Definitions

bimetallism

bimetallism

[bahy-met-l-iz-uhm]
bimetallism, in economic history, monetary system in which two commodities, usually gold and silver, were used as a standard and coined without limit at a ratio fixed by legislation that also designated both of them as legally acceptable for all payments. The term was first used in 1869 by Enrico Cernuschi (1821-96), an Italian-French economist and a vigorous advocate of the system. In a bimetallic system, the ratio is expressed in terms of weight, e.g., 16 oz of silver equal 1 oz of gold, which is described as a ratio of 16 to 1. As the ratio is determined by law, it has no relation to the commercial value of the metals, which fluctuates constantly. Gresham's law, therefore, applies; i.e., the metal that is commercially valued at less than its face value tends to be used as money, and the metal commercially valued at more than its face value tends to be used as metal, valued by weight, and hence is withdrawn from circulation as money. Working against that is the fact that the debtor tends to pay in the commercially cheaper metal, thus creating a market demand likely to bring its commercial value up to its face value. In practice, the instability predicted by Gresham's law overpowered the cushioning effect of debtors' payments, thereby making bimetallism far too unstable a monetary system for most modern nations. Aside from England, which in acts of 1798 and 1816 made gold the standard currency, all countries practiced bimetallism during the late 18th cent. and most of the 19th cent.

See J. L. Laughlin, The History of Bimetallism in the United States (1897, repr. 1968).

Monetary standard or system based on the use of two metals, traditionally gold and silver, rather than one (monometallism). In the 19th century, a bimetallic system defined a nation's monetary unit by law in terms of fixed quantities of gold and silver (thus automatically establishing a rate of exchange between the two metals). The system provided a free and unlimited market for the two metals, imposed no restrictions on the use and coinage of either metal, and made all other money in circulation redeemable in either gold or silver. Because each nation independently set its own rate of exchange between the two metals, the resulting rates of exchange often differed widely from country to country. When the ratio of the official prices proved different from the ratio of prices in the open market, Gresham's law operated in such a way that coins of only one metal remained in circulation. A monometallic system using the gold standard proved more responsive to changes in supply and demand and was widely adopted after 1867. Seealso exchange rate; silver standard.

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In economics, bimetallism is a monetary standard in which the value of the monetary unit can be expressed as a certain amount of gold or as a certain amount of silver; the ratio between the two metals is fixed by law. In economic history the debate took place primarily inside the United States in the late 19th century, as the U.S. was the only major country that was a large producer of both gold and silver. An alternative form of bimetallism, which has been proposed but never implemented would set the value of the monetary unit as a fixed amount of each of two metals, without a fixed relative value.

This monetary system is very unstable. Due to the fluctuation of the commercial value of the metals, the metal with a commercial value higher than the currency value tends to be used as metal and is withdrawn from circulation as money (Gresham's Law). This occurred in the United States throughout the 19th century as the official bimetallic standard became in effect a silver standard. In the Latin Monetary Union, bimetallism lasted from 1865 to 1874, at which point an excess of silver led to the suspension of conversion and movement to a standard based on gold alone.

Political debate — 1890s U.S.

In the United States, toward the end of the nineteenth century, bimetallism became a center of political conflict. Newly discovered silver mines in the American West caused an effective decrease in the value of money. In 1873 the government passed the Fourth Coinage Act, at the same time as these resources were beginning to be exploited. This was later referred to by Silverites as “The Crime of ’73,” as it was judged to have inhibited inflation. Instead deflation resulted, causing problems for farmers with large mortgages but who could sell their goods for only a fraction of their post-Civil War price. In addition, improvements in transport meant it was cheaper for farmers to ship their grain to Europe, and they over-expanded production until there was a glut on the market. The Panic of 1893 was a severe nationwide depression that brought the money issue to the fore. The "silverites" argued that using silver would inflate the money supply and mean more cash for everyone, which they equated with prosperity. The gold advocates said silver would permanently depress the economy, but that sound money produced by a gold standard would restore prosperity. The gold advocates won decisively in 1896 and 1900.

Bimetallism and "Free Silver" were demanded by William Jennings Bryan who took over leadership of the Democratic Party in 1896, as well as the Populist and Silver Republican Parties. The Republican Party nominated William McKinley on a platform supporting the gold standard which was favored by financial interests on the East Coast. A faction of Republicans from silver mining regions in the West known as the Silver Republicans endorsed Bryan.

