This is the human action podcast where we debunk the economic political and even cultural myths of the days
Here's your host dr. Bob Murphy
Everybody welcome back to the human action podcast today. I'm gonna be going solo talking about something wicked
No, not the Federal Reserve actually but the now movie but what was a Broadway show
But before we dive into that let me remind you the Mises Institute has a special December book bundle available now
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Okay, so as I say what I want to speak to you good folks about today is I'm sure you've seen there's been an
enormous marketing blitz for this movie wicked and let me just give you some background to that the
There was a book that was sort of a
Parity is not the right word like an alternate
Story or the real story of the Wizard of Oz right?
That's kind of the premise and these things have been going around. There's some cute ones
There was one that I saw years ago
About the story of the the three little pigs in the big bad wolf but told from the wolf's perspective
All right, it was a cute little thing, but there
Even though the premise was funny whatever it I mean the wolf was lying
Okay, so in that one it was clear
That the writers were not saying. Oh, actually the wolf is the good guy and gets a bad rap
It was the wolf, you know just being a
Wolf and and so it was still a cute book if you know if you have little kids or something
I guess they'd have to be a little bit older to understand the the irony involved and that sort of thing
But you might check it out if you're a parent you I don't know the exact title
But I'm sure if you googled around you'd find that something like the story of the three little pigs is told from the wolf's perspective
Something like that, but the book wicked
was
An alternate take and partly why I'm going over this stuff is I think it would appeal. I know a lot of
Viewers of the human action podcast are probably into
A
Revisionist history right where oh geez I learned as a kid that Abraham Lincoln was a good guy
And that's not what Tom DeLorenzo thinks right?
So I'm just saying if you're that sort of person where you at least like to consider these things
it is very it's a very clever book wicked and it
Again it it shows things that oh actually you've been taught that the witch from the what what wicked
Witch the West is is wicked, but actually no she was the heroine and it's the wizard who's the bad guy
Okay, and so it's it's just interesting. So they do
Deviate from the standard
You know the movie the Wizard of Oz that we've all seen a lot
But anyway, I just thought that was interesting and
You might be you might take a look at it and also the Broadway musical that they first made out of it
I also thought was great. All right. I'm a lame is fan, but
Wicked is up there and and partly I'm saying this stuff because
unfortunately
The marketing for the movie and the particular actresses involved
It's you might think that oh, yeah, this is just some kind of woke stuff
And I haven't seen the new movie and maybe it is I don't I don't know what they've done with it
And certainly the marketing I understand why you might say I don't want to look at that
But what I'm saying is if you're a person who likes musicals
I encourage you to go
Check out the the actual, you know musical that was on stage and I think it's still is going around
Actually, I know it is someone I know just went to it recently. Okay, so that's I'll say that
And now though what I really want to do in this episode is I thought okay since this is topical
What many of you may not know is that there is speculation that the original
Wizard of Oz so
It was first a book and then it was itself
You know a stage production
Before then they made the movie, you know that we all know of is oh, yeah, that's the Wizard of Oz that famous movie with
You know somewhere over the rainbow and so forth. Okay, so
uh
What's interesting is there's a lot of speculation that
The author of that book
Was among other things intending the story to be an allegory
For the monetary debates that were raging in the united states at that time and specifically
The argument over silver versus gold. Okay, so here just some
Catch phrases that you may have heard of and I that's what I'm going to do in this episode
It's kind of just spell some of this stuff out to you know, give you the rest of the story
This paul harvey might say
That um things like
William Jennings bryan
Who i'm sure you've heard of he he's a
An accomplished man
And and I will say when I was younger
I didn't like him and then now the older I get the more I do like him
he was
One of he was the guy in the famous scopes monkey trial that
Clarence daryl put on the stand and tried to humiliate him for his silly fundamentalist religious beliefs
uh
On my own podcast recently. I have the bob murphy show
I have gone through and reviewed the court transcripts and I have argued that no actually william jennings bryan
did not
Get humiliated on the stand and clarence daryl made some basic mistakes himself
um
But beyond that he was also the secretary of state bryan was
Under woodrow wilson and he resigned in protest saying wilson is not being neutral
He's unnecessarily dragging the united states into this awful
