Thomas Tooke

Archive for May, 2012|Monthly archive page

Complete list of prices of Gold in greenback year by year from 1862 to 1878

In The Greenback inflationary period on May 27, 2012 at 6:44 pm

Here are the tables.


December 30th 1861, end of specie conversion, Gold price trading immediately at a premium to paper.

In The Greenback inflationary period on May 27, 2012 at 6:07 pm

It seems that whenever Governments want to announce something which is going to displease the population, they do it at times when the people are suspecting the least, usually holidays periods are fair game. Wesley C. Mitchell wrote an excellent books with plenty of statistics which are very instructive about the set of price movements between Gold and Paper, Paper and commodities. This is a interesting set of data because the rest of the world is on a Gold Standard, and essentially there is no inflation in other countries, the United States´ price history under a paper standard operates a little like as an economic Lab as a result.

From Mitchell´s writing:


When the New York banks suspended specie payments on Monday, December 30th 1861, gold coin at once commanded a premium in paper money. For two weeks there was no organized market for gold; but people who desired to buy or sell coin resorted to the brokers in foreign money. On the 13th of January, however, the New York Stock Exchange began dealing in gold, a step which put the resources of a highly organized market at the disposal of those who wished to buy or sell coin or to speculate in “futures”. Dealing in gold continued on the Stock Exchanges until June 21st, 1864, when the short-lived law prohibited sales of gold outside of brokers´ offices became effective. After this law was repealed transactions on the Stock Exchange were not regulated resumed, except for a brief period in October, 1869 when the Gold Exchange was closed because of the liquidation following “Black Friday.”

Meanwhile other organized markets had been established. (1) The “Open Board” of stock brokers was a younger rival of the “regular” Stock Exchange, and like the latter added gold to the list of commodities dealt in. Its separate existence came to an end in 1869, when it was united with the Stock Exchange. (2) The “Evening Exchange” began informally when a number of men formed the habit of meeting in the corridors of the Fifth Avenue Hotel to continue speculating after the day exchanges had been closed. An enterprising Mr. Gallagher opened a luxurious room for the use of this company opposite the hotel in March, 1864. Here gold, together with railway and petroleum stocks, was bought and sold until midnight. This exchange was regarded with disfavor by many business men, ostensibly because speculating both night and day was detrimental to health and morals. After the discovery of the Ketchum gold-certificate frauds in August, 1865, the banks and the other exchanges united to suppress trading at night, by forbidding their members to frequent Gallagher´s room. Accordingly the Evening Exchange was closed. (3) The market known popularly as the “Gold Room” and formally as the the “New York Gold Exchange” grew out of the operations of a knot of men who began in 1862 to buy and sell gold in a basement in William Street. As the numbers and prosperity of the company increased, they moved the “Gold Room” several times to obtain more commodious quarters. After the Stock Exchange dropped gold from the “call list” in June 1864, the “Gold Room” became the most important market for gold in the country and continued such until specie payments were resumed January 1st, 1879. At first its organization was very loose; but in October, 1864, it adopted a constitution and by-laws, and began to elect regular officers. May 1st, 1877, it affiliated with the Stock Exchange, and was thereafter styled “The New York Stock Exchange, Gold Department.”

How to finance the war bonds and destabilize the monetary system. Repression creating inflation.

In Unreserved Banking on May 19, 2012 at 9:42 pm

In 1920 Kemmerer wrote the following:


By maintaining official discount and loan rates at federal reserve banks below the market rates and by granting rediscounts liberally, we placed “the market in the federal reserve banks,” we encouraged a “borrow and buy” policy for war bonds and certificates of indebtedness, and made borrowing that resulted in a rapid expansion of our circulating bank credit — deposit-credit and federal reserve notes– appear to be both profitable and a matter of patriotic duty to all parties concerned. The fact that these two kinds of circulating credit were interchangeable to the public on demand, by the deposit of federal reserve notes or by the cashing of checks for notes, enabled the public to decide what proportion of this increased supply of circulating credit it should hold in the form of federal reserve notes. We inflated by expanding circulating credit. The public decided the form in which this newly created should circulate. Preferentially lower discount rates on war paper were an additional factor in this deposit and note expansion, and one that explains in part the large holdings of such paper by our banking institutions, holdings that are estimated to amount to something in the neighborhood of six billion dollars.

