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Specie Resumption Act

Specie Resumption Act

The Specie Resumption Act was a triumph for the "hard money" forces over the "soft money" advocates during the second Grant administration.The United States government had issued $450 million in greenbacks during the Civil War. These paper notes were not backed by specie (gold or silver) and maintained value only through trust in the government.After the war the debtor elements, desiring inflation, wanted the greenbacks to remain in circulation and for new notes to be issued. Conservative forces, abhorring inflation, opposed these schemes and wanted all paper currency to be backed by gold.Under the Funding Act of 1866, greenbacks in circulation were gradually reduced to $356 million on February 4, 1868, when further retirement was ended. The amount was temporarily raised to $382 million by 1872, but Grant vetoed the Inflation Bill, intended to increase the circulation of greenbacks permanently to $400 million.On January 14, 1875, a Republican lame-duck Congress passed Senator George Edmunds' Specie Resumption Act, which provided:

  1. That the U.S. Treasury be prepared to resume the redemption of legal tender notes in specie (gold) as of January 1, 1879
  2. That gradual steps be taken to reduce the number of greenbacks in circulation
  3. That all "paper coins" (notes with denominations less than one dollar) be removed from circulation and be replaced with silver coins.

Despite opposition from the Greenback Party, specie payments were resumed on the appointed date. The dire predictions of citizens storming the banks to demand gold for the greenbacks never occurred. As 1879 approached, the government prudently increased its specie reserves and the public became convinced that their paper notes were "as good as gold."

Resumption Act of 1875

Specie Payment Resumption Act — The Specie Payment Resumption Act (January 14, 1875, ch. 15, 18 Stat. 296) provided for the redemption of United States paper currency, known colloquially as greenbacks, in gold beginning in 1879. Drafted by Ohio Senator John Sherman, the… … Wikipedia

Resumption — may refer to:* Eminent domain * The Specie Payment Resumption Act of 1875 … Wikipedia

1875 — Années : 1872 1873 1874 �  1876 1877 1878 Décennies : 1840 1850 1860 �  1880 1890 1900 Siècles : XVIIIe siècle  XIXe … Wikipédia en Français

Закон о возобновлении размена бумажных денег на металлические 1875 г. — (RESUMPTION ACT) закон, вернувший золотой стандарт в 1879 г … Современные деньги и банковское дело: глоссарий

Criminal Law Amendment Act 1885 — The Criminal Law Amendment Act 1885 (48 49 Vict. c.69), or An Act to make further provision for the Protection of Women and Girls, the suppression of brothels, and other purposes , was the latest in a 25 year series of legislation in the United… … Wikipedia

Emergency Quota Act — The Emergency Quota Act, also known as the Emergency Immigration Act of 1921, the Immigration Restriction Act of 1921, the Per Centum Law, and the Johnson Quota Act (ch. 8, 42 Stat.م of May 19, 1921) restricted immigration into the… … Wikipedia

Greenback movement — (1868–88) Campaign mainly by U.S. farmers to maintain or increase the amount of paper money in circulation. To finance the American Civil War the U.S. government issued paper money not backed by gold and printed in green ink, called greenbacks.… … Universalium

Sherman, John — born May 10, 1823, Lancaster, Ohio, U.S. died Oct. 22, 1900, Washington, D.C. U.S. politician. A brother of William T. Sherman, he served in the U.S. House of Representatives (1855–61). A fiscal expert, he helped establish the national banking… … Universalium

Rutherford Birchard Hayes — Pour les articles homonymes, voir Hayes. Rutherford Hayes … Wikipédia en Français

TOPN: Specie Payment Resumption Act

Laws acquire popular names as they make their way through Congress. Sometimes these names say something about the substance of the law (as with the '2002 Winter Olympic Commemorative Coin Act'). Sometimes they are a way of recognizing or honoring the sponsor or creator of a particular law (as with the 'Taft-Hartley Act'). And sometimes they are meant to garner political support for a law by giving it a catchy name (as with the 'USA Patriot Act' or the 'Take Pride in America Act') or by invoking public outrage or sympathy (as with any number of laws named for victims of crimes). History books, newspapers, and other sources use the popular name to refer to these laws. Why can't these popular names easily be found in the US Code?

The United States Code is meant to be an organized, logical compilation of the laws passed by Congress. At its top level, it divides the world of legislation into fifty topically-organized Titles, and each Title is further subdivided into any number of logical subtopics. In theory, any law -- or individual provisions within any law -- passed by Congress should be classifiable into one or more slots in the framework of the Code. On the other hand, legislation often contains bundles of topically unrelated provisions that collectively respond to a particular public need or problem. A farm bill, for instance, might contain provisions that affect the tax status of farmers, their management of land or treatment of the environment, a system of price limits or supports, and so on. Each of these individual provisions would, logically, belong in a different place in the Code. (Of course, this isn't always the case some legislation deals with a fairly narrow range of related concerns.)

The process of incorporating a newly-passed piece of legislation into the Code is known as "classification" -- essentially a process of deciding where in the logical organization of the Code the various parts of the particular law belong. Sometimes classification is easy the law could be written with the Code in mind, and might specifically amend, extend, or repeal particular chunks of the existing Code, making it no great challenge to figure out how to classify its various parts. And as we said before, a particular law might be narrow in focus, making it both simple and sensible to move it wholesale into a particular slot in the Code. But this is not normally the case, and often different provisions of the law will logically belong in different, scattered locations in the Code. As a result, often the law will not be found in one place neatly identified by its popular name. Nor will a full-text search of the Code necessarily reveal where all the pieces have been scattered. Instead, those who classify laws into the Code typically leave a note explaining how a particular law has been classified into the Code. It is usually found in the Note section attached to a relevant section of the Code, usually under a paragraph identified as the "Short Title".