You know european war so that's kind of cool
um
But he's also known famously for his
So-called cross of gold speech of the democratic convention
Where he was you know saying you won't crucify us on this cross of gold and so what he was arguing for there
was what's known as the free coinage of silver
And involved with all this is what partisans called the crime of 73
referring to
legislation from 1873 that effectively
Ended the free coinage of silver or you might say demonetized silver
Okay, so this is all real fascinating stuff at least to me that I just wanted to to spell out
but just a
Circle back on the the wizard of oz angle
So the um
Some of the the connections so for one thing
The the yellow brick road
Right that nearly got that and then in the original book
And I think the original
stage production, but i'm not certain about that
Dorothy shoes
Were silver okay in the movie that we've all seen their ruby red
But my understanding is that was just because that stood out more like that was you know in terms of having a visually appealing movie
That having those those red
Slippers that you know, oh you could have gone home whenever you wanted the power was always here
It's clear that it's her slippers
That are the salvation for Dorothy
not
Going to you know, not following the yellow book road and going to the wizard who
even in the
In the you know movie we know
Let alone
The subsequent book wicked and and so forth the wizard of oz is not a good guy, right? He's a fraud and he's
Um, I mean beside just the obvious like hey paying no attention to the man behind the curtain
He's just putting on a big show to fool everybody and solidify his political power
Beyond that though, I mean just think about what a jerk this guy is
That he's got this young girl who shows up
You know her house falls on one of the one of his enemies
And then
He's still got this other enemy who's now, you know angry at this girl
For killing her sister and what does the wizard do he says? Oh, I can help you
But I need you to go kill this witch first for me
I mean that what kind of a grown man has asks a young girl go murder someone for me
I mean, he can maybe say it's not murder go kill somebody put it that way
Um, and then I'll help you like who does that? Well the wizard of oz that's who okay
And so anyway, that's um
So part of the the story in terms of people interpreting it and saying that
Yes, uh frank bomb, you know the the author was
Trying to
Prom, you know make the case for silver in a subtle allegorical way
Is to say that yeah the the wizard of oz was not your salvation
It was you know following the yellow book road was not what dorthy needed to do
The she the whole time she had the you know the silver shoes on her feet right there
You know she had you know the power was hers all along. Okay, so there's that element and then also
The wizard of oz and people speculate that you know oz is ounces right ounces of silver and gold. All right, so that's
um
If you if you want to see more here. I'm just touching on some of the obvious
Points that the people who make this case bring up
Um, but you you know you can just even look at the wikipedia entry
On this stuff and it'll it'll talk about you know the monetary economics in the wizard of oz
theories
Okay, so
Having said all that now. Let me just come back to the
The economics and u.s history element of it
So here i'm going to rely on
Uh, I think it was chapter two of my book from the mises ensued understanding money mechanics
And if you haven't looked at that
I would encourage you if this if the stuff i'm talking about in this episode interests you
Because I learned some stuff here when I did the research to write this chapter
Specifically on the early monetary history of the united states
And I you know I had known for years about oh, yeah, there was
The the dollar used to be backed up by gold everybody knows that and that's why we're mad at nixon and then earlier fdr
And then yeah, there was some stuff about it was silver two for a while
And probably most of you are a little bit hazy on how did that work?
So I spell all that stuff out, you know from first principles and not getting too deep into it
So it's a pretty quick read
As I say if you just even want to check out just this early chapter in the book and it's
Free pdf is everything is that's published by the mises ensued. So again, that's my book
Understanding money mechanics if you just google robert murphy understanding money mechanics
You'll you'll see the pdf that you can get
So that's what i'm gonna let me just read a little bit from that here
And then i'll spend the balance of this episode of the human action podcast
Just elaborating on what i'm gonna read here. So these are
excerpts
From my book understanding money mechanics
um
So I first started out and said how since the u.s
The original 13 colonies were part of the british empire
originally their money officially was
Great britain's money, you know pounds shillings and pens and at the time great britain was on a silver standard
Okay, and if you just think about like the pound sterling like that's the you know the term we use for the british currency
That's you know going back to the days of it was a it was a physical weight
of
The metal right the pound it was pound sterling right?