Now that the war is over this sort of expansion clearly should be stopped. War patriotism and progressive bank-credit expansion can no longer buoy up securities to artificially high levels. The real market rate of interest must now emerge and dominate the situation. There is no question but that the real rate is much higher than the camouflaged war rate. To an increasing degree Government war bonds and certificates of indebtedness must stand upon their own bottoms as investments.  The market should be “outside of the federal reserve banks. ” In other words, the federal reserve bank should rule as it did before our entrance into the war, and as does usually the Bank of England´s official rate, higher than the market so that recourse by banks to the discount and loan facilities of the federal reserve banks should be only an emergency recourse for temporary needs, not a recourse for permanent funds.

In the future preference should be shown to short-time loans of a self-liquidating character, as originally contemplated by the federal reserve system; and to an increasing degree, loans on the security of government debt should be discriminated against by federal reserve banks, both as to discount rates and in the matter of the banks´discretion, as to how much they shall loan and to whom.

Gradually but firmly government paper should be forced out of the federal reserve banks and out of the commercial member banks and into the strong boxes of the investing public, including the vaults of saving banks, insurance companies, and endowed institutions. To this end, in my judgment, the federal reserve banks should follow up their recent advances in discount rates, gradually raising the rates higher until they become effective in forcing a contraction.

The present preferentially low rate on loans secured by certificates of indebtedness should be discontinued. If an artificially and preferentially low re discount rate is necessary in order to enable the government to float these securities at their present low interest rate, then we are paying the price of further inflation for a low interest rate on the certificates. In that case why not frankly recognize the fact that in an unsupported market, the present rate is too low and should be raised, if further issues become necessary.


Kemmerer continues…


We should not be under the necessity of seriously impairing our banking system and of perpetuating highly inflated and unstable circulating media, with consequent high prices,in order to buoy up the market prices of bonds that were floated at abnormally low interest rates on waves of war patriotism.


A personal comment here: It seems that the same old tricks are being used to “stuff” the banks with government war bonds, expand the circulation and have the war bonds a source of debt-rehypothetication. The result is massive inflation between 1913 and 1920.

How to cheat the Gold: The failure of the Gold exchange standard was highly predictible in 1920.

In Gold vs monetary base on May 19, 2012 at 9:28 pm

Kemmerer argues that the inflation forces since 1896 resulted in a 3% annual inflation until 1913, which according to Milton Friedman has to do with the cyanide process.


Even without the war, therefore, we might reasonably have expected, as the result of a continuation of pre-war forces, an increase in prices from 1913 to 1920 of something like 20 per cent.  But much more important that this is the fact that the war period has probably wrought important permanent changes in our currency and banking systems — changes which will greatly improve the efficiency of these systems and thereby enable a given amount of gold to carry on its shoulders a larger load of exchange work than in pre-war days. This is a large subject and only a few phases of it can be suggested here.

It appears likely that in the future the world´s supply of monetary gold will be found to an increasing extent in the vaults of central banks and will be used to a decreasing extent for purposes of hand to hand circulation. This will greatly increase the monetary efficiency of the average ounce of monetary gold. Furthermore the establishment and development of our federal reserve system, the increasing movement for bank consolidation in Europe and America, the reduction of gold shipments both national and international through the creation of such devices as our gold settlement fund, and the increasing use of funds located abroad for making international payments through debits and credits without the necessity of shipping gold – these changes and others of a similar character are resulting to an ever increasing degree in economizing the use of gold and in thereby reducing the ratio of the gold base to the credit superstructure it supports. We can do a given amount of money work with less gold because gold is being made to work harder and more efficiently.


Here we should add that indeed the objective of the super structure is to make creation of money easier and credit easier. The continuous build up of the super structure and the elimination of the Gold constraint since 1971 has further increased the build up of this structure to truly unprecedented level (the total leverage of 2007 surpassed the one of 1929.

