I’ve been reading a little bit of book by Liaquat Ahamed, titled Lords of Finance: The Bankers Who Broke the World. I’ve just started, but it’s an interesting book about the collapse of the world economy during the the 1930s and the four central bankers who he says are responsible for the terrible misery. Seeing as how I’m currently taking a test in my international economics class regarding international finance and the gold standard, I thought I’d share a quote that I found to be rather interesting. The quote is from William Jennings Bryan during his speech at the Democratic convention of 1896, and can be found on pages 13-14 in the book:
You came to tell us that the great cities are in favor of the gold standard; we reply that the great cities rest upon our broad and fertile plains. Burn your cities and leave our farms, and your cities will spring up again as if by magic. But destroy our farms and the grass will grow in the city. . . . You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.
The quote is interesting because it helps demonstrate the relationship between urban America and rural America. Bryan was very much concerned with American rurality and the farms that dominate it. Of particular concern was the gold standard. Credit growth was being restricted by the amount of gold that central banks had. This effect hurt producers and debtors, especially when prices were declining. The effect, therefore, on farmers, was quite negative. They were both producers and debtors. Credit restriction was troubling for them. It is for this reason that Bryan advocated loose monetary policy and easier credit. The quote above captures these sentiments through Bryan’s use of strong and fervid rhetoric. Though he won the Democratic nomination thrice, Bryan was never elected president.
The quote does have some relevance today. There are some on the right who today still advocate the use of a gold standard (typically euphemized by talk about “sound money”), for whatever reason (Ron Paul might be a notable example). There are benefits, but there are also significant drawbacks, one of which was highlighted by Bryan. In fact, many economists today blame, in part, the rigidity of the gold standard for the collapse of the global economic system during the 1930s. Indeed, several studies have found a strong relationship between a country’s abandonment of the gold standard and that country’s recovery from the depression. One has to wonder if those who advocate “sound money” have thought about the full consequences of reverting back to a gold standard and fixed exchange systems.