5 ECON History - Ch. 19 Reunification Era - Money & Banking After the Civil War

5 ECON History - Ch. 19 Reunification Era - Money & Banking After the Civil War

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e regions had a negaive impact on econonmic growth in those regions. be called-in for repayment at any time I. Introduction: 2 Key Issues 1. Deflation – in late 1800s 2. Bank failures, runs & panics (Remember that in fractional banking system, commercial banks only held a portion of deposits as reserves) A. Money and the Price-Level Impact of late-19th century deflation: Unanticipated deflation can benefit lenders and harm borrowers . Recall farmers’ complaints / concerns in late 1800s. Hamilton – Jefferson (Agrarian) Allows for greater purchasing power Bimetallic standard o Coinage Act of 1792 (existed officially until 1900, when gold standard was adopted by Congress): Established both gold and silver as official monetary units of the US. Thus, the Federal government mint issued both gold and silver coins of equal monetary value. THURSDAY 02.24.2011 o Mint (monetary) value v. Market (bullion) value By 1834 Market Value was 16 (silver) : 1 (gold) Silver was “over valued ” at the mint level, and gold was “undervalued ” at the mint level equals defacto silver standard Thus people would hoard-hold on to-gold and only use silver as money Problem with bimetallic standard: whenever the amrket value deviates from mint value, only the metal that is overvalued at the mint will circulate as money; thus the bimetallic standard was typically a monomettallic standard in practice B. Banking (briefly) In 1912, Congress appointed National Monetary Commission. NMC's report o denounced entire US banking system o listed 17 points of “gross deficiency” o called for establishment of a central bank – ultimately this leads to the creation of the Federal Reserves System in 1914 II. The Dual Banking System A. Recall Econ 2105: In a fractional reserve banking system, commercial banks create money . – through accepting deposits and dishing out loans (NB = national bank; SB = state bank) No interstate branch banking allowed. – both national and state banks o Regardless of whether charter issued by a state or by the federal govt, operations were limited to a single state. – 1994 finally allowed interstate banking C. National Bank Act (1863) (p. 340-343) Goals: (1) Congress wanted to stimulate the sale of U.S. Treasury bonds to help finance the Civil War, and (2) Conservatives in Congress wanted to provide uniform national currency, while also decentralizing control of the money supply. Created nationally-chartered banks
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5 ECON History - Ch. 19 Reunification Era - Money & Banking After the Civil War

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