Our guest blogger is John Halpin, a senior fellow at the Center for American Progress Action Fund and co-author of “The Power of Progress: How Progressives Can (Once Again) Save Our Economy, Our Climate, and Our Country.”
Anyone who thinks that the Fed’s rescuing of AIG and Treasury Secretary Paulson’s unconditional, blank-check bailout plan somehow validate the beliefs of FDR needs a serious tutorial in the history of the Democratic Party.
Democrats, since the days of Thomas Jefferson, have always stood on principle against the predatory instincts of Wall Street, speculators, and bankers.
As political theorist Michael Sandel has noted, the fight between Jefferson and Alexander Hamilton over the First Bank of the United States (and Hamilton’s larger government-sponsored economic agenda) was a legendary battle about competing visions of the nation. Jefferson, seeking to uphold the civic republican tradition of the nation’s founding, argued that Hamilton’s national bank was unconstitutional and a “treasonous” tool of oppression supported by northern financial interests. Jefferson believed a central bank and national capitalism would undermine the economic independence and civic virtue of farmers and small producers. Hamilton, in turn, thought Jefferson’s economic vision for the country was quaint and would inhibit the nation from becoming a world leader in manufacturing and finance. He viewed the national bank as an essential engine of the American economy.
Hamilton won that debate but the Jeffersonian skepticism of a national bank and government-sponsored capitalism lived on. Sounding similar themes, President Andrew Jackson accused the Second Bank of the United States of supporting an economic elite that controlled Congress and was neglectful of southern and western agrarian interests. Three-time Democratic presidential candidate, William Jennings Bryan, picked up this strand of thought in his attacks on the early plans for the Federal Reserve system put forth by Republican Senator Nelson Aldrich, the Hamiltonian-inspired nemesis of progressives at the turn of the twentieth century. Aldrich, a close associate of J.P. Morgan, devised a plan to create a system of regional reserve banks with a central authority run by private bankers. The thought of turning the nation’s finances over to the “money trust” set the hair on fire of progressives like Bryan and Republican Senator Robert La Follette of Wisconsin who wanted full public control of the nation’s money supply and credit. After fierce congressional wrangling, President Wilson heeded Bryan’s warnings and eventually negotiated the hybrid Federal Reserve system we have today that preserves privately owned banks with a publicly controlled central board.
Which brings us to Franklin Roosevelt.
In the years preceding the Great Depression, many observers rightly concluded that Wilson’s Fed system allowed too much control by private bankers in relation to the public board. With the Banking Acts of 1933 and 1935, Roosevelt successfully placed more public authority over the Federal Reserve Board and created the open-market committee and the FDIC, setting the stage for his administration’s eventual saving of the private economy and the protection of millions of Americans.
As Bush, Paulson and Bernanke try to employ FDR’s rhetoric and methods to ram through a $700 billion taxpayer-backed bailout of the private sector, keep in mind that FDR undertook all of these prudent actions with the belief that he was serving the general welfare and not the private bankers and financiers he directly blamed for the Great Depression. He did so squarely within the confines of the Party’s long-standing spirit and traditions. FDR believed government intervention and control over the economy should only be used for the advancement of economic justice, the public good, and increased opportunities for the little guy. In no way, shape, or form did FDR approve of government intervention as a means for cementing economic privilege or screwing the people for the benefit of private interests.
That’s a lesson Congressional leadership would be wise to remember as they consider the actions of the Fed and the Paulson plan.