um
And so what i'm partly going over here is to explain
You may think that oh, yeah back in the days of hard money all the major powers were on gold
And you might just think that oh, yeah, it was always gold and i'm saying that no actually
There was a period where silver was actually the you know the money of
The advanced nations
okay
During the revolutionary war the continental congress issued unbacked paper money called continental currencies
It had you know that led to rampant price inflation
And you may have heard the expression not worth a continental right so that's where that comes from that once the price inflation got out of hand
People didn't want the continental currency
Okay, um and then among the foreign coins circulating among the american colonists the most popular was the spanish silver dollar
And this made the term dollar common in the colonies
Explaining why the continental currency was denominated in dollars right rather than shilling or pence or whatever
And so it was getting it was a spanish. It wasn't the spanish gold. It was a spanish silver dollar
That is what made american colonists
start
Using that term dollar in commerce and thinking in terms of dollars being their money and then that again is why
once
us
Officials either you know the colonial governments or then later
The you know the country the the new republic. That's why they use that term dollar for what their currency was
Or I should say their money right because currency is a more specific term
okay, and so here
I want to read something it is crucial for today's readers to understand that from the inception of the modern
By which I mean the post constitution united states in the late 1780s
Through the eve of the civil war in 1861
The federal government issued money only in the form of gold and silver coins
Okay, and there was a borderline exception the war of 1812 where they had some
Treasury notes that were quasi money. Okay, but besides that
border case
my point is
It's not that the federal government
In the early days again from the foundation of the constitution, you know with george washington being the first president in that
Scenario, that's what we're talking about that regime if you will
Up through the eve of the civil war or the war between the states or the war of northern aggression if you're a tom de laurenzo fan
My point is in that period you may have thought that. Oh, yeah, they issued
Uh, you know u.s paper currency issued by the federal government
But it was backed up by gold or maybe silver
somewhere
Whereas, you know fdr removed that backing up in the nixon final and i'm saying no it when we'd say
that in the in the beginning
dollars
Were gold and or silver
I don't just mean there was green pieces of paper that were backed up somewhere with gold and silver in a vault
No, the u.s government again to repeat did not issue paper currency at all in this period
What would happen is they defined
What the weight in terms of either silver or gold was
Um for for a dollar
and then
If people had quote raw gold or silver they could bring it to the mint and it would be stamped into official coins
You know legal tender. This is this is what we mean by official u.s dollars
is their coins
Of silver or gold with the appropriate, you know
Statutorily specified
Weight, you know in terms of the grains, right? I'll get I'll get to the numbers in a minute
But i'm just first explaining how the thing worked. All right, so the
It's not that the authorities
Determined the money supply
No, that was um
Endogenously determined if you know if you know what that word means
It was uh a market outcome if you will right just like
The authorities don't determine how many barrels of oil get produced each year
Likewise, the authorities in this early period
Did not determine
How many how many dollars are we going to print because again the authorities weren't even printing dollars period
It was just they said
The dollar is defined as either this amount of gold or this amount of silver
And if you bring that amount of gold or silver to the mint, we will turn it into
official coinage
At their you know appropriate ratios or weights
Okay, so you know just think through the implications of how far we've come from that
Okay, so what probably many of you think of is oh, yeah back during the days of hard money under the gold standard
Even that was a much weaker version of hard money than what we're talking about here
There, you know in that period where the u.s. Government was issuing paper
greenbacks
That you could redeem for specie
All right that again was was a one step weaker than what we're talking about here where the actual
official money
According to the government were gold and silver coins
Now to be clear i'm going back to quoting here in this early period
Commercial banks were allowed to issue their own paper notes that were redeemable and hard money
And to the extent that they were trusted might circulate in the community along with full-bodied coins
But these banknotes were not the same thing economically or legally as gold and silver dollars
Okay in summary for the first 70 odd years after the modern federal government's creation
Official u.s. Dollars consisted in actual gold and silver coins that regular people carried in their pockets and spent at the store
Indeed so bad was the constitutional framers experience with the continental currency
That they included in the contract clause of the you know the constitution
The prohibition that quote no state shall make anything but gold and silver coin a tender in payment of debts
All right, so i'm just giving some of the background there
Okay now let's get to the numbers
In the coinage act of 1792 the u.s. Dollar was defined is either 371.25 grains of pure silver
or
24.75 grains of pure gold
Okay, so again, it's not saying the dollar is a paper note
That's backed up by either of those two numbers. No, it's saying the definition right like to it's like um
And here when it says like the congress shall have power to coin money
It wasn't set or to regulate the value thereof right so a lot of people point to that as constitutional authority
For the federal reserve and for the you know the fiat paper money
that the authorities produce
and
There is uh, I think correct
School of thought that says no not at all. That's not what they were doing
All they were doing in the an original constitution when it came to
The federal government being able to regulate the value thereof of the coinage
of the money
Was just in their capacity as like setting
Weights and measures right so just like
If people wrote contracts promising. Oh, i'm going to sell you this many yards of fabric
And then somebody gives uh, you know a certain number of feet
And they say oh well what I meant by a yard was was four feet
And or they would say two feet right to to undersell and to to under deliver
And say yeah, that that's what I meant by a yard right so
The the courts would need to know
They have some official measure of what do these terms mean if they're like in a contract and somebody owes
You know, there's 12 inches in a foot. There's three feet in a yard and so forth
In terms of weights and whatnot right just for the enforcement of contracts and just for the rule of law to exist
And so likewise that was the function here when they were saying
You know if there's a contract saying
You owe somebody, you know, if you have a debt instrument you owe somebody 10 dollars 10 us dollars
What does that mean?
