The Money Men: Capitalism, Democracy and the Hundred Years' War over the American Dollar

Citation

Brands, H.W. (2010), "The Money Men: Capitalism, Democracy and the Hundred Years' War over the American Dollar", Society and Business Review, Vol. 5 No. 1, pp. 111-113. https://doi.org/10.1108/17465681011017291

In that time of financial crisis and dollar weakness, it seems pertinent to Society and Business Review (SBR) to take in account the financial history field. Financial history is a burgeoning field of study that interest as well “business history” (at large) than “business and society”. The financial history is defined as a subfield of economy history looking for past financial institutions, markets and theories. Since history is the art to question the past with contemporary questions, financial history therefore increasingly stands as an independent method of inquiry into some of our most intractable recurrent economic problems: economic growth, financial concentration, health care, long‐term care, monetary policy, political development, social welfare programs. Those questions constitute also the context of business and society items. Therefore, in order to give an idea of the financial history, we are going to present two books.

Henry William Brands is Professor of History at the University of Texas (Austin). He graduated from Stanford University (BA) and from the Jesuit High School (Portland, Oregon) (PhD). As an historian he wrote about 20 books especially: The Age of Gold: The California Gold Rush and the New American Dream (2002) and The Strange Death of American Liberalism (2001). His books have spanned the gamut of American history, from the eighteenth century and a biography of Benjamin Franklin to the nineteenth century and a history of the California Gold Rush, and then on to the twentieth century and a discourse on the USA in the Middle East. He is a comfortable storyteller and this extends to biography, with tomes to his credit about Andrew Jackson and Woodrow Wilson.

The Money Men: Capitalism, Democracy and the Hundred Years' War over the American Dollar is about five Americans who played critical roles in America's formation of a monetary system and hence the history of this country from 1776 until the eve of World War I. Brands combines his skill sets of biography and history to render a flowing work about early American finance.

In the prologue Brands lies “the money question” that is to say (roughly) the relation between finance system and democracy. Brands answers by focussing on five founding financial men, each of them being the subject of a chapter.

The first chapter (“The aristocracy of capital”) is about Alexander Hamilton who advocated federal assumption of state Revolutionary War debt through the establishment of a National Bank (the first of the three national banks that the USA has experimented). Brands notices that Hamilton “contended that economics ruled the world, eventually if not at once” (p. 21).

In the second chapter called “The Bank War”, we are introduced to the two warring factions: the capitalists championed by Hamilton and the democrats led by Thomas Jefferson. Brands opts to gloss over the stormy closure of the First Bank, simply rolls the discussion forward quickly to the Second Bank, and focuses on the autocratic President, Nicholas Biddle, representing capitalism, versus President Andrew Jackson, representative of the democrats. The fight between the Presidency and the “Bank” was won by the President Jackson since the first National Bank was demised. With Jackson's victory “the lesson seemed clear […] when democracy and capitalism collided at the ballot box, democracy won” (p. 85).

The third chapter titled “The bonds union” is about the strong growth and revolutions in transportation, industry and markets seen in the years roughly between 1825 and 1850. It was about connectivity, brought about by canals and then the railroads, bringing together distant locales to the eastern seaboard, and the wealth that was subsequently produced for the few. Brands next presents the California Gold Rush and that precious metal is introduced, which provides segue into our third “money man”, financier Jay Cooke. He became synonymous with the selling of war bonds at a time when the cost of the war to the Union was $1 million per day. Cooke's ingenious plan to sidestep the banks and sell bonds directly to the public exceeded all expectations and Brands tells us “Cooke may have become the person most vital to the Union war effort, after Lincoln” (p. 121). By the final tally, Cooke & Company placed a staggering $1 billion plus in US Government Bonds.

The fourth chapter chronicled “The Great Gold Conspiracy” and the action of Jay Gould who, in concert with Jim Fisk Jr and Jay Gould, attempted to corner the market in gold in 1869. The plan ended in disaster when the government stepped into sell to the bulls, but Gould escaped ruin when he surreptitiously switched allegiances and himself became a seller. We learn more about the mechanics of the market in this chapter: and not just only the gold market but also how the equity market functioned in this age of railroad wars, with various consortiums and individual operators looking for personal gains at the expense of any level of morality and legislation. But capitalism is a loser in this chapter for we learn about its seamier side as the standards of insider trading and stock manipulation are revealed. The Black Friday collapse of gold prices (1869) also highlighted the dangers of gold dependence for the financial system and the US Economy at large.

The last chapter “The transit of Jupiter” is about J.P. Morgan, who stabilised the financial panic of 1907. Therefore, Morgan was the saviour of the US Government and then the target of its antitrust suit.

Each man, Brands explains, represented capitalism intertwined but in conflict with democracy. Capitalism promoted free trade and strong financial institutions, while democracy called for protectionism and financial institutions that helped customers instead of making insiders rich. This inherent tension, the author writes, was resolved by the 1913 compromise that created the Federal Reserve System.

The “Epilogue” argues how the money question concluded with the creation of the Federal Reserve System, a central bank that could set the interest rate level and bear ultimate responsibility for the fiscal system. The Fed was in reality the Third Central Bank of the USA, having birthed 77 years after the Biddle/Jackson fight shuttered the Second Bank of the USA. Brands concludes that in spite of the Federal Reserve's missteps in the aftermath of the 1929 Great Crash, the central bankers have done a credible job and therefore the money question, once so central to the politics of the USA, has been resolved and is out of the main of the political debate.

Brands should be applauded for writing about the money question, which has often been overlooked in US history. He tackles head‐on the intrinsic strain between democracy and capitalism for “the driving force of democracy is equality, of capitalism inequality” (p. 16). Brands' history is seen through the leadership's eyes and that makes sense if one is writing to a general audience. However, the author's generalisations, however insightful, make rigid organising principles, given that different political and economic forces shaped each era. Focusing on one capitalist per episode also distorts the stories, as does lurching from crisis to crisis while glossing over the important consensus developments that occurred in between. This previous point is secondary since the book is globally very interesting, complete and pertinent. We must thank Brands to have delivered a competent general history that can be read by those who are interested by American history or those that want to enter pleasefully in the financial history field.