Mises Daily Articles

Home | Mises Library | Bimetallic Nightmare

Bimetallic Nightmare

Tags Booms and BustsU.S. HistoryGold StandardMonetary Theory

02/19/2010Garet Garrett

[Excerpted from chapter 4 of The Driver (1922). An MP3 audio version of this article, excerpted from the audiobook by Jeff Riggenbach, is available as a free download.]


You may define a mass delusion; you cannot explain it really. It is a malady of the imagination, incurable by reason, that apparently must run its course. If it does not lead people to self-destruction in a wild dilemma between two symbols of faith it will yield at last to the facts of experience.

Once the peace of the world was shattered by this absurd question: Was the male or the female faculty the first cause of the universe?

There was no answer, for man himself had invented the riddle; nevertheless what one believed about it was more important than life, happiness, or civilization.

Proponents of the male principle adopted the color white. Worshippers of the female principle took for their sign and symbol the color red, inclining to yellow. Under these two banners there took place a religious warfare which involved all mankind, dispersed, submerged, and destroyed whole races of people and covered Asia, Africa, and Europe with tragic ruins. Then someone accidentally thought of a third principle which reconciled those two and human sanity was restored on earth. All this is now forgotten.

Since then people have been mad together about a number of things — God, tulips, witches, definitions, alchemy, and vanities of precept. In 1894 they were mad about money — not about the use, possession and distribution of it, but as to the color of it, whether it should be silver — that is to say, white like the symbol of those old worshippers of the masculine faculty, or gold — that is, red inclining to yellow, as was the symbol of those who in the dimness of human history adored the feminine faculty.

And as people divided on this question of silver or gold they became utterly delirious. Either side was willing to see the government's credit ruined, as it very nearly was, for the vindication of a fetish. They did not know it. They had not the remotest notion why or how they were mad because they were unable to realize that they were mad at all.

I have recently turned over the pages of the newspapers and periodicals of that time to verify the recollection that events as they occurred were treated with no awareness of their significance. And it was so. Intelligence was in suspense. The faculty of judgment slept as in a dream; the imagination ran loose, inventing fears and fantasies. That the government stood on the verge of bankruptcy or that the United States Treasury was about to shut up under a run of panic-stricken gold hoarders was regarded not as a national emergency in which all were concerned alike, but as proof that one theory was right and another wrong, so that one side viewed the imminent disaster gloatingly and was disappointed at its temporary postponement, while the other resorted to sophistries and denied self-evident things.

Nor does anyone know to this day why people were then mad. Economists write about it as the struggle for sound money (gold), against unsound money (silver), and that leaves it where it was. Money is not a thing either true or untrue. It is merely a token of other things which are useful and enjoyable. Both silver and gold are sound for that purpose. Their use is of convenience, and the proportions and quantities in which they shall circulate as currency is rationally a matter of arithmetic. Yet here were millions of people emotionally crazed over the question of which should be paramount, one side talking of the crime of dethroning silver and the other of the gold infamy.

All other business having come to a stop while this matter was at an impasse, a truce was effected in this wise by law: gold should remain paramount, nominally, but the Treasury should buy each month a great quantity of silver bullion, turn it into white money, force the white money into circulation and then keep it equal to gold in value. Now, the amount of precious metal in a silver dollar was worth only half as much as the amount of precious metal in a gold dollar. Yet Congress decreed that gold and silver dollars should be interchangeable and put upon the Treasury a mandate to keep them equal in value. How? By what magic? Why, by the magic of a phrase. The phrase was: "It is the established policy of the United States to maintain the two metals at a parity with each other by law."

Naïve trust in the power of words to command reality is found in all mass delusions.

The War of the Roses

The Coxeyites were laughed at for thinking that prosperity could be created by phrases written in the form of law. Congress thought the same thing. It supposed that the economic distress in the country could be cured by making fifty cents' worth of silver equal to one hundred cents' worth of gold, and that this miracle of parity could be achieved by decree.

Anyone would know what to expect. The gold people ran with white dollars to the Treasury and exchanged them for gold and either hoarded the gold or sold it in Europe. In this way the government's gold fund was continually depleted, and this was disastrous because its credit, the nation's credit in the world at large, rested on that gold fund. It sold bonds to buy more gold, but no matter how fast it got more gold into the Treasury even faster came people with white money to be redeemed in money the color of red inclining to yellow, and all the time the Treasury was obliged by law to buy each month a great quantity of silver bullion and turn it into white money, so that the supply of white money to be exchanged for gold was inexhaustible.