Later Kemmerer brings the counter argument to an excessive quantity of paper currency against the monetary gold quantities and reflects upon the necessity to change the Bullion- currency parities. Evidently from his writings the failure of the Gold exchange standard seems quite visible, there is no free convertibility so that market participant can not force the contraction of the paper by redeeming the paper currency and therefore regulating its quantities, there is no Gold flow, the Gold is impounded in the central bank vaults. The money is nationalized and the gold to paper quantities are excessive.

Here is what Kemmerer writes in 1920.


A factor which may possibly reduce the structure of circulating credit in proportion to the gold base is the debasement of hte gold units of value in certain foreign countries. When on notes the tremendous depreciation today in gold values of the paper money units of many belligerent countries, at a time when the value of gold itself in terms of commodities has been more than cut in half in six years, and when he notes the staggering burdens of debt these countries are carrying he need not be surprised to hear increasing demands among their peoples for debasing the legal gold unit of value.


My comment here is that clearly the Gold is artificially tied to an artificially low amount of currency units. There is no floating of Gold against paper money like there was during the greenback period.

Kemmerer continues.


Advocates of debasement will point out that the government in floating its domestic debt received its pay largely in greatly depreciated paper money. They will show that even if it were possible for the government ultimately to pay these domestic debts in the old monetary units, at a parity with gold, such payment would involve an oppressive burden of taxation that would be grossly unjust in that it would give to the bondholder a much more valuable money than he originally loaned to the Government. They will stress the depressing influences on all kinds of business of a currency contraction that would bring the value of the present paper monetary unit back to par, a contraction in some countries as, for example, in Germany, Austria and Russia, of thousands per cent. It appears probable that we shall witness in the near future widespread and vigorous movement in many countries in favor of the adoption of new gold units of value somewhere in the neighborhood of their de facto paper money unit of today, or at least much lower than their pre-war gold units.

Monetary history is full of examples of such debasement. If the existing paper money unit should appear to be an inconveniently small value, its name might be continued and also its legal power in settlement of domestic debt, while a new unit might be superimposed upon it of which the old unit would become merely a division. Suppose, for example, the mark should be stabilized at a gold value of 2.5 cents United States currency, retaining its name and its present domestic debt-paying powers, and suppose this mark should  be made the “dime” of a new German unit worth, say 25 cents, United States currency, and called perhaps a “Hindenburg”. Obviously by such a process such a process a given weight of gold in Germany would have its efficiency for reserve purposes multiplied approximately ten times, and the return to gold basis would be greatly expedited. That this would be a form of domestic debt repudiation and be open to many serious objections is of course obvious.

Here we are neither arguing for or against such a proposition, but merely pointing out that to a large number of people in the most debt-burdened and paper money-ridden countries of Europe such a course is likely to appear, with all its difficulties, to be the least objectionable road to day-light. The adoption of such a program by some counties would obviously reduce the amount of deflation necessary in other countries to bring the structure of circulating credit down to a reasonable safe multiple of the gold base.


A personal comment here. It is abundantly clear that the British were very stubborn in thinking they could pull a 1816-1821 return to gold-paper parity after the Napoleonic wars and necessary gold-paper conversion “bank restriction”. Despite very high level of debt in the 1816-1821 it was feasible, so Britain probably thought they could do it again. The bankers and the government were wrong this time. Had the parity of been changed and gold flow re-established, the artificial monetary system than ensued might not have happened, nor the need to do a devaluation of the dollar in 1932, nor the need to confiscate people´s gold. Short term political expediency did cost massively down the road. Kemmerer was probably not the only one to call for a more balance gold-paper ratio after the war, yet the right course of action was not followed.

Gold Backing of the Currency before and After the first world war in the United States

In Gold vs monetary base on May 19, 2012 at 6:22 pm

As Kemmerer wrote in 1920 there were some difficulties in computing accurately the change is Gold backing between 1913 and 1919.


