Keynesians have long decried the early American eras of metallic money standards as the cause of economic recessions. The answer is expansion and contraction of money and credit, as is typical.
Pegged bimetallism started in the United states under the coinage act of 1792. The little known truth about pegged bimetallism, however, is that it is an expansionary monetary policy. In this case US bimetallism, silver was pegged to gold at a ratio where the face value of silver legal tender exceeded that of the underlying metal value.
Thus silver coins under a bimetal peg were actually a fiat currency (value determined by decree). With the coinage act of 1873, the US government effectively ended bimetallism in the United States and moved firmly to a gold standard.
At the time, proponents of bimetallism (ergo expansionary monetary policy) referred to the 73 coinage act at the “crime of 73” because they could no longer trade silver bullion for a fiat profit at the US mint.While arguably moving from bimetallism to the gold standard was a good thing, the resulting contraction of the money supply in the post civil war reconstruction and gilded era railroad industrialist boom contributed to the panic of 1873.
The bimetallism peg was first proposed by secretary of treasury Alexander Hamilton, who coincidentally also charted the first national bank of the United States. There’s a reason expansionary monetary theorists laud Hamilton as one of the great early secretaries of treasury.
For an example on how a pegged bimetal standard can be a dangerous economic policy, review the Tokugawa coinage of Japan and it’s resulting massive Japanese gold outflow.
Book of the Month:
-“Rather than pursue the direct route of immediate gain, we will seek the difficult and roundabout route of immediate loss, an intermediate step which begets an advantage for greater potential gain.”
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