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International Journal of

Community Currency Research


Volume 16 (2012) Section D 5-13
DEMOCRATIZING MONEY: THE HISTORICAL
ROLE OF THE U.S. FEDERAL GOVERNMENT IN
CURRENCY CREATION
Saul Wainwright*
University Of Cape Town
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Foi two hunuieu anu sixty yeais the 0S Feueial uoveinment has claimeu that the most uemo-
ciatic money is a scaice foim of money. This claim is built off the notion that an abunuant sup-
ply of money woulu thieaten class ielations (the iights of piivate piopeity) anu ultimately the
fiee flow of commeice (capitalist exchange). Since the wiiting of the Feueial Constitution the
goveinment's focus has always been on cieating ieliable anu abunuant supplies of cieuit. The
iuea of scaice money anu abunuant cieuit has been challengeu twice: In the 186u's by the
uieenback Paity who claimeu the most uemociatic money is money cieateu by goveinment.
The seconu challenge in the 198us by the Community Cuiiency movement uniquely focuses not
on banks oi goveinment insteau claiming that uemociatic money is money cieateu by local
communities anuoi inuiviuuals.
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I acknowleuge the financial suppoit of the National Reseaich Founuation (NRF) towaius this
ieseaich. 0pinions expiesseu anu conclusions aiiiveu at, aie those of the authoi anu aie not
necessaiily attiibuteu to the NRF.
Auuitionally, I want to acknowleuge the use of the 0niveisity of Califoinia at Beikeley's libiaiy
while a visiting Stuuent Reseaichei in 2u1u-2u11 with the sponsoiship of Piofessoi uillian
Bait.
* Email: saulwainwiightgmail.com
$01 23451 4637 89432:5; Wainwiight, S. (2u12) 'Bemociatizing Noney: The Bistoiical Role of the 0.S. Feueial
uoveinment in Cuiiency Cieation' !"#$%"&#'("&)* +(,%"&)* (-* .(//,"'#0* .,%%$"10* 2$3$&%14 16 (B) S-1S
<www.ijcci.net> ISSN 1S2S-9S47
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This papei examines the histoiy of the political iuea of
'uemociatic money', within the histoiically specific 0.S.
capitalist uemociacy (Woou 199S: 21S)
1
. It exploies the
political conveisation that occuiieu uuiing seveial phases
in Ameiican histoiy that weie focuseu on iesolving a cen-
tial tension in Ameiica's political economy - an expanuing
economy uepenuent on auequate anu ieliable supplies of
liquiuity anu the uominance of a scaice concept of money.
This papei is an attempt to highlight the way in which
money cieation, anu claims to be uemociatizing its ciea-
tion, aie uepenuent upon the histoiically anu geogiaphi-
cally specific context in which such claims aie maue. The
ielevancy of this ieseaich is to challenge contempoiaiy
claims to be uemociatizing money to fully aiticulate theii
concept of uemociacy, while iecognizing that the veiy iuea
of what "is" uemociacy has shifteu ovei time. The papei
makes no claim to know what is uemociatic money, noi
what is the most uemociatic foim of money, but iathei to
show that the claim to be uemociatic is uepenuent on the
specific conceptualization of uemociacy employeu by those
that claim oi auvocate a paiticulai type of money cieation.
Fiist, it is necessaiy to uefine specifically what is meant by
money. The paiticulai view taken is that money, as it is
cuiiently unueistoou, uevelopeu between the sixteenth
anu eighteenth centuiies (Ingham 1999: 84). What this
system of money cieation ielies on is a set of social anu
political institutional aiiangements to manage the quantity
anu value of this money, "mouein cieuit-money is itself,
fiist, a social ielation anu seconu; that as such its elasticity
of piouuction is entiiely a social constiuct" (Ingham 1999:
8u). Theiefoie money's value is not natuial oi intiinsic but
the piouuct of the social foices that manage its piouuction,
foices that aie uefineu by the histoiical context in which
they opeiate (Ingham 1999: 82).
Seconu, to exploie the political iuea of uemociatic money it
is necessaiy to claiify the specific chaiactei of uemociacy
within which touay's capitalist cieuit-money came to
uominate. This piocess is most easily examineu within the
context of the 0niteu States of Ameiica. The type of ue-
mociacy that emeigeu fiom the constitutional uebates of
1787 was one that explicitly suppoiteu piivate piopeity
anu accepteu class inequality as natuial. Anu, any effoit by
goveinment to level these inequalities oi thieaten the exis-
tence of piivate piopeity was vieweu as a thieat to libeity.
Buiing the peiiou leauing up to the wiiting of the 0.S. Feu-
eial Constitution theie weie a numbei of financial policies
enacteu by colonial state legislatuies aimeu at piomoting
the 'leveling spiiit'
2
that auvocates of oiiginal uemociacy
favoieu
S
.
The Feueialists fiameu these policies as a thieat to libeity,
to the stability of class ielations anu most impoitantly, to
the fiee flow of commeice (Caiey 2uu1: 2S1 |Feueialist No.
