The full possibilities, and limits, of present calls for the reform of central banking come into sharp relief when examined in light of the radical campaigns of the American Populist movement of the late nineteenth century. Indeed, early proposals for a Federal agency that could seize the power to print money and redistribute credit originated not among bankers and the accredited, but among an agrarian population desperate for credit and investment—the Farmers’ Alliances of the 1870s and 1880s and the American People’s Party of the 1890s. While the Fed might be, in Ann Pettifor’s words, the “world’s unaccountable central bank” and its governor the “technocratic leader of the world,” some of the Fed’s early advocates were hardly elitist satraps. America's agrarian radicals formulated bold visions of central banking wielded by the people, as an instrument of capital allocation, developmental state policies, and ultimately a transformed political economy.
The American Populist movement might seem an unlikely progenitor for the current Federal Reserve. A coalition of mainly Southern and Midwestern agrarians, the Populists and their People’s Party arose out of a flourishing co-operative movement, revolting against low grain prices, scarce credit, and steep freight rates. The party ran for president in 1892, Congress in 1894, and fused with the Democrats in 1896, only to disperse across the political spectrum afterwards.
More than any of their contemporaries, the Populists obsessed over questions of monetary centralization and control—and their rebellion against reigning liberal orthodoxy nurtured in them a highly experimental approach to the “money question.”1 It was not without precedent. Since the 1860s, when President Lincoln introduced greenbacks to fund the Civil War, the idea that the American state might use its authority to control the money supply from private banks had already stirred the radical imagination. Populists extended these greenback efforts into the 1880s. One of the most pressing problems of the decade was the scarcity of credit and currency in rural areas, which drove an infernal spiral of deflation and price depression. Loosening and widening the base of currency, Populists claimed, would fuel productive investment, raise the price of agricultural produce, and break the power of established merchants, whose hold on currency often went hand in hand with price gouging.
The most recurrent Greenbacker response—pushed by businessmen, small farmers, and intellectuals alike—to the problem of deflation was a more elastic money supply and so-called fiat currency, terminating America’s attachment to the gold standard. Once this “sound” money dogma was broken and the monopoly of private banks was brought to an end, a fully public bank could freely issue currency and lessen the stringent credit conditions of merchants and corporations. Affordable credit would flow back to regions and sectors underserved by existing private arrangements. Here, central bank reform and opposition to the gold standard formed a natural pair.