Monetary reform in the United States

Last updated September 09, 2019

Monetary reform, the reform of monetary creation and thus of the banking system, is a topical political issue in the United States, especially in light of the public debt (15 trillion dollar in November 2011),^[1] household debt (student debts, etc.), Social Security and other public sector undertakings and state debts. The financial crisis that began in U.S. in the fall of 2007 and subsequently affected large parts of the world, and was followed by massive bank rescues (so-called bailouts), also plays a major role in this context as well as criticism of Federal Reserve. Strictly speaking, there are two separate movements for monetary reform in the U.S., one is more left-wing and the other is more right-wing. In Congress these views are represented mainly by Dennis Kucinich, which belong to the progressive left, and Ron Paul, known right-wing "Fed critics." The debate often focuses on questions such as how the banking system works today, debts, bailouts, the Federal Reserve, and more. But history is also alive in the debate, for example is Abraham Lincoln's so-called Greenbacks something that often is mentioned. The main American organization for "monetary reform" is the American Monetary Institute.

Monetary reform is any movement or theory that proposes a system of supplying money and financing the economy that is different from the current system.

Household debt is defined as the combined debt of all people in a household. It includes consumer debt and mortgage loans. A significant rise in the level of this debt coincides historically with many severe economic crises and was a cause of the U.S. and subsequent European economic crises of 2007–2012. Several economists have argued that lowering this debt is essential to economic recovery in the U.S. and selected Eurozone countries.

In the United States, Social Security is the commonly used term for the federal Old-Age, Survivors, and Disability Insurance (OASDI) program and is administered by the Social Security Administration. The original Social Security Act was signed into law by President Franklin D. Roosevelt in 1935, and the current version of the Act, as amended, encompasses several social welfare and social insurance programs.

History

Older history

1600-1860

During the 17th and 18th century the situation was largely reversed compared to today, because several colonies then had their own currencies. This disturbed the British financiers and in the late 18th and early 19th century they worked to gain acceptance in the Congress for the idea of an American/United States-central bank modelled by the Bank of England. Several of the U.S. Constitution fathers objected, however, saying that the colonies should be allowed to maintain their own monetary system.^[2] The fight was won in the end of the British bankers and their allies, and in 1781 the Bank of North America was founded, America's first central bank. However, it was not a real central bank since it only operated in three states and in 1791 was replaced by the First Bank of the United States. From 1811 to 1816, the United States had no central bank at all, then the Second Bank of the United States 1816-1836, and after that another period without a central bank from 1837 to 1862. Monetary reform during the 19th century in the US largely focused on the goal of keeping the local money and criticism of the central bank. One of the harshest critics were Andrew Jackson, the country's seventh president, who said that the central bank concentrated the nation's financial strength in a single institution, that it made the rich richer, that it gave power to the bankers instead of Congress, that the country became controlled from outside (read: from British financiers) and the northeastern states favored in the southern and western states expense.

The United States Congress is the bicameral legislature of the federal government of the United States, and consists of two chambers: the House of Representatives and the Senate. The Congress meets in the United States Capitol in Washington, D.C. Both senators and representatives are chosen through direct election, though vacancies in the Senate may be filled by a gubernatorial appointment. Congress has 535 voting members: 435 representatives and 100 senators. The House of Representatives has six non-voting members representing Puerto Rico, American Samoa, Guam, the Northern Mariana Islands, the U.S. Virgin Islands, and the District of Columbia in addition to its 435 voting members. Although they cannot vote in the full house, these members can address the house, sit and vote in congressional committees, and introduce legislation.

The Founding Fathers of the United States, or simply the Founding Fathers, were a group of American leaders who united the Thirteen Colonies, led the war for independence from Great Britain, and built a frame of government for the new United States of America upon republican principles during the latter decades of the 18th century. Most Founding Fathers at one point considered themselves British subjects, but they came to understand themselves more as patriotic Americans who possessed a spirit distinct from that of their motherland. The group was composed of businessmen, lawyers, philosophers, politicians, plantation owners and writers from a variety of social, economic, and ethnic backgrounds. The Founding Fathers came from a variety of occupations, and many had no prior political experience.

The President, Directors and Company, of the Bank of the United States, commonly known as the First Bank of the United States, was a national bank, chartered for a term of twenty years, by the United States Congress on February 25, 1791. It followed the Bank of North America, the nation's first de facto central bank.

