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greenback economy vs gold economy - 19th century

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sthomper posted on Mon, Apr 20 2009 2:21 AM


the rothbard book HoMaBitUS states

"The record of 1879–1896 was very similar to the first stage of the alleged great depression from 1873 to 1879. Once again, we had a phenomenal expansion of American industry, production,

and real output per head..............The major difference in the two periods is that money

supply rose more rapidly from 1879 to 1897, by 6 percent per

year, compared with the 2.7 percent per year in the earlier era(1873 to 1879).

As a result, prices fell by less, by over 1 percent per annum as

contrasted to 3.8 percent. Total bank money, notes, and deposits

rose from $2.45 billion to $6.06 billion in this period, a rise of

10.45 percent per annum—surely enough to satisfy all but the

most ardent inflationists.150   For those who persist in associating a gold standard with

deflation, it should be pointed out that price deflation in the gold standard 1879–1897 period was considerably less than price deflation from 1873 to 1879, when the United States was

still on a fiat greenback standard."

i understand this to mean that a paper money standard in existence for for six years was inflated at a lesser rate than a later gold standard (plus some other type of deposits??) period - and prices also declined faster und the greenback money for about 6 years.

rothbard describes the 73 to 97 period as  "a phenomenal expansion of American industry, production,

and real output per head".

ir true, this seems odd considering there was a significantly higher monetary infaltion rate with a gold standard than a paper greenback standard.  i am not sure , but i assume the 'bank note' money mentioned above was tied to a weight of gold?  many comments at and persist in associating a gold standard with price deflation.

reading information at and, i see that 


in the decade before 1913......Moreover, in the first two decades of the period there was a stag-


nant gold supply, deflation of prices and slow economic growth in both the U.S. and
Canada, while the latter two decades were characterized by gold discoveries, inflation
of prices, and higher levels of economic growth.

the info at this link seems to indicate a rather opposite occurrence than what rothbard describes...a stagnant gold supply that hinders economic growth?  yet rothbard states that the 'greenback' though not gold standard, was barely inflated and resulted in healthy economic growth and price deflation.

of this rothbards book says "As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent-perannum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita."

this seems to cover the 1873 to 79 era of greenback money - inflated at a little over 2 percent per year.

additional writings at and mentions of gold standard deflation ---- 

a mild deflationary trend prevailed in the industrialized nations as rapid growth in the supplies of goods outpaced the gradual growth in money supply that occurred under the classical gold standard.”


well...according to the rothbard book this occurred under a greenback standard to a greater degree than a gold standard.  am i missing something in the analysis?
under a gold standard, deflation becomes equivalent to a rising relative price of gold, which in turn
means a greater diversion of resources to gold mining. Mises concludes from this that even a steady increase in money’s objective exchange
value would be undesirable under a gold standard....


yet according to the rothbard book 10 percent per year increase resulted in great economic growth

who is wrong here?


 "....the gold standard has a "deflationary bias." So what? That's one of its virtues,....."

yet rothbard book claims a greater deflationary bias with a greenback standard - is that a virtue too?

"Instead consider again the ideal method for securing the value of money against the depredations of state power: the gold standard..."


as for this comment, paper money as described in rothbard book secured as well as gold money since the gold was 'depredated'  by the state anyway


"I am a gold bug. In early 2001, there were hardly any of us remaining.

What is a gold bug? It is a person who believes the following:


A gold standard reduces the likelihood of monetary inflation.

i guess this is true....greenback did that too.


the classical gold standard yielded a gentle fall in prices over time. Nobody seems to worry about this gradual rise in purchasing power when it comes to the modern computer industry. Why would it be so terrible if applicable to most goods and services, especially in a predictable manner?

again, if rothbard book is correct the gold standard satisfied the most ardent inflationists.

another entry at lrc says

Moreover, under a 100% gold standard, the prices of goods and services would decline over time as mild deflation would be a welcome part of everyday life.

