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College Professor needing Help Understanding the Problem with Bi-metalism

I am an American Goverment instructor, and want to expose students to the real American history, the problems with fiat currency, and central banking. I don't want to force my beliefs on my students, but the textbook is so biased in favor of the pro-central banking Hamiltonian vision that I feel compelled to share the other side.

Here is the problem. In my research, I have discovered that populists in the late 19th century felt oppressed by the de facto gold standard after the Coinage Act of 1873 left silver at a deflated price. I think Ron Paul opposes bi-metallism, correct? Why does he oppose it? The populists of the time seemed correct in their belief that the de facto gold standard was a friend to the wealthy but not the masses. Furthermore, the Coinage Act that ended bi-metallism in America was part of the reason for a major depression in 1873. Perhaps greater liquidity via bi-metallism would have been a safer way (as opposed to the issuing of Greenbacks for example) to prevent over-deflation in the economy at that time?

I see that Milton Friedman actually argued that bi-metallism had a been a good thing for the American economy, by promoting price stability. The irony is that the populist of his time, William Jennings Bryan was pro-bi-metallism while the populist of our time, Ron Paul, is for a strict gold standard. Anyone care to explain why the gold standard was better than bi-mettalism given the pain it caused so many of those outside of the elite?

How would a gold standard not cause the same pain if our movement was able to get it passed? It seems to me that bi-metallism is truer to the concept of competing currencies and that it is superior cause it does not favor the rich over the masses.

Please share your views and please offer references to help me understand this phenomenon better. In addition, if you have seen Bill Still's The Secret of Oz, please share your opinion. I find the pro-Silver interpretation of the Wizard of Oz fascinating as well, and think it could serve as a great way of explaining the downside of allowing banks to monopolize money. It is too bad that he focuses so much energy on advocating for fiat currency. Then again, maybe he has a point when he says it is not what backs money that is key, but rather who decides how much of it there will be.

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"What is Constitutional Money?" with Edwin Vieira

"What is Constitutional Money?" with Edwin Vieira -- Ron Paul Money lectures.

Free includes debt-free!

Not exactly.

Ron Paul is in favor of a free market in money. This means that no money is legally privileged over another, and that the market may select the money, or moneys, that it prefers.

Ron Paul has pointed out the problem with bi-metalism, as it was actually implemented. The problem is that the exchange rate between gold and silver was artificially fixed by government. This would tend to force the undervalued currency out of circulation. If exchange rates were not fixed, but instead determined by the market, there is no problem with bi-metalism, or tri-metalism, or n-metalism.

Murray Rothbard Absolutely was an advocate for bimetallism....

.....within the framework of the FREE MARKET along with factional reserves banking,and free market clearing house.

This is long, read the whole thing and we can put this topic to rest.

“Corruption is intrusion into the free market through government regulation”

Gresham’s Law, which states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation. Hence, the popular catchphrase of Gresham’s
Law: “Bad money drives out good.” But the important point to note is that the triumph of “bad” money is the result, not of perverse free-market competition, but of government using the compulsory legal tender power to privilege one money above another.

The ultimate breakdown of bimetallism had never been clearer. If bimetallism is not in the long run viable, ( because of government intrusion into the free market) this leaves two free-market, hard-money alternatives: (a) silver monometallism with the dollar defined as a weight of silver only, and gold circulating freely by weight at freely fluctuating market rates; or (b) gold monometallism with the dollar defined only as a weight of gold, with silver circulating by weight. Each of these is an example of what has been called “parallel standards” or “free metallism,” in which two or more metal coins are allowed to fluctuate freely within the same area and exchange at freemarket prices. As we have seen, colonial America was an example of such parallel standards, since foreign gold and silver coins circulated freely and at fluctuating market prices.

Certainly if a parallel standard was not to be adopted along with free market clearing house to provide a way to manitain the balance between the spicies. the latter solution would be far better than allowing depreciated paper notes to function as small currency.

Genuine free banking is a system where entry into banking is totally free; the banks are neither subsidized nor regulated, and at the first sign of failure to redeem in specie payments, a bank is forced to declare insolvency and close its doors. “Free” banking can only refer to a system in which banks are treated as any other business, and that therefore failure to obey contractual obligations—in this case, prompt redemption of notes and deposits in specie—must incur immediate insolvency and liquidation.

The most successful such device was the creation of the Suffolk system.