Let us now turn to the Untied States, the country that is supposed to have absorbed the larger part of the gold lost by the belligerent countries of Europe. Unfortunately a change made some time ago in the form of compiling the bank figures published by the Comptroller of the currency makes it no longer possible to tell how much gold is held by reporting banks in their own vaults. This fact together with  complete reorganization of our legal reserve requirements, brought about by the establishment and development of the federal reserve system, renders a comparison of the exact percentages of gold reserve held in the United States before the war and now, impracticable. Some idea of our changed position since June, 1914, however, may be found by comparing for that date and the present the ratios of our stock of monetary gold to the total amount of money in circulation and to total individual deposits in national banks. These figures have been previously given, and need only be summarized here.

Our stock of monetary gold on July 1st, 1914, was equivalent to 55.3 per cent of our total monetary circulation, and on June 1st, 1920, it was equivalent to 43.6 per cent. On the  former date it was equivalent to 29.7 per cent of our national bank deposits (exclusive of bankers´balance), and on December 31st, 1919, the stock of monetary gold, less that held by the federal reserve system as reserve against federal reserve notes, was equivalent to only 14.1 per cent of the national bank deposits. Ultimate cash reserves, against deposits in commercial banks, declined from an average of 11.7 per cent in 1914 to 6.6 per cent in 1919.

Our Gold position is thus far below that of pre-war times and we have been losing gold on a net balance almost continually since May, 1919 our net loss for the period January 1st, 1919, to June 10th, 1920, having been in round numbers $386 millions. To us however more than to any other country, belligerent Europe ultimately will look for the replenishment of her gold in order to return to a specie basis.


Gold Backing Levels of Currencies before and after 1913.

In Gold vs monetary base on May 12, 2012 at 1:56 am

In 1913 Kemmerer wrote.


Why the is deflation necessary? The strong reason for deflation is that our present gold base is altogether inadequate safely to support the present paper money and deposit currency circulation. While this is true of the United Sates it is true to a much higher degree of most other advanced countries of importance.  The safety and security of our economic organization demand that there be a reasonable relationship between the size of the metallic base and the size of the superstructure of circulating media it supports. Long experience gave each country a rough idea of what that proportion should be under the conditions existing prior to the great war. Of course there were variations in this proportion from season to season but there was in each country a fairly recognized norm about which these seasonal movements fluctuated. A suggestion of how far some of the leading countries have departed from that ratio of mettalic reserve to note and deposit currency circulation that pre-war experience had shown to be the wise one will be found in figures given in the following paragraphs. Unfortunately the metallic reserve ratios of many countries of prewar days and those of today as officially published are not strictly comparable because of changes wrought by the war in currency and banking organization, in methods of computing reserves, and in the character of published statistics.

The figures given below therefore should be considered only rough approximations. Where they err, they are more likely to err on the side of understating the decline in the metallic ratio since pre-war days than in overstating it, for in belligerent countries the war strain encouraged making of as good as a showing as practicable.

The bank notes outstanding from the issue department of the Bank of England on May 20th, 1914, were P52.6 millions against which the issue department held a gold coin and bullion reserve of P 34.2 millions or 65 per cent, which was fairly normal percentage. On March 3rd, 1920, the outstanding bank notes of the issue department were P 131.4 millions, and there was outstanding in addition (March 4) government currency notes to the amount of P 327.5 millions. The combined outstanding note circulation was therefore P458.9 millions. Against these notes there was a combined gold coin and bullion reserve on March 3 and 4, 1920, of P 141.4 millions or 31 per cent. On May 20th, 1914, the Bank of England was carrying a reserve of 43.6 per cent against its deposits, which was a fairly normal percentage, and on March 3rd, 1920, this reserve had fallen to 19.6 per cent.

On December 26th, 1913, the Bank of France was carrying in its vaults a metallic reserve of 62.1 per cent against its notes and deposit liabilities combined, which was about a normal reserve; and on March 4th, 1920, this reserve had declined to 9.3 per cent. The metallic reserve against notes and deposits of the Bank of Italy declined from 71.2 per cent on May 20th, 1914 to 11.2 per cent on October 31st, 1919. That of the National Bank of Belgium decreased from 31.7 per cent on June 11th, 1914, to 5.1% per cent on February 26th, 1920. The Bank of Japan held a metallic reserve of 43.2 per cent on June 30th, 1914, and one of 38.0 per cent on March 6th, 1920.

