I’m studying US history with my daughter, and there’s a section which discusses “soft money” backed by silver and “hard money” backed by gold. The book seems to presume that the reader understands how one or the other is preferred by either farmers (borrowers) or bankers (lenders.) Their presumption is incorrect, as I certainly do not understand it! If the paper money represents the value of a certain numeric quantity of a precious metal, then what difference does it make what kind of metal it is?
So, could one of you fine scholars out there explain it like I’m five and not approximately ten times older than that? Thanks in advance!
In: Economics
Silver was considered soft money because it was relatively plentiful and actively being mined in large quantity. Even today you can see this disparity with silver trading at $28 an ounce while gold is north of $2500 an ounce. At the time in the 19th century, there were very active mines in Nevada which were pumping out silver. This caused the price of silver to decrease on the market. The so called “free silver” movement were people who were in favor of fixing the price of silver dollars at a fixed rate against gold dollars, at 16:1, which was more favorable than the actual market traded rate. This would cause an inflationary monetary policy, agreed upon by everyone at the time (and likely correct, even though never implemented). The question was whether or not this inflation would be beneficial for the society. The farmers, borrowers, obviously wanted inflation, as it would make the value of their debts smaller, they could their newly grown crops for more dollars and pay back their old debt at a smaller real cost. The bankers, or lenders, did not want this inflation and did not want to allow the coinage of silver and only stick with gold.
There is much more that can be said here, but I think this is a good intro. See free silver, bimetallism, William Jennings Bryan Cross of Gold speech for more. At the time, the Democratic party had been captured by the “populist” free silver movement, while the more business friendly Republican party was in favor of hard money and gold.
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