44j). Alexanuei Bamilton believeu that the cieation of
papei money by the colonial states hau cieateu, "mutual
uistiust in the bieasts of all classes of citizens" anu that,
"piecautions against the iepetition of those piactices on
the pait of the state goveinments, which have unueimineu
the founuations of piopeity anu cieuit," was a necessaiy
element in any Feueial Constitution (Caiey 2uu1: 4SS
|Feueialist No. 8Sj). The Feueialists cleaily siueu with a
system of cuiiency cieation that was the most compatible
with existing class inequality - a natuial anu necessaiy pait
of the commeicial economy (Caiey 2uu1: 41-44 |Feueialist
No. 1uj). Bamilton believeu that the, "most piouuctive
system of finance will always be the least buiuensome" to
the manufactuiing anu banking classes (Caiey 2uu1: 4SS
|Feueialist No. 8Sj). Theiefoie, whatevei system of money
cieation existeu, it neeueu to be, fiist anu foiemost, the
least buiuensome to these classes of society. The belief
was that a golu monetaiy base woulu be the most compati-
ble with the Feueialist concept of a capitalist uemociacy.
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0ne of the most impoitant consequences of the Feueial
Constitution was a move towaius a new monetaiy iegime,
which enueu the ability of inuiviuual states to piint money
oi to ueclaie a legal tenuei. This shift in money cieation
authoiity was the beginning of a histoiical piocess in which
the cieation of money was incieasingly centializeu unuei
the authoiity of the Feueial uoveinment; this helpeu guai-
antee that a goveinment fiienuly to the neeus of the capi-
talist economy enacteu money cieation policies. The iesult
was a financial system that ieinfoiceu the existence of pii-
vate piopeity anu the fiee flow of commeicial exchange,
while minuful of the neeu to limit any uisiupting influence
this may have on existing class ielations. The success of
this system of money cieation was ciitical to the continueu
existence of Ameiica's capitalist uemociacy.
International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright
6
1 E.N. Woou uses the phiase anu the concept of a "capitalist uemociacy" in hei book, "Bemociacy Against Capitalism" (199S: 21S). Bei
cential aigument is that the concept of uemociacy that we assume was a histoiically specific cieation of the 0.S.A. uuiing the wiiting of the
Feueial Constitution. The Ameiican concept of uemociacy sepaiateu the political anu economic spheies of life. This was achieveu thiough
the cieation of a new concept of uemociacy that coulu accommouate capitalism by iemoving questions of piopeity anu socio-economic
equality fiom the political spheie. "In that sense, political equality in capitalist uemociacy not only coexists with socio-economic inequality
but leaves it funuamentally intact" (Woou 199S: 21S).
2 The use of the teim "leveling spiiit" was useu to iuentify effoits at ieuucing class inequality (Feiling 2uuS: 28S)
S When I iefei to oiiginal uemociacy I am uiawing on one of the cential iueas of Athenian uemociacy which is uesciibeu by E. N. Woou as
having no sepaiation between political anu economic fieeuom meaning that political equality "substantially mouifieu, socio-economic ine-
quality" (199S: 212). In essence this oiiginal concept of uemociacy saw inequality amongst citizens as unuemociatic, this was extenueu to
incluue iueas of elections anu iepiesentation, which weie, piioi to this eia, associateu with oligaichy (Woou 199S).
It was immeuiately eviuent to the Feueial uoveinment anu
most citizens of the newly cieateu 0.S.A. that the expanuing
economy woulu neeu incieasing supplies of cuiiency - be
it in the foim of money oi cieuit. While the economy, as it
giows, iequiies incieasing supplies of cuiiency, the chosen
base at the time was golu, which is natuially finite anu
theiefoie cannot ieliably expanu to meet the uemanus of
the giowing economy. It is this tension between continu-
ous giowth anu scaice supply, which keeps uebates ovei
the cieation of money politically ielevant into the twenty-
fiist centuiy. ueoffeiy Ingham, an acauemic who has wiit-
ten extensively on the histoiy of money, has highlighteu
how, "The scaicity of money is always the iesult of veiy
caiefully constiucteu social anu political aiiangements"
(Ingham 2uu4: 8).
Auvocates of scaice money - leu by those who saw golu as
money because it is a ieal anu natuial foim of value anu
has histoiically playeu the iole of money - believeu that its
value was not the iesult of goveinment's actions oi socially
constiucteu (Babb anu Caiiutheis 1996; Financial Pam-
phlets vol. 1-S). The auvocates of golu ciitically believeu
that money is "not socially constiucteu anu that it iathei
belongeu to an autonomous anu natuial spheie - the mai-
ket - in which it was peiilous foi a polity to inteivene"
(Babb anu Caiiutheis 1996: 1S8u). In othei woius, golu
money existeu iegaiuless of any action taken by govein-
ment anu in fact any effoit by the goveinment to cieate
money woulu be consiueieu peiilous to its own suivival
anu the bioauei political economy.
With state goveinments having lost theii ability to cieate
theii own money they tuineu to the next best solution, they
issueu state bank chaiteis anu enuoweu those banks with
the iight to issue theii own foims of cieuit
4
. This was
uiiven by the inuiviuual states' iealization that if they coulu
not issue money (as they hau been uoing piioi to 1787 in
the foim of papei), while the expanuing economy was ciy-
ing out foi auuitional liquiuity (in the foim of a ieliable
meuium of exchange), the only available solution was to
inciease the supply of cieuit.