In that era of poor communications and high transportation costs, the tendency for a bank note was to depreciate in proportion to its distance from the home office. One effective, if time consuming,
method of enforcing redemption on nominally specie-paying banks was the emergence of a class of professional “money brokers.” These brokers would buy up a mass of depreciated notes of nominally specie-paying banks, and then travel to the home office of the bank to demand redemption in
specie. Merchants, money brokers, bankers, and the general public were aided in evaluating the various state bank notes by the development of monthly journals known as “bank note
detectors.” These “detectors” were published by money brokers and periodically evaluated the market rate of various bank notes in relation to specie.

Under this system would be “promises to pay,” and such obligations must be met on demand in the generally accepted medium which we will assume to be gold. No bank would have the right to call on the government or on any other institution for special help in time of need. . . . A general abandonment of the gold standard is inconceivable under these conditions, and with a strict interpretation of the bankruptcy laws any bank suspending payments would at once be put into the hands of a receiver.

“Wildcat” banks were so named because in that age of poor transportation, banks hoping to inflate and not worry about redemption attempted to locate in “wildcat” country where money brokers would find it difficult to travel. It should be noted that if it were not for periodic suspension, there would have been no room for wildcat banks or for varying degrees of lack of confidence in the genuineness of specie redemption at any given time.

Furthermore, the desire of state governments to finance internal improvements was an important factor in subsidizing and propelling expansion of bank credit.
“The wild cats lent no money to farmers and served no farmer. They arose to meet the credit demands not of farmers [who were too economically astute to accept wildcat money]
but of states engaged in public improvements.”

It can be imagined that the advent of the money broker was not precisely welcomed in the town of an errant bank, and it was easy for the townspeople to blame the resulting collapse of bank credit on the sinister stranger rather than on the friendly neighborhood banker. (These are the roots of the banking conspiracy theory).

Despite the flaws and problems, the decentralized nature of the pre–Civil War banking system meant banks were free to experiment on their own with improving the banking system.
The most successful such device was the creation of the Suffolk system.


It is a fact, almost never recalled, that there once existed an American private bank that brought order and convenience to a myriad of privately issued bank notes. Further, this Suffolk
Bank restrained the over issuance of these notes. In short, it was a private central bank that kept the other banks honest. As such, it made New England an island of monetary stability in an
America contending with currency chaos. Chaos was, in fact, that condition in which New England
found herself just before the Suffolk Bank was established. There was a myriad of bank notes circulating in the area’s largest financial center, Boston. Some were issued by Boston
banks which all in Boston knew to be solvent. But others were issued by state-chartered banks. These could be quite far away, and in those days such distance impeded both general knowledge
about their solvency and easy access in bringing the banks’ notes in for redemption into gold or silver. Thus, while at the beginning these country notes were accepted in Boston at
par value, this just encouraged some faraway banks to issue far more notes than they had gold to back them. So country bank notes began to be generally traded at discounts to par, of from
1 percent to 5 percent. City banks finally refused to accept country bank notes altogether.
This gave rise to the money brokers mentioned earlier in this chapter. But it also caused hardship for Boston merchants, who had to accept country notes whose real value they could
not be certain of. When they exchanged the notes with the brokers, ended up assuming the full cost of discounting the bills they had accepted at par.
Matters began to change in 1814. The New England Bank of Boston announced it too would go into the money broker business, accepting country notes from holders and turning them over to the issuing bank for redemption. The note holders, though, still had to pay the cost. In 1818, a group of prominent merchants formed the Suffolk Bank to do the same thing. This
enlarged competition brought the basic rate of country-note discount down from 3 percent in 1814 to 1 percent in 1818 and finally to a bare one-half of 1 percent in 1820. But this did not
necessarily mean that country banks were behaving more responsibly in their note creation. By the end of 1820 the business had become clearly unprofitable, and both banks stopped
competing with the private money brokers. The Suffolk became just another Boston bank.
During the next several years city banks found their notes representing an ever smaller part of the total New England money supply. Country banks were simply issuing far more
notes in proportion to their capital (that is, gold and silver) than were the Boston banks.
Concerned about this influx of paper money of lesser worth, both Suffolk Bank and New England Bank began again in 1824 to purchase country notes. But this time they did so not to make
a profit on redemption, but simply to reduce the number of country notes in circulation in Boston. They had the foolish hope that this would increase the use of their (better) notes, thus
increasing their own loans and profits. But the more they purchased country notes, the more notes
of even worse quality (particularly from faraway Maine banks)would replace them. Buying these latter involved more risk, so the Suffolk proposed to six other city banks a joint fund to purchase
and send these notes back to the issuing bank for redemption. These seven banks, known as the Associated Banks, raised $300,000 for this purpose. With the Suffolk acting
as agent and buying country notes from the other six, operations
began March 24, 1824. The volume of country notes
bought in this way increased greatly, to $2 million per month
by the end of 1825. By then, Suffolk felt strong enough to go it alone. Further, it now had the leverage to pressure country banks into depositing gold and silver with the Suffolk, to make
note redemption easier. By 1838, almost all banks in New England did so, and were redeeming their notes through the Suffolk Bank.
The Suffolk ground rules from beginning (1825) to end (1858) were as follows: Each country bank had to maintain a permanent deposit of specie of at least $2,000 for the smallest bank,
plus enough to redeem all its notes that Suffolk received. These gold and silver deposits did not have to be at Suffolk, as long as they were at some place convenient to Suffolk, so that the notes
would not have to be sent home for redemption. But in practice, nearly all reserves were at Suffolk. (City banks had only to deposit a fixed amount, which decreased to $5,000 by 1835.) No
interest was paid on any of these deposits. But, in exchange, the Suffolk began performing an invaluable service: It agreed to accept at par all the notes it received as deposits from other
New England banks in the system, and credit the depositor banks’ accounts on the following day.
With the Suffolk acting as a “clearing bank,” accepting, sorting, and crediting bank notes, it was now possible for any New England bank to accept the notes of any other bank, however far away, and at face value. This drastically cut down on the time and inconvenience of applying to each bank separately for specie redemption. Moreover, the certainty spread that the notes of the Suffolk member banks would be valued at par: It spread at first among other bankers and then to the general
How did the inflationist country banks react to this? Not very well, for as one could see the Suffolk system put limits on the amount of notes they could issue. They resented par redemption and detested systematic specie redemption because that forced them to stay honest. But country banks knew that any bank that did not play by the rules would be shunned by the banks that did (or at least see its notes accepted only at discount, and not in a very wide area, at that). All legal
means to stop Suffolk failed: The Massachusetts Supreme Court upheld in 1827 Suffolk’s right to demand gold or silver for country bank notes, and the state legislature refused to charter a clearing bank run by country banks, probably rightly assuming that these banks would run much less strict operations. Stung by these setbacks, the country banks played by the rules, bided their time, and awaited their revenge.

