Exorcising “The Ghost of Andrew Jackson": Populism & the Federal Reserve

• In Event: Populism in Comparative-Historical Perspective

Abstract

Exorcising the "Ghost of Andrew Jackson": Post Financial Crisis Populism and the Challenges to the Political Independence of the Federal Reserve

In December 2018, President Donald Trump repeatedly attacked U.S. Federal Reserve Chair Jerome Powell, allegedly threatening to fire Powell for the Fed’s decision to repeatedly raise interest rates. These attacks sent shockwaves through world financial markets, and seemed to call into question the political independence of the U.S. central bank. However, attacks on the Fed aren’t new: in the decade since the Federal Reserve led the aggressive response to the financial crisis of fall 2008, the central bank has drawn attacks from Bernie Sanders and the Occupy Wall Street movement on the left, as well as from the Tea Party on the right.

How durable and resilient is the Fed as an institution to the resurgent rise of populism in the United States? Trump is well known for his fondness for posing around iconic images of early populist hero Andrew Jackson. Is this stylistic fetishism, or does it pose a real risk to the political independence and institutional identity of the U.S. Federal Reserve system? The most ancient strain of American populist ideological politics is opposition to a robust centralized bank. Does Trump/Bannon style nationalist populism risk reawakening the Jeffersonian and Jacksonian “Bank Wars” of the early Republic against the incarnations of the Banks of the United States?

This paper answers these questions by examining in depth the reform process that led to the political construction of the Fed as a uniquely American hybrid model of a central bank. The Fed emerged out of a two decade process that harnessed both Republican and Democratic efforts and spanning administrations of both parties. Independently of each other, both Democratic leader Carter Glass and Republican leader Nelson Aldrich described their work privately as “battling the ghost of Andrew Jackson”—the concerted effort to kill off the populist DNA rooted in each of the parties across the nineteenth century that prevented a systematic overhaul of the national banking system. Financial crises in the 1890s followed by the Panic of 1907 synthesized these reform efforts across the Roosevelt, Taft, and Wilson administrations. The Federal Reserve Act that ultimately emerged in 1913 was a product of this hybrid reform approach: and the ultimate durability and resilience of the Fed as a political institution can be traced to this hybridized ideological reform process, which durably shifted national monetary authority over the last century.

The reemergence of populism on the national stage following the financial crisis has led to challenges to the Fed’s autonomy from the Tea Party and Trump right, as well as from the Sanders Left. However, unlike the earlier Banks of the United States, the Fed has now had a century to build legitimacy and stability in monetary policy that gives it social and political capital that Alexander Hamilton, Carter Glass, and Nelson Aldrich could only imagine.

Author

• Stephen G. Bragaw, Washington & Lee University