Furious at Finance

Ron Paul, Republican congressman from Texas and former presidential candidate, is famous for railing against the Federal Reserve. He has pushed legislation to audit the central bank and persistently calls for the Fed’s outright abolition, notably in his bestselling book End the Fed. Since January, he has continued this anti-Fed campaign as chairman of the congressional subcommittee that oversees monetary policy.

Listening to Paul, it quickly becomes clear the central bank is not his only target. His statement upon taking the subcommittee chairmanship repeatedly referred to the Fed’s “cronies” on Wall Street and denounced “an unchecked, all-powerful, behemoth banking cartel.” Expressing skepticism that the Fed has any real political independence in making monetary policy, he added that “even if it was politically independent, it is not independent of the influences of Wall Street.”

Bernie Sanders, independent senator from Vermont, who caucuses with the Democrats and describes himself as a democratic socialist, deploys similar rhetorical barrages against a well-known thoroughfare in lower Manhattan. In a filibuster last December, Sanders condemned “the greed and recklessness and illegal behavior on Wall Street,” adding: “These guys, through their greed, created the most severe economic recession since the Great Depression.”

Paul and Sanders are poles apart ideologically, but find considerable common ground in their broadly negative attitudes toward the financial services industry and in pressing for legislation to audit the Fed. Moreover, when it comes to bashing Wall Street, these odd-bedfellow politicians are riding a strong wave of anti-financial populism that cuts across partisan and ideological lines, encompassing left-wingers suspicious of capitalism as well as Tea Partiers hostile to government bailouts.
The financial crisis and its aftermath did much to increase public antipathy to financial institutions. As with the aftermaths of previous crises, such anger helped bring about a more restrictive regulatory regime, in this case mainly through the sweeping Dodd-Frank legislation (which also brought complaints that it provides an insufficient means of reining in the financial sector).

But while anti-financial sentiment has a cyclical element, it also is very much a long-term phenomenon. Negative sentiment toward bankers and brokers has been a notable feature of American public opinion and political life throughout the nation’s history, and it continues to offer a rich source of discontent for politicians and activists to draw upon. Financial services provider, beware.

Early Suspicions

The founders of the United States were sharply divided in their attitudes toward finance. Thomas Jefferson and Alexander Hamilton famously disagreed over the latter’s initiative to create a central bank. Moreover, the agrarian-minded Jefferson distrusted banks in general and disliked the “new created paper fortunes” arising in the cities as Hamilton’s reforms promoted trading of Treasuries and equities.

Such differences helped give rise to political parties, with Hamilton’s Federalists (often seen as precursors to later Republicans) being much more pro-finance than Jefferson’s Democratic-Republicans (later shortened to Democrats). However, even on the Federalist side, there were skeptics of finance, such as John Adams, who disparaged those who “moved money around” rather than doing real work.

By the 1830s, anti-financial agitation had coalesced into a campaign against the Second Bank of the United States, the central bank of the time. Andrew Jackson, elected president in 1828, had a frontiersman’s dislike of the “money power” of Eastern financial interests. He fought and won a political battle against the Second Bank, denying it a renewal of its charter.

Jackson distrusted paper money as a tool of elite bankers, and tried to promote the use of gold and silver instead. His crushing of the Second Bank, however, opened the floodgates for other banks to issue a lot of paper, and Jackson’s executive order requiring the government to accept only precious metal for land transactions clamped down hard on speculation. The whipsawed economy plunged into recession in 1837, when Jackson’s successor Martin Van Buren had just taken office.

Cross of Gold

In the late 19th century, William Jennings Bryan of Nebraska became the leading political figure rallying the public against financial interests. However, gold, which Jackson had seen as a bulwark against bankers’ paper manipulations, now was the bugaboo of the populists. The gold standard, Bryan saw, by preventing inflation served the interests of lenders at the expense of borrowers, including many farmers. To protect the common people, Bryan wanted looser money, by coining plenty of silver.

Accepting the 1896 Democratic presidential nomination, Bryan described the monetary issue as “a struggle between the holders of idle capital and the struggling masses who produce the wealth and pay the taxes of the country.” He closed that speech with the famous words: “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”

Today, interestingly, while some populists press for easy money and credit, Ron Paul calls for a return to the gold standard, seeing it as a constraint not just on government but on unsound financial industry practices (a category in which Paul places fractional reserve banking). In this regard, Paul brings anti-financial populism full-circle, to a view reminiscent of paper-fearing Jefferson and Jackson.

Crises and Hearings