"The excellence of the gold standard is to be seen in the fact that it makes the monetary unit's purchasing power independent of the arbitrary and vacillating policies of governments,...."


it seems to me that there are conflicting and confusing statements about the efficacy of gold standard money.  

i can understand getting the government out of the money issuance business.

but if the paper standard era produced low monetary inflation and greater price deflation than what i assume to be the only period ot true gold convertability, why do so many at the lrc and mises still adovacate for gold?

rothbard also claims that with the greenback standard 73 to 79 that  somehow wages fell along with consumer prices during a time  --- "  which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879  "

yet  greater economic growth occurred during a period of higher monetary inflation than an era with less monetary inflation , stated here  "Both consumer prices and nominal wages fell by about 30 percent during the last decade of greenbacks. But from 1879–1889, while prices kept falling, wages rose 23 percent. So real wages, after taking inflation—or the lack of it—into effect, soared.

so less money-inflation with paper resulted in less economic growth than faster money-inflated gold+paper???

clarification appreciated













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In 1868 there was ~$40.00/capita in circulation; by 1887 there was only ~$5.00/capita in circulation


    This year the work of contraction was vigorously pushed, and there were 2,386 failures, with a total loss of $86,218,000.
    During this year, $473,000,000 of money was destroyed, and failures increased to 2,608, with a loss to creditors of $63,774,000.  Money began to be tight, and financial “spasms” were frequent.
    During this year over $500,000,000 of money passed into the cremation furnace, producing 2,799 business failures, and a loss of $75,054,900.  Money growing tighter and wages lower.
    This year $67,000,000 of money was destroyed, and 3,551 failures took place, involving a loss of $88,242,000.  Money very scarce and wages of labor were reduced all over the country.
    Thirty-five millions of money this year is retired, with 2,915 failures and a loss of $85,250,000.  More men out of work and wages cut down.
    Only about $12,000,000 was destroyed this year, but such had been the strain upon the business of the country for the past five years that this proved the last straw to 4,069 business firms, involving a loss of $121,058,000.  More cutting of wages and strikes talked of.
    This year the storm reached its climax.  Business had hoped that, with every returning season, prospects would brighten and money would become plenty.  Instead of this, however, notwithstanding but $1,609,000 were destroyed, the people became panic-stricken, and 5,183 business firms were precipitated, with a loss of $228,499,000.  Five hundred thousand men are thrown out of employment, wages cut down all over the country, and strikes are of frequent occurrence.
    Notwithstanding the terrible results of the last year, the wine-press of contraction still creaks on its hinges of death, as round and round it sweeps out of circulation $75.484,000 certificates of indebtedness, which have been made legal tender money, $85,760,000 treasury notes, $6,335,045 legal tenders, $3,000,000 fractional currency, and $1,000,000 bank notes, producing 5,832 failures, and a loss of $155,239,000 to creditors.  A million idle men began to tramp in search of work.  Wages still decline and strikes more numerous.
    The volume of currency, this year, was contracted $40,817,418 and the failures reach 7,740, with loss to creditors of $201,060,000.  Two millions of laborers out of work.  Famine and hunger begin to stare them in the face, and “tramping” becomes a profession.
    According to the most reliable estimates, the contraction of the currency this year, in the destruction of greenbacks, and the withdrawal of bank currency amounts to about $85,000,000, with 9,092 failures, and $191,000,000 loss, during the first quarter of the year.  The aggregate failures of the year reached over 10,000, with losses not less than $300,000,000.  This does not include losses to stockholders, by foreclosure and sale of railroads.

What a record for ten years !  Who wonders times were hard, and men idle ?  Still with all this array of wreck and ruin, with the finger-board of contraction at the close of each year, pointing to the cause, the people were asleep, or on their knees praying for some interposition of Providence in their behalf, while John Sherman went marching on with the torch of death, to burn the remaining $300,000,000 of the the people’s money.
    Three million men are out of employment.
    Bankruptcies multiplying with great rapidity.
    The tramp nuisance culminates.
    Wages are cut down to starvation prices.
    Strikes, riots and general consternation seize the people, and the circulation is cut down to $606,000,000.


For a taste of contemporary Greenbacker view:--

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sthomper replied on Tue, Apr 21 2009 12:20 AM

1873  "1,609,000 were destroyed,..."

1874     "out of circulation $75.484,000  certificates of indebtedness  $85,760,000 treasury notes, $6,335,045 legal tenders, $3,000,000 fractional currency, and $1,000,000 bank notes,....."

 1875   "contracted $40,817,418 "

1876   "the contraction of the currency this year, in the destruction of greenbacks, and the withdrawal of bank currency amounts to about $85,000,000,....." when the rothbard book claims

The major difference in the two periods is that money

supply rose more rapidly from 1879 to 1897, by 6 percent per

year, compared with the 2.7 percent per year in the earlier era(1873 to 1879).


just what money is being referred to when the book claims (pg. 159) it is increasing at 2.7 percent per year???

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