The cieuit issueu by the state banks was always issueu on
the assumption that theie weie equivalent ieseives of golu
helu by the issuing bank. This meant that banks hau to
compete ovei the scaice supply of golu money in oiuei to
be able to pioviue ieliable foims of cieuit. 0vei the follow-
ing sixty yeais the numbei of state banks with cieuit issu-
ing chaiteis giew steauily. Fiom just thiee in 179u, "theii
numbeis iose to 28 in 18uu, 1u2 in 181u, S27 by 182u anu
S84 by 18SS," (Sylla 1998: 8S) anu by 184u theie weie
ovei eight hunuieu banks issuing theii own foims of bank-
notes (Rousseau 2uu4: 2S). Buiing the fiist half of the
eighteenth centuiy banks weie, "in the minus of the avei-
age citizens anywheie" chaigeu with oveicoming, "the
scaicity of money" by making available the cieuit neeueu to
enable the fiee flow of commeicial exchange (0ngei 1964:
4u). The uistinction being that these banks weie cieating
cieuit anu not cieating "uestabilizing" papei money. Be-
spite the piolifeiation of these cieuit-issuing state banks
anu because of the scaicity of golu money, they often faileu
to issue ieliable supplies of cieuit. The economy iepeat-
euly expeiienceu bank iuns anu ciashes thioughout the
eighteenth anu nineteenth centuiies, in gieat pait uue to
the ovei issuance of cieuit, hoaiuing of golu anu inability to
inciease the supply of the monetaiy base.
These iepeateu ciises set off a seiies of uebates that weie
uiiven almost immeuiately by uiffeiing class inteiests. The
uebates centeieu on the belief that bankeis iepiesenteu
anu woikeu to the benefit of the meichant anu banking
classes, ovei the inteiests of the agiaiian anu laboiing clas-
ses
S
. Bamilton explicitly stateu that the inteiests of the
laboiing classes, "can be moie effectually piomoteu by the
meichant than by themselves" (Caiey, 2uu1: 2u7 |Feueial-
ist No. SSj). This sense, that the banks weie focuseu on
seiving the neeus of the meichants ovei the neeus of the
faimei, was ieinfoiceu by the fact that the majoiity of
banks weie baseu in New Englanu anu the Niuule Atlantic
States uominateu by wealthy piopeity owning meichants
anu bankeis (Sylla 1998: 8S). This concentiation of money
in the noitheast was linkeu (at least in political ihetoiic)
with the economic haiuships expeiienceu in the pieuomi-
nantly agiicultuial south.
The continuous instability of this system of state bank is-
sueu cieuit, anu the negative iamifications this hau foi the
oveiall political economy, helpeu uiive the iepeateu effoits
of the Feueial uoveinment to cieate a system of national
banking. The effoits of the Feueial uoveinment centeieu
on the iuea that the cieation of a national bank, which is-
sueu its own cieuit, woulu pioviue the gieatest amount of
stability to the political economy. The Feueial uoveinment
cieateu two national banks both of which woulu cease to
exist by 1841 as a iesult of political, anu not financial iea-
sons (Bavies 2uu2: 47S-478). The iuea behinu the cieation
of these banks was that theii cieuit woulu be accepteu at
face value by all banks (unlike state bank issueu cieuit),
because they woulu tiust the ability (the liquiuity) of the
national bank to exchange the cieuit foi golu money. This
woulu cieate stability anu ieuuce the negative impact of
scaice supplies of money on the political economy. Impoi-
tantly, theie was no attempt by goveinment (feueial oi
state) to cieate moienew money (unlike the papei money
International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright
7
4 Ny use of the teim cieuit applies specifically to banknotes issueu by inuiviuual banks. These banknotes, piioi to the aiiival of computeis,
weie issueu as pieces of papei, anu weie supposeu to iepiesent ieal anu existing supplies of golu money. The iuea being that if you ietuineu
to the bank with youi banknote you woulu be given an amount of golu money in ietuin.
S Foi an in-uepth look at these class conflicts anu the shifting inteiests see Shaikey, (19S9); 0ngei, (1964); Sylla (1998).
cieateu by the colonial states of the 177u's). All effoits
weie focuseu on cieating cieuit, while golu woulu continue
to foim the scaice monetaiy base anu act as the only "tiue"
anu "natuial" foim of money.
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.+-#2
In light of the Feueial uoveinment's oiiginal focus on cieat-
ing cieuit, anu not uuplicating the effoits of the colonial
state legislatuies, the uecision in 1862, uuiing the Ameii-
can Civil Wai, to issue new papei money into ciiculation,
was a suipiise to many anu leu to a seiies of challenging
anu illuminating uebates
6
. Bue to the faileu attempts at
cieating a national bank, the Feueial uoveinment was in
uespeiate neeu of a ieliable cuiiency supply to funu both
its militaiy opeiations anu enable the fiee flow of commei-
cial exchange.
Buiing the Civil Wai the Feueial uoveinment coulu not
iely on state banks to cieate auequate supplies of cieuit. At
the outset of the wai, "A supply of golu anu silvei coin
coulu in no way be uepenueu on. It has been noteu that
hoaiuing hau begun even befoie the suspension of specie
payments" (Shaikey 19S9: S4). This hoaiuing placeu mas-
sive constiaints on the flow of money, ieuucing the ability
of many banks to issue cieuit. In those few cases when
banks uiu issue cieuit, it was often assumeu that they weie
ovei-leveiageu anu theii cieuitwoithiness was questioneu.