How can you satisfy that and say oh
What it means is again this with this original coin eject of 1792
The dollar is either 371.25 grains of pure silver or 24.75 grains of pure gold
Okay, and the reason they picked those particular numbers if you do the arithmetic
That established a gold silver ratio of precisely 15 to 1
Right that you needed 15 times as many grains of pure silver
To count as a dollar as you did grains of pure gold
Right so that gold
Had a value
15 times higher than silver under this original definition. All right. I'm going to go back to reading now quoting for myself
Part of the rationale for this policy of bi-metalism, right?
So it's that's a bi in the front. So meaning like to just like bi-weekly, you know that kind of a usage
So bi-metalism means the us at this point
was on
Two different metallic standards. It was both a gold standard and a silver standard. Okay, so why did they
um
Had this policy of bi-metalism
Was that silver coins were convenient for small denominations
Including fractions such as a half dollar a quarter dollar and so forth and that's where we get the terms like oh, here's a quarter
Here's a dime so on
While gold coins were preferable for larger denominations
And so what they had in practice is they're really in the beginning were just silver dollars
The coins right there was no such thing as a
In the beginning as a as a single coin that was made of gold
That was one that was stamped one dollar. No the coins were
um
Eagles right and so a ten dollar eagle and a twenty dollar double eagle
Okay, whereas it was the silver that was used for the smaller amounts and that made sense right just physically
because
you
To only have one dollar worth of gold
Wouldn't be that much gold and so, you know, there wouldn't be that much
I mean they by the way, they weren't made of pure the pure metal
But they would be they wouldn't wouldn't work right you you would also put in baser metal
Just to make the coin sturdy and you know, they could pass around in commerce
But my point is in the beginning
Um partly the reason they had it both gold and silver is because they thought the demands of commerce
It can't just be one or the other if you just had a pure silver standard
Then large transactions, it would be difficult. You would need a bunch of coins
You'd a high weight of silver to buy something expensive
But on the other hand, it couldn't just be gold coins because then for smaller transactions
You know that the amount of gold you would need to hand over would be too small
And it would be impractical to have a coin that just had that limit. Okay, you get the idea
So that's why they did that
and then
the um
The reason they originally
Picked that 15 to 1 ratio was in 1792 when they were codifying this
Then happened to be roughly
The global market exchange rate between gold and silver
Okay, so they were you know, we're just pulling that number out of the air
They were trying to make it so that they were fairly codifying. Oh, yeah, this is the actual
relative valuation of gold versus silver and we're gonna
Um distill that down into our statute
Okay, but the problem is so here I'm reading
However, the problem with bimetalism is the phenomenon known as Gresham's law summarized in the aphorism
Bad money drives out good
Specifically when a government defines a currency in terms of both silver and gold
Unless the implied value ratio of the two metals is close to the actual market exchange rate
One of the metals will necessarily be overvalued while the other is undervalued
And people then only spend the overvalued metal while hoarding
Or melting or sending abroad the undervalued metal. Okay, so
What happened originally things were fine because again, they picked
The the legal ratios
To correspond roughly to what the market ratio was but then over time
I'm just reading again increased silver production relative to gold
Led to a gradual erosion of the world price of silver, right? So more silver was being mined
And brought into circulation
Then gold and so over time
Silver's value relative to gold slipped in terms of actual market exchange rates
Moving the actual market ratio closer to 15 and a half to one, right? So silver
or
Gold originally was 15 times more valuable than silver on a per weight basis
And then its premium rose to about 15 and a half to one
Okay, and so then as that happened
You know the the rules were still in place in terms of you bring gold or silver to the us mint
We're going to stamp it into gold or silver coins according these ratios
so now
if
Silver in terms of the official ratio is being relatively overvalued
You're only going to bring your silver
To get turned into coins and you would be foolish to bring your gold to the mint
I had that stamped into gold coins because that's locking it in now
If you're going to spend it as dollars rather than holding it as the raw metal
You're you're losing out
Okay
And so as Rothbard says
From 1810 until 1834 only silver coins circulated in the united states
And again, this this is what gresham's law refers to I want to be clear just if I can go off on a an aside for a moment
Um
I think sometimes people even in the free market community