Even though Suffolk’s initial objective had been to increase the circulation of city banks, this did not happen. In fact, by having their notes redeemed at par, country banks gained a new respectability. This came, naturally, at the expense of the number of notes issued by the worst former inflationist. But at least in Massachusetts, the percentage of city bank notes in circulation fell from 48.5 percent in 1826 to 35.8 percent in 1833.

The biggest, most powerful weapon Suffolk had to keep stability was the power to grant membership into the system. It accepted only banks whose notes were sound. While Suffolk
could not prevent a bad bank from inflating, denying it membership ensured that the notes would not enjoy wide circulation. And the member banks that were mismanaged could be stricken from the list of Suffolk-approved New England banks in good standing. This caused an offending bank’s notes to
trade at a discount at once, even though the bank itself might be still redeeming its notes in specie.
In another way, Suffolk exercised a stabilizing influence on the New England economy. It controlled the use of overdrafts in the system. When a member bank needed money, it could apply
for an overdraft, that is, a portion of the excess reserves in the banking system. If Suffolk decided that a member bank’s loan policy was not conservative enough, it could refuse to sanction
that bank’s application to borrow reserves at Suffolk. The denial of overdrafts to profligate banks thus forced those banks to keep their assets more liquid. (Few government central banks
today have succeeded in that.) This is all the more remarkable when one considers that Suffolk—or any central bank—could have earned extra interest income by issuing overdrafts irresponsibly.
But Dr. George Trivoli, whose excellent monograph, The Suffolk Bank, we rely on in this study, states that by providing stability to the New England banking system, “it should not be
inferred that the Suffolk bank was operating purely as public benefactor.” Suffolk, in fact, made handsome profits. At its peak in 1858, the last year of existence, it was redeeming $400 million
in notes, with a total annual salary cost of only $40,000. The healthy profits were derived primarily from loaning out those reserve deposits which Suffolk itself, remember, did not pay
interest on. These amounted to more than $1 million in 1858. The interest charged on overdrafts augmented that. Not surprisingly, Suffolk stock was the highest priced bank stock in Boston, and by 1850, regular dividends were 10 percent.