Our Table of Popular Names is organized alphabetically by popular name. You'll find three types of link associated with each popular name (though each law may not have all three types). One, a reference to a Public Law number, is a link to the bill as it was originally passed by Congress, and will take you to the LRC THOMAS legislative system, or GPO FDSYS site. So-called "Short Title" links, and links to particular sections of the Code, will lead you to a textual roadmap (the section notes) describing how the particular law was incorporated into the Code. Finally, acts may be referred to by a different name, or may have been renamed, the links will take you to the appropriate listing in the table.

The next important event that occurred during Mr. Knox's administration of the Currency Bureau was the resumption of specie payments on January 1, 1879.

The Act of January 14, 1875, provided for and required the coinage of silver in denominations of 10, 25 and 50 cents, of standard value, to be issued in redemption of an equal number and amount of fractional currency of similar denominations, until the whole amount of such fractional currency outstanding should be redeemed.

This Act also repealed the limitations upon the aggregate amount of circulation of national banking associations and its distribution equally among the States and Territories.

The Secretary of the Treasury was required to redeem the legal-tender, United States notes, in excess of $300,000,000, to the amount of 80 per centum of the sum of national bank notes issued to new banks or banks increasing their circulation, and to continue the redemption of such notes until the amount outstanding was reduced to $300,000,000. The Secretary was also required, on and after January 1, 1879, to redeem in coin United States legal-tender notes then outstanding upon their presentation for redemption at the office of the Assistant Treasurer in New York, in sums of not less than $50, and the Secretary was authorized to issue bonds of the United States as described in the Act of Congress approved July 14, 1870, to provide for such redemptions.

The Legislative, Executive and Judicial Appropriation Act of June 21, 1879, contained a provision authorizing the Secretary of the Treasury to use for the immediate payment of pensions the legal-tender currency in the Treasury of the United States for the redemption of fractional currency.

There is still outstanding in fractional currency about $1,998,368.501 a large part of which never will be presented for redemption.

In commenting upon the resumption of specie payments in his report for 1878, Mr. Knox said that as the time approached for resumption, strong opposition developed and desperate efforts were made to secure a repeal of the Act, on the ground that while it was conceded by those who opposed resumption that the Treasury and the banks could readily redeem their circulating notes, it would not be possible for the banks to provide for the redemption of their deposits in gold.

Notwithstanding this opposition and the pessimistic predictions of those who were opposed to the attempt at resumption, and the return of the Government to the Hamiltonian idea of paying its debts in the currency of the world, resumption was successfully consummated, and, as Mr. Knox stated in his report for 1878, while the banks of the country at the date of resumption held more than one-third of the outstanding Treasury notes, they had so much confidence in the ability of the Secretary of the Treasury to successfully maintain resumption, that none were presented by them for redemption. At the same time the people held more than $300,000,000 of the issues of the national banks, based upon the bonds of the nation, and preferred such notes to the coin itself. There was no demand, therefore, for the payment of the notes of the Government, and the gold coin in the Treasury increased more than thirty-six millions in the ten months succeeding the date of resumption.

Specie Resumption Act - History

Be it enacted . . ., That the Secretary of the Treasury is hereby authorized and required, as rapidly as practicable, to cause to be coined at the mints of the United States, silver coins of the denominations of ten, twenty-five, and fifty cents, of standard value, and to issue them in redemption of an equal number and amount of fractional currency of similar denominations, or, at his discretion, he may issue such silver coins through the mints, the sub treasuries, public depositories, and post offices of the United States and, upon such issue, he is hereby authorized and required to redeem an equal amount of such fractional currency, until the whole amount of such fractional currency outstanding shall be redeemed.

SECT 2. That so much of section. [3524] . .. of the Revised Statutes of the United States as provides for a charge of one-fifth of one per centum for converting standard gold bullion into coin is hereby repealed, and hereafter no charge shall be made for that service.

SECT 3. That section . .. [5I77] . .. of the Revised Statutes of the United States, limiting the aggregate amount of circulating notes of rational banking-associations, be, and is hereby, repealed and each existing banking association may increase its circulating notes in accordance with existing law without respect to said aggregate limit and new banking associations may be organized in accordance with existing law without respect to said aggregate limit and the provisions of law for the withdrawal and redistribution of national bank currency among the several States and Territories are hereby repealed. And whenever, and so often, as circulating-notes shall be issued to any such banking-association, so increasing its capital or circulating-notes, or so newly organized as aforesaid, it shall be the duty of the Secretary of the Treasury to redeem the legal-tender United States notes in excess only of three hundred million of dollars, to the amount of eighty per centum of the sum of national-bank notes so issued to any such banking-association as aforesaid, and to continue such redemption as such circulating notes are issued until there shall be outstanding the sum of three hundred million dollars of such legal-tender United States notes, and no more. And onand after. .. [January I, I879]. . ., the Secretary of the Treasury shall redeem, in coin, the United States legal-tender notes then outstanding on their presentation for redemption, at the office of the assistant treasurer of the United States in the city of New York, in sums of not less than fifty dollars. And to enable the Secretary of the Treasury to prepare and provide for the redemption in this act authorized or required, he is authorized to use any surplus revenues, from time to time, in the Treasury not otherwise appropriated, and to issue, sell, and dispose of, at not less than par, in coin, either of the descriptions of bonds of the United States described in the . .. [Funding Act of July I4, I870] . . ., with like qualities, privileges, and exemptions, to the extent necessary to carry this act into full effect, and to use the proceeds thereof for the purposes aforesaid.


