Since 2008, central banks have propped up the global financial system with "a remarkable display of technocratic energy and imagination." To stabilize the economy, the Fed has purchased (or acted as the purchaser of last resort for) trillions of dollars of Treasuries, municipal debt, corporate debt, and commercial paper, and set up swap lines with other central banks.
In A Popular History of the Fed, Anton Jäger and Noam Maggor write that the Fed's actions to avoid financial collapse in the US and safeguard assets abroad have "warmed even some on the left to central bank power" while raising questions of how to make the Fed work for everyone rather than primarily the wealthy.
"The Fed might serve as a capitalist savior today, but it could become a weapon for progressive finance tomorrow ... The quiet consensus is that central bank stabilization remains necessary for the survival of the current economy. In undertaking stabilization, however, central bankers also increase existing inequalities and empower economic elites around the world. Even if today's central banks could be democratized, that "democratization" by itself will be insufficient if their field of action remains constrained, shying away from a more ambitious mandate of redistribution and the reorientation of long-term investment."
The 2008 financial crisis and coronavirus pandemic have shown that the Fed can act as a force for good, but its remit has prevented it from acting fully in the public interest. Benjamin Braun and Quinn Slobodian have recently written proposals for central bank reform. In describing the possibilities and explaining how these proposals have historical precedent, Jäger and Maggor look to the American Populist movement of the late 19th century.
"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."
Respected economists and the New York Times laughed at proposals to take America off the gold standard, but President Wilson's Secretary of State William Jennings Bryan and Democrats and Republicans from rural states maintained that
"American banking ... suffered not from overeager country banks on the periphery ... Rather, the control of credit had been monopolized and needed to be seized from a tight cohort of Northeastern bankers. They therefore pressured Wilson to include local banking provisions and more dispersed credit facilities in the law. They wrote provisions into the bill that lowered gold reserve requirements and made agricultural paper and warehouse receipts eligible for discounting at regional reserve banks. Finally, they successfully bargained for Federal Land Banks, which massively expanded the availability of credit to farmers at low rates."
Jäger and Maggor give three reasons why the Populist banking proposals offer important perspectives for today:
- The question of accountability is important, but we should not forget the question of what central banks do. Although Populists cared about popular input and control, "the notion of direct control of this bank could never outweigh plans regarding its capacity for action--first and foremost when it came to egalitarian credit allocation."
- The debate shifts from stabilization and redistribution to predistribution. Good access to credit enabled American farmers in the 19th century to invest in the equipment they needed, creating a highly productive agricultural sector.
- We've been here before. Democratizing the Fed and making it work for more Americans "could fulfill deep-seated democratic aspirations, articulated by farmers, workers, and craftsmen in the turmoil of the First Gilded Age."