In 1985, agriculture and other basic producers of the American economy were engulfed by a crisis of the opposite nature—the persistent, crippling effects of falling prices. On a farm near Unionville, Iowa, a group of distressed farmers gathered in the living room of Clifford and Evelyne Burger to exchange tips on fending off the bank foreclosures, to console one another and to search for answers. The Burgers had been missing debt payments sporadically since 1983; the local bank had just turned down their loan application for spring planting. The Burgers and their friends thought they had found the explanation. Their failure, they decided, was caused by a remote conspiracy of bankers, operating through the Federal Reserve. Mrs. Burger distributed an illustrated pamphlet entitled “Billions for Bankers, Debt for the People,” a polemical tract on the money question that was circulating widely in Iowa and other afflicted farm states. The Federal Reserve, the pamphlet explained, was “a system of Banker- owned Mammon that has usurped the mantle of government, disguised itself as our legitimate government, and set about to pauperize and control our people.” The farmers talked quite familiarly about this conspiracy against them, reciting old names and obscure events from the Federal Reserve’s early history. A web of international bankers had designed the central bank back in 1913 in order to dominate the world; their unseen control extended to grain companies, major conglomerates, the financial markets and the news media. These manipulations, the farmers earnestly explained, were guided by the “ Power 300” and the “Inner Circle” and, ultimately, by the “Zionist Jewish conspiracy.” “The Federal Reserve dictates to Reagan,” said John Sellers, Jr., another young farmer awaiting his foreclosure notice. “Everyone says there is a shortage of money, but it isn’t so. If they wanted more money, they pretty well could print it up. The Federal Reserve is the biggest hoax ever played. Ninety-nine percent of the people think it’s a branch of the government.” Like others, John Sellers was trying to combat the personal depression that accompanied economic failure. “It’s a very gray world and you feel like you’re ninety years old,” he said. “You’re in quicksand and there’s no way out. Many blame themselves. When the hammer finally falls, you look back at the decisions you made and the decisions you could have made and you go through a terrible period of depression, of guilt.” In Iowa as well as other distressed areas, farmers found some solace in the realization that others were failing too, even some of the best farmers among them who had managed most efficiently. Obviously, it could not be their'fault alone. There must be some larger explanation. Some farmers focused their anger on the giant grain-trading companies. Others blamed the strong dollar, which cut into exports. Others, an intense minority with extreme views, resurrected the old conspiracy theories that had surrounded the Federal Reserve Bank’s mysterious powers since its origin. The farmers studied the baffling facts of money creation and the anomalous status of the Federal Reserve—a supremely powerful appointed board that wields as much power as elected officials—and they decided, not illogically, that only a powerful conspiracy could have created such a bizarre arrangement. It was the Rockefellers and the Jews who had plotted to ruin Iowa. It was the “Powers” that, by controlling money creation, had subverted democracy. The belief in distant conspiracy reflected a shocked disappointment with life, political anger mixed with a deep spiritual distress. In desperate times, confused and powerless people were prepared to believe that their lives were held in thrall by a malevolent hierarchy. The farmers in Iowa were like the Catholic monks of medieval Europe who condemned moneylenders. The farmers in Iowa looked at what money was doing to their lives and they saw the hand of the devil. There was one other explanation most victims in Iowa and elsewhere did not wish to face—that the American political system itself had decided their fate. The deflation destroying American farmers and other producers was not imposed by remote conspirators, but by their own government in Washington, with the approval or acquiescence of their own elected representatives. The general calamity of falling prices was not a mistake or a random accident of nature or an evil plot. It was the necessary consequence of the economic logic pursued by those who held legitimate political power in the American system, most particularly the Federal Reserve but with the tacit consent of others. This larger reality was too demoralizing for most victims to accept, even those who understood money and the Federal Reserve’s role in the deflation. It was far easier to believe that their distress resulted from mistakes Or misguided policy and would soon be relieved if only enough Americans understood what was happening. Faced with failure, they preferred to conclude that an evil cabal had engineered their ruined lives, using the dreadful powers of the Federal Reserve to undermine justice and self-government. The political logic that propelled these farmers’ crisis was not secret. Given the choices made in Washington, deflationary destruction was virtually inevitable. The Federal Reserve was determined to drive the rate of inflation lower and lower, regardless of other consequences, and no one of any influence challenged the Fed’s objective. Indeed, it was fully endorsed by both political parties. As a practical matter, in order to stabilize money’s value at zero inflation or as close as possible, some elements in the economy must be forced into negative levels—held in a state of perpetual losses—in order to offset the rising prices that other economic sectors continued to enjoy. The government, especially the Federal Reserve, could not very well acknowledge this unpleasant tradeoff, but it was frankly understood in financial markets. With matter-of- fact directness, E.F. Hutton explained the logic to its investment customers: “To our mind, pockets of deflation and an ad hoc program of bankruptcy containment are as much a part of secular disinflation as are low inflation and declining interest rates. If disinflation in this cycle is to work, there must be losers—those who made or financed wrong debts. These negatives, however, are “ secondary.” “There must be losers.” The losers, as the Hutton newsletter noted, extended far beyond agriculture. They included the workers, managers and owners in many other sectors— real estate, basic commodities,, energy. Labor and basic manufacturing could also be regarded as having matje “wrong bets.” The negative effects of the deflation, however, were not “secondary” pockets, as the brokerage claimed. Taken together, the deflationary losses cut a wide and depressing swath across the American economy, from timber in the Pacific Northwest to the “oil patch” of Texas, Oklahoma and Louisiana, from copper mines and cotton farms in the Southwest to grain states on the northern prairie and industrial cities in the Middle West. With so many accumulated losers, the American economy could not be healthy. The price deflation that unfolded in the middle of the 1980s closely resembled the deflation of the 1 in its selective damage. The sam tims were entrapped by surplus and falling prices in both decades, and their economic predicament likewise was largely ignored—occasionally even applauded—by the rest of the nation. For farmers as well as workers in 12 Clinton St. Quarterly—Winter, 1988-89
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