Bimetallism Revisited
Robert Bird
Bimetallism theory and practise requires that gold must be defined in terms of another precious metal also having the reputation of being 'honest money.' The general public will understand this, because people can understand that one cannot define a word using the same word as part of the definition.
So money cannot properly be defined as a form of money that is used to settle debts, etc. And so, gold cannot usefully be defined as some amount of gold. And the value of some particular amount of gold cannot be defined simply as some particular amount of gold of different units but equal in amount. (It is nonsense to assert that gold's value is 4/4 ounces = one ounce. It is correct numerically that 4/4 ounces = one ounce, but not useful or helpful in determining the actual value of an ounce of gold in commerce, trade, or the settlement of debts.)
Gold to be used as part of a monetary standard must also be defined in terms of another equally valid currency, silver in this case, and not simple picture paper and token metal coin that any central bank can produce in unlimited quantities, as now occurs.
This fiat can be seen thus as a mimic money, because it uses a false or counterfeit replacement for true money, which can be proved to be the gold-and-silver standard money. In this view fiat is not real money, but imitates or pretends to be money for a purpose.
Using this false replacement allows the purveyors to freely acquire real gold and silver, and other valuable goods.
This is a corruption of the original mercantilist ideal, the acquisition of gold and silver wealth in return for articles of production and trade.
The mercantilist theory did spawn the colonial system theory. Even the venerable Adam Smith wrote an "Essay on Colonies." And, according to Arthur T. Hadley, (then President (1901) of Yale University when he) wrote that Smith had difficulty dealing with some mercantilist assumptions. (Universal Classics Library, M.Walter Dunne, publisher, 1901, p.vi.)
The introduction of paper substitutes for silver in exchange for gold did allow the transition to the ability to base settlements (payment) of debts in the paper substitutes only. This set the stage for the eventual transition to irredeemable paper only as legal tender for debt payment.
The concept of a gold standard is thus a straw man, a red herring, and a phoney issue. It distracts people from discussion of the real issue, which may be presented as the need for a gold-and-silver standard money system.
We can look further. Under a gold standard, a large discovery of gold, or a large amount of gold entering the market can cause a temporary inflation (3. p. 11). Under a bimetal standard using gold and silver, when gold flooded the market, people traded it for silver, and silver money thus limited the inflation caused by the excess gold.
The inverse of this would be true as well. And under a de jure and de facto bimetallic (gold and silver) standard, after one metal (such as silver) is removed from use by legislation, and is held due to its increased value vs. gold, deflation and depression can occur. In this system deflation can also occur as a result of increased demand for gold for other reasons, such as: some important countries leave the bimetallic and silver standards and join the gold standard, and in the gold standard system, real incomes worldwide grow. (See also 3. p. 18)
What might have happened had the U.S. remained on a bimetallic -gold & silver standard? We can look into this. In her outline, Bimetallism by Angela Redish, University of British Columbia, we see the following:
"Although the gold standard was entrenched by 1880, during the last two decades of the nineteenth century, there were attempts in both the US and Europe to return to bimetallism. The arguments were both theoretical and partisan. A significant motivation was the rise in the price of gold after 1870 (in part due to the increased monetary demands for gold) which generated a secular deflation. Furthermore new silver discoveries reduced the price of silver, so that if the previous bimetallic standards had remained in place there would have been an inflation.
"In the US Westerners with nominal debts, who felt penalized by the deflation, supported William Jennings Bryan who campaigned for the Presidency in 1896 on the slogan that Americans should not be "crucified on a cross of gold." However, Bryan lost the election and gold discoveries in the late 1890s generated a gradual inflation, and in 1900 the US adopted the Gold Standard Act cementing the adoption of the gold standard." (1.)
In the following we note that the role that silver might have played in subduing the deflation in prices had "the Crime of '73" not occurred is not discussed. Page 15 includes the following:
'"3.1. Historical Regimes
"As the reader might have guessed, the regimes discussed so far, though idealized, are not purely hypothetical. The gold standard regime corresponds to the United States from 1879 to 1897, a time of generally declining prices." (3. p. 15)
Reading further here we can see that the oversupply of gold and its consequent deflationary effect upon prices is not attributed to the monometallic gold standard. The role played by the monometallic gold standard in the ensuing deflation is not even mentioned in this report.
Later we read:
"The Gold Standard 1879-1914
"The United States was on a specie standard from 1879 to 1914. It was de jure
bimetallic but de facto gold. After the Civil War, the U.S. was still on the greenback paper money standard (greenbacks were inconvertible paper dollars issued to help finance the war), but by 1879 convertibility had been reestablished. The standard that was restored, however, was gold because silver, the undervalued currency under the bimetallic standard established by the Constitution in 1789, had been driven out of the U.S. by the mid-1850s and the Coinage Act of 1873 ("the Crime of '73") had demonetized the standard silver coin. The U.S., like other countries on the gold standard, followed the key rule of maintaining a fixed price of domestic currency in terms of gold (Bordo and Kydland 1995). The U.S. Treasury acted as the monetary authority, freely buying and selling gold on demand, since the country did not have a formal central bank.