All of this iesulteu in a ieal shoitage of available cuiiency,
anu without a national bank system in place theie was veiy
little the goveinment coulu uo to inciease the supply. In
the enu, the uecision taken by the Feueial uoveinment was
to piotect the continueu opeiation of the commeicial econ-
omy, "it seems that the "necessity" of the situation was not
in piotecting the cieuit of the goveinment but in supplying
a meuium of payment, in othei woius a cuiiency" (Shaikey
19S9: SS).
The fiist Legal Tenuei Act went into effect on Febiuaiy 2S,
1862 giving the iight to the 0niteu States Tieasuiy to cie-
ate papei money (0niteu States Congiess 1862: S4S). Two
moie Acts in 186S, enableu the issuance of foui hunuieu
anu fifty million uollais woith of papei money (Bavies
2uu2: 487). This papei money was officially issueu at a
one-to-one ielationship to golu. This meant that the papei
money hau the same puichasing powei as golu. The impoi-
tant point to note is that when this papei money was oiigi-
nally issueu it was not ieueemable in golu; it was not a
"iepiesentation" of golu, but was piesenteu as if it was the
same as golu. The fact that this papei, cieateu anu issueu
by the Feueial uoveinment, coulu not be ieueemeu foi golu
is what maue it money, anu not cieuit, in the eyes of many.
The uecision to piint papei money openeu up a uebate, foi
the seconu time in Ameiica's histoiy, ovei the souice of
money's value anu the iole of goveinment in the cieation of
this value. These uebates, "establisheu that the way in
which that institution |of moneyj woikeu was itself the
iesult of human inteivention" (Laiulei 1991: 188). Buiing
what was a ielatively biief moment in histoiy, the govein-
ment's iole in the cieation of money's value, not just in the
supply of cieuit, was establisheu anu confiimeu. Those
that suppoiteu the iight of the Feueial uoveinment to issue
this papei money woulu maishal aiguments that placeu
the souice of money's value, anu theiefoie the cieation of
money, in the hanus of goveinment. These aiguments chal-
lengeu the veiy founuation of the then accepteu theoiy of
money anu, in the eyes of many, thieateneu existing class
ielations anu theiefoie the entiie political economy.
Bespite the appeaiance that the Feueial uoveinment was
going back on its histoiical commitment to scaice money, it
was uoing nothing of the soit. It hau incluueu a clause in
the Acts that committeu the Feueial uoveinment to paying
inteiest anu Tieasuiy bonuholueis in golu anu not in papei
money. Bespite this stateu commitment to golu
7
, the Legal
Tenuei Acts met with the immeuiate piotest fiom the
banking anu meichant classes
8
. Suppoiteis of golu money
weie emphatic in theii aiguments against what they saw as
an attempt to place the souice of monetaiy value in gov-
einment. Bullionists, who weie pieuominantly fiom the
meichant anu banking classes, hau the auueu bonus of be-
ing the classes with the most uiiect political powei anu
influence. They believeu, as hau been assumeu by the Feu-
eialists, that they unueistoou best how to piotect the con-
tinueu fiee flow of commeicial exchange. ueneial uaifielu,
a Civil Wai heio anu futuie piesiuent of the 0.S.A. believeu
that, "Noney is a ieality, a weight, of a ceitain metal, of a
ceitain fineness. But a papei uollai is simply a ueeu, the
legal eviuence of the title that I holu to a uollai" (uaifielu
qtu. in Babb anu Caiiutheis 1996: 1S68). Blaii (1876)
summeu up the uominant unueistanuing of the souice of
monetaiy value in a speech he maue to congiess on Nay
18, 1876. Be aigueu that the monetaiy value of golu is,
"inuepenuent of anu moie necessaiy than any goveinment"
because it, "possesses value as a commouity" while theie
aie those on the siue of papei who aie claiming that, "ieal
International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright
8
6 This section uiaws heavily on a five-volume set of oiiginal financial pamphlets that weie publisheu anu uistiibuteu between 182u anu the
late 189u's (see Pamphlets of Finance, vol. 1 - S).
7 The Legal Tenuei Acts incluueu the following clause: "payment of all taxes, inteinal uuties, excises, uebts, anu uemanus of eveiy kinu uue to
the 0niteu States, except uuties on impoits, anu of all claims anu uemanus against the 0niteu States of eveiy kinu whatsoevei, except foi
inteiest upon bonus anu notes, which shall be paiu in coin, anu shall, also be lawful money anu legal tenuei in payment of uebts, public anu
piivate, within the 0niteu States." (0niteu States. Cong., 1862: S4S) (Italics auueu)
8 This leu to a seiies of legal cases that went all the way to the 0.S. Supieme Couit; Bepbuin v. uiiswolu (187u), oveituineu the Feueial uov-
einment's iight to issue legal tenuei. In two cases, Knox v. Lee anu Paikei v. Bavis (1871), }ulliaiu v. uieenman (1884), the constitutionality
of the Legal Tenuei Act's was confiimeu.
money is not intiinsically piopeity, but a meie token oi
sign, enuoweu with powei to cancel uebts" (Blaii, 1876).
Bighlighteu in this fiaming is that goveinment is to have no
iole in the money cieation piocess, anu that the best solu-
tion iesiues with banks anu the continueu, natuializeu iole
of golu anu scaice money moie geneially.
