Monetary Policy in the late 1800 s. How the money supply was manipulated by both sides Haves vs Have Nots

Transcription

1 Monetary Policy in the late 1800 s How the money supply was manipulated by both sides Haves vs Have Nots

2 I understand the economics behind free silver vs gold and Monetary policy. 1- Strongly disagree 2- Disagree 3- Agree 4- Strongly agree

3 Intro to Econ: Key Terms Demand, Supply, and Price Monetary Policy Money Supply Business Cycle InflaPon DeflaPon hqp:// content/uploads/2008/11/business- cycle- graph- beqer.jpg

4 Intro to Econ: Key Terms Demand, Supply, and Price Scarcity= How rare something is Demand= How much of something people desire Supply= QuanPty of a produce available Gasoline Prices Why down?

5 Goals of Monetary Policy Governments ability to control the growth of the economy: Gas Pedal or the Brake? Interest Rates, Regulations, Printing of $$ Provide sufficient money/stimulus to the economy so that it may grow at a sustainable rate Dampen the impact of the business cycle. No more big ups and downs Control Inflation. In the 1800s we didn t have a great system of accomplishing this: 1 st and 2 nd Bank of the US (gone) US Treasury

6 Intro to Econ: Key Terms Money Supply The amount of money available in the economy at one Pme. Can be manipulated! Interest rates (borrowing) PrinPng of money Government and Banks work through this hqp:// content/uploads/2008/11/business- cycle- graph- beqer.jpg

7 Intro to Econ: Key Terms Business Cycle Ups and Downs hqp:// content/uploads/2008/11/business- cycle- graph- beqer.jpg

8 Intro to Econ: Key Terms InflaPon: When more money is added to the economy Prices go up as your money is worth less Use to be able to go to the movies for.25 cents! Average and usually goes up at around 2-4% annually DeflaPon: When there is less money in the economy Prices go down and your money is worth more hqp:// content/uploads/2008/11/business- cycle- graph- beqer.jpg

9 Late 1800 s Farmers and Have Nots upset: High Tariffs have raised prices on goods they buy Prices low for agricultural goods High Debt for new machinery and land Take out large loans from Banks Now push for inflaponary pracpces by US Gov Increase money supply Free coinage of silver plus gold Why?

10 The Haves The Haves want status quo: DeflaPonary pracpces Reduce the greenbacks (Paper Money) by buying it back Only allow GOLD as the standard for Money No Silver as it leads to more money in the money supply and inflapon. Known as HARD MONEY or GOLD BUGS If they make a loan to a farmer: They want the farmer to have to pay it back over several years with both interest and in a deflaponary market. Money will be worth more each year

11 Loan under DEFLATION Banks make a loan for $100 dollars over 10 years: Schedule is $10 a year for 10 years If there is deflapon: Each year the farmer pays back the loan with money that is worth more than when he got the loan. Year #8 that $10 = $15! Not good for the Farmer Good for the Banks

12 The Have Nots The Have Nots want InflaPon: InflaPonary pracpces Increase Greenbacks (Paper Money) Allow GOLD and SILVER as the standard for Money AddiPon of Silver leads to an increase in the Money Supply and a decrease in the value of money over Pme. Known as SOFT MONEY or SILVERITES If the farmer gets a loan: They want to pay it back each year with money that is worth less than when they borrowed it. Money will be worth less each year

13 Loan under INFLATION Banks make a loan for $100 dollars over 10 years: Schedule is $10 a year for 10 years If there is InflaPon: Each year the farmer pays back the loan with money that is worth less than when he got the loan. Year #8 that $10 = $5! Not good for the Bank Good for the Farmers

14 Factors that Affected Monetary Policy Panic of 1873 (SpeculaPon and False Demand) Hurts Have Nots= No real lending choice ResumpPon Act of 1875 Redeem or buy back all Greenbacks by 1879 McKinley Tariff of 1890 Highest ever (48%) and hurts farmers Populist Party founded (to defend farmers/have- nots) Sherman Silver Purchase Act of 1890 (increases MS) Panic of 1893 (Worst of century) Silver Act repealed Gold reserves dwindle US Gov forced to take $65 million gold loan from JP Morgan and Wall Street bankers.

15 I understand the economics behind free silver vs gold and Monetary Policy. 1- Strongly disagree 2- Disagree 3- Agree 4- Strongly agree