Money, Power, and the People: The American Struggle to Make Banking Democratic by Christopher W. Shaw

Abstract

Money, Power, and the People asserts that common Americans fed up with the repeated financial panics and economic downturns of the nineteenth and early twentieth centuries fixed the American banking system with New Deal banking reforms like federal-deposit insurance. In the decades of banking stability that followed World War II, however, the people forgot how to conduct “banking politics,” creating a vacuum that allowed bankers to exert “private power in the pursuit of profit without regard to the public welfare” (12). Another wave of crises and runaway-wealth inequality resulted. Occupy Wall Street and other grassroots movements, however, portend an end of the anomalous postwar detente between Americans and their financiers.Shaw, a historian by training, is silent about his methodology, which, so far as can be ascertained, is that of traditional narrative history. The story begins with the Panic of 1907 (Chapter 1) before moving to the Emergency Currency Act of 1908 (Chapter 2), which established the National Monetary Commission and led to the postal savings system and the Pujo investigation (Chapter 3). Next comes the formation of the Federal Reserve System and the Federal Farm Loan System (Chapter 4). The Federal Reserve System committed “the crime of 1920” and necessitated passage of the 1927 McFadden Act to prevent national banks from switching wholesale to state banking charters (Chapter 5). Depression-era debates about wages and depositor fees follow, as do discussions of bank runs and banking crises, the Reconstruction Finance Corporation, and the ideas of Rev. Charles E. Coughlin and Jacob S. Coxey, Sr. (Chapter 6). Shaw follows with a discussion of the New Deal reforms, including state and federal bank holidays and the Emergency Banking Act (Chapter 7), the Banking Act of 1933, including Glass-Steagall (Chapter 8), and the National Housing Act of 1934 and consumer-oriented financial institutions like credit unions (Chapter 9). Then he describes some non-banking New Deal reforms and calls for the nationalization of credit before moving to the Banking Act of 1935 (Chapter 11) and covering the decline (Chapter 12) and fall (Chapter 13) of banking politics in postwar America and recent signs of its resurrection (Epilogue).Citations (but no bibliography) reveal that Shaw used a mix of archival and printed primary and secondary sources to spin his story without citing, much less seriously engaging, financial, macroeconomic, or monetary histories that come to conclusions diametrically opposed to his. Since he collected no new data and makes no claims about discovering new archival material, readers have no objective reason to prefer Shaw’s interpretation over those of others.Objective reasons for rejecting Shaw’s interpretation, however, abound. Foremost is the large literature, ably summarized by Hogan and Johnson, showing that although federal-deposit insurance reduces the likelihood of bank runs, it also proportionally reduces depositor monitoring of the risks that bankers take and thus does nothing to reduce bank failure rates.1 Postwar banking stability (1940s–1960s) was due to America’s economic dominance and interest-rate regulation, not deposit insurance.Similarly, the Public Choice banking literature, best epitomized by the work of Calomiris and Haber, presents farmers, industrial workers, and other populists not as a sacrosanct majority but as special-interest groups with views that were often wrong or self-serving.2 Intentionally or not, Shaw insinuates that populist proposals represented valid policy choices even though contemporaries knew them to be problematical. He lauds North Dakota’s successful state-owned bank, for example, without noting that many other government-run banks, like one established by Peter Norbeck in South Dakota, failed decisively.In short, Money, Power, and the People cannot be recommended as a work of either interdisciplinary or financial history. Its sole value is as a tolerably well-written and researched social history of common people who disliked official U.S. banking and monetary policy in the first half of the twentieth century.