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The passage of the Specie Resumption Act on }anuaiy 14,
187S, leu auvocates of papei money to foim a political
paity that woulu go on to make some of the most nuanceu
aiguments in suppoit of goveinment issueu money. In
187S, these inuiviuuals woulu foim the uieenback Paity
anu by 1878 they secuieu, "ovei a million voteis anu ie-
tuineu fouiteen membeis to Congiess" (Bavies 2uu2: 496).
They aigueu that iemoving the supply of papei money
fiom ciiculation woulu ieuuce the ability of businesses to
hiie laboi, fuithei exaceibating the level of unemployment
anu the iesulting social instability anu thieaten the entiie
capitalist uemociacy's stability.
In the piocess of making theii aiguments the uieenbacks
challengeu seveial of the funuamental assumptions maue
by auvocates of golu money anu they began to aiticulate a
theoiy of money cieation that placeu goveinment at the
centei. Repiesentative William Kelley, an auvocate foi
papei money anu a membei of the uieenback Paity, aigueu
that the auuition of the papei money was a positive uevel-
opment, having saveu the economy of the 0SA:
"It may have been unwise to use that 'gieat
enemy of the nation, the gieenback,' anu
thus inciease the volume of money anu en-
hance piices; but let it ieminu gentlemen,
who say that the gieenback is an enemy to
the countiy, that they ueciy theii countiy's
savioi" (1877).
Kelley is aiguing that this inciease in the money supply uiu
not uisiupt oi upset the political economy; in fact it en-
ableu the economy to expanu. The goal of this papei
money, accoiuing to Kelley (1877), was not to uisiupt class
ielations oi thieaten the fiee flow of commeice. Rathei, it
was about enabling those that wanteu to woik to woik anu
to help make this happen the goveinment was being askeu,
"to maintain a familiai meuium of exchange wheieby capi-
tal anu enteipiise may pay laboi foi its woik" (Kelley,
1877). Even though it is eviuent that Kelley anu the uieen-
backs aie pio-capitalist theie is a subtle but ciitical shift in
theii unueistanuing of the souice of money's value. By
assuming goveinment has the ability to cieate the money
neeueu to fuel commeicial exchange, the souice of value is
being socializeu anu consciously politicizeu.
In a pamphlet publisheu in 187u the authoi wiites, "we uo
not neeu golu oi silvei foi money, oi as a basis foi papei
cuiiency. All the money we neeu is legal tenueis issueu by
the goveinment" (Smith, 187u). The uieenbacks aigueu
that the value of money has eveiything to uo with the legal
authoiity of goveinment, anu nothing intiinsic to golu,
"Noney is a cieatuie of law, it is cieateu anu uphelu by law"
(Wolcott qtu. in Babb anu Caiiutheis 1996: 1S72). The
notion that goveinment coulu cieate money thiough acts of
law, placeu the souice of monetaiy value in its hanus, anu
challengeu the theoiy that money's value was natuial anu
outsiue of any legal act of goveinment:
"All money, whethei it be golu, silvei oi pa-
pei, ueiives its chief value fiom the fact that
goveinments uo enact aibitiaiy laws ueclai-
ing money foi the payments of uebts,
theieby cieating the chief uemanu foi it."
(Ensley qtu. in Babb anu Caiiutheis, 1996:
1S7u)
This conclusion iaiseu ueepei questions aiounu what con-
tiol ovei money cieation meant. An aigument emeigeu
that claimeu the iight of the voting citizens, whose ue-
manus woulu be expiesseu thiough theii iepiesentative
goveinment, to contiol the cieation of money:
"We, the people, make the goveinment. We
give the goveinment powei to make, pio-
viue anu issue money unuei piopei iules
anu iegulations.We make oui money, we
issue it, we contiol it. We iegulate it." (Wol-
cott qtu. in Babb anu Caiiutheis, 1996:
1S72)
The auvocates aie not claiming theii inuiviuual iight to
cieate money oi the iight of an inuiviuual State to cieate
money; noi is it aimeu at challenging the Feueial uovein-
ment. Rathei, the aigument is to ieinfoice the existing
system of goveinment, anu helps solve the tension between
scaice money anu the expanuing economy, by placing the
powei to cieate money in the uoveinment's hanus. These
aie impoitant uistinctions, sepaiating the uieenbacks ue-
bate fiom those of the 177u's oi of those that appeai in the
198u's
9
. In fact, it coulu be vieweu as the histoiian Shaikey
has claimeu, that all of the uebates incluuing the iauical
iueas of the uieenbacks, weie aimeu at peipetuating the
existing class ielations anu not uisiupting the system of
goveinance that ielieu on the iuea of natuial inequality anu
piivate piopeity (19S9: SS).
