The lingering echoes of California’s 1849 gold rush can still be heard today.
It was a watershed event in America’s economic history. Starting innocuously enough with the discovery of gold at John Sutter’s sawmill near Sacramento, California, pandemonium soon reigned with the spread of the news and the influx of gold seekers into California from across the country swelled to a cresendo. Even outsiders came – they sailed around South America, crossed Panama, and poured in from other parts of the world as well. San Francisco mushroomed from a sleepy little village to a boom town virtually overnight.
The huge supply of gold ultimately generated provided riches for the United States. The enormous amount of gold now available enabled the U.S. Mint to add two new gold coins, the $1 coin and a large, heavy $20 coin (Double Eagle).
So began a new worship of money. The discovery of gold paved the way for the transition of pastoral America to manufacturing America and the institution of the gold standard – paper money backed by gold and free convertibility of currency into gold. The price of gold was pegged at $20 per ounce.
But the gold standard worked to the disadvantage of indebted farmers, who favored bimetallism and the minting of silver coins to create cheap money. Their struggle with depressed crop prices in the late nineteenth century was aggravated by a shortage of money, a by- product of the gold standard, and an escalation of the farmer-banker conflict.
Banker J. Pierpont Morgan was a strong advocate for the gold standard. But to William Jennings Bryan, the Democratic nominee for president in 1896, Morgan was a Pontius Pilate who wanted to nail starving farmers to a cross of gold. The agranian fanatical hatred for the gold standard was reflected in Bryan’s famous “cross of gold” speech at the 1896 Democratic convention, concluding that “mankind shall not be crucified on a cross of gold.”
America eventually departed from the gold standard in 1933 when President Roosevelt, responding to the depression, impounded all the country’s gold. In 1971 President Nixon permanently closed the gold window.
With the departure of the gold standard came the untrammeled printing of money by the United States and other nations. This creation of easy money (fiat money, i.e., money created by government decree), leading to excessive spending and the resulting budget deficits, arguably have directly contributed to the sovereign debt crisis plaguing Europe today. As a means of easing the crisis, some analysts are now calling for a hardening of currencies and a return to the gold standard.
But is the world ready for the accompanying pratfalls, shortage of money and credit, restrictions on trade, and no guarantees against price fluctuations?
There are no easy choices.
Copyright 2012 Arnold G. Regardie. All rights reserved.