Misunderstand what gresham's law is saying and so for example, they will they might say things like
Oh, yeah, you can't have a free market currency that will never work because hey gresham's law says bad money drives out good
And so you can't trust market forces to produce money because some competitor will come along and produce
You know a shoddier type of money and that will drive out all the good money
No
Gresham's law is in the context of government
Mandates forcing people to accept it as a payment of of legal
You know of debts the legal tender laws. Okay, so the idea is
If you owed somebody contractually
Because you know you borrowed money from them and they have an iou that you issued or you have a bond or whatever a mortgage
if you owe somebody
Things that contractually are are denominated in us dollars
And then the government is saying
As far as the court system is concerned
We will say you have satisfied your debt if you pay the dollars either with
silver
You know with a conversion to dollars in terms of this ratio or gold and that
Ratio that they're announcing implied
That gold was only 15 times more valuable than silver
But in reality in the market gold is 15 and a half times more valuable
Then the idea is you're just going to pay your debts off using silver coin
because it's actually
You know in over valuing what is really worth or the other way around
The amount of your dollar debt that you think you should be knocking down by handing over an ounce of gold
The court system is going to say no, we only think
You know your your dollar debt should have been reduced by this amount because this is how we value
You know, this is the implicit price the dollar price of gold that we're using
Okay, so that's maybe another way of thinking about it
Okay, so that's what gresham law is saying if it weren't
for government rules forcing merchants to accept
Gold and silver coins according to certain ratios if their prices are posted in the store in the form of dollars
and even you know more specifically
The extinguishing of debts
Denominant dollars then gresham's law wouldn't matter right? It's not like
Americans had to use zimbabwe currency because oh bad money drives out good and that's why
Zimbabwe currency flooded our markets
A few years ago and you know, we had no choice but to buy everything in terms of no nobody just accepts it because that's
A a cruddy currency. I don't mean to use foul language so close to christmas
Right and then why is that because the zimbabwean government had no authority over us to force americans
To accept their worthless currency
okay, but
Americans beck at this time, you know, they were
under legal rules and court system and property titles and such
Saying that if somebody gives you hand you over this many
silver
coins
Then you know that they they're good. We're as far as we're concerned. They paid off their debt. All right, so that's why
um
You know, it was a de facto silver standard and mises has some quotes. Some are saying in practice
A bimetallic standard refers to alternating monometallic standards and we'll get into that here in a second
um
The coinage acts of 1834 and 1837
Revised the implied content of the gold dollar down to 23.22 grains of pure gold
While leaving the silver dollar at 371.25 grains
Because there are 480 grains in a troy ounce these definitions of the metallic content of the dollar
Implied a gold price of approximately 20 and 67 cents per ounce
So you might that might sound familiar to you if you've read a little bit in terms of the classical gold standard
That was the number
You know before f dr came in and devalued things
Okay, so again, it was the coin. It wasn't the original coinage act of 1792
No, it was the coinage acts of 1834 and 1837
That refined the gold content of the dollar and that ended up
sticking
Okay, and an unchained silver price of approximately a dollar 29
Okay, so now if you do that arithmetic you realize
Oh
It went from
gold being roughly
15 times or exactly 15 times more valuable than silver in the original 1792 legislation to now when they revised it
Now gold is just a hair under 16 to 1
But so now they just did the flip side of the of the same problem
All right, so before because the market rate was about actually about 15 and a half to 1
When gold was only 15 times more valuable than silver everyone just used silver in the us
But then when they revised it to make gold more like 16 to 1
It flipped and now everyone just used gold
Okay, and so as I say here
um
The us though still officially committed to a bimetallic standard after 1834 flipped from a de facto silver standard to a de facto gold standard
Okay, and then let me just jump ahead
um
The classical gold standard refers to the period beginning in the late 19th century when a growing number of countries tied their currencies to gold
Because the process was gradual
It's difficult to state precisely when the period began and here i'm quoting from a historian in 1873
There were some nine countries on the gold standard in 1890 22 countries
And by 1900 29 countries and finally in 1912 49 countries. All right, these were all ones that officially
Were tying their sovereign domestic