The iise of a political foice that aiticulateu the neeu foi an
auequate supply of cuiiency, anu linkeu the souice of
money's value to political uecisions ieinfoiceu by legal
tenuei laws, enableu them to place the iesponsibility foi
maintaining this cuiiency in the hanus of the Feueial uov-
einment. Accoiuing to Babb anu Caiiutheis, "The gieen-
back uebates contesteu the natuie of monetaiy value anu
the piopei iole of uemociatic goveinment in finance"
(1996: 1S7S). The uieenback Paity hau manageu to ieai-
ticulate the long iunning tension between a concept of
scaice money anu an expanuing economy, by showing that
theie neeu be no ieal shoitage of money. The solution that
International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright
9
9 The iefeience to the 198u's is a iefeience to the community cuiiency movement. I will engage this subject latei in this papei.
the uieenbacks weie puisuing was one aimeu at expanuing
the commeicial economy by expanuing the volume of
money, not by incieasing the volume of cieuit (anu the
associateu tiappings of uebt anu money scaicity). This
impoitant uistinction places the iesponsibility foi sufficient
supplies of cuiiency on the goveinment anu not on the
banks. Impoitantly, it attempteu to bieak uown an iuea
that claimeu the cieation of money was outsiue of govein-
ment's contiol. The uieenbacks cential aigument was that,
"economic value coulu anu shoulu be subject to conscious,
uemociatic contiol" (Babb anu Caiiutheis 1996: 1S7S).
The Specie Resumption Act stipulateu that all papei money
was to be ietuineu foi golu to the Tieasuiy by }anuaiy 1,
1879. This uate came anu went, anu ovei thiee hunuieu
million uollais woith of gieenbacks (as the papei money
came to be calleu) iemaineu in ciiculation anu ietaineu its
status as money into the twenty-fiist centuiy (Bavies 2uu2:
496). This is a ciitically impoitant moment in Ameiican
histoiy because it subtly influenceu anu gave suppoit to
some of the emeiging (anu iauical) theoiies of manageu
papei money systems being exploieu within acauemic cii-
cles (Laiulei 1991: 198)
1u
. The uieenbacks hau manageu
to intiouuce iueas into political uebate that pointeu to the
iole of goveinment anu showeu the potential foi alteina-
tive ways of cieating money, that in fact woulu be, uespite
histoiical beliefs, compatible with the existing capitalist
uemociacy.
Bespite the fact that the uieenback Paity nevei specifically
aigueu foi the "uemociatization" of money, they uiu aigue
foi its politicization within the context of the capitalist ue-
mociacy. They saw it as a political conveisation, uiiven by
goveinment who is voteu into powei on the assumption
that they will iepiesent the inteiests of the people. Bow-
evei, placing this into the bioauei aich of histoiy it is cleai
that those "iepiesentatives" aie closely aligneu with a pai-
ticulai view that aigues foi the natuialness of money value
anu class inequality. Late twentieth centuiy oithouox
economists continueu to cling to theii "mouel of money
supply" which was, "an empiiical geneialization of a natu-
ially constiaineu supply of a metallic monetaiy base pio-
viueu by a cential authoiity (the mint) that was outsiue the
maiket" (Ingham 2uu4: 21).
!"##$%&'()!$**+%!()#",+#+%'
The histoiical tiajectoiy of the financial uebates in the
0.S.A. has always puisueu the same goal - the ieinfoice-
ment of the capitalist uemociacy anu the unueilying ine-
quality of class ielations anu piopeity owneiship. This
effoit has aimeu at guaianteeing the compatibility between
the capitalist uemociacy anu money anu cieuit cieation.
Bowevei, theie is anothei uebate that has iun in paiallel to
this one that is maikeu by the effoits of the colonial legisla-
tuies in the 177u's, anu in seveial ciitical ways by the
uieenback Paity of the 187u's, anu a new movement that
has iisen since the 198u's known as the community cui-
iency (CC) movement
11
. The commonality between these
uebates has been the effoit to challenge the assumeu ciiti-
cal neeu foi a scaice money supply. The effoits of many CC
auvocates pick up on some of these eailiei aiguments,
highlighting the social element of money anu claiming,
uniquely that inuiviuuals can cieate theii own money. This
is uiiven by a conceptualization of uemociacy that uoes not
appeai to be compatible with the Feueialist notion of capi-
talist uemociacy.
Nany auvocates of CC aigue foi the uemociatization of
money via the cieation of abunuant supplies of money.
Nany claim that the scaicity of money anu cieuit is uelete-
iious to the economy anu the cause of iising inequality anu
economic instability as well as enviionmental uestiuction.
Whethei theii analysis of the impacts is coiiect oi not,
what they aie uoing is challenging the iole anu ielevance of
both the Feueial uoveinment anu the banks in the cui-
iency cieation piocess. These effoits piesent a new anu
unique phase in the histoiy of the monetaiy uebates.
These CC auvocates uo not accept the notion of uemociacy
that Piesiuent Wilson claimeu in 191S when he stateu that
the cieation of the Feueial Reseive System iepiesenteu the
"uemociatization of cieuit" (qtu. in Wickwaie, 191S: S1).
Similai to eailiei uebates, this piocess is fiameu as benefit-
ing the wealthy meichant anu banking classes while exac-
eibating the instability of the entiie financial system.
Bowevei, unlike the uieenbacks, the CC movement views
the incieasing iole of goveinment as iepiesenting the fui-
thei piivatization anu centialization of the cieation of
money. 0n the website of Beikshaies, a CC baseu in the
noitheastein 0.S.A., they claim that, "The banking system is
one of the most centializeu institutions of oui economy anu
International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright
10
1u Knut Wicksell, anu othei monetaiy theoiists of the late 188u's anu 189u's, hau begun to woik haiu on theoiizing cieuit anu exploiing
non-specie baseu monetaiy systems (Laiulei 1991: 198). Theii effoits weie uiiven in gieat pait by theii uesiie to cieate a system that was
moie stable anu that woulu give the capitalist economy a moie ieliable meuium of exchange. The solutions anu iueas that emeigeu uuiing
this peiiou woulu impact the likes of }.N. Keynes who built much of his eailiei woik off the theoiies of Knut Wicksell (Laiulei 1991: 198).
