Making Money

Today, cash money is used less often than checks and credit cards.

Power point created by Robert L. MartinezPrimary content source: A History of US, An Age of Extremes, 1880-1917

Barter Before there was money there was

barter, which means “trading one thing for another.”

Currency Currency is a country’s actual money in

circulation, its paper bills and coins.

Finite Finite means “limited.”

“No More !”

Checks Pull out your checkbook. Write a check

for $100. Now , can you get it cashed? You can if you have $100 in the bank. A check is a promise to pay money that

you already have.

Dollars (paper money) printed by the government are like that check. They are

our government’s promise that it has something of equal value. That something

used to be gold.

U.S. Twenty Dollar Gold Certificate

In the 19th century, anyone in the U.S. could exchange paper dollars for gold coins. (Most people didn’t bother to do that because gold is heavy and paper is

convenient.)

Gold Standard A country that backed its money with gold (that’s

called a “gold standard”) usually had a sound economy. The price of gold had to be fixed for this system to work. The government said how

many dollars it cost to buy an ounce of gold and stuck to it.

Other nations would accept its currency instead of lumps of gold because they

knew that they would be able to use the currency to buy things. No one wants

money from a nation that will not guarantee its currency.

Scare Resources- (Finite)

But a country on the gold standard cannot print a lot of money. Gold is scarce, and it

is finite, only a certain amount exists in the world, so there is only a limited

amount to go around.

If a country was on the gold standard, they couldn’t print more money than you had gold to back it with in your bank vaults.

Greenbacks During the Civil War, Abraham Lincoln needed money and he needed it quickly. There wasn’t enough gold. He issued a

special kind of money, called “greenbacks.”

There was no gold to back the ‘greenbacks.’ The government gave its promise to pay the value of the greenbacks. Because people had faith in the government, and the value of its land and people, they accepted the greenbacks.

Inflation Bu that extra new money in circulation

created inflation. Inflation means rising prices.

The more money people have, the more they can pay for goods and services. The people selling the goods increase their prices. Then it takes more money to buy something than it did before. So the more dollars there are in circulation, the less each dollar is worth.

Deflation After the war, Lincoln’s greenbacks were gradually taken out of circulation. In 1873, the

nation returned to the gold standard. There was less money around. That caused

deflation. There wasn’t much money to pay for things, so people couldn’t sell them.

Supply and Demand

There were goods but no demand for them. Prices dropped. When there’s no demand, prices drop until goods are cheap enough for people to start buying them again.

Depression Depressions happen when many people

are out of work, and so broke that they don’t buy things no matter how low prices go.

Falling prices meant less income for people like farmers, who needed to get a fair price

for their produce. So farmers were unhappy. They wanted more money in

circulation. But there wasn’t enough gold to let the government to print more money.

The farmers thought the government should use silver to back its currency, in

addition to gold, to increase the amount of money in circulation.

In 1878, congress listened to the farmers and miners. It voted to buy silver to back the nation’s currency. With a surplus of gold and silver, the U.S. Treasury could

print more money.

Prices went up, including the price of farm produce. It was a time of prosperity and excellent harvests. Many farmers associated good times with the new silver coins.

During President Cleveland’s first presidency the nation began building a

new navy of steel ships. The government paid extra-high prices for Andrew

Carnegie’s steel. Those high prices were paid by the American people.

President Cleveland Steel frame of U.S.S. New York

When Benjamin Harrison was president, Congress went on a spending spree. It was called “the billion-dollar congress.” It gave away most of the nation’s savings in the form of pensions to Civil War veterans.

President Benjamin HarrisonCivil War veterans from Illinois.

In response, Congress raised tariffs (taxes on imported goods) so high that the

government’s income from those taxes almost disappeared, people weren’t willing

to buy expensive foreign goods.

Soon money was scarce again and there was deflation. Farmers were earning less money because prices were dropping (no demand.) That hurt the farmers who had borrowed money for farm equipment. Many last their farms.

Because money was in short supply, people who had money to lend could charge a lot of interest to those who

wanted to borrow it.

Deflation is hard on people who have borrowed money. They have less income but they still have to pay back loans at interest rates based on the old, higher prices.

Populists The Populist leaders understood these

problems. They were speaking for the debtor classes (people who have

borrowed), they wanted more money in circulation. The supported the bimetal

(silver and gold) standard.

Populist presidential candidate, William Jennings Bryan

The Populists came up with a radical idea. They wanted money to be backed by crops that would be put in government storage.

It would be money based on real production, not gold or silver.

The Populists believed that money supply should be controlled not by private

financiers like J.P. Morgan, but by an elected board. A federal reserve system

came into being, with board that controls the supply of money.