Monetary Policy: Gold vs. Silver
Monetary Policy: Government management of money supply to expand or contract the economy.
Business cycle review.
Pull out a dollar. Ask students what it is worth.
Keep hitting them as being wrong until someone offers an example of purchasing power; we want this to stick.
A dollar is a dollar because we agree it is a dollar. No inherent value. FIAT currency.
If more of the dollars entered circulation, it would buy fewer things (review inflation/deflation)
Historical overview:
Specie
Mercantilism: Gold as good to hoard
Capitalism: Gold as hedge against inflation/debt repayment: Both want Gold Standard
Colonial specie shortage
Devaluation of paper money (i.e. inflation)
Hamilton’s bank (Get on the bus, Gus)
Jackson’s war on the bank
Cheap money policy – who is it good for? (Not absolutely nothing! Hagh! Say it again!)
Greenbacks during Civil War
Confederate money as example of failed fiat currency
Populist demand for silver (link to increase of silver due to mining discoveries)
Silver standard v. Gold Bugs
Easy/Soft/Silver synonyms
Why would folks favor one or the other?
Try out hypotheticals:
Banker
Industrialist
Farmer
Factory worker: Trick question! Wages not immediately responsive to inflation; rent and prices are! Give example of teacher pay in Harrisonburg.
Compromise: Bland-Allison 16 to 1
Unlimited coinage demanded
Sherman Silver Purchase Act: More Silver
Morgan’s cornering of the Gold market – corruption?
William Jennings Bryan’s Cross of Gold Speech
Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests and the toilers everywhere, we will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.
Third party influence: Populist to mainstream (third parties in general)
Failure of Silverites
WWI: paper money but reversion after Versailles
Was the gold standard a cause of the Great Depression? Economists disagree.
Keynesian economics opposes gold: Wants money supply to be flexible.
WWII: paper money again
After WW II, demand for stability
Bretton Woods Conference (International Gold Standard)
Places stability ahead of flexibility
(fear of economic instability due to Hitler)
Complicated par and pegging system to keep currencies standard to gold
Nixon Shock
Bretton Woods II? International funds pegged to dollar.
Confidence in dollar
Subsidy of US government borrowing
Peron/Chavez link
Euro challenge.
Return to gold standard? Appeal based on inflation rate.