The task force’s endorsement of this change represents a homecoming for Democrats, pushing the party to the left and turning toward the economic ideas that Sanders has advocated throughout his career. But the history of this kind of banking policy reveals that only a concerted push from the grass roots will make it reality.
Although government banking represents a major departure from recent policy, the idea has ample precedent in American history. It rose to prominence during the Populist movement of the 1890s. As a counterweight to the inequality of the Gilded Age, Populists advocated offering bank accounts at local post offices, making direct federal loans to farmers and placing the supply of money and credit under the control of government officials.
These ideas bore fruit in the early 20th century. Between 1910 and 1916, a postal savings bank opened for business, government launched a federal agricultural lending system and the first central bank since the days of Andrew Jackson was established — the Federal Reserve System, which, unlike its predecessor, was placed under government authority.
Although working people benefited from these new policies, grass-roots interest in broadening access to public banking persisted into the 1920s, before becoming a subject of intense concern after the Great Crash of 1929. Over the next few years, Americans watched in despair as a banking crisis took hold across the country.
In a period before the Federal Deposit Insurance Corp. (FDIC) was created to protect depositors, bank failures became so commonplace that the possibility of losing one’s life savings haunted the national imagination. In 1930, more than 1,000 banks closed their doors. More than 2,000 bank failures occurred in the following year. People whose savings were held in these institutions risked losing everything. By 1932, many smaller cities resorted to the drastic step of suspending all local business activity for days at a time — bank holidays — to stanch this ongoing disaster.
The continuing deterioration of the economy created difficult conditions for banks in the early 1930s, but the incompetence of bankers — and even frequent episodes of white-collar crime — exacerbated this debacle. “We have seen millions of dollars of savings lost through inexpert and fraudulent management of banks,” admitted the president of New York City’s famed Bowery Savings Bank. The Depression had inflicted widespread joblessness and hunger on the nation, and the severe banking crisis was deeply worsening this agonizing economic downturn.
The disintegration of the privately owned and operated banking system persuaded large numbers of Americans that bankers were blundering at best and criminal at worst. They saw public banking as the solution — with working people at the forefront.
An organization of farmers in Washington state declared that “the…