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 !"#$%!&$ 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. !&'()*+,-.,/,($# 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 !"#$%&'(#!%") 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. *+!,-&)+##-./#0)+#)($-+#!"1)0#+2,-)($-&!#) 0'//,!-0 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. !"#$%#&#'()$*+,#'-.#-!$/'#(!#0$1(1#'$ .+-#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. !"#$%&'()$*+',$'%)-+../&#-)01)20'#3 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- omy." www.newcuiiencyfiontieis.com. New Cuiiency Fiontieis. 2S Sept. 2u1u. Babb, S. anu B. Caiiutheis. (1996). "The Coloi of Noney anu the Natuie of value: uieenbacks anu uolu in Postbellum Ameiica" Ameiican }ouinal of Sociology vol. 1u1 No. 6 (Nay): 1SS6-91. Blaii, B. (1876). "Speech of Bon. Beniy W. Blaii of New Bampshiie in the Bouse of Repiesentatives, Thuisuay, Nay 18, 1876." Pam- phlets of Finance. vol. S. Caiey, u. W., anu }. NcClellan, eus. (2uu1). The Feueialist: The uiueon Euition. Inuianapolis: Libeity Funu Inc. Bavies, u. (2uu2). A Bistoiy of Noney fiom Ancient Times to the Piesent Bay. Siu eu. Caiuiff: 0niveisity of Wales Piess. uieco, T. (2uu9). The Enu of Noney anu the Futuie of Civilization. White Rivei }unction: Chelsea uieen Publishing. Ingham, u. (2uu4). The Natuie of Noney. Cambiiuge, 0K: Polity Piess. Ingham, u. (1999). "Capitalism, Noney anu Banking: A Ciitique of Recent Bistoiical Sociology." Biitish }ouinal of Sociology vol. Su No. 1 (Naich): 76-96. Kelley, W. (1877). "uolu Payments aie Impossible! We must choose between National Noney anu Iiieueemable Bank-notes; Speech of Bon. William B. Kelley, of Pennsylvania in the Bouse of Repiesen- tatives, Novembei 1S, 1877." Pamphlets of Finance. vol. 1. Laiulei, B. (1991). The uoluen Age of the Quantity Theoiy: The Bevelopment of Neoclassical Nonetaiy Economics. Piinceton: Piinceton 0niveisity Piess Smith, C. (188u). "0ui Noney; Its 0ses anu Abuses. An Auxiliaiy of Inuustiy anu Laboi Saving Invention. The Begettei of Nonopolies anu the Bestioyei of Nations." San Fiancisco: Baiiy, Baiiu & Co. Pamphlets of Finance vol. S. Pamphlets of Finance. vol. 1 - S. (This is a collection of pamphlets locateu in the aichives of the 0niveisity of Califoinia at Beikeley. Nany of these oiiginal pamphlets lack authoi, publishei anu uate infoimation.) Rousseau, P. (2uu4). "A Common Cuiiency: Eaily 0.S. Nonetaiy Policy anu the Tiansition to the Bollai." NBER Woiking Papei Seiies Woiking Papei No. 1u7u2. (August) Cambiiuge: National Buieau of Economic Reseaich. Shaikey, R. (19S9). "Noney, Class, anu Paity: An Economic Stuuy of Civil Wai anu Reconstiuction." The }ohn Bopkins 0niveisity Stuu- ies in Bistoiical anu Political Science. Seiies LXXvII. No. 2. Balti- moie: }ohn Bopkins 0niveisity Piess. Sylla, R. (1998). "0.S. Secuiities Naikets anu the Banking System: 179u-184u." Feueial Reseive Bank of St. Louis, Review vol. 8u Issue S, (Nay}une): 8S-98. 0ngei, I. (1964). The uieenback Eia: A Social anu Political Bistoiy of Ameiican Finance: 186S-1879. Piinceton: Piinceton 0niveisity Piess. 0niteu States. Cong. (1862). A Centuiy of Lawmaking foi a New Nation: 0.S. Congiessional Bocuments anu Bebates, 1774 - 187S. Statutes at Laige., S7th Cong., 2nu sess., Ch. SS., page S4S. Libiaiy of Congiess. Web. 18 Aug. 2u1u. International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright 12 !"#$%& ($)$%*+' ,-".+' /01234+ 5 ,%"$678' -9' :);<)=#". 9-7' ) >%;' >)$#-"?' !+(+' ,-".7%**#-")@' A-B6<%"$*' )"& A%C)$%*D' 0EEF' G' 01EH+' ($)$6$%*' )$ :)7.%+D 3E$I' ,-".+D' 37&' *%**+D J).% EKLD' 1MM+' :#C7)78'-9' ,-".7%**+'N%C+'01'56.+'MK0K+ !"#$%& ($)$%*+' ,-".+' /01224+ 5 ,%"$678' -9' :);<)=#". 9-7' ) >%;' >)$#-"?' !+(+' ,-".7%**#-")@' A-B6<%"$*' )"& A%C)$%*D' 0EEF' G' 01EH+' ($)$6$%*' )$' :)7.%+D 3L$I ,-".+D' 0*$ *%**+D' J).%' 33+ :#C7)78' -9' ,-"O .7%**+'N%C+'01'56.+'MK0K+' PNI)$' 57% Q%7=*I)7%*RS';;;+C%7=*I)7%*+-7.+' Q%7*I)7%*+' M3' (%J$+' MK0K+' N)#";7#.I$D' (+' /MK004+ A%<-B7)$#T#". U-"%8?' V7-< $I% V%&%7)@#*$' W)J%7*' $-' $I% ,-<<6"#$8' ,677%"B8' U-X%<%"$ /!"J6C@#*I%&' A#*O *%7$)$#-"4+ N#B=;)7%D' V+' %&*+' /0L0H4+' YI% 5<%7#B)"' Z%)7' Q--=?' 5' [%B-7&' -9' \X%"$*')"&'W7-.7%**+'>%;'Z-7=?'A'5JJ@%$-"']',-<J)"8+ N--&D \+' U+' /0LLH4+' A%<-B7)B8' 5.)#"*$' ,)J#$)@#*<?' [%"%;#". ^#*$-7#B)@'U)$%7#)@#*<+',)<C7#&.%?',)<C7#&.%'!"#X%7*#$8'W7%**+ ' International Journal Of Community Currency Research 2012 Volume 16 (D) 5-13 Wainwright 13