The Suffolk system, though not recognized in banking law, has proved to be a great safeguard to the public; whatever objections may exist to the system in theory, its practical operation is to keep the circulation of our banks within the bounds of safety.
The extraordinary profits—and power—that the Suffolk had by 1858 attained spawned competitors. The only one to become established was the Bank for Mutual Redemption in 1858. This
bank was partially a response to the somewhat arrogant behavior the Suffolk by this time, after 35 years of unprecedented success. But further, and more important, the balance of power
in the state legislature had shifted outside of Boston, to the country bank areas. The politicians were more amenable to the desires of the overexpanding country banks. Still, it must be
said that Suffolk acted toward the Bank of Mutual Redemption with spite where conciliation would have helped. Trying to force Mutual Redemption out of business, Suffolk, starting
October 8, 1858, refused to honor notes of banks having deposits in the newcomer. Further, Suffolk in effect threatened any bank withdrawing deposits from it. But country banks rallied
to the newcomer, and on October 16, Suffolk announced that it would stop clearing any country bank notes, thus becoming just another bank. Only the Bank for Mutual Redemption was left, and though
it soon had half the New England banks as members, it was much more lax toward over issuance by country banks. Perhaps the Suffolk would have returned amid dissatisfaction with its
successor, but in 1861, just over two years after Suffolk stopped clearing, the Civil War began and all specie payments were stopped. As a final nail in the coffin, the national banking system
Act of 1863 forbade the issuance of any state bank notes, giving a monopoly to the government that has continued ever since.
While it lasted, though, the Suffolk banking system showed that it is possible in a free-market system to have private banks competing to establish themselves as efficient, safe, and inexpensive
clearinghouses limiting over issue of paper money.

"Before we can ever ask how things might go wrong; we must first explain how they could ever go right"


This is just my opinion/theory

Once upon a time, before a great depression, gold was $20 an ounce. That means it stands to reason and mathematically that one dollar was 1/20 of an ounce of gold. Does that make sense? Ok, then what about silver? What was an ounce of silver worth? A dollar? According to my old silver certificate, is was. Sounds about right. So the defacto ratio was 20:1. The problem I think is that this ratio does not reflect true demand for either commodity.

Also, you made mention of preventing over-deflation (whatever that means). Deflation is an effect of the free market. It is either caused by increased production efficiency or a crash in demand. Trying to use laws and government influence to affect prices on...whatever...prevents price corrections from occurring quickly. A quick price correction will allow the market to re-balance quickly and grow again. The TARP bill in 2008 prevented exactly this. There was supposed to be a huge price crash in housing. If it was allowed to happen quickly, it would have been a bad year, but it would have been over over fast. Prices come down, and everyone benefits. This is how wealth used to move from the asset class to the poorer class before the days of the Federal Reserve. Buying a house on the cheap at a foreclosure auction was how it was supposed to work. A poor person might be able to afford a house that used to cost $150,000 and now costs $50,000. The resistance comes from those who could afford their payments and would have to take a hit, but that's the way its supposed to be. Buying a house during the bubble was malinvestment, and many of those purchases would never have occurred under free market conditions.

Anyway, to get a balanced sound currency, all the Congress needs to do is to define one dollar as one ounce of Silver. This way, its really easy math from here. A dime is 1/10 an ounce of silver. A quarter is 1/4 an ounce. Gold would be a floating ratio. If there was a lot of gold on the market, the ratio would drop to maybe 14:1. If there was a shortage of gold, the ratio would rise to maybe 25:1. The prices will adjust to the money supply. Since there is less silver and gold than paper currency, prices would come down to reflect a new monetary paradigm. I know it sounds strange because it is so simple.

One more thought on deflation - the Federal Reserve makes it a mission to fight deflation. Why? Is deflation really so bad? Deflation benefits poor people because it transfers wealth from the rich asset class by taking from the value of their assets and converting it into monetary purchasing power. Those who have liquidity of a sound currency benefit from the deflation because they see a rise in purchasing power.

I know I would be fine with making $1 an hour if gas was a dime and a loaf of bread was a nickel. Good luck...getting people to understand how a sustainable free market economy would work is damn near impossible. I think I might be one of the few.

End the Fed. Honestly, 22 fish hooks have more value.

Thank you for your insightful analysis of this matter.

Rather than explain away evils of the Fed, perhaps you might use your considerable rhetorical ability to help "End the Fed." Ron Paul's message is quite simple. Might you explain why Ron Paul seeks to "End the Fed?"

    Since a hundred million dollars in New York and twenty-two fish-hooks on the border of the Arctic Circle represent the same financial supremacy, a man in straitened circumstances is a fool to stay in New York when he can buy ten cents' worth of fish-hooks and emigrate. - Mark Twain "The Esquimau Maiden's Romance"

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

Perhaps his man can help.

Republicae member of DailyPaul.

Here is "1776 Solution" Hosted by Republicaes. Tell 'em Mark Twain sent ya.

“There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.”-Adams

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

You mention...

a "de facto gold standard". A de facto gold standard is a set exchange rate between countries, not individuals. This is the kind of gold standard Nixon ended. It has nothing to do with citizens being able to exchange circulating notes for gold...

