Yoni Appelbaum: Can Rhetoric Create a Recession? It Has Before

Yoni Appelbaum is a social and cultural historian of the United States. He is a doctoral candidate at Brandeis University, and a lecturer in history at Babson College. He previously contributed to TheAtlantic.com under the name Cynic.

For the first time in a century, monetary policy stands at the center of our political debate. A number of leading contenders for the Republican presidential nomination are vying to persuade voters of the depth of their hostility to the Federal Reserve. Last month, Texas Governor Rick Perry suggested that further action from the Fed might be "treasonous," and that if it were pursued, "we would treat [Fed Chairman Ben Bernanke] pretty ugly down in Texas." Rick Santorum called for a "sound-money Federal Reserve," Newt Gingrich labeled the Fed "dangerous" and Michele Bachmann accused it of wielding "almost unlimited power over the economy." And then there's the Fed's most passionate critic, Ron Paul, who accuses it of being "a full time counterfeiting operation to sustain monopolistic financial cartels."

The idea that it is not merely mistaken, but positively immoral, for the federal government to manipulate the money supply is as old as the republic. It has found its greatest popularity during moments of economic crisis, as voters search for a single identifiable cause, and cure, to the tangled problems they face. That poses an almost-irresistible temptation to politicians hoping to win office by tapping popular frustrations. But they are playing with fire. The last time a major political party fused moral fervor and monetary policy in this fashion, it plunged a stalling economy back into recession and sentenced itself to two decades of political irrelevance.

THE LESSONS OF 1896

The Depression of 1893 paralleled, in many ways, our current plight. It started as a financial panic, and soon deepened into the worst economic crisis the nation had ever faced. Confidence plummeted, banks failed, businesses went bankrupt, and unemployment soared.

The economic crisis struck amidst a simmering political insurgency. The People's Party, better known as the Populists, had enjoyed considerable success in the election of 1892, particularly in agricultural regions that were already suffering economically. To build on its triumphs, the party searched for a defining issue that could speak to the economic malaise. Out of the mass of proposals emerged a single, simple idea that almost all factions could back: bimetallism....