This is a rare opportunity to point to one of my favorite styles of western cartoons as showing a vital Asian economic statistic. This might have made a good Friday photo, but I figured the actual subject matter of monetary policy using precious metals or central banks would have been a bit too heavy and even politically charged for a Friday, hence the more relaxing picture of HSBC Singapore from around the same time. The poster is from the 1896 US election, when the Democratic Party ran on a platform of “Free Silver”, which the Republicans claimed would lower the American standard of living to those of India at 2 cents/day, China at 10 cents/day, or Japan at 15 cents/day. (I couldn’t find exact numbers, but according to one source most jobs in the US in 1896 paid well over $1/day).
Free Silver was perhaps the main issue of the 1896 US election, and could be thought of as a late 19th century version of loose monetary policy or even a form of “quantitative easing”. At that time money was still defined in terms of gold and silver specie (as it had been for over 2,000 years before, and would continue to be for about another 17 years after that election), and before the age of Central banks, one way to “print” money was to debase the currency in some way – in this case, by trying to inflate the value of silver relative to gold. The motivation might have been different than modern monetary policy goals of stable prices and full employment and have been simply political: to benefit debtor farmers at the expense of creditor banks.
As a brief background on the US political parties, a grossly oversimplified way of understanding the two major US parties is to think of the Democratic party as the “anti-bank” party and their opposing party as the “pro-bank” party. The ideology behind this probably applies to many other political parties around the world: banks by their nature fund investments and development that lead to economic mobility and inequality. This contrast might have been best shown by the first nominal Democrat US president Andrew Jackson (who made it one of his life missions to destroy the Second Bank of the United States), but can also be traced back to Thomas Jefferson’s opposition to Alexander Hamilton’s First Bank of the United States, and has adapted to the 20th Century by FDR’s heavy handed regulations, and to the 21st century in the form of Dodd-Frank and FATCA. FATCA, introduced by Democrats Baucus, Rangel, and Reid, is especially remarkable in being a US law that threatens heavy burdens on foreign banks, including many in Asia, who have no business on US soil. Silver may have been as universal in Asia as the US dollar is today, but Free Silver probably would have had far less impact to the use of silver in late 19th century Asia than Fed policy or FATCA does today.
As much noise as was made last week about the US debt ceiling deal, and how scary it may be when party politics plays chicken with the world’s most important bond market, we now have at least a few months of not having to worry about the default game being played on US treasuries until about February. Fed policy may not be 100% unrelated to politics (bond buying after all can’t be unrelated to the explosion in US government debt issuance in the past 10 years), but perhaps we should at least be thankful that questions about QE tapering and other monetary policy questions are no longer at the mercy of party politics!