In Europe, the resumption of vacation travel in summer is thought to have fanned the current second wave.

That’s why many producers have taken precaution in their production resumption s.

The new lawsuit seeks the resumption of the existing rulemaking process for a new permanent safety standard that would apply only to workers at health-care facilities.

“We are continuing to work with the FDA to facilitate review of the information needed to make a decision regarding resumption of the US trial,” AstraZeneca said in a statement.

We’re now just one week away from the resumption of the NBA season.

The end of the embargo and resumption of diplomatic relations with Cuba could transform Major League Baseball.

Next Monday sees the resumption of a full, proper working week after the National Day holiday.

Elements of the pro-Israel lobby have also been on Capitol Hill lobbying for a resumption of U.S. aid to Egypt.

The next few weeks are critical in Egypt as to whether we see a real resumption of violence.

U.S. Secretary of State John Kerry is to announce a resumption of talks on Friday!

More than two hundred years had since elapsed without any Resumption Act.

Several laws for the resumption of Crown lands were passed by the Parliaments of the fourteenth and fifteenth centuries.

A perfect silence succeeded, during which we sat speechless, awaiting a resumption of the clamour.

But though she fought on, the resumption of the war in the autumn failed to reverse the fortune of arms.

The connected change in the Bank of England by the resumption of specie payments supports this view.

The New Student's Reference Work/Specie Payments in the U. S., Suspension and Resumption of

Spe′cie Payments in the U. S., Suspension and Resumption of (1861-79). In consequence of the Civil War and the beginning of the drain on the United States government to meet its current obligations in metallic money, the nation, following the action of the banks, suspended specie payments at the close of 1861 and resorted to the issue, in large sums, of legal-tender paper-money (“greenbacks” the notes were called) in lieu of gold and silver in the payment of debts and taxes. The suspension, which lasted until Jan. 1, 1879, had the effect of depreciating the national paper-currency to half its face-value in gold though, when the war closed, the government, in pursuance of an honest financial policy, began to redeem its obligations with coin and stopped the issue of the U. S. legal-tender notes. This had its effect on the national currency, which began steadily to rise in value. The government finally grappled with the financial problem and solved it by announcing that on Jan. 1, 1879, the resumption of specie payments would take place. The government kept faith with its creditors and the nation on the day specified, when, through the sale of bonds and the accumulation of surplus revenue etc., gold and silver were once more paid out. The result proved the wisdom of the government and banished all misgiving, for, when 1879 opened, only about 11 or 12 million dollars’ worth of notes were offered for redemption, while the treasury at Washington had in its possession about ten or twelve times the amount in gold in its vaults.

Endangered Species Act | A History of the Endangered Species Act of 1973

Greater sage-grouse (Centrocercus urophasianus).

Photo credit: Tom Koerner/USFWS

Congress passed the Endangered Species Preservation Act in 1966, providing a means for listing native animal species as endangered and giving them limited protection. The Departments of Interior, Agriculture, and Defense were to seek to protect listed species, and, insofar as consistent with their primary purposes, preserve the habitats of such species. The Act also authorized the Service to acquire land as habitat for endangered species. In 1969, Congress amended the Act to provide additional protection to species in danger of "worldwide extinction" by prohibiting their importation and subsequent sale in the United States. This Act called for an international meeting to adopt a convention to conserve endangered species. One amendment to the Act changed its title to the Endangered Species Conservation Act.

A 1973 conference in Washington, D.C. led 80 nations to sign the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), which monitors, and in some cases, restricts international commerce in plant and animal species believed to be harmed by trade.

Later that year, Congress passed the Endangered Species Act (ESA). It

  • defined "endangered" and "threatened" [section 3]
  • made plants and all invertebrates eligible for protection [section 3]
  • applied broad "take" prohibitions to all endangered animal species and allowed the prohibitions to apply to threatened animal species by special regulation [section 9]
  • required federal agencies to use their authorities to conserve listed species and consult on "may affect" actions [section 7]
  • prohibited federal agencies from authorizing, funding, or carrying out any action that would jeopardize a listed species or destroy or modify its "critical habitat" [section 7]
  • made matching funds available to states with cooperative agreements [section 6]
  • provided funding authority for land acquisition for foreign species [section 8] and
  • implemented CITES protection in the United States [section 8].

Congress enacted significant amendments in 1978, 1982, and 1988, while keeping the overall framework of the ESA essentially unchanged. The funding levels in the present ESA were authorized through Fiscal Year 1992. Congress has annually appropriated funds since that time.

