The Monetary Component of Post-Civil-War USA

This is a response to Matt Stoller's concise summary of post-Civil War economics.

Dear Matt,

I loved your post-Civil War summary, but it omits a few items that are often ignored.

First, in the period leading up to the Civil War, as he was stealing the Southeastern US from the Cherokees, President Andrew Jackson also paid off the national debt in full in 1835 and decommissioned the US central bank. 

Both the national and Georgia Supreme Courts validated the Cherokees' title to their land, so Trump is not the first president to ignore the Supreme Court's decisions.

Since public currency is a component of national debt, just as an asset like your bank account is the bank's liability, terminating the central bank and paying off national debt meant public currency vanished, reducing people's savings. It was austerity on steroids.

In the aftermath of Jackson's massive financial bungle, people did their business with monetized gold ("specie") and over 7,000 varieties of private banknotes of varying reliability. There was no FDIC then, either.

So, as with all significant reductions in national debt, Jackson's debt payoff made the economy more fragile. A wave of asset forfeitures and foreclosures called the "Panic of 1835" ensued. One might even say this was a significant contributor to the tensions leading to the Civil War itself and the post-Civil War depressions.

The Civil War itself meant the Union had to spend lots of money to fight the seceding states. I've read that the bankers offered to lend Lincoln the money at 26% interest. Lincoln sidestepped handing the banks an enormous profit by issuing "greenbacks" from the Treasury as currency.  They were valuable because they were accepted in payment for taxes. 

The feds also abandoned traditional accounting for greenbacks issued and did not call them liabilities. This was a covert (re)expansion of national debt.

Post-war, government began withdrawing greenbacks from circulation. (See Lawrence Goodwin's The Populist Moment: A Short History of the Agrarian Revolt in America) Losing the Civil War meant the Confederacy lost most of its assets (slaves), none of its money was valuable, and all of its banks failed. As a consequence Connecticut alone had as much currency as the Confederate states put together. Southerners were very poor, and resented the Northern banks backing the creditors. There's even a continuing movement to deny ending slavery was what started the Civil War, saying Northern banks were the spark that set it off.

So...what do people do when there's no money and they need to buy seeds for their farm, and food for their family? They buy on credit. A credit store run by the "Furnishing Man" came along to cater to such customers. The name was later shortened to just "the Man," as in "Working for the Man every night and day" in the Creedence Clearwater Revival song.

The Man charged one price for cash and another for credit. The credit price would put today's payday lenders to shame. The security for credit extended was the "crop lien." The farmers bore all the risk of price swings and weather, while the Man often took advantage of such emergencies to foreclose and make tenant farmers out of farm owners. It was an example of "disaster capitalism" on steroids. The people in charge of rail transportation of crops also colluded to support the Man, refusing to take crops to markets where they might be more valuable.

One response to this crushing blow to the poor was the Farmers' Alliance. The Farmers' Alliance moved into politics in the early 1890s under the banner of the People's Party, commonly known as the "Populists." They elected people to political office both locally and federally, and were one of the driving forces behind the creation of the Federal Reserve and the State Bank of North Dakota, as well as farm co-ops.

The forces of austerity run in parallel to the monopolists you cover, saying we can't afford to house, treat, or constructively use poor people in our civilization because (Eeek!) we're running out of money. We've had plenty of historical examples of austerity. Every one precedes a significant economic downturn.

=========

Incidentally, today's post from Stoller is simply awesome. It answers the question previously asked by Congressman Pascarell: "Why is Congress so dumb?"