~wobbles but doesn't fall down~

Gold certificate

Close to nothing. Gold certificates were by & by redeemable in gold. Exchange rate was "subject to change w/o notice."

How to Redeem Old US Treasury Gold Certificates

Old Gold Certificates (1882 - 1933)
Gold certificates were used in the United States from 1882 to 1933 as legal currency backed by gold. The certificates gave the owner the right to exchange it for the face value in gold coins equivalent. Starting in 1933 the US government recalled the gold certificates and it was illegal to keep them.

During 1964 the laws were changed and the old gold certificates were made legal US tender again, but not backed by gold. US historic Gold certificates can be redeemed for face value in today's dollars or for their numismatic value. Use these steps to redeem old US Treasury gold certificates.

How to Redeem a Silver Certificate How to Track Gold Certificates

  1. Identify the old US gold certificate. Look for the dates on the certificate between 1865 and 1933. The front of the majority of US gold certificates is black or green and their back is in gold color. Most certificates have a gold seal in the front with the words "gold certificate" and on the back payable in "gold coins". Two standard sizes were used; a large sized paper for the earlier certificates and a small one for the latest ones.
  2. Redeem the old gold certificates for face value. Gold certificate may be legally exchanged for current US dollars not for gold coins. ...
  3. Find the gold certificate's numismatic value. Old US gold certificates have become very valuable to collectors and old currency dealers. Since the majority of these certificates were redeemed when the US stopped the "gold standard" their rarity has increased their collector's value...
  4. Exchange the old gold certificate for numismatic value. Private collectors and dealers will generally pay well above the face value of these certificates. The historic nature of the gold certificates has increased their appeal to collectors of old US money...

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

Talk about...

breach of contract. :p

Nice history! thanks

~wobbles but doesn't fall down~

To me it seems

that a face (dollar, euro...) value on the comodity (gold, silver, platinum, copper, nickel...) is fiat the simmilar way as the value printed on the paper "money". Why there is not just minted the weight and purity? It seems to me that then you could have multimetalic system without problem with prices expressed in quantity of a commodity of the certain quality, which to me seems to be not an abolition of money, but to go back to what the real money are. If there for example would be the paper money the printed text would be for example "the bank xyz promises to redeem this certificate with 1 toz of pure silver to the bearer." In retail you can pay with this certificates the prices set freely by the trader like "apples one pound 0.043 toz silver" or "apples 0.0021 toz gold" etc. Your bank account will not be in dollars but, gold, silver quantity. You would instantaneously have global competing currencies, without the problems which usually have the fiat money. Theres enough gold, silver etc. in the world to convert all paper vouchers called now money in circulation all around the world into real money at present rates. There´s enough computers to make conversions and local prices computable instantaneously for all goods and all commodity currencies and their mutual rates.
I paradoxicly like the idea of a global currency(es), but it must not have a name, it must have the real value.

The dollar then existing

The dollar then existing was what you describe and it was codified into law by the coinage act of 1792.
The dollar was based on the Spanish 8 real coin also called the Spanish milled dollar.
The law (coinage act of 1792) says the dollar is 371 grains of pure silver and is alloyed with copper of a total weight 416 grains. The alloy was called standard silver, approx. 90% silver and 10% copper.

The government held that value for a very long time then proceeded to debase the dollar after 1965.

1 gram = 15.432 grain 1 ounce [troy] = 31.103 gram

So the dollar was recognized as an international coin with a specified weight of silver. (24 grams pure Silver, or 0.77 troy ounce, total weight 27g 0.87 tr oz)

Then the government decoupled the term dollar from a weight and fineness.

It would be better to have a coin from a trusted mint with a fineness and a weight as the denomination minted on the coin.

It's price-fixing

The early US minted precious metal coins that had dollar-denominations on them. Some were silver, some gold. That is price-fixing by government fiat. Price-fixing always leads to trouble.

In the mid 1800's there was a lot of gold discovered in America and Alaska. Bad money drives out good. So silver coin went into vaults and gold coin circulated. The government quit minting silver. Too expensive. Then later, silver became more abundant. There was extreme pressure, from Williams Jennings Bryan's "Free Silver" campaign, for the US mint to make silver coin for whomever presented silver bullion. Doing so would have caused profound inflation.

Ron Paul's favorite president, Mr. Veto himself, Grover Cleveland, put a great big nix on that. He made a monkey out of Mr. Bryan years before Clarence Darrow did.

