Crime of 1873
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In United States history, the "The Crime of '73!" was a much debated shift from a bi-metallic standard to a gold (coinage) only standard, with passage of the Fourth Coinage Act in 1873, thereby creating a gold standard. Western miners and common folks, like western farmers, called this the "Crime of '73!"
In emerging countries, and/or especially those with natural resources (today natural resource countries would include: Canada, Australia, Brazil, South Africa, Russia, the OPEC oil counties, most of the South American countries like Chile, Bolivia, Peru, Venezuela, etc..) it is best to back your currency with a valuable resource (s). In prior centuries the resources of choice became gold and silver. For these countries to get credit from other countries (for the U.S. this mainly meant France and Britain) they needed to “back”, or guarantee, their government bonds with one of these acceptable metals. Also, it is desirable to do this as a domestic policy to try and stabilize, and smooth, swings in the economy and alleviate fears to its citizens. Today a new country like East Timor can use its oil & gas reserves for this purpose. In 1873 the U.S. was an emerging natural resource country.
Most countries in the first half of the nineteenth century used a “BI-METAL” (two metals, or bimetallic) standard that used both silver and gold. In the 19th Century this was set at about a 15-to-1 (15,15.5, & 16 to ONE) ratio, setting that gold is fifteen times more valuable, or more scarce, than silver. European countries, noticing that the supply of silver was increasing, starting switching to a gold only standard between 1871 and 1900 (England went off first in 1816). By 1900 China was the only major country left on the bimetallic standard. The U.S. was put on the bimetallic standard by Alexander Hamilton, under the Coinage Act of 1792 (at a 15:1 ratio), in 1792 (NOTE:President Abraham Lincoln had to suspend this practice during the Civil War).
Over time the world prices for gold and silver will fluctuate with supply and demand. The world price will be different, or become out-of-balance with, the government set standard. This means that if one metal goes up in relation to the other, miners and people holding the lower price metal will go to the U.S. mint and switch, or exchange, it for the higher priced metal. This leaves someone, in this case the U.S. Government and the U.S. tax payer, suffering a loss. This practice becomes inflationary, wasteful spending with no productivity gain, and thus bad for an individual, company, or country.
As countries go off the silver standard (or bimattalic standard) there becomes an increased supply of silver, this coupled with the fact that more silver is being found, the world silver-to-gold supply-demand ratio was rising (it would get to 40-to-ONE by 1908). The U.S. Government and its tax payers were getting shafted, or hurt economically, to help out the silver miners. So, off the bimetallic standard they went (1873-Feb-12) with the passage of the Fourth Coinage Act (or Coinage Act of 1873).
Silver miners had a hard time over this change in government policy, calling it the “Crime of ‘73!”. Western miners wanted the government to use more silver in coinage (helping them out) and the Eastern bankers did not.
Besides the silver miners, the common man that innocently held silver coins was also hurt. The Kansas farmer ("The Tinman" in the Wizard of Oz; the book, by L. Frank Baum, is a parable for the politics of this at the time) who didn’t know to switch to gold before the change was left with devalued money. The bankers in New York, and elsewhere, who knew that the policy change was coming, and switched, were sitting pretty. In fairness, the government should have switched the coinage before enacting the policy.
Countries that hold their currency to gold, silver, bimetallic, or in the last half of the twentieth century the U.S. dollar, must continually evaluate and adjust it to meet “real-world” supply and demand. They can not hold the line for years, then just flip a switch like the U.S. did in 1873, or deny what is really happening in the world and their own country. Look what has happen to Argentina over the years, they run their government like a get-rich-quick-scheme. They print money with no real productivity gains. This is not good government policy.
The U.S. Government finally caved to the pressure from the western states (anything west of the Appalachian Mountains was a western state in 1878) an agreed to the Bland-Allison Act of 1878 (this would eventually be replaced by the Sherman Silver Purchase Act of 1890). The Bland-Allison Act (Richard Bland D-MO & William Allison R-IA) set the new free coinage ratio at 16-to-ONE, and allowed the U.S. Treasury to purchase between $2 and 4 million of silver per month. The government would always stick to the minimum purchase of $2 million.
Government subsidies and/or controls don’t work. Dollar, gold, silver or bimetallic standards can cause a country to go into unforeseen inflation, deflation, recession, and/or depression, just based on the price of the metal that the currency is tied to.
See also:
External links
- An intense summary of the issue (http://www.micheloud.com/FXM/MH/Crime/)
- On “The Crime of 1873” (http://www.bartleby.com/268/10/23.html), a speech by John Sherman