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In economics, bimetallism is a monetary standard in which the value of the monetary unit is defined as equivalent either to a certain quantity of gold or to a certain quantity of silver. Such a system establishes a fixed rate of exchange for the two metals. The merits of the system were the subject of debate in the late 19th century. Primarily this took place inside the United States, the U.S. being the only major country which was a large producer of both gold and silver.

This monetary system can be very unstable.[citation needed] Due to the fluctuation of the commercial value of the metals, the metal with a commercial value higher than the currency value tends to be used as metal and is withdrawn from circulation as money in accordance with Gresham's Law.

Contents

Political debate

In the United States, bimetallism became a center of political conflict toward the end of the nineteenth century. Newly discovered silver mines in the American West caused an effective decrease in the value of money. In 1873, in order to de-monetize silver, the government passed the Fourth Coinage Act, just as these silver resources were beginning to be exploited. Proponents of monetary silver, known as the Silverites, referred to this act as “The Crime of ’73,” as it was judged to have inhibited inflation. Instead deflation resulted, causing problems for farmers with large mortgages who found they could sell their goods for only a fraction of their post-Civil War price. In addition, improvements in transport meant it was cheaper for farmers to ship their grain to Europe, and they over-expanded production until there was a glut on the market. The Panic of 1893 was a severe nationwide depression that brought the money issue to the fore. The "silverites" argued that using silver would inflate the money supply and mean more cash for everyone, which they equated with prosperity. The gold advocates said silver would permanently depress the economy, but that sound money produced by a gold standard would restore prosperity.

1896 GOP poster warns against free silver.

Bimetallism and "Free Silver" were demanded by William Jennings Bryan who took over leadership of the Democratic Party in 1896, as well as the Populist and Silver Republican Parties. The Republican Party nominated William McKinley on a platform supporting the gold standard which was favored by financial interests on the East Coast. A faction of Republicans from silver mining regions in the West known as the Silver Republicans endorsed Bryan.

Bryan, the eloquent champion of the cause, gave the famous “Cross of Gold” speech at the National Democratic Convention on July 9, 1896 asserting that “The gold standard has slain tens of thousands.” He referred to “a struggle between ‘the idle holders of idle capital’ and ‘the struggling masses, who produce the wealth and pay the taxes of the country;’ and, my friends, the question we are to decide is: Upon which side will the Democratic party fight?” At the peroration, he said “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.” However, his presidential campaign was ultimately unsuccessful; this can be partially attributed to an economic upturn caused in part by the failure of Russian harvests and the resultant increase in commodity prices. The McKinley campaign was effective at persuading voters that poor economic progress and unemployment would be exacerbated by adoption of the Bryan platform. 1896 saw the election of McKinley, who implemented the gold standard and ran on it in his 1900 re-election. The standard lasted until the Great Depression. It was abandoned in 1934 in FDR’s New Deal program.

Monometallism

The practical difficulties which in times past had confronted the maintenance of a joint standard, a concurrent circulation of the two metals, led one nation after another to abandon the effort, and to adopt a system of monometallism, with gold as its basic unit of trade.

McKinley stands triumphant on the gold standard after reelection in 1900

The historical development of coinage in modern nations has been from silver monometallism through a more or less unsatisfactory experience with bimetallism, to the single gold standard. Still, in the twentieth century, both metals lost their former importance within monetary systems. Now, monometallism in the form of the gold standard has been abandoned by all nations.

Primary sources

See also

References

  • James A. Barnes, "Myths of the Bryan Campaign," Mississippi Valley Historical Review, 34 (Dec. 1947) online in JSTOR
  • David T. Beito and Linda Royster Beito, "Gold Democrats and the Decline of Classical Liberalism, 1896-1900,"Independent Review 4 (Spring 2000), 555-75.
  • Bordo, Michael D. "Bimetallism." In The New Palgrave Encyclopedia of Money and Finance edited by Peter K. Newman, Murray Milgate and John Eatwell. 1992.
  • Dighe, Ranjit S. ed. The Historian's Wizard of Oz: Reading L. Frank Baum's Classic as a Political and Monetary Allegory (2002)
  • Friedman, Milton, 1990a, "The crime of 1873," Journal of Political Economy, Vol. 98, No. 6, December, pp. 1159-1194
  • Friedman, Milton, 1990b, "Bimetallism revisited," Journal of Economic Perspectives, Vol. 4, No. 4, Fall, pp. 85-104.
  • Friedman, Milton, and Anna J. Schwartz, 1963, A Monetary History of the United States, 1867-1960
  • Jeansonne, Glen. "Goldbugs, Silverites, and Satirists: Caricature and Humor in the Presidential Election of 1896." Journal of American Culture 1988 11(2): 1-8. Issn: 0191-1813
  • Jensen, Richard J. (1971). The Winning of the Midwest: Social and Political Conflict 1888–1896. 
  • Jones, Stanley L. (1964). The Presidential Election of 1896. 
  • Littlefield, Henry M., 1964, "The Wizard of Oz: Parable on Populism," American quarterly, Vol. 16, No. 1, Spring, pp. 47-58.
  • Angela Redish, "Bimetallism"
  • Rockoff, Hugh, 1990, "The Wizard of Oz as a monetary allegory," Journal of Political Economy, Vol. 98, No. 4, August, pp. 739-760.
  • Velde, Francois R. "Following the Yellow Brick Road: How the United States Adopted the Gold Standard" Economic Perspectives. Volume: 26. Issue: 2. 2002.
  • Richard Hofstadter (1996). "Free Silver and the Mind of "Coin" Harvey". The Paranoid Style in American Politics and Other Essays. Harvard University Press. Harvard.. ISBN 0-674-65461-7. 

External links

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