Uneasy Money

Having explained in my previous post why the price-specie-flow mechanism (PSFM) is a deeply flawed mischaracterization of how the gold standard operated, I am now going to discuss two important papers by McCloskey and Zecher that go explain in detail the conceptual and especially the historical shortcomings of PSFM. The first paper (“How the Gold Standard Really Worked”) was published in the 1976 volume edited by Johnson and Frenkel, The Monetary Approach to the Balance of Payments the second paper, (“The Success of Purchasing Power Parity: Historical Evidence and its Relevance for Macroeconomics”) was published in a 1984 NBER conference volume edited by Schwartz and Bordo, A Retrospective on the Classical Gold Standard 1821-1931. I won’t go through either paper in detail, but I do want to mention their criticisms of The Monetary History of the United States, 1867-1960, by Friedman and Schwartz and Friedman’s published response to those criticisms in the Schwartz-Bordo volume. I also want to register a mild criticism of an error of omission by McCloskey and Zecher in failing to note that, aside from the role of the balance of payments under the gold standard in equilibrating the domestic demand for money with the domestic supply of money, there is also a domestic mechanism for equilibrating the domestic demand for money with the domestic supply it is only when the domestic mechanism does not operate that the burden for adjustment falls upon the balance of payments. I suspect that McCloskey and Zecher would not disagree that there is a domestic mechanism for equilibrating the demand for money with the supply of money, but the failure to spell out the domestic mechanism is still a shortcoming in these two otherwise splendid papers.

McCloskey and Zecher devote a section of their paper to the empirical anomalies that beset the PSFM.

If the orthodox theories of the gold standard are incorrect, it should be possible to observe signs of strain in the literature when they are applied to the experiences of the late nineteenth century. This is the case. Indeed, in the midst of their difficulties in applying the theories earlier observers have anticipated most of the elements of the alternative theory proposed here.

On the broadest level it has always been puzzling that the gold standard in its prime worked so smoothly. After all, the mechanism described by Hume, in which an initial divergence in price levels was to be corrected by flows of gold inducing a return to parity, might be expected to work fairly slowly, requiring alterations in the money supply and, more important, in expectations concerning the level and rate of change of prices which would have been difficult to achieve. The actual flows of gold in the late nineteenth century, furthermore, appear too small to play the large role assigned to them. . . . (pp. 361-62)

Later in the same section, they criticize the account given by Friedman and Schwartz of how the US formally adopted the gold standard in 1879 and its immediate aftermath, suggesting that the attempt by Friedman and Schwartz to use PSFM to interpret the events of 1879-81 was unsuccessful.

The behavior of prices in the late nineteenth century has suggested to some observers that the view that it was gold flows that were transmitting price changes from one country to another is indeed flawed. Over a short period, perhaps a year or so, the simple price-specie-flow mechanism predicts an inverse correlation in the price levels of two countries interacting with each other on the gold standard. . . . Yet, as Triffin [The Evolution of the International Monetary System, p. 4] has noted. . . even over a period as brief as a single year, what is impressive is “the overeall parallelism – rather than divergence – of price movements, expressed in the same unit of measurement, between the various trading countries maintaining a minimum degree of freedom of trade and exchange in their international transactions.

Over a longer period of time, of course, the parallelism is consistent with the theory of the price-specie-flow. In fact, one is free to assume that the lags in its mechanism are shorter than a year, attributing the close correlations among national price levels within the same year to a speedy flow of gold and a speedy price change resulting from the flow rather than to direct and rapid arbitrage. One is not free, however, to assume that there were no lags at all in the price-specie-flow theory inflows of gold must precede increase in prices by at least the number of months necessary for the money supply to adjust to the new gold and for the increased amount of money to have an inflationary effect. The American inflation following the resumption of specie payments in January 1879 is a good example. After examining the annual statistics on gold flows and price levels for the period, Friedman and Schwartz [Monetary History of the United States, 1867-1960, p. 99] concluded that “It would be hard to find a much neater example in history of the classical gold-standard mechanism in operation.” Gold flowed in during 1879, 1880, and 1881 and American prices rose each year. Yet the monthly statistics on American gold flows and price changes tell a very different story. Changes in the Warren and Pearson wholesale price index during 1879-81 run closely parallel month by month with gold flows, rising prices corresponding to net inflows of gold. There is no tendency for prices to lag behind a gold flow and some tendency for them to lead it, suggesting not only the episode is an especially poor example of the price-specie flow theory in operation, but also that it might well be a reasonably good one of the monetary theory. (pp. 365-66)

Now let’s go back and see exactly what Friedman and Schwartz said about the episode in the Monetary History. Here is how they describe the rapid expansion starting with the resumption of convertibility on January 1, 1879:

The initial cyclical expansion from 1879 to 1882 . . . was characterized by an unusually rapid rise in the stock of money and in net national product in both current and constant prices. The stock of money rose by over 50 per cent, net national product in current prices over 35 per cent, and net national product in constant prices nearly 25 per cent. . . . (p. 96)

The initial rapid expansion reflected a combination of favorable physical and financial factors. On the physical side, the preceding contraction had been unusually protracted once it was over, there tended to be a vigorous rebound this is a rather typical pattern of reaction. On the financial side, the successful achievement of resumption, by itself, eased pressure on the foreign exchanges and permitted an internal price rise without external difficulties, for two reasons: first, because it eliminated the temporary demand for foreign exchange on the part of the Treasury to build up its gold reserve . . . second because it promoted a growth in U.S. balances held by foreigners and a decline in foreign balances held by U.S. residents, as confidence spread that the specie standard would be maintained and that the dollar would not depreciate again. (p. 97)

