Economics Assignment 1: The Currency Question in the US

This economics assignment explores the historical debate surrounding the US currency, specifically focusing on the gold standard versus the silver movement. It examines the context of the 1896 presidential election, highlighting the arguments of the 'Silverites' (farmers and laborers) who favored a bimetallic system to increase the money supply and alleviate debt, and the 'Goldbugs' (businessmen and bankers) who supported the gold standard to maintain the dollar's value. The assignment discusses the advantages and disadvantages of both systems, including the impact on wages, profits, and the overall economy. It also touches upon the scarcity of gold, the risks associated with precious metals, and the potential consequences of commodity-backed currency, drawing upon various sources to support its claims.

Running head: ECONOMICS ASSIGNMENT 1
Economics Assignment
(Author’s Name)
(Institutional Affiliation)

ECONOMICS ASSIGNMENT 2
The currency question has been a controversial one in the history of monetary policy in
the U.S. This was especially, the primary campaign agenda in 1896 between William
McKinley and William Jennings Bryan. In fact, historians believe the gold standard versus
the silver movement evoked the same emotions as immigration, gun control, and abortion
today. The debate began with the passage of the 1873 coinage act. Fast forward to 1893 and
the issue intensified as the nation was facing the worst depression leading to a face-off
between gold and silver in 1896 (Boundless US History, 2017).
The silver movement argued that a bimetallic system at a ratio of 16 to 1 (silver to gold)
would increase the money supply and increase business activity. This would increase wages,
increase farmers profit, and debtors would be able to pay off loans. Most of these were small
business owners, farmers, and laborers (Williams, 2010). They argued that, as a nation’s
economy grows, there is the need for a larger money supply and an increase in the monetary
base would alleviate problems caused by deflation. The nature of gold is that it’s a scarce
commodity, making it difficult to increase the money supply as the economy grows.
(Gevinson, 2017).
Just like currency, precious metals carry a degree of risk. For instance, precious metals
prices are volatile. They move up and down very fast and are not affected by market
conditions. Furthermore, precious metals have extended periods of downswings and could
lead to high unemployment as was the situation during the gold standard years. Also, the cost
of producing precious metals, especially, gold is very high (Bordo, 2017).
.Commodity-backed money would define a nation’s monetary unit in terms of the fixed
quantities of gold and silver.The thinking is that currency backed by gold and silver is less
likely to experience severe changes in value, unlike fiat currency that can be easily
manipulated by a government’s central bank. Precious metals provide an unusual inflationary
protection since they have an intrinsic value - they cannot be printed hence inflated (Bordo,

ECONOMICS ASSIGNMENT 3
2017).
However desirable the stability-effect of gold may be, commodity-backed currency
doesn’t always work. Gold reserves are simply not adequate enough and cannot match the
money circulating. If precious metals were to be used as the basis of currency, then the
private nature of gold searching would have to be controlled and reserves are concentrated in
a few countries. This would be global catastrophe (Bordo, 2017).
In the eighteen-nineties, Americans were divided over the nation’s monetary system. The
question of whether the U.S should support its money only with gold or incorporate silver
was the debate during the presidential election of 1896. The gold standard supporters
maintained that the value of the dollar would remain high if it was supported by a gold
standard. Most of these were businessmen and bankers. Many others wanted silver to be
included alongside the gold standard. The “Silverites” who were mainly farmers and laborers
argued that a silver standard would produce better returns for them and lighten their debt
burden.
References

ECONOMICS ASSIGNMENT 4
Bordo, M. (2017). Gold Standard. Retrieved 6 October 2017, from
http://www.econlib.org/library/Enc/GoldStandard.html
Boundless. (n.d). Boundless US History. Retrieved 6 October 2017, from
https://www.boundless.com/u-s-history/textbooks/alternative-to-us-a-narrative-
history-6th-james-west-davidson-brian-delay-christine-leigh-heyrman-mark-lytle-
michael-stoff-0077420764-9780077420765/the-gilded-age-1870-1900-politics-in-the-
gilded-age-21/the-silver-solution-135/silverties-versus-goldbugs-727-6996/
Gevinson, A. (2016). Silverites, Populists, and the Movement for Free Silver. Retrieved
October 06, 2017, from
http://teachinghistory.org/history-content/ask-a-historian/25222
Williams, R. H. (2010). Realigning America: McKinley, Bryan, and the remarkable Election
of 1896 (Ch 3 - 6). Lawrence: University Press of Kansas.