A brief history of the gold standard in the United States.

(Turns out, silver is one of the most interesting characters in the story).

1/
2/ In the beginning, US coins could be made with either silver or gold.

As you can see, silver's price starts out pegged to a dollar value just like Gold's.
3/ This is called "bimetallism" and was more formally defined in:

* 1792 with the Mint Act establishing a 15:1 gold to silver ratio
* 1834 with the Coinage Act establishing a 16:1 gold to silver ratio

You can see the tiniest devaluation of silver in the gold to silver ratio.
4/ In the 1860s, the Union deviates from bimetallism and prints money to fund the war, incurring a debt (denominated in gold and silver) they would need to pay back later. This drives the price of silver up but not gold.

Why? I don't know! If you do please comment.
5/ In the 1890s, the Sherman Silver Act passes which forces the government to buy more silver to mint coins.

Now here is where things get interesting.

Rather than establish a new gold:silver ratio, this act sets a quantity of silver to be purchased at market rates monthly.
6/ Who wanted this increase in silver purchasing? Silver bagholders? Perhaps to a degree, but mostly this was driven by FARMERS.

The high gold ratio drove DEFLATION leading to immense debts that could not be paid off.
7/ This is the key dynamic in debates about the gold standard in US history.

It is about DEBT and whether debts will be more expensive or less expensive to pay off in the future.

In deflationary times, debts are more expensive. In inflationary times, they are cheaper.
8/ Nobody (besides the miners) really cares about the precious metals themselves, they care about DEBT and whether they will be richer or poorer following a change in the monetary policy.

Guys, major key. 🔑
9/ The Sherman Silver Act drove a run on gold by foreign investors, driving down the price of silver relative to gold.

Despite the government buying more of it, the value of silver went down relative to gold.
10/ Then, at the start of the 1900s, the gold standard was enacted.

Some say this decision amplified the deflationary forces that caused the Great Depression.
11/ Speaking of the Great Depression, bank runs during the early 1930s, drive gold prices up, breaking the USD peg for the first time in history.

Leading to the abolishment of the gold standard in 1933 and 1934.

(Most people think the peg breaks after the abolishment. Not so)
12/ In 1944, Bretton Woods agreement has all the major industrialized nations agreeing to using the USD as their reserve currency and since then precious metals have "mooned" relative to fiat.
13/ I want to focus on two points here.

The first is social: who supports these changes and why?

The second is economic: how do asset prices react to these changes in monetary policy.
14/ On social, it's worth making the point again that the supporters are the ones who stand to benefit directly from a change in the monetary policy.

Gold standard vs bimetallism was an inflation vs deflation argument, made salient to the masses by their own debts.
15/ It wasn't an argument about what makes for a better money. Nobody talked about portability, funagibility, etc.

They wanted to know when they would experience more prosperity.
16/ On economic: it's funny to me that everybody took for granted that the gold standard would lead to deflation and vice versa. It's similar to the memes of the money printer. Yes in a vacuum printing more money would lead to inflation, but it's a complex system.
17/ In some cases, you can print money (an inflationary force) into stronger deflationary forces leading to net deflation.

@RaoulGMI makes a case that this is what's happening today: https://twitter.com/RaoulGMI/status/1254110879479746562?s=20
19/ Do you have other interesting knowledge or sources on gold standard vs bimetallism? Send em to me!
You can follow @tonysheng.
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