The point about financial conditions that Friedman and Schwartz are making is that, in advance of resumption, the US Treasury had been buying gold to increase reserves with which to satisfy potential demands for redemption once convertibility at the official parity was restored. The gold purchases supposedly forced the US price level to drop further (at the official price of gold, corresponding to a $4.86 dollar/sterling exchange rate) than it would have fallen if the Treasury had not been buying gold. (See quotation below from p. 99 of the Monetary History). Their reasoning is that the additional imports of gold ultimately had to be financed by a corresponding export surplus, which required depressing the US price level below the price level in the rest of the world sufficiently to cause a sufficient increase in US exports and decrease of US imports. But the premise that US exports could be increased and US imports could be decreased only by reducing the US price level relative to the rest of the world is unfounded. The incremental export surplus required only that total domestic expenditure be reduced, thereby allowing an incremental increase US exports or reduction in US imports. Reduced US spending would have been possible without any change in US prices. Friedman and Schwartz continue:

These forces were powerfully reinforced by accidents of weather that produced two successive years of bumper crops in the United States and unusually short crops elsewhere. The result was an unprecedentedly high level of exports. Exports of crude foodstuffs, in the years ending June 30, 1889 and 1881, reached levels roughly twice the average of either the preceding or the following year five years. In each year they were higher than in any preceding year, and neither figure was again exceeded until 1892. (pp. 97-98)

This is a critical point, but neither Friedman and Schwartz nor McCloskey and Zecher in their criticism seem to recognize its significance. Crop shortages in the rest of the world must have caused a substantial increase in grain and cotton prices, but Friedman and Schwartz provide no indication of the magnitudes of the price increases. At any rate, the US was then still a largely agricultural economy, so a substantial rise in agricultural prices determined in international markets would imply an increase in an index of US output prices relative to an index of British output prices reflecting both a shifting terms of trade in favor of the US and a higher share of total output accounted for by agricultural products in the US than in Britain. That shift, and the consequent increase in US versus British price levels, required no divergence between prices in the US and in Britain, and could have occurred without operation of the PSFM. Ignoring the terms-of-trade effect after drawing attention to the bumper crops in the US and crop failures elsewhere was an obvious error in the narrative provided by Friedman and Schwartz. With that in mind, let us return to their narrative.

The resulting increased demand for dollars meant that a relatively higher price level in the United States was consistent with equilibrium in the balance of payments.

Friedman and Schwartz are assuming that a demand for dollars under a fixed-exchange-rate regime can be satisfied only by through an incremental adjustment in exports and imports to induce an offsetting flow of dollars. Such a demand for dollars could also be satisfied by way of appropriate banking and credit operations requiring no change in imports and exports, but even if the demand for money is satisfied through an incremental adjustment in the trade balance, the implicit assumption that an adjustment in the trade balance requires an adjustment in relative price levels is totally unfounded the adjustment in the trade balance can occur with no divergence in prices, such a divergence being inconsistent with the operation of international arbitrage.

Pending the rise in prices, it led to a large inflow of gold. The estimated stock of gold in the United States rose from $210 million on June 30, 1879, to $439 million on June 30, 1881.

The first sentence is difficult to understand. Having just asserted that there was a rise in US prices, why do Friedman and Schwartz now suggest that the rise in prices has not yet occurred? Presumably, the antecedent of the pronoun “it” is the demand for dollars, but why is the demand for dollars conditioned on a rise in prices? There are any number of reasons why there could have been an inflow of gold into the United States. (Presumably, higher than usual import demand could have led to a temporary drawdown of accumulated liquid assets, e.g., gold, in other countries to finance their unusually high grain imports. Moreover, the significant wealth transfer associated with a sharply improving terms of trade in favor of the US would have led to an increased demand for gold, either for real or monetary uses. More importantly, as banks increased the amount of deposits and banknotes they were supplying to the public, the demand of banks to hold gold reserves would have also increased.)

In classical gold-standard fashion, the inflow of gold helped produce an expansion in the stock of money and in prices. The implicit price index for the U.S. rose 10 per cent from 1879 to 1882 while a general index of British prices was roughly constant, so that the price level in the United States relative to that in Britain rose from 89.1 to 96.1. In classical gold-standard fashion, also, the outflow of gold from other countries produced downward pressure on their stock of money and their prices.

To say that the inflow of gold helped produce an expansion in the stock of money and in prices is simply to invoke the analytically empty story that gold reserves are lent out to the public, because the gold is sitting idle in bank vaults just waiting to be put to active use. But gold doesn’t just wind up sitting in a bank vault for no reason. Banks demand it for a purpose either they are legally required to hold the gold or they find it more useful or rewarding to hold gold than to hold alternative assets. Banks don’t create liabilities payable in gold because they are holding gold they hold gold because they create liabilities payable in gold creating liabilities legally payable in gold may entail a legal obligation to hold gold reserves, or create a prudential incentive to keep some gold on hand. The throw-away references made by Friedman and Schwartz to “classical gold-standard fashion” is just meaningless chatter, and the divergence between the US and the British price indexes between 1879 and 1882 is attributable to a shift in the terms of trade of which the flow of gold from Britain to the US was the effect not the cause.