You know money to a specific weight of gold
And it was it was kind of a snowball process and a network effect as more and more countries were doing that
It made more sense for the remainders
To you know get off silver and flip over to gold if that's what they'd been doing and so everyone again by 1912 the eve of
The first world war 49 countries all officially were
defining their currencies
Uh in specific weights of gold and that's what we mean as the classical gold standard period
Okay, this is back to me
Recall from the previous section that going into the civil war the u.s. Dollar was defined in grains of the precious metals that implied a mint price
Of either twenty dollars and sixty seven cents per troy ounce of gold
Or of 120 not one dollar and twenty nine cents per troy ounce of silver for a gold silver ratio of about 16 to 1
And because world prices of gold and silver were closer to 15 and a half to one
There was little incentive to bring silver to the u.s. Mint for conversion into coins and here's the critical thing
Consequently there was little opposition in 1873 when congress discontinued the free coinage of the standard silver dollar
As there had been little demand for the option
okay
So again, just don't understand
because of the
Uh relative overvaluation of gold
for decades
People
Nobody had been bothering to try to turn their raw silver into silver coins because it it was the the official price was undervalued with silver
Put this way the market price of silver measured in u.s. Dollars
Was higher than a dollar 29
For per troy ounce
So if you took your raw silver to the mint and had it physically transformed into coins
stamped as
You know one dollar or a quarter dollar or whatever
That would be worth less than the bullion price of the raw metal
So you would be silly to do it. So nobody was taking advantage of that option
And so in 1873
The government officially discontinued they had actually earlier in 1853 discontinued like dimes and quarters
But up until 1873
You still officially had the option the right to take raw silver and have it turned into
One dollar silver coins
But then in 1873 that also that last message of the silver standard
was
discontinued
Okay, but at the time
nobody really
protested
Because nobody had been no one had been doing it for decades. There had been it was uneconomical, right?
So back to my narrative here
However later in the decade of the 1870s when world silver prices dropped
And that was partly as a result of silver discoveries
And partly as a result of other countries demonetizing silver, particularly the german empire
The change of policy would be viewed in a different light indeed pro-silver interests eventually referred to the momentous event
as the crime of 73
Okay, so again
What was happening was
all along
The government was basically saying they didn't do it in these terms
But in terms of the the grain definitions it implied
That the us was valuing silver officially at one dollar and 29 cents per troy ounce
And so when silk when the world price of silver was higher than that didn't really matter
They discontinued that option and then
Because there were more silver discoveries and then as other countries around the world
left the silver standard and went to
a pure gold standard
That reduced the demand for silver and those other countries
And so now there was like a glut of silver so that pushed down
The market price of silver below a dollar 29
And so now if the u.s government is saying hey if you show up and bring raw silver
We'll stamp it into official u.s coinage
At the rate of one dollar and 29 cents per troy ounce of silver that you bring to us
And the global price of silver is lower than that now there's an arbitrage opportunity
But oops once that happened
Everyone realized oh wait a minute back in 1873. They took away that option from us
Okay, and so that was the controversy and that's why people were outraged
um
Yeah, I'll just read one last thing here
There was much drama in the battle between silver and gold interests the most notably william jennings bryan's famous
Cross of gold speech which called for return to buy metalism and the free coinage of silver
Is a method of helping the indebted farmers at the expense of the wall street elites
And he delivered that at the 1896 democratic national convention where he was nominated for president
Yet bryan lost the general election to the pro-gold republican william mckinley who signed the gold standard act of 1900 into law
This legislation codified the definition of the gold dollar that had been established back in 1837
Which we recall implied a dollar gold price of about 20 and 67 cents per ounce
This was the dollar's gold content throughout the classical gold standard period
And would prevail until f dr's devaluation
In 1933 slash 34, which you know, I explained later in the chapter
Okay, so
let me just
Spell out a few things here
number one
You may have thought that
the roth bardian
tradition in austrian libertarianism, you know austral libertarianism, I should say
We're big fans of the of william mckinley and the gold standard act of 1900 because hey, we we like hard money, right?
