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The Money Men: Capitalism, Democracy, and the Hundred Years’ War Over the American Dollar

by H.W. Brands, Norton, 2006

In his 21st book, renowned American historian H.W. Brands examines a simple question: What constitutes money in the United States? Gold? Silver? Paper currency? In this lucid and accessible account, Brands explores how “the money question” has played out from the Revolutionary War until the early 20th century.

The Money Men highlights two conflicting visions of America’s future. Democrats inspired by the Jeffersonian ideal of an agrarian nation controlled by virtuous farmers were arrayed against capitalists espousing the Hamiltonian ideal of a commercial nation devoted to trade and expansive federal powers.

That debtors and creditors had opposing interests was central to the creation of the Constitution, as Brands makes clear. Under the Articles of Confederation, power remained with the states. The national government, for example, could not compel the states to pay taxes. States could also print as much money as they wanted, thereby favoring debtors over creditors.

Alexander Hamilton wanted to create a new system of national government with expanded powers of taxation and commercial control, and he successfully championed the ratification of the Constitution. During the contentious ratification debates, opponents of the Constitution were disproportionately debtors, while its proponents tended to be creditors.

After President George Washington named Hamilton as Secretary of the Treasury, Hamilton immediately proposed what Brands calls “a sweeping overhaul of American public finance.” Hamilton’s 1790 “Report on the Public Credit” mandated that the federal government assume all state debts from the Revolution. The report also proposed to redeem government-issued war bonds at full face value.

Countless war veterans had accepted these bonds as payment for goods and services, but few believed the weak national government would ever redeem them in full. Thus, many bondholders had sold their bonds to financial speculators at below face value. Hamilton’s proposal would have enriched speculators at the expense of the original bondholders. Democrats Thomas Jefferson and James Madison attacked the plan as unfair; Hamilton countered that it would tie the interests of the all-important commercial class to the federal government. Brands describes the political deal made: Hamilton would support the transfer of the nation’s capital to a proposed site along the Potomac River in exchange for the Democrats’ support of his financial plan.

Hamilton next moved to create a national bank, the Bank of the United States. “Hamilton’s bank,” writes Brands, “would receive taxes, disburse appropriations, manage the national debt, and issue notes that would serve as money.” Jefferson and Madison attacked the plan on the grounds that the Constitution made no provisions for establishing banks. Hamilton, unsurprisingly, took the opposite view, arguing that the Constitution expressly granted powers to tax and regulate commerce and that authority to charter a bank could be “implied” from those express powers. President Washington favored Hamilton.

But Democratic opposition to the bank never went away, as Brands makes clear. After populist Democrat Andrew Jackson became president in 1828, he promised to veto the national bank. Brands gives us an entertaining, blow-by-blow account of the ensuing political brawl between Jackson and bank president Nicholas Biddle. Jackson ripped into Biddle as undemocratic and argued that the bank was unconstitutional, while Biddle funneled money to Jackson’s opponents.

In the end, Jackson won, killing Biddle’s bank. But it proved a costly victory. Shortly after the bank’s demise, the Panic of 1837 struck, as unregulated state banks flooded the economy with paper money. When the ensuing speculative bubble burst, the federal government was unable to respond. It seemed like a perverse victory for Biddle.

Economic panics ravaged the country again in 1857, 1873, 1893, 1907 and 1929, and rekindled age-old debates. One such debate described by Brands centered on whether the country should base its money supply on the amount of gold or silver in reserve, or whether it should simply print money backed by nothing but faith in the government itself. Latter-day Jeffersons and Hamiltons continued the fight.

The Civil War was a triumph for a Hamiltonian interpretation of the Constitution, as President Abraham Lincoln took a highly expansive view of federal power. Lincoln created an income tax and also ordered the Treasury to issue greenbacks, paper money not backed by gold. Brands devotes an entire chapter to an unsung hero of the Civil War, financier Jay Cooke. After Secretary of the Treasury Salmon Chase encountered hesitation from Wall Street financiers in attempting to raise funds, he asked Cooke for help. Cooke conceived of a revolutionary plan: He’d bypass Wall Street and appeal directly to the public by selling war bonds. Launching a huge advertising campaign, Cooke succeeded in filling federal coffers with money from ordinary citizens.

Brands describes the post–Civil War era as one of increasing concentration of wealth gained from industrialization. He tells us, for example, about Jay Gould’s attempt to corner the gold market, as well as J.P. Morgan’s role in saving the nation’s economy on two occasions. Democrats repeatedly attacked “money men” like Morgan for their corrupting influence on government policy.

In the late 19th century, a populist backlash against unregulated capitalism and the gold standard gained ground. Running for president in 1896, Democrat William Jennings Bryan famously attacked Wall Street’s exploitation of farmers and small-town Americans while demanding that the nation stop favoring creditors with a money supply tied solely to gold reserves.

Finally, in 1913, the progressive Democrat Woodrow Wilson created the Federal Reserve System, which Brands believes resolved much of the age-old conflict. The populists would have government oversight of the money supply, while capitalists would receive more economic stability. Brands calls the nine decades since the creation of the Federal Reserve a time of “cease-fire” between the two.

While Brands has done an excellent job describing the historical conflicts between democracy and capitalism, one would be hard-pressed to agree with his conclusion that we’re in a period of ceasefire regarding the money question. Reading today’s headlines, it appears that artillery from opposing political parties and their constituencies continues to fire in both directions. Money, and its influence on democracy, promises to remain a passionate national question.


Originally published in the February 2007 issue of American History. To subscribe, click here