In 1907, brothers Arthur and Otto Heinze made a risky speculative play to boost United Copper Company stock and squeeze the short-sellers who had bet against it. The Heinzes’ attempt to corner the market failed spectacularly. Their failure might not have impacted more than a small clique of financiers, except wary depositors at the Knickerbocker Trust Company, a bank whose president was close to the Heinzes, withdrew their money in response. Knickerbocker Trust suspended withdrawals. Soon, financial institutions across the country also faced their own bank runs. The crisis jeopardized the savings of Americans from coast to coast and threw the American economy into turmoil.
Christopher W. Shaw's Money, Power, and the People: The American Struggle to Make Banking Democratic is a rich and detailed history of American efforts to reform or replace financial capitalism, from the aftermath of the “Banker's Panic” of 1907 to the New Deal. During this period, the United States constructed a number of relatively durable institutions for stabilizing or managing the financial economy, such as the Federal Reserve and Federal Deposit Insurance Corporation. But Shaw is interested not only in the proposals that came to be but also the ones that never did, or those limited to a single state or region that failed to spread nationally. So, for example, while this book offers a comprehensive history of the legislation that resulted in the Fed, it also describes the financial reform program of Jacob S. Coxey, who, besides leading his “army” of the unemployed on an 1894 march to Washington, DC, promoted a plan for the massive federal purchase of state and local bonds.
Shaw calls the various radical and reformist efforts to ensure that banking served the U.S. public interest “banking politics.” A somewhat bland term, its understatement points to a significant strength of the book. Rather than telling a morality tale of heroes and villains, or to impose a test of “good” or “bad” economics using his twenty-first-century vantage point, Shaw carefully and empathetically explains where different proposals came from, how they found public champions, and what they proposed to achieve. And, while his sympathies seem to lie with would-be agents of change, Shaw fairly evaluates the perspectives of leading bankers and their friends in the U.S. political system. The result is a highly informative contribution to the history of public policy and American capitalism.
Money, Power, and the People reaches a crescendo in the Great Depression, when the collapse of the U.S. economy and widespread bank failures rendered the future of the U.S. financial system highly uncertain. Shaw describes how Utah banker Marriner Eccles emerged as a surprisingly sharp critic of traditional economics within the Roosevelt administration, even telling Congress that the “orthodox capitalistic system of uncontrolled individualism … will no longer serve our purpose” (239). Shaw shows how key New Deal financial legislation, such as the landmark 1933 Banking Act, resulted from a push-and-pull between reformers like Eccles and banker-friendly members of Congress such as Virginia's Carter Glass. But Shaw argues that earlier decades of activism surrounding the role of finance in the U.S. economy—rather than just the specific circumstances of the Depression—made the era's reformist agenda both possible and necessary.
Of course, New Deal reforms did not go nearly as far as many advocates of banking politics would have preferred. The federal government created a system to insure bank deposits (and effectively ended the disastrous cycle of bank runs that had plagued the country) and split investment banking from commercial banking. But it did not take over the business of accumulating capital and extending credit, nor did it replace for-profit banking with a nonprofit alternative, as proponents, farmer's organizations, and labor unions had advocated for decades. “The private banking system had faced potential extinction” during the Great Depression “yet survived,” Shaw reminds his readers. “But the dynamic banking politics that characterized the Great Depression had left an indelible mark on the country's financial system” (256). New Deal reforms, Shaw argues, were so successful at fixing the most obvious flaws in the financial system that “banking politics” soon receded from prominence, except perhaps in postwar debates over “redlining” and making credit accessible for racial minorities. The lack of public organization around financial institutions would pave the way for private banking interests to eventually challenge some key elements of the New Deal regulatory framework without the sort of opposition that reformers and radicals had mounted in the first half of the century.
This book's strength as a work of academic history may limit its audience. The lack of obvious heroes and villains means that Shaw cites a great many names, institutions, and proposals in considerable detail. And, while certain figures recur throughout the narrative (among them Coxey, Glass, and southern populist Tom Watson), there is no single biography that can serve as a stand-in for the historical transformations described here. For this reason, Money, Power, and the People may become essential reading for scholars and instructors, but inappropriate for inclusion on many undergraduate syllabi.
The final chapter, which brings the story of banking regulation and politics forward to the present, is understandably less rich and nuanced that the twelve that come before it. The notion that the New Deal solved so many social and economic problems at the cost of enervating the popular movements that originally brought the New Dealers to power is not a particularly original historiographical intervention, even if Shaw tells the story in a highly original way. But even if this book is unlikely to change historians’ minds about what the New Deal did, it demonstrates the diversity and intensity of popular movements whose critiques of financial capitalism made the New Deal possible in the first place.