Bryan, the eloquent champion of the cause, gave the famous “Cross of Gold” speech at the National Democratic Convention on July 9, 1896 asserting that “The gold standard has slain tens of thousands.” He referred to “a struggle between ‘the idle holders of idle capital’ and ‘the struggling masses, who produce the wealth and pay the taxes of the country;’ and, my friends, the question we are to decide is: Upon which side will the Democratic party fight?” At the peroration, he said “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.” However, his presidential campaign was ultimately unsuccessful due to an economic upturn caused in part by the failure of Russian harvests and the resultant increase in commodity prices. The William Mckinley campaign was effective at manipulating votes by conveying thoughts in the manufacturing setting that poor economic progress and unemployment were attributed to the William Jennings Bryan platform. Thereby, giving a winning majority to William Mckinley (who had the backing of the international banking community) The 1896 election saw the election of William McKinley who implemented the gold standard and ran on it in his 1900 reelection. The standard lasted until the Great Depression. It was abandoned in 1934 in FDR’s New Deal economic recovery program.

Wizard of Oz

Since the 1960s historians and economists have explored the bimetallism symbolism in The Wizard of Oz. The original 1900 book centers on a yellow brick road (gold), traversed by magical silver slippers (the 1939 movie changed them to ruby slippers), as Dorothy leads a political coalition of farmers (Scarecrow), workers (Tin Woodman) and politicians (Cowardly Lion) to petition the President (Wizard) in the capital city of Oz (the abbreviation for ounce, a common unit of measure for precious metal). The real enemy of the little people (Munchkins) is the giant corporation or Trust (Wicked Witch of the West), whom Dorothy dissolves, just as the progressives of the era tried to dissolve the corporate trusts.

Monometallism

The practical difficulties which in times past had confronted the maintenance of a joint standard, a concurrent circulation of the two metals, led one nation after another to abandon the effort, and to adopt a system of monometallism, with gold as its basic unit of trade.

The historical development of coinage in modern nations has been from silver monometallism through a more or less unsatisfactory experience with bimetallism, to the single gold standard. Still, in the twentieth century, both metals lost their former importance within monetary systems. Now, monometallism in the form of the gold standard has been abandoned by all nations.

Primary sources

References

  • James A. Barnes, "Myths of the Bryan Campaign," Mississippi Valley Historical Review, 34 (Dec. 1947) online in JSTOR
  • David T. Beito and Linda Royster Beito, "Gold Democrats and the Decline of Classical Liberalism, 1896-1900,"Independent Review 4 (Spring 2000), 555-75.
  • Bordo, Michael D. "Bimetallism." In The New Palgrave Encyclopedia of Money and Finance edited by Peter K. Newman, Murray Milgate and John Eatwell. 1992.
  • Dighe, Ranjit S. ed. The Historian's Wizard of Oz: Reading L. Frank Baum's Classic as a Political and Monetary Allegory (2002)
  • Friedman, Milton, 1990a, "The crime of 1873," Journal of Political Economy, Vol. 98, No. 6, December, pp. 1159-1194
  • Friedman, Milton, 1990b, "Bimetallism revisited," Journal of Economic Perspectives, Vol. 4, No. 4, Fall, pp. 85-104.
  • Friedman, Milton, and Anna J. Schwartz, 1963, A Monetary History of the United States, 1867-1960
  • Jeansonne, Glen. "Goldbugs, Silverites, and Satirists: Caricature and Humor in the Presidential Election of 1896." Journal of American Culture 1988 11(2): 1-8. Issn: 0191-1813
  • Jensen, Richard J. (1971). The Winning of the Midwest: Social and Political Conflict 1888–1896.
  • Jones, Stanley L. (1964). The Presidential Election of 1896.
  • Littlefield, Henry M., 1964, "The Wizard of Oz: Parable on Populism," American quarterly, Vol. 16, No. 1, Spring, pp. 47-58.
  • Angela Redish, "Bimetallism"
  • Rockoff, Hugh, 1990, "The Wizard of Oz as a monetary allegory," Journal of Political Economy, Vol. 98, No. 4, August, pp. 739-760.
  • Velde, Francois R. "Following the Yellow Brick Road: How the United States Adopted the Gold Standard" Economic Perspectives. Volume: 26. Issue: 2. 2002.
  • Richard Hofstadter (1996). The Paranoid Style in American Politics and Other Essays. Harvard University Press. Harvard.. ISBN 0-674-65461-7.

See also

External links

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