And we're big fans of gold
And we think if the government just got out of the way that the market would return to gold and
Rothbard and mises both wrote things
Talking about how could the us go back to hard money and involved tying the dollar back to gold
And you know different proposals and what ratio should we use and that sort of thing?
So you may have thought that murray rothbard himself
Thought this was a great thing and that night that gold standard act of 1900
And I really like mckinley and all his back and no if you go read
The various places where rothbard talks about this stuff. I think he tells the story in different ways
um in various of his works
but
it's
I don't want to oversell it, but it's almost like
Is in rothbard's narrative
The pro-gold people are the bad guys like right in terms of like the bankers and such and you know, they had different factions
And the people who were pushing for the gold standard act
um
Are not the heroes in rothbard's narrative
And so it's just it's very interesting
And I I was actually surprised when I first read rothbard stuff because back then I didn't fully understand
And I didn't really get the whole biometallic thing and whatever. I just didn't know enough the history
And so anyway, I was actually surprised by that
I had assumed going into it that rothbard was going to be a champion of
The pro-gold people since he liked hard money and that's not what was going on in retrospect
It's not surprising right because to be pro-gold
Doesn't necessarily mean you want the u.s federal government
Intervening and doing things right really if you're a rothbard and you want the government to not exist
um
And then you know to say nothing about money or banking
All right, so anyway, there's that interesting element there
But also let me just explain
What was going on with the people wanting the free coinage of silver and the return to biometallism?
And how would it be that the free coinage of silver would help the farmers right so the idea was
a bunch of the farmers
had
Mortgage their property right so they went to the banks
They pledged their farms as collateral got loans so the loans are denominated in dollars of course
and
Who owns the loans?
Well, the you know the fat cats on wall street, you know to to paint with a broad brush right the the monied interests the capitalists
Okay, so if you're a populist like brian
Who are you going to favor there? You're going to favor
The indebted farmers, you know the salt of the earth
The people who you know are raising a family and taking them to sunday school and such
Not the guys on wall street with their top hats
and so
once
Global silver prices had dropped below the dollar 29 threshold
If you allowed for the resumption of the free coinage of silver
That would effectively be very inflationary
Right a bunch of people would take raw silver that they could purchase for less than a dollar 29
Take it to the mint
Have it turned into
official u.s coinage with an official rate
You know of a dollar 29
per
Troy ounce of silver
And then use that to for example go pay the interest or the the principal on their debts
Okay, so it was basically a way so, you know, there's different ways you can think about it that
You could take raw silver that was had a market value that you could obtain
You know by selling your eggs or you know milk or whatever you get raw silver
It less than a dollar 29 then have it turned into official u.s coinage
Can use that to pay down
The dollar debt that you owed the bank
Um
Or you can also think of it equivalently as
By allowing for the resumption of the free coinage of silver now again
It's not that the authorities determined the money supply
It was an endogenous outcome based on what the public did
And so now if you're opening up the floodgates and allowing people to bring their raw silver and to be turned into official
us dollars
That's effectively inflating the money supply. It's it's expanding the total quantity of us dollars in existence
So other things equal. What's that going to do? It's going to push up prices
It's going to devalue the dollar and so if you're a debtor other things equal and there's an unexpected
devaluation of the dollar in real terms that makes it easier for you, especially if you're
A farmer who's selling, you know goods that people need you're selling milk and eggs and
beef and whatnot
Then
A general inflation
Is going to help you right because the prices of the eggs and whatever respond
to the increasing quantity of dollars in existence
But your debt is fixed
Right, it's not that they had inflation, you know purchasing power clauses in the mortgages on the farm back then
Okay, so that's that's the idea. I'm just explaining the mechanics of it
And why would it be that if you were a populist in 1896
That you would
Want the you know resumption of the free coinage of silver in order to help the indebted farmers and to stick it
To those fat cats on wall street and that the guys who own the banks, right? That's the idea
Okay, so again, if you're interested in this stuff
I would encourage you to go check out my book understanding money mechanics. It makes a great christmas gift as well
you can get the physical book and
Either way, thanks for your attention everybody. See you next time
Check back next week for a new episode of the human action podcast
In the meantime, you can find more content like this on nieces.org