The Bank of England reserve in the Banking Department declined by nearly 40 percent from mid-1879 to mid-1881. In response, Bank rate was raised by steps from 2.5 per cent in April 1881 to 6 per cent in January 1882. The resulting effects on both prices and capital movements contributed to the cessation of the gold outflow to the U.S., and indeed, to its replacement by a subsequent inflow from the U.S. . . . (p. 98)

The only evidence about the U.S. gold stock provided by Friedman and Schwartz is an increase from $210 million to $439 million between June 30, 1879 to June 30, 1881. They juxtapose that with a decrease in the gold stock held by the Bank of England between mid-1879 and mid-1881, and an increase in Bank rate from 2.5% to 6%. Friedman and Schwartz cite Hawtrey’s Century of Bank Rate as the source for this fact (the only citation of Hawtrey in the Monetary History). But the increase in Bank rate from 2.5% did not begin till April 28, 1881, Bank rate having fluctuated between 2 and 3% from January 1878 to April 1881, two years and three months after the resumption. Discussing the fluctuations in the gold reserve of the Bank England in 1881, Hawtrey states:

The exports of gold had abated in the earlier part of the year, but set in again in August, and Bank rate was raised to 4 per cent. On the 6 th of October it was put up to 5 per cent and on the 30 th January, 1882, to 6.

The exports of gold had been accentuated in consequence of the crisis in Paris in January, 1882, resulting from the failure of the Union Generale. The loss of gold by export stopped almost immediately after the rise to 6 per cent. In fact the importation into the United States was ceasing, in consequence partly of the silver legislation which went far to satisfy the need for currency with silver certificates. (p. 102)

So it’s not at all clear from the narrative provided by Friedman and Schwartz to what extent the Bank of England, in raising Bank rate in 1881, was responding to the flow of gold to the United States, and they certainly do not establish that price-level changes between 1879 to 1881 reflected monetary, rather than real, forces. Here is how Friedman and Schwartz conclude their discussion of the effects of the resumption of US gold convertibility.

These gold movements and those before resumption have contrasting economic significance. As mentioned in the preceding chapter, the inflow into the U.S. before resumption was deliberately sought by the Treasury and represented an increased demand for foreign exchange. It required a surplus in the balance of payments sufficient to finance the gold inflow. The surplus could be generated only by a reduction in U.S. prices relative to foreign prices or in the price of the U.S. dollar relative to foreign currencies and was, in fact, generated by a relative reduction in U.S. prices. The gold inflow was, as it were, the active element to which the rest of the balance of payments adjusted.

This characterization of the pre-resumption deflationary process is certainly correct insofar as refers to the necessity of a deflation in US dollar prices for the dollar to appreciate to allow convertibility into gold at the 1861 dollar price of gold and dollar/sterling exchange rate. It is not correct insofar as it suggests that beyond the deflation necessary to restore purchasing power parity, a further incremental deflation was required to finance the Treasury’s demand for foreign exchange

After resumption, on the other hand, the active element was the increased demand for dollars resulting largely from the crop situation. The gold inflow was a passive reaction which temporarily filled the gap in payments. In its absence, there would have had to be an appreciation of the dollar relative to other currencies – a solution ruled out by the fixed exchange rate under the specie standard – or a more rapid [sic! They meant “less rapid”] rise in internal U.S. prices. At the same time, the gold inflow provided the basis and stimulus for an expansion in the stock of money and thereby a rise in internal prices at home and downward pressure on the stock of money and price abroad sufficient to bring an end to the necessity for large gold inflows. (p. 99)

This explanation of the causes of gold movements is not correct. The crop situation was a real, not a monetary, disturbance. We would now say that there was a positive supply shock in the US and a negative supply shock in the rest of the world, causing the terms of trade to shift in favor of the US. The resulting gold inflow reflected an increased US demand for gold induced by rapid economic growth and the improved terms of trade and a reduced demand to hold gold elsewhere to finance a temporary excess demand for grain. The monetary demand for gold would have also increased as a result of an increasing domestic demand for money. An increased demand for money could induce an inflow of gold to be minted into coin or to be held as legally required reserves for banknotes or to be held as bank reserves for deposits. The rapid increase in output and income, fueled in part by the positive supply shock and the improving terms of trade, would normally be expected to increase the demand to hold money. If the gold inflow was the basis, or the stimulus, for an expansion of the money stock, then increases in the gold stock should have preceded increases in the money stock. But as I am going to show, Friedman himself later provided evidence showing that in this episode the money stock at first increased more rapidly than the gold stock. And just as price increases and money expansion in the US were endogenous responses to real shocks in output and the terms of trade, adjustments in the stock of money and prices abroad were not the effects of monetary disturbances but endogenous monetary adjustments to real disturbances.

Let’s now turn to the second McCloskey-Zecher paper in which they returned to the 1879 resumption of gold convertibility by the US.

In an earlier paper (1976, p. 367) we reviewed the empirical anomalies in the price-specie-flow mechanism. For instance, we argued that Milton Friedman and Anna Schwartz misapplied the mechanism to an episode in American history. The United States went back on the gold standard in January 1879 at the pre-Civil War parity. The American price level was too low for the parity, allegedly setting the mechanism in motion. Over the next three years, Friedman and Schwartz argued from annual figures, gold flowed in and the price level rose just as Hume would have had it. They conclude (1963, p. 99) that “it would be hard to find a much neater example in history of the classical gold-standard mechanism in operation.” On the contrary, however, we believe it seems much more like an example of purchasing-power parity and the monetary approach than of the Humean mechanism. In the monthly statistics (Friedman and Schwartz confined themselves to annual data), there is no tendency for price rises to follow inflows of gold, as they should in the price-specie-flow mechanism if anything, there is a slight tendency for price rises to precede inflows of gold, as they would if arbitrage were shortcutting the mechanism and leaving Americans with higher prices directly and a higher demand for gold. Whether or not the episode is a good example of the monetary theory, it is a poor example of the price-specie-flow mechanism. (p. 126)

Milton Friedman, a discussant at the conference at which McCloskey and Zecher presented their paper, submitted his amended remarks about the paper which were published in the volume along with comments of the other discussant, Robert E. Lipsey, and a transcript of the discussion of the paper by those in attendance. Here is Friedman’s response.