Ĵīɣȩ Ɖåđşŏń

"Fully half the quotations found on the internet are either mis-attributed, or outright fabrications." - Abraham Lincoln

I may be oversimplifying this, but......

from a broad view, it was my understanding that Ron Paul wasn't specifically in favor of a strict gold standard, rather, simply the legalization of "competing currencies". More than likely, in a free economy, a gold standard, or a gold/silver standard would likely emerge, but it would not be forced or legally recognized. From the free market perspective, economists and individuals don't know what society thinks will be best, so allowing competing currencies would allow market forces to decide the best system. So long as contract rights are enforced and understood, bank notes, whether they are redeemable for gold, silver, or seashells, would be impossible to inflate without legally breaking the contract. Competing currencies would simply get rid of the government monopoly on money and allow us not to even need the debate about which system is better, but to allow time, free markets, and individuals to make that decision for themselves.

Free market capitalism isn't right for America because it works better. It's right because it's free (and it works better).

nothing wrong with

with Bi, Tri, or many many metals. The problem was a fixed ratio of value. One oz gold worth 15 oz of silver. This led to undervaluing one metal or the other at different times. That forced valuation was the problem.

If we had gold coins of fixed weight not denominated in face value for large transactions while silver coins circulated for most transactions, it would be fine.

Gold coins by weight and sliver coins with defined face value, and defined weight/purity, would allow varying valuations.


Liberty = Responsibility

I apologize if this has

I apologize if this has already been said, but the big problem with a bi-metal standard is that you are artificially pegging the ratio of the price of the 2 metals. For example, let's say that the standard is set at $50/ oz AG and $2000/ oz AU. This is essentially pegging the price of AG to the price of AU at 40 oz AG/ oz AU.

Now let's assume that the market determines later on that the ratio should actually be 50 oz AG/ oz AU. Now it is advantageous to trade in all silver and dollars for gold, and in turn sell the gold on the market, depleting the currency of its gold backing and flooding it with silver.

What is wrong with bi-metalism

It was government manipulating the price of money before the FED! You had industry groups pushing for inflation or deflation, use of one versus the other, and a government setting the prices!

RP is for a market-based money, he talks about it quite a lot. You seem to be incorrectly assuming he favors a gold standard. Legalizing market forces to select the money may lead to gold and silver, and he certainly thinks the Constitution should be made legal again, but I think you are wrong to say that means he would have government dictate a gold standard or bi-metalism. He wouldn't have the government pick either.

Simply b/c he is asked about a gold standard and responds positively does not mean he would not allow silver or any other metal to be used.


"Then again, maybe he has a point when he says it is not what backs money that is key, but rather who decides how much of it there will be."

I'm sorry, you've know a lot and have done a lot of reading. RP gives his opinion in many YouTube videos, you should be able to find it and understand what he's saying. The amount of money has nothing to do with his or any austrian position on market-based money. I don't know why you think RP doesn't care what backs money. He clearly does not want Treasuries backing money. I think his opinion can be easily found and you should seek it out.

The only "problem" w/bi-metalism

A lot of people have already spoken truth that the issues are a result of govt decree regarding monetary policy, rather than any actual free market driving forces. The only “problem” with a bi-metallic standard, if I can even call it a problem, is that eventually the market begins to choose the best currency and it becomes just a gold standard or silver standard or whatever standard. The only issue as others have stated is that their value needs to fluctuate freely and not be fixed. So while gold and silver can be used as legal tender, there comes a point as people conduct more and more transactions, where one metal is chosen/preferred over another. It’s not to say they both still can’t be used, but that in general, the market chooses the best currency for itself. However, people can still freely choose to use whatever currency they choose to as long as both parties agree to it. Things do change though, especially if currencies/metals can freely fluctuate in a free market. Maybe as time goes on and people use gold more and more, the silver that has left the market becomes much more valuable due to hoarding/saving, so eventually people may start using silver more again due to its increased value, especially for certain transactions. Then comes the issue, as silver floods more and more of the market, that more gold is hoarded and is thus removed from the market, but in the process becomes more valuable due to its new found scarcity. So people then start using gold again! There will always be a battle of currencies, but the market will choose what’s best at the time, and people will choose what’s best for them. The market just has to be free in order for it to happen and function properly. See & also read "What has government done to our money?"

