Comment: No need to apologize for learning, and hey, I'm not expert.

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No need to apologize for learning, and hey, I'm not expert.

This is just how I read it.

On to your questions...

Was the Coinage Act of 1873 an unfair manipulation of the market?

I'm not sure what you mean by 'unfair' but was it a manipulation that should not have happened? Most definitely.

Now, that doesn't mean some change in the coinage didn't need to happen. It likely did. But even before that would be attempted, I would say Congress should have abolished the National Bank system, revoked the status of any and all 'greenbacks' in circulation, and tried to allow an adjustment period.

Then they should have looked at relative abundance of each metal and considered if it was an appropriate time to adjust the pegging of gold to the dollar or not. (that is, not to define a dollar in terms of gold, but where to move the 15:1 peg of the silver:gold ratio)

Really, this would have been the opportune time to realize the mistake of the Framers in pegging one metal to another, remove the dollar denominations from the gold coins, replace them with Eagle denominations, and allow them to float freely against each other.

This would have been the least disruptive change, yet still solve the problem.

What they instead decided to do was define the dollar in gold instead of silver. (which makes no sense at all. That's like defining a lollipop in terms of lead content rather than it's sugar content)

Then they compounded the problem with altering the silver currency as well, this time, changing the amount of silver in a dime, quarter and half-dollar. This creates a problem with coins already in circulation that contain more silver. By changing the amount of silver in the coin and keeping the denomination the same, Gresham's Law forced out the old coinage from circulation because it now had "more" silver than its face value. (not really, it was the new coins that had less silver in them, but since they carried the same face value, effectively, these became the new 'standard' of what constituted a 'dollar' of silver.)

They made this even worse in two ways.

#1 - they began minting new whole dollars with even MORE silver in them 420 grains instead of 371.25 to be precise. This was to be used ONLY in the orient in trade with China. (yes, China was causing us currency problems back then)

#2 - they made these new "Trade Dollars" legal tender up to FIVE dollars. Note, they didn't have five times the amount of silver in them as regular domestic dollars. They were only marginally larger. Eventually, these trade dollars made their way back to America and what a mess we had then!

So the problem is that the masses were hurt by the preferencing of gold right?


It wasn't the only thing causing a problem in this arena at the time, but it did hurt the average working Joe, immensely. Remember, we are still an Agrarian society at that point. Manufacturing and mass production haven't happened yet. Large scale monetary changes, especially ones that disrupt every day coinage can be disastrous. This is also a time, and this next bit is not reported much and somewhat controversial, when socialism began to take root in America. This is when the ideas of government backstopping crop losses began to take hold. This is when farmers stopped saving seed so much and started taking out loans to buy seed each year. This placed farmers in a very dangerous position. One that would come to haunt and decimate them when the dust bowl hit decades later. Much of the "free silver" movement came from the policies of this time, and the practices of this time, that were beginning to entrench themselves. (there is some research, though not verified that I am aware, that the financial backers of Marx and Engels et al, were the major players behind the GOP for Lincoln's run in 1960. Looking at his policies, there is little doubt that such influence was likely there.)

There is also the huge problem that the greenbacks caused. They weren't backed by ANYTHING really. They were just notes issued as fractions of government war bonds. This was real fiat 'money.'

Had Lincoln not brokered that deal for the bonds and to circulate the notes he likely would have had to capitulate and let the Confederacy to itself. He didn't have the funds to pay the Army to continue fighting the war, and the soldiers were starting to grow restless about it, extremely so.

On top of this, Congress had already been mucking around with coin content (not values) and this had already caused some coins to drop from circulation. By the time the 1873 law passed, people were mostly using reduced copper cents (less than half their original size and content) and paper bank notes and greenbacks. Essentially, when Congress switched us over to a "gold dollar" there was effectively no "silver dollar" in circulation any more.

Now the working man was left with devalued copper and paper, which was issued by the robber barons who held most of the gold, who now had their fortunes tied to the new definition of the dollar, which their buddies in government made possible by the 1873 law.

It's no wonder there was outcry on the issue. It's a miracle, though maybe not a fortuitous one for posterity, that we didn't have another revolution on the spot. Perhaps the recent experience of the war was too much to even contemplate such a move any time soon.

And Ron Paul would say that the government should not have preferenced gold over silver, right?

You'll have to ask him.

Send him an email or letter.

You never know. You might get a personal reply.

Certainly, if you posed the question to the Mises institute, they should get back to you on the topic, especially you being a professor and all.

But I would think that's exactly what he would advise. Don't preference anything. Just repeal legal tender laws (which are a nasty form of 'preference') and let consumers decide what to tender, and merchants decide what to accept.

Certainly, as I mentioned in my "solution" there is room for governments to get the ball rolling so to speak, but the market should be free to find its own way without interference.