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Monetary Policy in the late 1800’s How the money supply was manipulated by both sides Haves vs Have Nots I understand the economics behind free silver vs gold and Monetary policy. • • • • 1-‐ Strongly disagree 2-‐ Disagree 3-‐ Agree 4-‐ Strongly agree Intro to Econ: Key Terms • • • • • • Demand, Supply, and Price Monetary Policy Money Supply Business Cycle InflaPon DeflaPon hQp://www.thebluecollarinvestor.com/blog/wp-‐content/uploads/2008/11/business-‐cycle-‐graph-‐beQer.jpg Intro to Econ: Key Terms • Demand, Supply, and Price – Scarcity= How rare something is – Demand= How much of something people desire – Supply= QuanPty of a produce available • Gasoline Prices – Why down? Goals of Monetary Policy • Governments ability to control the growth of the economy: • Gas Pedal or the Brake? • Interest Rates, Regulations, Printing of $$ • Provide sufficient money/stimulus to the economy so that it may grow at a sustainable rate • Dampen the impact of the business cycle. • No more big ups and downs • Control Inflation. • In the 1800s we didn’t have a great system of accomplishing this: • 1st and 2nd Bank of the US (gone) • US Treasury Intro to Econ: Key Terms • Money Supply – The amount of money available in the economy at one Pme. Can be manipulated! • Interest rates (borrowing) • PrinPng of money • Government and Banks work through this hQp://www.thebluecollarinvestor.com/blog/wp-‐content/uploads/2008/11/business-‐cycle-‐graph-‐beQer.jpg Intro to Econ: Key Terms • Business Cycle – Ups and Downs hQp://www.thebluecollarinvestor.com/blog/wp-‐content/uploads/2008/11/business-‐cycle-‐graph-‐beQer.jpg Intro to Econ: Key Terms • InflaPon: – When more money is added to the economy – Prices go up as your money is worth less • Use to be able to go to the movies for .25 cents! • Average and usually goes up at around 2-‐4% annually • DeflaPon: – When there is less money in the economy – Prices go down and your money is worth more hQp://www.thebluecollarinvestor.com/blog/wp-‐content/uploads/2008/11/business-‐cycle-‐graph-‐beQer.jpg Late 1800’s • Farmers and Have Nots upset: – High Tariffs have raised prices on goods they buy – Prices low for agricultural goods – High Debt for new machinery and land • Take out large loans from Banks • Now push for inflaPonary pracPces by US Gov – Increase money supply – Free coinage of silver plus gold – Why? The Haves • The Haves want status quo: – DeflaPonary pracPces – Reduce the greenbacks (Paper Money) by buying it back – Only allow GOLD as the standard for Money – No Silver as it leads to more money in the money supply and inflaPon. – Known as “HARD MONEY” or “GOLD BUGS” • If they make a loan to a farmer: – They want the farmer to have to pay it back over several years with both interest and in a deflaPonary market. – Money will be worth more each year Loan under DEFLATION • Banks make a loan for $100 dollars over 10 years: – Schedule is $10 a year for 10 years – If there is deflaPon: • Each year the farmer pays back the loan with money that is worth more than when he got the loan. • Year #8 that $10 = $15! • Not good for the Farmer • Good for the Banks The Have Nots • The Have Nots want InflaPon: – InflaPonary pracPces – Increase Greenbacks (Paper Money) – Allow GOLD and SILVER as the standard for Money – AddiPon of Silver leads to an increase in the Money Supply and a decrease in the value of money over Pme. – Known as “SOFT MONEY” or “SILVERITES” • If the farmer gets a loan: – They want to pay it back each year with money that is worth less than when they borrowed it. – Money will be worth less each year Loan under INFLATION • Banks make a loan for $100 dollars over 10 years: – Schedule is $10 a year for 10 years – If there is InflaPon: • Each year the farmer pays back the loan with money that is worth less than when he got the loan. • Year #8 that $10 = $5! • Not good for the Bank • Good for the Farmers Factors that Affected Monetary Policy • Panic of 1873 (SpeculaPon and False Demand) – Hurts Have Nots= No real lending choice • ResumpPon Act of 1875 – Redeem or buy back all Greenbacks by 1879 • McKinley Tariff of 1890 – Highest ever (48%) and hurts farmers • • • • Populist Party founded (to defend farmers/have-‐nots) Sherman Silver Purchase Act of 1890 (increases MS) Panic of 1893 (Worst of century) 1894-‐ Silver Act repealed – Gold reserves dwindle – US Gov forced to take $65 million gold loan from JP Morgan and Wall Street bankers. I understand the economics behind free silver vs gold and Monetary Policy. • • • • 1-‐ Strongly disagree 2-‐ Disagree 3-‐ Agree 4-‐ Strongly agree