That being said, in regards to depressions, they are not generally caused by what type of money of we use, whether fiat or precious metals. Depressions are caused by a fractional reserve banking system that expands credit by issuing more notes than the gold it has on hand (if we’re talking metal standard), or by only holding a fraction of the customer’s deposit and using (x%) of the money deposited for investments. In the US’ case, the banks can use 90% of what you deposit to their pleasure and falsely expand the money supply by doing this. I wrote out a super long response, but maybe the best thing to do in order to understand the cause of depressions is to check out There are definitely good articles that explain the boom/bust depression cycle as a result of credit expansion and fractional reserve banking. It definitely has nothing to do with the type of money we use, but only with banking practices. It is much easier under a fiat currency though. I'll send you what I wrote if you want! I suggest looking at this article to understand depressions

As for the Panic of 1873, it was related to credit expansion as always. See

And personally, I haven't heard much that gold is a friend of the wealthy and not the masses, but can you say much differently now about our inflationary fiat standard? I would have to disagree about that statement in regards to a gold standard (it just sounds inherently anti-gold and pro-state) based off what I know. That as the economy expands at a faster rate than the supply of gold or silver, it represents deflation and thus benefits the common man all the more. The money he has can purchase even more than it could before. How does that not benefit the masses? If a country can endlessly print paper to infinity with arbitrary denominations and this decreases the value of the dollar held by the common man, only the wealthy prosper. However, under a gold and or silver standard, everyone benefits, because prices invariably fall, especially when the govt doesn't put so many controls on the economy so it can grow freely. Wouldn't you like a currency that has more value tomorrow than it does today? That was their currency back then and it benefitted all. Today you have to worry about raises and cost of living increases as the dollar you earned today has lesser value tomorrow.

Thanks for your input. You

Thanks for your input. You make a strong case for the initial cause of the economic distress faced by the masses starting in 1873, but the fact that their silver was not useful to them surely played a role in their ongoing problems right? Silver is the poor man's gold right? The free silverites wanted to pay their debts with their silver, but were forbidden to do so by the government right? I am focused on the plight of the masses here cause I know that is what our opponents will pretend to care about. If there had been competing currencies back then, the masses would not have been at such a comparative disadvantage relative to those holding gold, correct? Of course, the wealthy always have an advantage, but the Coinage Act of 1873 seemed to have pulled the rug out from under holders of silver. Correct? So while competing currencies would have been the best solution then, allowing the masses to use silver to pay their debts would have helped them to some degree, correct?

You're welcome

Check this out for a review of the bimetallic standard/coinage act of 1873 (and others). It's a summary of the constitutional magnum opus "Pieces of Eight" by Dr. Edwin Vieira. Dr, Vieira is definitely a constitutional scholar on money. Check out PDF pages 144 (pg 131 by the book) and on to whenever you feel like not reading. That's the bimetalism part and the coinage acts of 1873, 1878, and so on. See

As to briefly answer what I can, silver wasn't outlawed, but was severely undervalued in ways an appears to have only been able to be used for transactions under $5. Which did put silver holders at a disadvantage, but did not destroy them. The silver dollar was changed to heavier weight which aimed at foreign trade reasons. The govt also appears to have ended free coinage and charged a higher fee for coining silver. So it did not outright ban silver, but it did make using silver difficult for this who held the "poor man's gold." The act of 1878 restored silver's place and went back to the original weight of 371.25 grains as a dollar and made silver coining free again. So sure, this was a big plus for silver holders. Eventually though, old became the decreed winner by govt and that was all she wrote.

Also, the more I read here. It seems while the panic of 1873 may have come about by credit expansion from the civil wars, the ensuing crises of 1873 is falsely deemed a Great Depression. There was an issue as previous cited articles stated, that prior to 1873 there had been monetary expansion of 16.9 % a year, which is tremendous inflation. Once the credit expansion came to end, it no doubtedly caused issues and bankruptcies by those who were involved in the expansion. Since the money supply was no longer increasing at such a rate (it was still increasing at a much lower rate - 2.6% a year), prices dropped to meet their real market demand and much if the argument about the panic of 1873 is thought of in terms of falling prices being bad, as if things becoming more affordable for the masses is a bad thing. Prices fell from 1873-1879. How can that not be good?

Murray Rothbard on the Myth if the Great Depression of the 1870's:

"Orthodox economic historians have long complained about the “great depression” that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of the stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. Yet what sort of “depression” is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income [emphasis mine]? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent per-annum 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."

And he continues:

"It should be clear, then, that the “great depression” of the 1870s is merely a myth – a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. … Unfortunately most historians and economists are conditioned to believe that steadily fall prices must [emphasis original] result in depression: hence amazement at the obvious prosperity and economic growth during this era."