The metallic reserve of the German Reichsbank was 43.73 per cent on December 31st, 1913, and 2.17 per cent on February 23rd, 1920. For the Austro-Hungarian Bank the metallic reserve declined from 73.6 per cent on June 25th, 1914, to 0.53 per cent December 31st, 1919. In Russia the condition is much worse, where the situation is aggravated, as it is in Germany, by huge issues of paper money in addition to ordinary bank notes.

The neutral countries of Europe are generally supposed to have their banking positions strengthened by the war. These countries are mostly countries of comparatively small populations (Spain being the largest with less than 21,000,000), and of secondary importance as factors in the world´s market for gold.

For the Bank of Spain the ratio of the metallic reserve to circulation and deposits increased from 46.76 per cent on December 27th, 1913 to 62.4 per cent on February 28th, 1920. For the Netherlands Bank there was an increase from 52.4 per cent on March 31st, 1914, to 55.79 per cent on February 28th, 1920. For the National Bank of Switzerland there was a decline from 62.9 % per cent on June 11th, 1914 to 60.5% per cent on February 23rd, 1920. The Bank of Norway showed a decline from 39.7 per cent on June 15, 1914, to 31 per cent on February 23rd, 1920; and the Bank of Sweden a decline from 36.8 per cent on June 13th, 1914, to 31.9 per cent on February 21st, 1920. Every one of these neutral countries has experienced a great increase in the volume of metallic reseve in its national bank, but three out of the five national banks have expanded their bank notes and deposits more than proportionately with a consequent reduction in the percentage of reserve; and one of the other two has not improved its reserve position very much.


The rationale for deflationary period advocated in 1920.

In Uncategorized on May 12, 2012 at 1:55 am

Here is what Kemmerer wrote about the need for a deflationary period in 1920.


Inflation for a time has a stimulating effect upon business. Things boom, and many classes of people feel prosperous when prices are rising, but this stimulant, like alcohol when taken in excess, always has its “morning after”. A falling and prospectively falling price level is depressing to business. It throws a wet blanket over industry. When the prospects are strong for a period of declining prices consumers postpone purchases, retailers and wholesalers let their supplies run down, manufacturers “play safe” both in running their plants and in purchasing raw materials.

New buildings and other new capital equipment are postponed for the day of lower prices. The business world refuses to capitalize inflated prices. The expectancy of heavy price reductions breathes a spirit of uncertainty into the economic atmosphere. A falling price level therefore would not be universally popular however much most of us at the present time think we would like to see it.

The third evil result of a substantial and continuing decline in price level is its harmful effect upon welfare of labor. This is a natural result of the depressing effect upon business just described. When business holds back in anticipation of falling prices the demand for labor declines and men are laid off. Increasing unemployment causes hardship and is a potent factor in forcing down wages and weakening the hold of trade unions on their men. Labor naturally resists wages reductions even though the price level is falling, and this means that a period of falling prices is likely to be characterized by many labor troubles.

The hardships therefore and the resulting political difficulties of carrying through a program of price level reduction through deflation are so serious that we should enter upon such a program, if at all, only after careful deliberation and under the pressure of strong reasons. Are there strong reasons why we should deliberately suffer these hardships and adopt a program of deflation? I believe there are, provided the deflation be not excessive, and that the program be carried through with firmness, moderation and reason.


How to repay debt from war? Taxes!!!

In Uncategorized on May 12, 2012 at 1:14 am

As we have described earlier, not only the war impoverished the laboring classes, sent men to death for no other identifiable purpose of competing empire motives, it also resulted in a transfer of wealth from the savers to the creditor class and investor class, and finally left a sizeable amount of Federal Debt to be repaid.

