Hard money meant a general deflation of prices in relation to the dollar. Each year from to , farm prices fell 3 percent. Georgia farmers saw the price of a pound of cotton fall from 10 cents to 5 cents. The price of Illinois wheat dropped even further. Corn prices fell so low that Nebraska farmers decided to burn it for fuel rather than spend money and time shipping it to market to sell it.
At the same time crop prices fell, the cost of mortgages and loans soared.
Farmers needed credit for machinery and other supplies. But an unregulated credit market meant that in some regions loans were either sky high or not available. If farmers could get a loan or a mortgage, hard money made it more expensive to pay off. When the real value of the dollar rose, the real value of their debts rose with it.
Farmers had to sell a lot more wheat or corn to meet those debts. Scarce credit combined with scarce dollars. Because the Eastern banks had a monopoly on issuing bank notes, farmers in the West and South often lacked access to currency. The lack of dollars in rural America became particularly acute after the growing season, when there was insufficient currency to move the harvest to market.
Farmers were not alone when it came to the burdens of hard money.
During the long economic depressions of the s and s, workers and manufacturers felt the weight of the same deflationary price cycle. They asked why anyone would invest in an iron mill, for example, when the price per ton of iron stagnated or fell. The gold standard alone could not explain the extent of farm poverty, or the depth of industrial crises. But many Americans understood that gold produced winners and losers. Gold made losers of farmers and other working people selling goods at deflated prices.
It made losers of people who paid mortgages and owed debts. And it made losers of those who lacked access to credit and currency. But gold was good for those who controlled the currency, held gold or issued loans.
It was good for the banking corporations, Wall Street financiers and other creditors. As a result, the gold standard shifted resources from the poor to the rich, and from the Midwest, West and South to the financial centers of the Northeast. For millions of Americans, gold symbolized the power of wealth over the rest of the country.
Along with corporate subsidies, regressive taxes and suppression of labor rights, the gold standard tilted the economy in favor of the top 1 percent, and opened a chasm between the rich and poor the likes of which the United States had never seen. What they meant was that the corporate elites who made such a fetish of gold relied on superstition and myth. For the anti-monopolists, the gold standard was relic of a pre-modern age, unsuitable for a dynamic and expanding economy.
Gold supplies, they noted, were limited by the random luck of the mining industry — and the even more random schemes of hoarders and speculators. A modern economy, the anti-monopolists argued, required a more reliable currency. It also needed a more flexible money supply aligned to the growing needs of industry, agriculture and trade.
This reliability and flexibility could only be assured by the powerful backing of the national government. During the depression of the s, the Populists were able to push their arguments into the center of national politics. They demanded a more flexible and reliable national currency — whether paper or silver, or a combination of the two — as a means to aid distressed farmers, stimulate commerce and create a more equitable and prosperous country.
Conservatives from business, politics and academia rallied to the gold standard.
They were known as gold bugs because of the militant faith that they placed on this precious metal as the key to preserve their wealth, power and way of life. For Harvard economist Francis A. Bryan lost the election to McKinley. The Klondike gold strike that same year temporarily relieved the pressure of deflation. But the financial panic of unleashed renewed demands for monetary reform.
Under President Woodrow Wilson, this led to the Federal Reserve Act of providing for financial regulation and a more flexible money supply. Today, all modern economies have paper or fiat money backed by the power of government. And the possibility that the U. The gold standard is a relic of history. Paul, Bachmann, Forbes, Beck and other conservatives now warn that it is either gold or the abyss. They, too, understand that hard money serves power and wealth. Conservatives have put the Fed in their crosshairs. They are demanding hard money because it tilts the economic table in the direction of the haves and away from the have-nots.
It favors banking corporations and Wall Street financiers. It squeezes homeowners paying mortgages and students with loans. And hard money is used as a justification for cuts in education, healthcare and other needs.
The Federal Reserve will be celebrating its th birthday with few friends and many enemies. It gained many of these enemies with its deregulatory policies that fueled speculation, enriched banking corporations and contributed to the financial meltdown. And it continues to make enemies with policies that favor Wall Street over Main Street. But gold will not fix what is wrong with the Fed. Quite the opposite. You should be intensely skeptical about all of this. The first warning sign is the barter story.
Superficially it seems to make sense, but there is very little evidence that it has ever been a dominant form of exchange, and the more you think about it, the more absurd it seems. For example, have you ever noticed how people always use agricultural goods to illustrate historical barter?
Anybody who has studied basic anthropology realizes that in many premodern agricultural societies people were largely self-sufficient. It is very unlikely that you would find yourself in the strange situation of somehow having raised chickens while having neglected to grow cereal crops. Rather, they might collaborate in production within a hierarchical patronage system where a chief took whatever surplus there was and redistributed it, much like a patriarchal father decides who gets what in a family.
If exchange occurred between people considered to be equals, it was more likely to happen via ritualistic gifting or informal reciprocity systems. The barter myth is essential for establishing the idea that money is a special kind of commodity, which in turn is essential for maintaining the traditional story about banks as mere intermediaries that move this commodity around. Do yourself a favor and ditch this paradigm. Especially if you want to participate in changing the future of money.
Ever wondered why historians and museums fixate upon coins? Conquering monarchs demanded tribute and taxes, perhaps paid in these tokens they sent along with their soldiers. How could you get the tokens? From the soldiers by providing them with food, for example.
And those paper notes we use? People often associate them with states, but paper money was often privately issued by wealthy merchant traders and banks as promises that eventually came to circulate in trade. It was only when financial and political elites got together to establish central banks that paper money issuance was centralized in states.
Secondly, you need to challenge the sacred idea that money is a store of value, or that is ever has been. It is much more useful to conceive of money as a socially and politically constructed claim-upon-value. It does not hold the value, but rather enables access to that value. Imagine you walk into a coffee shop. Monetary transactions essentially involve someone exchanging a real good or service for a claim or token that grants them the ability to obtain goods or services in the future. So, you get a coffee by giving the shop owner an abstract value claim that enables them to, say, get a beer later if they so wish.
If the owner decides to burn that money, no value is destroyed. Imagine Scrooge McDuck, swimming in his money bin. In our current world, the state controls the physical token method in the form of cash; the banks control the ledger method in the form of your bank account. Nowadays, the exact same thing is facilitated on digital databases that you alter by sending secure messages to your bank via your internet banking page or payment card.
Money still moves when banks edit private account databases that they control. But there is a little catch to this. The dirty not-so-secret little secret is that commercial banks do not merely record and edit money claims for people, they can also create new ones. This is sometimes called fractional reserve banking or, more accurately, credit creation of money. It takes a while to get your head around it, but for now focus on this one implication: You cannot separate banks from digital-electronic money.
It is impossible to wrench away digital U. Digital money is not in the wires, or the fiber-optic cables of the internet or telecommunications system. The cables merely convey messages destined for the bank data centers where money is stored, like it has been for centuries, as an entry in their ledgers. And that data entry has power, because it finds itself within a legal, social, and political system that gives it reality. You can record money as information inscribed on physical objects, scrolls, or a computer, but the recording itself is not sufficient to make it work.