Another piece refers to Rothbard and similarly states:

Some economic historians have complained about the "great depression" (later renamed to Long Depression) that is supposed to have struck the United States in the panic of 1873 and lasted for an unprecedented six years, until 1879. Much of this stagnation is supposed to have been caused by a monetary contraction leading to the resumption of specie payments in 1879. However, this "depression" saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, and real per capita income. As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent-per annum 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. Even the alleged "monetary contraction" never took place, the money supply increasing by 2.7 percent per year in this period. From 1873 through 1878, before another spurt of monetary expansion, the total supply of bank money rose from $1.964 billion to $2.221 billion—a rise of 13.1 percent or 2.6 percent per year. In short, a modest but definite rise, and scarcely a contraction.

The myth was brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Indeed they fell from the end of the Civil War until 1879. Friedman and Schwartz estimated that prices in general fell from 1869 to 1879 by 3.8 percent per annum. In the natural course of events, when government and the banking system do not increase the money supply very rapidly, free-market capitalism will result in an increase of production and economic growth so great as to swamp the increase of money supply. Prices will fall, and the consequences will be not depression or stagnation, but prosperity (since costs are falling, too) economic growth, and the spread of the increased living standard to all the consumers. The analogous "great depression" in England in this period was also a myth for the same reasons.

Me again: it all sounds very similar to cries about Japan and deflation, as if prices falling and becoming more affordable for everyone is bad and because of that, they've been in a recession/fighting depression since whenever there war on deflation started? The 80's? If they just let prices fall, more people would buy things and it would be a boom, but no, they say "good news! We made consumer goods 3% more expensive for you next quarter!" Does that seem ridiculous or what?

It does not matter what the money is based on,

as long as it has an somewhat finite amount. That is to say, it is not easily increased, BUT, it can be increased when necessary to expand the economy. As a friend of mine said the other day, moon rocks could be used. But of course, this would give the United States a huge advantage. And we all know they would never abuse this power of money creation. :))

While you speak a truth...

You're still a little Keynesian in thought.. It doesn't matter what the currency is, don't need more money in circulation in order to expand the economy. That's a false theory. Rather, the money in circulation rises in value to meet economic demand/expansion. This is what brings about deflation/lower prices, because the economy grows at a faster rate than the currency money supply, thus increasing the purchasing power of your dollar and lowering prices. You do not need more money to expand the economy. The economy will grow w/o more money so long as the govt does not bind it in chains. Also, while anything could be used as currency in theory, I highly doubt moon rocks would ever be money :)

So the government would

So the government would purchase more gold or some other commodity to grow the economy in a recession?

Read Rothbard

He will be better at explaining it than any of us here.

Many posters below have provided

good explanations some of which I reiterate again

Problems are created by
1. Fixed conversion rate instead of floating market rate;
2. Government regulations regarding which currency gov accepts as taxes;
3. Monetary realtionship between governments or central banks, if any, or between government and big business.

Since free society is NOT a problem free society, sound money will create deflation. The most painful part of deflation is falling salaries that make repayment of long-term loans problematic. Unbalanced trade (if very substantial) will also create deflation and falling real estate prices. Foreigners, who have a surplus, would be able to move in and buy the land or buy "deflated" products, thus restoring the balance.

he is not for the gold

he is not for the gold standard, he is for competing currencies... which can be anything.. from beans, seeds, and even women at one time were currency. However, gold has been the default currency for 6 thousand years for specific reasons... so he advocates gold as the money (sorta) ... because it holds its value, durable, can not be recreated, only so much of it, only so much can be mined at all, it is hard to mine (tearing apart mountains aint cheap)


or tri-metalism, quad-metalism or the introduction of non-metal commodities as currencies (poly-commoditism) is not the problem.

The problem is when the govt tries to artificially impose monetary values on any kind of money or declare what money is -- whether fiat or commodities.

Austrian economics says only the market can decide what money is. And that markets will choose commodities. And that history reveals markets usually choose metals -- most often gold and silver due to their unique intrinsic properties.

When markets are left alone the market will introduce, remove and adjust values of currency commodities as needed. There is no reason buyers and sellers might not begin using certificates for platinum, palladium, gems, trees, land, next years crop, finished goods etc.. as needed for currency.

The problem is when Govt steps in and tries to place artificial values on currencies. That is the markets job. It is the only thing the market does ---> discover/assign trade values. If you monkey with it then you get imbalances which are trying to reach equilibrium. The more aggressively the Govt attempts to impose a desired value, the more violently the market will react as it naturally moves back to equilibrium.

The market is people deciding what they will willingly trade for something else. Leave them alone or you get trouble...

~wobbles but doesn't fall down~


Ron Paul isn't pro gold standard. He's pro currency competition. He believes that private entities should be allowed to issue their own currency and base it on whatever they want.

The competing currency idea comes from hayek

Hans Herman Hoppe calls this a "crackpot" idea as these currencies would have not price discovery mechanism?
Hoppe advocates the gold standard

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