and considered the future for our six children and then for all of the other kids that they know and without the rule of law embodied by our Constitution, their collective future is truly bleak, indeed. Without that Constitutional rule of law, reclaimed by Jackson, what would have happened on the subsequent questions that we’ve addressed so well – slavery, women’s suffrage, civil rights? Where would we have stood when Hitler rose to power if we permitted a few private individuals to gain control of the levers of government in 1837?
There’s already pain in our society. The question now is whether we are able to rouse ourselves and re-commit to our civic duties. If we cannot do and endure what’s required, then our children will truly face what our forebears feared for their own children, the lack of a meaningful future.