[McCloskey and Zecher] quote our statement that “it would be hard to find a much neater example in history of the classical gold-standard mechanism in operation” (p. 99). Their look at that episode on the basis of monthly data is interesting and most welcome, but on closer examination it does not, contrary to their claims, contradict our interpretation of the episode. McCloskey and Zecher compare price rises to inflows of gold, concluding, “In the monthly statistics … there is no tendency for price rises to follow inflows of gold . . . if anything, there is a slight tendency for price rises to precede inflows of gold, as they would if arbitrage were shortcutting the mechanism.”

Their comparison is the wrong one for determining whether prices were reacting to arbitrage rather than reflecting changes in the quantity of money. For that purpose the relevant comparison is with the quantity of money. Gold flows are relevant only as a proxy for the quantity of money. (p. 159)

I don’t understand this assertion at all. Gold flows are not simply a proxy for the quantity of money, because the whole premise of the PSFM is, as he and Schwartz assert in the Monetary History, that gold flows provide the “basis and stimulus for” an increase in the quantity of money.

If we compare price rises with changes in the quantity of money directly, a very different picture emerges than McCloskey and Zecher draw (see table C2.1). Our basic estimates of the quantity of money for this period are for semiannual dates, February and August. Resumption took effect on 1 January 1879. From August 1878 to February 1879, the money supply declined a trifle, continuing a decline that had begun in 1875 in final preparation for resumption. From February 1879 to August 1879, the money supply rose sharply, according to our estimates, by 15 percent. The Warren-Pearson monthly wholesale price index fell in the first half of 1879, reflecting the earlier decline in the money stock. It started its sharp rise in September 1879, or at least seven months later than the money supply.

Again, I don’t understand Friedman’s argument. The quantity of money began to rise after the resumption. In fact, Friedman’s own data show that in the six months from February to August of 1879, the quantity of money rose by 14.8% and the gold stock by 10.6%, with no effect on the price level. Friedman asserts that the price level didn’t start to rise until September, eight or nine months after the resumption in January. But it seems quite plausible that the fall harvest would have been the occasion for the effects of crop failures on grain prices to begin to have any effect on wholesale prices. So Friedman’s own evidence undercuts his assertion that the increase in the quantity of money was what was causing US prices to rise.

As to gold, the total stock of gold, as well as gold held by the Treasury, had been rising since 1877 as part of the preparation for resumption. But it had been rising at the expense of other components of high-powered money, which actually fell slightly. However, the decline in the money stock before 1879 had been due primarily to a decline in the deposit-currency ratio and the deposit-reserve ratio. After successful resumption, both ratios rose, which enabled the stock of money to rise despite no initial increase in gold flows. The large step-up in gold inflows in the fall of 1879, to which McCloskey and Zecher call attention, was mostly absorbed in raising the fraction of high-powered money in the form of gold rather than in speeding up monetary growth.

I agree with Friedman that the rapid increase in gold flows starting the fall of 1879 probably had little to do with the increase in the US price level, that increase reflecting primarily the terms-of-trade effect of rising agricultural prices, not a divergence between prices in the US and prices elsewhere in the world. But that does not justify Friedman’s self-confident reiteration of the conclusion reached in the Monetary History that it would be hard to find a much neater example in history of the classical gold standard mechanism in operation. On the contrary, I see no evidence at all that “the classical gold standard mechanism” aka PSFM had anything to do with the behavior of prices after the resumption.

National Banking Acts of 1863 and 1864

Despite these private or state-sponsored efforts at reform, the state banking system still exhibited the undesirable properties enumerated earlier. The National Banking Acts of 1863 and 1864 were attempts to assert some degree of federal control over the banking system without the formation of another central bank. The Act had three primary purposes: (1) create a system of national banks, (2) to create a uniform national currency, and (3) to create an active secondary market for Treasury securities to help finance the Civil War (for the Union's side).

The first provision of the Acts was to allow for the incorporation of national banks. These banks were essentially the same as state banks, except national banks received their charter from the federal government and not a state government. This arrangement gave the federal government regulatory jurisdiction over the national banks it created, whereas it asserted no control over state-chartered banks. National banks had higher capital requirements and higher reserve requirements than their state bank counterparts. To improve liquidity and safety they were restricted from making real estate loans and could not lend to any single person an amount exceeding ten percent of the bank's capital. The National Banking Acts also created under the Treasury Department the office of Comptroller of the Currency which occasionally inspected the books of the national banks to insure compliance with the above regulations, held Treasury securities deposited there by national banks, and, via the Bureau of Engraving, was responsible for printing all national banknotes.

The second goal of the National Banking Acts was to create a uniform national currency. Rather than have several hundred, or several thousand, forms of currency circulating in the states, conducting transactions could be greatly simplified if there were a uniform currency. To achieve this all national banks were required to accept at par the banknotes of other national banks. This insured that national banknotes would not suffer from the same discounting problem with which state banknotes were afflicted. In addition, all national banknotes were printed by the Comptroller of the Currency on behalf of the national banks to guarantee standardization in appearance and quality. This reduced the possibility of counterfeiting, an understandable wartime concern.