Wall Street was the stronghold of the gold people. It was to Wall Street that the government came to sell bonds for the gold it required to replenish its gold fund. The spectacle of the Secretary of the Treasury standing there with his hat out, like a Turkish beggar, was viewed exultingly by the gold people. "Carlisle's Bonds Won't Go" said the New York Sun in a front page headline, on one of these occasions. Carlisle was the secretary of the United States Treasury, entreating the gold people to buy the government's bonds with gold. They did it each time, but no sooner was the gold in the Treasury than they exchanged it out again with white money.

This could not go on without wrecking the country's financial system. That would mean disaster for everyone, silver and gold people alike; yet nobody knew how to stop. The silver people said the solution was to dethrone the gold token and make white money paramount; the others said the only way was to cast the white money fetish into the nearest ash heap and worship exclusively money of the color red inclining to yellow.

Delusions are states of refuge. The mind, unable to comprehend realities or to deal with them, finds its ease in superstitions, beliefs and modes of irrational procedure. It is easier to believe than to think.

The realities of this period in our economic history, apart from the madness, were extremely bewildering. For five or six years preceding there had been an ecstasy of great profits. The prodigious manner in which wealth multiplied had swindled men's dreams. No one lay down at night but he was richer than when he got up, nor without the certainty of being richer still on the morrow. The golden age had come to pass. Wishing was having. The government had become so rich from duties collected on imported luxuries that the Treasury surplus became a national problem. It could not be properly spent; therefore it was wasted. And still it grew. This time for sure the tree of Mammon would touch the Heavens and human happiness must endure forever.

Then suddenly it had fallen. Speculation, greed and dishonesty had invisibly devoured its heart. The trunk was hollow. Everything turned hollow. People were astonished, horrified and wild with dismay. They would not blame themselves. They wished to blame each other without quite knowing how. The casual facts were hard to see in right relations. Popular imagination had not been trained to grasp them. The whole world was dealing with new forces, resulting from the application of capital to machine production on a vast scale, and there had just appeared for the first time in full magnitude that monstrous contradiction which we name overproduction. This was a worldwide phenomenon, but stranger here than in European countries because this country was newly industrialized on the modern plan and knew not how to manage the conditions it had created; could not understand them in fact.

Still, it was incomprehensible to people — generally; and as the pain of loss, chagrin, and disappointment unbearably increased, the congolmerate mind performed the weird self-saving act of going mad. That is to say, people made a superstition of their economic sins and cast the blame for all their ills upon two objects — gold and silver tokens. Thus what had been an economic crisis only, subject to repair, became a fiasco of intelligence.

The Europeans, all gold people, who had bought enormous quantities of American stocks and bonds, said, "What now! These people are going crazy. They may refuse ever to pay us back in gold." Whereupon they began hastily to sell American securities.

"After all," sighed the London Times, "the United States for all its great resources is a poor country."

In the panic of 1893 confidence was destroyed. People disbelieved in their own things, in themselves, in each other.

Important banking institutions failed for scandalous reasons. Railroads went headlong into bankruptcy, until more than a billion dollars' worth of bonds were in default, and in many cases the disclosures of inside speculation were most disgraceful.

United States senators were discovered speculating in the stock of corporations that were interested in tariff legislation, particularly the "Sugar Trust."

The name of Wall Street became accursed, not that morality was lower in Wall Street than anywhere else, but because the consequences of its sins were conspicuous.

All industry sickened.

A scourge of unemployment fell upon the land; and labor as such, with no theory of its own about money, knowing only what it meant to be out of work, assailed the befuddled intelligence of the country with that embarrassing question: Why were men helplessly idle in this environment of boundless opportunity?

"Naïve trust in the power of words to command reality is found in all mass delusions."

The Coxeyites thought it was for want of money. So many people thought. They proposed that the government should raise money for extensive public works, thereby creating jobs for the workless, but the United States Treasury, which only a short time before contained a surplus so large that Congress had to invent ways of spending it, was now in desperate straits. The government's income was not sufficient to pay its daily bills. However, neither the curse of unemployment nor the poverty of the United States Treasury was owing to a scarcity of money. The banks were overflowing with money — idle money, which they were willing to lend at ½ of 1 percent, just to get it out of their vaults. In one instance, a bank offered to lend a large amount of money without interest. But nobody would borrow money. What should they do with it? There was no profit in business.

So there was unemployment of both labor and capital.


Garet Garrett

Garet Garrett (1878–1954) was an American journalist and author who was noted for his critiques of the New Deal and US involvement in the Second World War.

Shield icon library