Thursday, April 8, 2010

The tea party movement, not your greatgrandfather’s populism

Since we are constantly being bombarded with news about the tea party movement, I thought it might be interesting to go back in history to the populism of the late nineteenth century, its antipathy toward Wall Street, and its bizarre embrace of big government. I am relying on Steve Fraser’s Every Man a Speculator (Harper, 2006) for this post.

The early 1890s were economically horrific. The country was experiencing “20 percent unemployment, an avalanche of bankruptcies and bank failures, farm evictions, shuttered mills, panic on Wall Street, and the marching feet of Coxey’s Army of the unemployed.” (p. 203)

The American farmer was in a particularly unenviable position. With the expansion of railroads all over the world, he now had global competition; the farmer who exported into a glutted commodities world market saw wheat go from $1.37 a bushel in 1870 to 50 cents in 1894 and cotton from 23 cents a pound to 7 cents. Commodity exchanges with their wildly fluctuating prices confounded him. “To survive this mercantile cyclone, farmers hooked themselves up to long lines of credit that stretched circuitously back to the financial centers of the East. . . . In a sense, the farmer was the looniest speculator, the most deluded gambler of them all. He was wagering he would somehow master this fathomlessly intricate global game, pay off his many debts, and come out with enough extra to play another round. On top of that he was betting on the kindness of Mother Nature, always supremely risky.” (p. 197) Indeed, the American farmer had just experienced a devastating drought in 1889-90.

When things did not go well for the farmer, who was to blame? “[A]grarian anger tended to pool around the strangulating system of currency and credit run out of the great banking centers of the East, and especially Wall Street.” (p. 197) The “money power” was constricting the money supply, rationing credit, and depressing prices. All the while the Street was feeding its ravenous appetite for excess of every stripe. Wall Street machinations were described as “a devil’s dance . . . an orgy of fiduciary harlotry.” (p. 218)

Curiously, the populist remedy was government intervention and activism. The lynchpin of their economic policy was the so-called subtreasury plan. The idea was to “wrest control of the monetary system from the Wall Street elite and vest it in the hands of the U.S. Treasury.” The subtreasury was envisaged to be essentially a “purchasing and marketing cooperative run by the government. It would make low-interest loans to farmers in legal-tender treasury notes in return for their crops. Then it would warehouse that agricultural output, releasing or holding back supplies from the market so as to maintain stable prices.” (p. 199)

Of course I could fast forward to agricultural subsidies and assorted other governmental interventions in a “pure” free market system. But I have no interest in being a political commentator. I was just struck by the disparity between the populist solutions of the 1890s and the populist beefs of 2010.

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