plebeian on Nostr: Little known facts about gold standard. US basically went onto the gold standard with ...
Little known facts about gold standard.
US basically went onto the gold standard with the Coinage Act of 1873. You might wander what was before 1873? Well, US was unofficially on bimetallic standard (with gold and silver being used as money). The Coinage Act specified the ratio of silver to gold at 16 to 1.
But, what is rarely discussed are the consequences of adopting the gold standard. After 1873 US was struck by two decades of deflation. Some people even labeled 1873 Coinage Act as a crime because deflation destroyed many debtors, especially farmers who bought their farms with mortgage because deflation lowered the price at which they could sell their crops and raised the real value of their debt.
However, in the 1890s the actual market price of gold and silver implied a ratio of 30 to 1 (not 16 to 1 as set by the Coinage Act) so there were many people that wanted to establish bimetallic standard and use both gold and silver since people would be able to cut their debt in half in case they were repaid in silver. But, in reality the consequence would be a default on half the value of all debts denominated in US dollars.
What is interesting is that the term "gold standard" has not appeared very often in books and newspapers except in two decades that where the decades of the two biggest depressions in US history (1890s and 1930s).
Because the gold standard was talked about very much during these depressions people like to think that gold standard narrative is a cause of severe depressions. But, in both cases the talk was about complaining that ending the gold standard meant ending something traditional and honest. People seem to have natural respect for ideas that they perceive as coming from the wisdom of the past and that reflect true and important values.
On the other hand the term "devaluation" started to be popular in the 1930s. There were no such word in the 1890s during the first depression.
Source: Rober Shiller - Narative Economics
US basically went onto the gold standard with the Coinage Act of 1873. You might wander what was before 1873? Well, US was unofficially on bimetallic standard (with gold and silver being used as money). The Coinage Act specified the ratio of silver to gold at 16 to 1.
But, what is rarely discussed are the consequences of adopting the gold standard. After 1873 US was struck by two decades of deflation. Some people even labeled 1873 Coinage Act as a crime because deflation destroyed many debtors, especially farmers who bought their farms with mortgage because deflation lowered the price at which they could sell their crops and raised the real value of their debt.
However, in the 1890s the actual market price of gold and silver implied a ratio of 30 to 1 (not 16 to 1 as set by the Coinage Act) so there were many people that wanted to establish bimetallic standard and use both gold and silver since people would be able to cut their debt in half in case they were repaid in silver. But, in reality the consequence would be a default on half the value of all debts denominated in US dollars.
What is interesting is that the term "gold standard" has not appeared very often in books and newspapers except in two decades that where the decades of the two biggest depressions in US history (1890s and 1930s).
Because the gold standard was talked about very much during these depressions people like to think that gold standard narrative is a cause of severe depressions. But, in both cases the talk was about complaining that ending the gold standard meant ending something traditional and honest. People seem to have natural respect for ideas that they perceive as coming from the wisdom of the past and that reflect true and important values.
On the other hand the term "devaluation" started to be popular in the 1930s. There were no such word in the 1890s during the first depression.
Source: Rober Shiller - Narative Economics