Gold Standard vs Silver Standard - Historum

**Qymaen** · March 8th, 2012, 06:46 PM

In my AP US History class we are discussing America's Second Industrial Revolution (1865 to 1900) when the US economy literally exploded due to various industries including the railroad industry, the steel industry, and the expanded factory system. We just recently finished discussing the problems, both political and economic, that farmers faced during this time.

Foremost in the minds of farmers, as well as miners (mainly silver), was whether to back the US dollar on gold or the new silver deposits in Colorado and other areas of the Rocky Mountains. The debate over the gold and silver standards was one of the main reasons for the creation of the Populist Party.

What exactly were the pros and cons of the gold standard vs the silver standard during the time? And if the silver standard had been chosen, what do you all think the US economy would have looked like fifty years after 1900.

**spellbanisher** · March 8th, 2012, 07:25 PM

As an economy grows, it needs a larger money supply. One of the problems during the second industrial evolution was money was always very scarce, resulting in frequent debt deflations. From 1873 to 1896 the economy was in recession almost 50 percent of the time. Deflation ostensibly favors creditors. I say ostensibly because though deflation increases the value of debt, it also increases he likelihood of default.

The biggest problem with gold is that it is a very scarce commodity, thus a gold standard constrains your ability to expand the money supply when the economy grows. It does have two advantages though; first, it has very few practical uses, which means that there is unlikeley to ever be some sudden demand or need for gold. Second, it is a very old form of money that has been used for centuries in many different kinds of countries, and therefore, has relatively stable value over time. Theoretically a gold standard might increase investment, as invetors are better able to assess potential risks and returns with a stable currency. But the increasing risk of defaults could also discourage investment. Not only that, but under deflation, a situation where the currency is increasing in value, there is more incentive to hoard money to invest or spend it. Thus, a gold standard favors rent seekers over other groups in society and especially consumers.

Silver is much more abundant, making it easier to expand the money supply as the economy grows. But because it is more abundant and has more practical uses than silver, its has less price stability than gold. The lower price stability may discourage investment and savings, but it makes it easier to pay off debts.

**Rongo** · March 8th, 2012, 09:07 PM

It was an extremely divisive issue, and along sectional lines. For reasons stated above, the gold standard favored the bankers of the Northeast, while "free silver" would have favored the West and the South. I've always felt that if the issue of secession hadn't been put to rest in a bloody civil war a few decades earlier, it could easily have come to the forefront here.

**Rongo** · March 8th, 2012, 09:31 PM

Here's an interesting period poem(?) I found:

Quote:

The continuance of the "present gold standard" means:
Ruin;
Rage;
Riots;
Debts;
Crime;
Strikes;
Tramps;
Poverty;
Mortgages;
Hard times;
Sheriff sales;
More panics;
Less churches;
Close factories;
Business failures;
Fewer preachers;
More soup houses;
Homeless families;
A debauched ballot;
Twenty-cent wheat;
Less improvements;
Uneducated children;
Suffering and misery;
Crowded alms houses;
A dearth of marriages;
Two-dollars-a-ton hay;
Idleness and stagnation;
Two-cent-a-pound hogs;
Five-cent-a-pound butter;
Ten-dollars-a-head mules;
Falling prices for all product;
Hungry women and children;
Ten-cent-a-bushel potatoes;
Pauper prices for vegetables;
Two-dollars-and-a-half horses;
A contraction of the currency;
A dear dollar and a cheap man;
Twenty-five-cents-a-day labor;
Half clothed women and children;
Coxey armies marching through the land.
--People's Party Paper, 16 October 1896 (reprinted from Times-Democrat, Idaho)

Source: 1896: The Currency Question

**Rongo** · March 8th, 2012, 09:42 PM

Here's a map showing the results of the 1896 Presidential election between Republican William McKinley (the "sound money" candidate) and Democrat/Populist William Jennings Bryan (the "free silver" candidate). The Republican states are red, the Democratic states are blue:

Source: Presidential Election of 1896

Ain't it funny how times change?

RusEvo · March 9th, 2012, 11:19 AM

Is it possible to use both as a standard? If you assumed a certain formula on how much Silver you needed to equal one ounce of gold etc etc?

**Rongo** · March 9th, 2012, 11:35 AM

Quote:

Originally Posted by RusEvo

Is it possible to use both as a standard? If you assumed a certain formula on how much Silver you needed to equal one ounce of gold etc etc?

It seems possible. But I think the free silver people would tell you they were compromising already, by suggesting silver as a compromise measure between gold and greenbacks (i.e. the paper currency that had been issued during the Civil War). Here's some info on the topic from the web site that I referenced above:

Quote:

Heirs to the Greenback Party of the 1870s believed that paper money was the solution. In post-war decades, however, the opening of vast silver veins (such as Nevada's Comstock Lode) had sharply increased the nation's silver supply. To Silver Democrats, federal coinage of silver (at a weight ratio of 16 ounces to 1 ounce of gold, hence the slogan "16 to 1") was a moderate solution to the currency problem. After all, silver was a precious metal, not mere paper. "Free silver" thus temporarily allowed a spectrum of currency reformers--from Southern Democrats to Populists--to unite. To horrified Gold Democrats and Republicans, "free silver" was an appeal for cheaper dollars. It would cheat lenders of an honest return on their money, allowing profligate borrowers to steal value from those who had extended loans.

Alamo · March 9th, 2012, 12:05 PM

Either one is a more stable system than the IUO notes printed in circulation today backed by nothing more than big government.

**spellbanisher** · March 9th, 2012, 12:23 PM

Quote:

Originally Posted by Alamo

Either one is a more stable system than the IUO notes printed in circulation today backed by nothing more than big government.

All monetary regimes are ultimately backed by nothing but the government, unless you use commodities as the medium of exchange itself.But having to carry around big bags of gold or silver for economic transactions is not a very efficient way to do business.

Alamo · March 9th, 2012, 12:46 PM

Quote:

Originally Posted by spellbanisher

All monetary regimes are ultimately backed by nothing but the government, unless you use commodities as the medium of exchange itself.But having to carry around big bags of gold or silver for economic transactions is not a very efficient way to do business.

Having a valuable asset of trade in the bank to back your currency trumps simply an IUO note.