11 This teim encompasses a bioau iange of monetaiy expeiiments that go by a iange of names: local cuiiencies, social cuiiencies, time
banks, local exchange tiauing systems, local money, complementaiy cuiiencies. This section uoes not attempt to aiticulate all of the nuances
between these uiffeient expeiiments, but iathei to make a geneialization about the paiticulai political conceptualizations upon which they
opeiate.
one of the majoi obstacles to stiengthening iegional
economies anu the communities within them" ("What Aie
Beikshaies."). This fiaming seems to uiscount the histoii-
cal context within which the Feueial Reseive was cieateu;
it was cieateu to limit the negative impact of the nineteenth
centuiy pattein of hoaiuing anu monopolization of golu
money by the piivate banks. Anu, in paiticulai to ueal with
the iesulting inauequate anu unieliable supplies of cieuit,
which weie especially thieatening to the fiee flow of com-
meicial exchange anu a thieat to the entiie capitalist ue-
mociacy.
The way to combat this piivatization anu centialization,
accoiuing to many CC auvocates, is to enu the goveinment
anu bank's monopoly ovei cuiiency cieation anu to insteau
give powei to small local communities anu inuiviuuals to
cieate theii own money. This uesiie to enu the centializeu
system, anu to ietuin to an eia of competing money issuais
is also connecteu to the iuea of enuing the politicization of
money cieation
12
. In fact the claim is maue that govein-
ment uoesn't even neeu to "give" this powei to citizens;
citizens just neeu to asseit theii own money cieation
powei. Thomas uieco, an authoi anu auvocate of CC, states
that, "we have calleu foi the sepaiation of money anu state,
but since the people uo not contiol theii goveinment, we
believe that sepaiation can only be achieveu as the people
asseit theii money powei" (uieco 2uu9: 111). uieco goes
on to claim that the, "politicization of money has inhibiteu
the wiuespieau auoption of bettei alteinatives" (uieco
2uu9: 118).
Pait of what the CC auvocates see as unique about this cui-
ient moment in histoiy, is the iise of infoimation anu net-
woiking technologies, which offei a iange of possible al-
teinative uecentializeu appioaches to cieating money. CC
auvocates that iun seveial websites anu actively woik to
piouuce the technological systems that enable anyone to
cieate a cuiiency claim that, "given how much infoimation
technology has evolveu iecently, the membeis of a com-
munity can be theii own aibiteis" (Biock, "New Cuiiency
Fiontieis"). The technology is essentially fiameu as ieplac-
ing the iole of goveinment oi banks; uecentializeu "cui-
iency uesign will mean the obsolescence" of any soit of
uepenuence "on any foim of cential authoiity" (Biock, "P2P
Cuiiency"). These auvocates iecognize that they aie chal-
lenging the histoiy of centializeu cuiiency cieation, "Al-
most all cuiiency uesigns to uate (uollais incluueu) uepenu
on eithei a scaice commouity (such as golu oi papei notes)
oi a centializeu authoiity to issue anuoi tiack the cui-
iency (baitei clubs, time-banks, etc)" (Biock, "P2P Cuiien-
cy")
1S
. Foi these auvocates, "The new fiontiei is about
open cuiiencies which uo not exist by manuate of banks oi
goveinment they aie uistiibuteu anu un-enclosable sys-
tems of wealth cieation which can be uesigneu to benefit
moie than a piivilegeu few" (Biock, et al.; "New Cuiiency
Fiontieis").
CC auvocates typically uo not see goveinment as iepiesen-
tative of theii inteiests, anu theiefoie they aie looking foi
ways of solving the scaicity of money via new means. This
peiceiveu failuie of not just the goveinment but also of the
banks, signals a key shift in the histoiy of the financial ue-
bates. The auvocates of CC aie not looking foi solutions
that fit within the histoiical unueistanuings of class ine-
quality anu iepiesentative goveinment. In essence the
system of iepiesentative goveinment, built to enable capi-
talism, is failing to meet the uemanus of at least the CC au-
vocates, if not a laige swath of society. The potential uis-
iuption to the entiie political economy is huge, anu figuiing
out how to uesign a system of money cieation that ietuins
a sense that the Feueial uoveinment actually is iepiesent-
ing anu meuiating the neeus of all classes, may be of ciitical
impoitance to the suivival of capitalist uemociacies.
Naigiit Kenneuy, who has wiitten anu lectuieu extensively
on CC has aigueu that, "Noney can be maue to seive iathei
than to iule, to be useiathei than piofit-oiienteuanu to
cieate abunuance, stability, anu sustainability" (qtu. in
Stonington, 2uu4). She saiu that while "money is one of the
most ingenious inventions of mankinu" it has "the potential
to be the most uestiuctive oi most cieative" (qtu. in Ston-
ington, 2uu4). Noney, cieuit anu cuiiencies in geneial, aie
the piouuct of a long seiies of social uecisions. These ueci-
sions have histoiically focuseu on uesigning a system of
money cieation that is both compatible anu ieinfoicing of
the unueilying class inequality necessaiy foi the smooth
opeiation of the Ameiican capitalist uemociacy. The iise,
since the 198u's, of a new set of financial uebates, iepie-
sents a unique challenge to a long iunning theoiy of money
anu cieuit cieation. The CC auvocates aie pointing to the
sense that the cuiient financial system is failing; theii solu-
tions aie not focuseu on saving the cuiient system but of
funuamentally ieconfiguiing the entiie political economy.
