In 1896, Democrat William Jennings Bryan ran for U. S. president against Republican William McKinley. The country was three years into a depression that pitted industrial coasts against agrarian heartland, old money against wage earners, debtors against creditors. McKinley wore a gold pin during the campaign in solidarity with the gold interests. Silver interests, including those in the West who were mining the black metal in Nevada, wanted to give silver a part in the national economy at a modest ratio of sixteen silver dollars to an ounce of gold. This would put more money in circulation because gold was in short supply. The McKinley backers would have none of it. Bryan, in his most famous speech, said that Americans would not be crucified on a cross of gold.
Gold has always been a refuge from financial chaos. But in the 1890s gold also become the eye of the needle by restricting commerce with its small aperture of limited supply: the economy mushroomed after the Civil War, but the relative supply of hard money needed to grease that expansion did not — including gold. Dollars grew scarce, not for lack of value in a growing economy, but for lack of gold. The farmer with abundant fields found himself borrowing just to get his crop to market. All this was a windfall for anyone who held gold; not so much for farmers and others in the economic machine whose wealth lay in what they produced.
America had become a factory, a supplier to Europe and the world. But the cycle of growth halted in 1893, starting with a panic in Europe. Investment coming into the United States reversed flow and foreign investors began trading their American stocks for hard money, for gold. Gold left the country. But farm and business debt, due to be repaid in gold, did not leave the country and there was less money in circulation to repay that debt. This set the stage for a culture war between those with gold and those who borrowed. Sound familiar?
William Jennings Bryan lost the 1896 presidential race. His cause against the Gold Bugs would have to wait until Franklin Roosevelt beat them back in 1932 when the United States traded the gold standard for the Federal Reserve’s “full faith and credit” of the United States. When neo-gold bugs decry Obamacare and financial reform they see as socialism. It’s no accident that they often speak in grave terms that these efforts are the worst thing to happen to this country since the New Deal. These people need more slogans! Somebody get out the bumper sticker machine:
Love Your Trust Fund
Cherish Your Banker
Kill the Inheritance Tax
This mini essay has been sitting in my out basket for almost a year, but I just got a note from my son who’s studying at a university with an Austrian perspective. The school’s library is dedicated to Ludwig Von Mises. Milton Friedman also figures prominently in the academic pantheon. The Austrian school of economics keeps trying to resuscitate the case for hard money. Needless to say, Ben Bernanke’s quantitative easing would be a bit difficult under such a regimen. Maybe that would leave it to the likes of Rand Paul and Paul Ryan to come up with an alternative means to bring the U.S. economy out of the doldrums. Perhaps an authorized raid on Fort Knox?