401 by 1900 the market ratio had fallen to 331

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1871 the market ratio was about 15.40:1. By 1900 the market ratio had fallen to 33:1. Although it was mirrored by government acts, the demonetiza- tion of silver was intrinsically a decision of humanity as a whole. For millennia, silver had been necessary to serve as coinage for day-to- day transactions, for which gold was too valuable. Because of this, people had put up with the inherent difficulties of a two-pole stan- dard. With the widespread use of redeemable paper money and token coins, silver and the problems of a bimetallic standard were no longer necessary. The adoption of monometallic gold standards worldwide represented a further improvement in the gold standard. The silver example has led many to claim today the gold could be, or has been, similarly demonetized. But humanity is not inclined to demonetize gold, since there is no alternative monetary benchmark available and doing so would offer no advantages. It is true that governments abandoned gold in the early 1970s in much the same way as they abandoned silver in the 1870s, but instead of losing value, as silver did, gold has held or increased its value against every benchmark. The decline in the value of silver created two political pressures: first, pressure from the silver mining industry for the government to buy silver on the open market, thus supporting its price; and second, pressure from debtors, primarily farmers, to allow payment of debts in silver. In effect, this would have cut their debt burden in half. “Free coinage of silver” (i.e., permission to take 15 ounces of silver, worth 0.5 ounce of gold at prevailing market prices, to the mint and receive coins nominally worth 1.0 ounce of gold in return) was the term used at the time for what would have been an effective devalu- ation of the dollar. Both represented threats to the stability of the de Money in America 51
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facto monometallic gold standard and caused constant financial disruption, which came to a head in 1896. Silver purchases began in 1878 under the Bland-Allison Act, but the influence of the pro-silver forces gained prominence with the Sherman Silver Purchase Act of 1890. This was considered a political trade-off, a concession to the western states for the protectionist McKinley Tariff Act of 1890, which was backed by northeastern industrialists. The effect of the Sherman Act was to sow doubts about the commitment of the U.S. government to maintain the gold stan- dard. Foreign holders of U.S. securities began selling them off begin- ning in 1890 on fears of a devaluation. More and more banknotes were also redeemed for gold, touching off a panic in 1893. The fears forced banks and the Treasury to contract the supply of money to keep the dollar from falling in the foreign exchange market. In the early 1890s, commodity prices declined under the pressure of big harvests, likely the result of increasing agricultural production efficiency. From 1894 to 1896, the production of corn increased by 65 percent, as the price dropped 53 percent. In 1895 alone, produc- tion of oats rose 23 percent, barley rose 41 percent, and potatoes rose 53 percent from the previous year. As productivity rose, the economy
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