By fixing the price of gold in terms of dollars, gold served as the nominal anchor for the price level." (3. pp. 16,17)
In the above paragraph we see the statement: "because silver, the undervalued currency under the bimetallic standard established by the Constitution in 1789, had been driven out of the U.S. by the mid-1850s and the Coinage Act of 1873 ("the Crime of '73") had
demonetized the standard silver coin." Although it is suggested that silver left the U.S. because it was undervalued, we are not here told why 'silver had been driven out of the U.S.' We do learn that the U.S. operated until then 'under the bimetallic standard established by the Constitution in 1789.'
We might ask if there is an error here in suggesting that silver was 'undervalued' and for this reason 'driven out of the U.S.' If this is an error, it is not surprising that bimetallism is misunderstood and maligned. For if such an organization as the Federal Reserve Bank of Cleveland would publish on its site such an error, and leave it there, what can we expect except that many would not question this error, having come from such an authority. And such an error could erroneously come to be believed as fact by the general public.
It may be that silver became increasingly more valuable relative to gold during the 1840s and 1850s due to increasing amounts of gold (relative to the amount of silver) entering the market from new discoveries etc. (This disappearance of silver demonstrates an example of Gresham's Law, that bad money drives out good. The bimetallist movement and others understood that a gold-only standard was 'bad money.')
Angela Redish writes, "Firstly, the coin whose relative market value had risen could be withdrawn from circulation making the monetary system either all gold or all silver. This phenomenon is predicted by Gresham's Law - bad money drives out good. …" (1.)
Silver would have been 'saved' and perhaps sold to those accumulating silver. Some would argue that by this increase in value it would have performed its role to assist in stabilizing prices. Under a pure gold standard we can see that as increasing amounts of gold entered the market, prices fell, resulting in deflation, impoverishing farmers and their small towns, small town banks, and those whose work also fell in value - the industrial worker.
It would be instructive to see if 'silver [was not] the undervalued currency' during the 1840s and 1850s, and that instead, silver coin, the money of the common people, increased in value, and also the consequences of this.
I reviewed and edited this article many times, each time winnowing out one or more errors or inconsistencies. It is my hope, due to the importance of this topic, that in the current form it represents a valid statement of this issue.
Robert Bird, aka TQ
November 7, 2005
More about bimetallism:
"A bimetallic monetary standard can be defined as one in which coins of two different metals are legal tender. Such standards were commonplace in Western economies throughout most of the last millennium, although their details differed. Under a typical bimetallic standard coins of gold and silver were produced by the Mint under orders of the sovereign, and they were given exchange values that reflected their intrinsic value. For example, in the late eighteenth century the US established a coinage system comprising a silver Dollar, containing 371.25 Troy grains of silver, and a gold Eagle containing 247.5 Troy grains of gold. The relative market values of gold to silver at that time were 15:1, and the legal tender value of the silver dollar was $1 and of the Eagle was $10, reflecting their relative values (ten silver Dollars would contain 3712.5 grains of silver, which is 15 times the 247.5 grain weight of the gold Eagle)."
The above quotation is from "Bimetallism" by
Angela Redish, University of British Columbia, found in:
www.eh.net/encyclopedia/article/redish.bimetallism
100 Years of Oz
"Baum himself said his stories would "bear the stamp of our times and depict the progressive fairies of today" (Gardner and Nye, 1). Oz does. Given the enduring popularity of the text in all its incarnations, only a modest - but provocative - body of critical work, however, bears out Baum's claim. Littlefield, for example, proves in his ground-breaking essay that "the original Oz book conceals an unsuspected depth" (50) and then explicates the text as a parable on populism. In another major exegesis on the novel's contemporary allusions, Rockoff calls Oz "not only a child's tale but also a sophisticated commentary on the political and economic debates of the Populist Era" (739). Culver positions the text in the context of Baum's interest "in the vagaries of consumer desire" (97).
"Finally, in perhaps the most extensive investigation of the issues that anchor the monetary allusions in Baum's novel, Goldbugs and Greenbacks: The Antimonopoly Tradition and the Politics of Finance in America, 1865-1896, Ritter claims that The Wizard of Oz is "filled with metaphors generated in the money debate of the late nineteenth century" (19). These critics are correct. Baum's parable is a potent piece of Gilded Age propaganda, a masterpiece of early public relations writing, and part of the progressive surge that would result in the formal emergence of public relations in the generation after Oz. "
The above quotation is from:
100 Years of Oz
Baum's 'Wizard of Oz' as Gilded Age public relations
by Tim Ziaukas
Published in Public Relations Quarterly, Fall 1998
www.halcyon.com/piglet/books8-Ziaukas.htm
The Yield Curve, Recessions, and the
Credibility of the Monetary Regime: Long-run Evidence, 1875-1997
by Michael D. Bordo and Joseph G. Haubrich, found at:
www.clevelandfed.org/Research/Workpaper/2004/WP04-02.pdf
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