lecture15_312_Wizard_SP11_overheads

lecture15_312_Wizard_SP11_overheads - Lecture #15 March 14...

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Lecture #15 March 14 Banking V
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Deflationaryforces Thegovernmentwascommittedtoresumingspecieconvertibilityin1879 Thismeantdeflation,butthereweremovementstoreversethedeclineinpricesthroughoutthe postCivilWarperiod. Evenafterthegoldconvertibilitywasrestored,thedeflationcontinued.
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Price Index 1800 to 1900
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The fractional reserve system of American banking was subject to periodic crises of confidence. When there was a crisis, people went to the bank to convert their checking account balances into currency (national banking notes or coins), which made the money multiplier work in reverse. There were major crises in 1869, 1873, 1893, and 1907. Farmers worried that they were being taken advantage of by the eastern banks, Since in the financial panics farmers lost access to their markets because the market for bills of exchange dried up (or increased in cost). Since a primary function of the banking system was to move products to market, the farmers were adversely affected by banking panics.
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The agitation for Free Silver was connected to concerns about the banking system overall. In 1870, The silver content of the dollar was $1.03, so silver did not circulate as coins, it was more valuable as bullion. So even though we were on a bimetallic standard, only gold was used for coins. After increases in silver supplier and the price of silver dropped, it now became possible to mint silver, without the coins disappearing. The Crime of 1873 (the coinage act of that year) allowed the mint to buy silver at the mint price
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lecture15_312_Wizard_SP11_overheads - Lecture #15 March 14...

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