1860-1913

At the end of November 1910, Senator Nelson W. Aldrich and Assistant Secretary of the U.S. Treasury Department A. Piatt Andrew, and five of the country's leading financiers (Frank Vanderlip, Henry P. Davison, Benjamin Strong, and Paul Warburg) arrived at the Jekyll Island Club to discuss monetary policy and the banking system. They created the Federal Reserve during this meeting.^[3] According to the Federal Reserve Bank of Atlanta, the 1910 Jekyll Island meeting resulted in draft legislation for the creation of a U.S. central bank. Parts of this draft (the Aldrich plan) were incorporated into the 1913 Federal Reserve Act.

Nelson Wilmarth Aldrich was a prominent American politician and a leader of the Republican Party in the United States Senate, where he served from 1881 to 1911. By the 1890s he was one of the "Big Four" key Republicans who largely controlled the major decisions of the Senate, along with Orville H. Platt, William B. Allison and John Coit Spooner. Because of his impact on national politics and central position on the pivotal Senate Finance Committee, he was referred to by the press and public alike as the "General Manager of the Nation", dominating tariff and monetary policy in the first decade of the 20th century.

Paul Moritz Warburg was an American investment banker born in Germany, and an early advocate of the U.S. Federal Reserve System.

The Jekyll Island Club was a private club on Jekyll Island, on Georgia's Atlantic coast. It was founded in 1886 when members of an incorporated hunting and recreational club purchased the island for $125,000 from John Eugene du Bignon. The original design of the Jekyll Island Clubhouse, with its signature turret, was completed in January 1888. The club thrived through the early 20th century; its members came from many of the world's wealthiest families, most notably the Morgans, Rockefellers, and Vanderbilts. The club closed at the end of the 1942 season due to complications from World War II. In 1947, after five years of funding a staff to keep up the lawn and cottages, the island was purchased from the club's remaining members for $675,000 during condemnation proceedings by the state of Georgia.

1913-2008

In the 1930s, during the Great Depression and especially before the Second World War, there were a lot of discussions about the banking system and how to improve it. The most well-known proposal for a big reform during this time is the so-called Chicago plan.

Great Depression 20th-century worldwide economic depression

The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. The timing of the Great Depression varied across nations; in most countries, it started in 1929 and lasted until the late 1930s. It was the longest, deepest, and most widespread depression of the 20th century. In the 21st century, the Great Depression is commonly used as an example of how intensely the world's economy can decline.

The Chicago plan was a collection of banking reforms suggested by University of Chicago economists in the wake of the Great Depression. A six-page memorandum on banking reform was given limited and confidential distribution to about forty individuals on 16 March 1933. The plan was supported by such notable economists as Frank H. Knight, Lloyd W. Mints, Henry Schultz, Henry C. Simons, Garfield V. Cox, Aaron Director, Paul H. Douglas, and Albert G. Hart.

2008-

The Need Act, presented in the House of Representatives in September 2011 by Dennis Kucinich, is a proposed law that implies that "the creation of money by private financial institutions as interest-bearing debts should cease once and for all".

Dennis John Kucinich is an American politician. A former U.S. Representative from Ohio, serving from 1997 to 2013, he was also a candidate for the Democratic nomination for President of the United States in the 2004 and 2008 Presidential elections. He was a candidate for Governor of Ohio in the 2018 election, losing in the primary to Richard Cordray.

Related Research Articles

The Federal Reserve System is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises. Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System.

The Federal Reserve Act was passed by the 63rd United States Congress and signed into law by President Woodrow Wilson on December 23, 1913. The law created the Federal Reserve System, the central banking system of the United States.

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A bailout is a colloquial term for the provision of financial help to a corporation or country which otherwise would be on the brink of failure or bankruptcy.

The National Monetary Commission was a study group created by the Aldrich-Vreeland Act of 1908. After the Panic of 1907, the Commission studied the banking laws of the United States, and the leading countries of Europe. The chairman of the Commission, Senator Nelson Aldrich, a Republican leader in the Senate, personally led a team of experts to major European capitals. They were stunned to discover how much more efficient the European financial system appeared to be and how much more important than the dollar were the pound, the franc and the mark in international trade. The Commission's reports and recommendations became one of the principal bases in the enactment of the Federal Reserve Act of 1913 which created the modern Federal Reserve system.

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References

↑ U.S. debt 15 trillion dollars Daily News, Published 2011-11-17 (Read 3 december 2012)
↑ Brown, Ellen (2008), Banks and Debt Network, Anarchos
↑ "The Jekyll Island duck hunt that created the Federal Reserve". jekyllislandhistory.com. Retrieved 2015-05-17.

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[1] U.S. debt 15 trillion dollars Daily News, Published 2011-11-17 (Read 3 december 2012)

[2] Brown, Ellen (2008), Banks and Debt Network, Anarchos

[Creation-FedRes-3] "The Jekyll Island duck hunt that created the Federal Reserve". jekyllislandhistory.com. Retrieved 2015-05-17.