No theoiy of money cieation has attempteu to aiticulate an
alteinative political economy since the faileu effoits of the
colonial state legislatuies of the 177u's. Bemociatic
money, accoiuing to CC auvocates, is a type of money anu
cieuit that envisions a new political economy built on class
equality - it is a vastly uiffeient conceptualization of ue-
mociacy that unueipins this iuea. The CC movement is
ieaiticulating the ioles of goveinment anu banks, while
iaising ueepei questions about what it means to cieate
money uemociatically.
International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright
11
12 Fieueiich von Bayek, the Nobel piize winning fiee-maiket economist, was a big auvocate of what he calleu, "the uenationalization of
money" aiguing foi piivate companies to issue theii own cuiiencies anu allow the maiket to ueteimine the value of money (von Bayek,
1976). Pait of his aigument iesteu on his antipathy towaius what he also saw as the politicization of money. This iepiesents anothei of the
seveial ways in which the CC movement comes to miiioi oi builu off fiee-maiket capitalist economists.
1S It is impoitant to point out that Biock et al, uiffei fiom many of the othei CC auvocates in that they uo not see a iole foi a valuable com-
mouity, anu have a uiffeient notion of value fiom that which many of the othei auvocates auheie to. I have wiitten about this in gieatei ue-
tail in Wainwiight, 2u11.
!"#!$%&'"#
Claims to be uemociatizing money have been maue iepeat-
euly thioughout the histoiy of the 0.S.A's existence. The
oiiginal effoits of colonial legislatuies to cieate inflationaiy
money, aimeu at leveling society, weie built of a conceptu-
alization of uemociacy that weie moueleu on oiiginal iueas
of uieek uemociacy - a system of uemociacy that saw ine-
quality anu elections as anathema to a tiue uemociacy.
With the iise of the Feueialists in the 178u's a veision of
uemociacy emeigeu that accepteu inequality anu iepiesen-
tative elections. 0nuei this histoiically specific iuea of a
capitalist uemociacy effoits centeieu on cieating money in
ways that woulu not thieaten the existence of inequality.
The piouuct of this fiaming iesulteu in incieasingly cen-
tializeu money cieation with a cozy ielationship uevelop-
ing between the uominant meichant anu banking class anu
the Feueial uoveinment. The Feueial uoveinment has con-
tinueu to claim that the uominant anu centializeu foim of
money cieation is the most uemociatic way of cieating
money; a way of cieating money that was also most com-
patible with a system of capitalism anu its inequality. In
the 186u's a iaie moment emeigeu in Ameiican histoiy in
which these claims weie challengeu anu new iueas of
abunuant, goveinment cieateu money, weie piomoteu.
The impoitant uistinction being maue that money coulu
both be abunuant anu capitalist while claiming to be ue-
mociatizeu. All of these eailiei histoiical uebates - those of
the colonialists, Feueialists, uieenbacks, anu Feueial Re-
seive auvocates - all claimeu to be uemociatizing money.
These claims all have to be placeu into the histoiically anu
geogiaphically specific context in which the theoiy of ue-
mociacy is being fiameu. The iise of the CC movement in
the 198u's iepiesents a new claim to be uemociatizing
money, a claim that seems to be in many ways countei to
the ovei two-hunuieu yeai unueistanuing of uemociacy,
which emeigeu out of the Feueialist uebates of the 177u's.
This papei has not attempteu to claim to know what is
uemociatic money; iathei it has attempteu to show how
money cieation has been uiiven by the context within
which it is opeiating. Anu, foi the past two hunuieu yeais
this context has been within the Ameiican capitalist-
uemociacy - a foim of uemociacy that is compatible with
capitalism anu accepts inequality. Touay's CC auvocates
seem to be challenging this conceptualization by pioposing
a type of uemociatic money that no longei seems compati-
ble with capitalism. They woulu uo well to exploie this
histoiy fuithei by exploiing the ielationship between ue-
mociacy anu capitalism within the context of money ciea-
tion.
('($'")*+,-.
Biock, A., E. Baiiis-Biaun., anu A. Rosenblith. (2uu9). "P2P Cui-
iency." http:blog.newcuiiencyfiontieis.com. New Cuiiency
Fiontieis. 2S Sept. 2u1u.
Biock, A., E. Baiiis-Biaun., anu A. Rosenblith., "New Cuiiency
Fiontieis: Besigning & Exploiing The Teiiain of the Next Econ-
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Caiey, u. W., anu }. NcClellan, eus. (2uu1). The Feueialist: The
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anu the Bestioyei of Nations." San Fiancisco: Baiiy, Baiiu & Co.
Pamphlets of Finance vol. S.
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0ngei, I. (1964). The uieenback Eia: A Social anu Political Bistoiy
of Ameiican Finance: 186S-1879. Piinceton: Piinceton 0niveisity
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of Congiess. Web. 18 Aug. 2u1u.
International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright
12
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International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright
13

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