Our economy faces vexing problems today regarding the value of the dollar compared to the other world currencies and its effect on our own economy. We’ve been off the gold standard now for decades and the lack of a linchpin for the dollar has allowed the Federal Reserve to print money based on its “feel” for what is best for the US economy. Gold is high today and you can find a variety of opinions about where it will go from here. Some predict a crash in the price of gold and that only fools would own it now others take a contrary position. Whatever the future for gold it is interesting to note that all the major central banks still own substantial gold reserves as does the US government and even many other major institutions. The University of Texas Endowment Fund for example is reported to own almost a billion dollars worth of gold at present.
During the War Between the States the Yankees went off the gold standard to finance the war. That was the first use of the “greenbacks” to pay government debts and for private use. Shortly after the war under pressure from European creditors the US returned to the gold standard to bolster the dollar value and its credit standing in the world. In fact the period after the war until WWI saw tremendous growth in the US economy (with the South lagging far behind due to the effects of the war). There were panics and downturns to be sure but the overall trend was moving up substantially. By the 1890’s there was a great deal of anguish over the value of the dollar and the peg to gold. This was the cause celebre for William Jennings Bryan and his cohort of mainly farmer followers.
They wanted cheaper dollars so they could pay off their debts with those cheaper dollars to the bankers and industrialists back East. We were still a mainly agrarian society in raw numbers of population but changing with each decade. It was a battle between those groups. Of course that over simplifies everything. Those bankers and industrialists also produced all those jobs back East that the working men loved. As grim as their existence was often in the factories and mines and on the railroads it was a vast improvement over the grinding poverty most had known only a generation before on the farm.
Even then we had globalization. Those farmers were concerned with the costs of their loans and the transportation costs to move their crops to market back East or even exported. Europe was still mostly self-sufficient agriculturally but that was changing and our wheat and corn were much cheaper and more abundant than theirs. It was more of city versus rural dispute rather than the classic class warfare so often described. The price of crops had been dropping and thus the revenues of the farmers and they were pushing hard for a move off the gold standard so more money would flow into the economy and they could use those de-valued dollars to pay their loans. This was when Bryan made his famous “Cross of Gold” speech. The European creditors were becoming increasingly alarmed over the threat to the value of the dollar. They started moving gold out of the US. Literally taking it and putting onboard ships and moving it to London. As the gold stocks sunk the confidence in the dollar began to sink also. The House of Morgan with support from its London office and few others stepped in and bought gold and issued gold backed bonds. They had to move quickly to prevent a collapse of the dollar. It worked temporarily and some gold was actually taken off ships and returned to the Federal Reserve in New York.
But capital and confidence in the business atmosphere on any government are not cast in stone and must be maintained. The threat kept returning and the gold was drained more. But then we found gold in Alaska and the Europeans had a couple of really bad crops. The price of US agriculture zoomed for a while and the price of both gold and the dollar stabilized. It really wasn’t any brilliant government policy that stabilized things but frankly sheer luck. But that state of affairs managed until WWI when we underwent a real boom in industry to build everything needed for the War and that lasted through the ’20’s before the Great Depression came along.
With the Depression Roosevelt removed the gold standard for debt payments and required everyone to turn in their gold for dollars. The Depression lasted until WWII. Making those cheap dollars again and killing off what the Feds considered “excess” hogs and cattle and plowing under crops the bolster prices for everything didn’t seem to help much. Some think it did. I don’t think you would find many ordinary folks and farmers of that era who believed those government policies improved their lot.
Maybe we’ll get lucky again before the Feds come up with programs that aim for the stars but hit us in the backside.
“When we hear news we should always wait for the sacrament of confirmation.” Voltaire www.olcranky.wordpress.coml