As Kemmerer describes in 1920:


The greatest long-time borrower during the period of the war was the Government. Our net war debt deducting the amount due us form the Allies is approximately ten an one-half billion dollars. Most of these dollars, when the Government received them, were dollars of low purchasing power. If we should deflate rapidly and substantially the Government would repay dollars of high and continually higher purchasing power. It would get these higher purchasing power dollars by taxes. In the light of modern tendencies in federal taxation it appears probably that those who held he bonds would be the ones who would be called upon ultimately to pay the lion´s share of the taxes which would provide the Government with the funds for interest payments and amortization. But the public would not realize this; particularly in view of the tax exemption privileges enjoyed by these bondholders. It does not require much imagination therefore or political acumen to see visions of attempts at deflation being countered in the near future, as they were about half a century ago, by the charge that “the great moneyed interest, the tax exempt bondholders, who had manipulated the market so to get most of the bonds into their own hands, had artificially depressed commodity prices and were exploiting the public by forcing the value of the dollars the Government owed them. These words will have a familiar ring to persons acquainted with the demands of the Greenback Party of 1876 and with the charges later made concerning the “Crime of  1873.”





The Evil of the Empire money — monometallic British Gold Standard — Down with the Gold standard.

In Deflationary Period of 1872 to 1896 on May 12, 2012 at 12:43 am

While this blog is not favorable to irresponsible fiat monetary system but sympathetic to responsible paper money (Hong-Kong), there is a bit of misconception about the Gold Standard which floats around today that it is was a perfect system before 1913.

We clearly prefer the bimetallic standard on this blog which is closer to denationalized money, at least it is much more neutral. The demonetization of Silver was largely deflationary as Friedman famously described.

Here what Kemmerer wrote in 1920.


The general wholesale price level expressed in terms of gold fell about 41 per cent in the United States from 1872 to 1896. In other words, if one calls the gold dollar of 1872 a 100 per cent dollar in its purchasing power, the dollar in 1896 was 170 per cent dollar. Debtors, therefore, whether they were farmers paying money on farm mortgages, householders trying to pay off mortgages on their homes, corporations or governmental units with bond issues of some years´standing, were being called upon to meet their obligations, principal and interest, in money of greater value than that which they had originally borrowed. The purchasing power of a gold dollar was increasing on an average about 2 1/4 per cent a year (measured geometrically). The farmer´s mortgage remained unchanged in the amount of dollars called for, principal and interest, but the rise in the value of the dollar caused the farmer to receive continually declining prices for his wheat, cattle, and other products. Appreciation in the value of the dollar, therefore, or a falling level of prices worked much injustice to the debtor classes and this injustice was the most important item in the indictment bimettalists brought against the gold standard.


How did wages progress during the 1913-1920 period.

In Inflationary Period of 1913-1920 on May 12, 2012 at 12:28 am


Now a bit of information about the level of wage inflation during the same period.

As Kemmerer wrote:


The industrial survey recently conducted by the United States Bureau of Labor Statistics covered eight industries. For these eight industries respectively the average percentage wage increases were as follows:

Cigars, 52, men´s clothing, 71; furniture 53, hosiery and underwear, 84; iron and steel, 121; lumber, 94; mill work, 51; silk goods, 91. If the cost of living increase for the same period is taken as 83.1 per cent, it will be seen that the average rate of wage increase in three of the eight industries was greater than the increase in the cost of living; in four of them less, and in one of them practically the same.




In Baltimore, for example, the rate for boilermakers increased from 30.6 cents per hour in 1913 to 80 cents in 1919, an increase of 161%; while in Charlestown , S.C.,  the rate for bricklayers increased from 40 cents per hour in 1913 to 75 cents in 1919, an increase of 88%. On the other hand, the rate for boilermakers in Chicago which was 40 cents an hour in 1913, was only 42 cents in 1917, 52 cents in 1918, and 60 cents in 1919. The rate for bricklayers in Jacksonville, Florida, was 62.5 cents from 1913 to 1918 and then rose to 75 cents in 1919.

The average rate for boilermakers in the twenty-five cities was 39.5 cents per hour in 1913, and 72 cents per hour in 1919 (the latest date in the year for which figures are available being taken for the year), representing an average increase of 82%, or just about enough to meet the estimated increase in the cost of living. The average rate for bricklayers in the forty cities in 1913 was 67.1 cents per hour, and in 1919 it was 90.2 cents per hour, representing an average increase of 34.4 per cent, or probably much less than half enough to compensate for the increase in the cost of living.