National Bank Note

The writing over the portrait of Andrew Jackson reads, "National currency secured by United States bonds deposited with the Treasurer of the United States of America." This refers to the requirement of the National Banking Acts that the amount of currency a national bank could issue be based on the market value of Treasury bonds on deposit with the Comptroller of the Currency.

Who knows? Perhaps this very bill was used to buy a ticket to the premeir of Gone With the Wind .

The third goal of the Acts was to help finance the Civil War. The volume of notes which a national bank issued was based on the market value of the U.S. Treasury securities the bank held. A national bank was required to keep on deposit with the Comptroller of the Currency a sizeable volume of Treasury securities. In exchange the bank received banknotes worth 90 percent, and later 100 percent, of the market value of the deposited bonds. If the bank wished to extend additional loans to generate more profits, then the bank had to increase its holdings of Treasury bonds. This provision had its roots in the Michigan Act, and it was designed to create a more active secondary market for Treasury bonds and thus lower the cost of borrowing for the federal government.

It was the hope of Secretary of the Treasury Chase that national banks would replace state banks, and that this would create the uniform currency he desired and ease the financing of the Civil War. By 1865 there were 1,500 national banks, about 800 of which had converted from state banking charters. The remainder were new banks. However, this still meant that state banknotes were dominating the currency because most of them were discounted. Accordingly, the public hoarded the national banknotes. To reduced the proliferation of state banking and the notes it generated, Congress imposed a ten percent tax on all outstanding state banknotes. There was no corresponding tax of national banknotes. Many state banks decided to convert to national bank charters because the tax made state banking unprofitable. By 1870 there were 1,638 national banks and only 325 state banks.

While the tax eventually eliminated the circulation of state banknotes, it did not entirely kill state banking because state banks began to use checking accounts as a substitute for banknotes. Checking accounts became so popular that by 1890 the Comptroller of the Currency estimated that only ten percent of the nation's money supply was in the form of currency. Combined with lower capital and reserve requirements, as well as the ease with which states issued banking charters, state banks again became the dominant banking structure by the late 1880's. Consequently, the improvements to safety that the national banking system offered were mitigated somewhat by the return of state banking.

Specie Circular

Summary and Definition of the Specie Circular of 1836
Definition and Summary: What was the Specie Circular of 1836? The Specie Circular was the name given to an Executive Order issued by President Jackson on July 11, 1836. The Specie Circular stipulated that all government owned lands must be paid for exclusively in gold or silver (specie) in order to restrain excessive land speculation in the west and to curtail the enormous growth of paper money in circulation. The Specie Circular is also referred to as the Coinage Act.

The Specie Circular
Andrew Jackson was the 7th American President who served in office from March 4, 1829 to March 4, 1837. One of the important events during his presidency was the issue of the Specie Circular of 1836.

T he Specie Circular History for kids: Land Speculation and the Land Acts
The Land Act of 1820 had reduced the minimum price for land to $1.25 per acre with a minimum purchase of 80 acres and a down-payment of $100 in cash - nearly 3.5 million acres of land were purchased in 1820 alone. Millions more acres of lands were opened to settlers moving to the west in the 1830 Indian Removal Act. The Land Act of 1832 reduced the reduced minimum purchasable unit to 40 acres to encourage people to move westwards. Land sales increased but not all of these land sales reflected actual settlement. Wealthy land speculators purchased massive areas of lands for resale to farmers and settlers.

Specie Circular for kids: Paper Money
The excessive land speculation resulted in the enormous growth of paper money in circulation. Paper money lost its value, each bank had different currency.

Specie Circular for kids: Andrew Jackson, the Bank War and the "Pet Banks"
When Andrew Jackson was elected President he swore to destroy the Second Bank of the United States. Andrew Jackson's Bank War began. This led to the establishment of the Pet Banks and also the emergence of Wildcat Banks.

What was the Reason for the Specie Circular?
Why was the Specie Circular enacted? With the closure of the Second Bank of the United States large deposits of government money were deposited in the 'Pet Banks'. But there were problems. Some of the managers of the "Pet Banks", tempted by the large deposits of government money, began to lend money more freely. "Wildcat Banks" sprang up in the West where there was extensive land speculation. Loans were made in the form of paper money, without gold and silver to back them. President Jackson knew this situation lead to yet another financial disaster unless he took decisive action.

The Specie Circular: Senator Thomas Hart Benton
Senator Thomas Hart Benton was a supporter of Andrew Jackson who had played a Important role during the Bank War. He had a firm belief in 'Hard Money' (gold and silver) and was against the unregulated availability of credit. Senator Benton had initiated the ratio of silver to gold from 15:1 to 16:1 which had brought more gold into circulation. He then submitted a resolution to Congress requiring that the payment for public lands should be paid for in hard money only. Congress defeated his resolution but Andrew Jackson loved the idea as a firm believer in a specie (gold and silver) basis for currency.

What was the Significance of the Specie Circular?
The significance of the Specie Circular was that:

● The Specie order effectively dried up credit and ended the reckless land speculation
● The Specie Order also precipitated the Panic of 1837
● The next President, Martin Van Buren, had to deal with the Panic of 1837 and the distribution of the surplus government money

Specie Circular for kids
The info about the Specie Circular provides interesting facts and important information about this important event that occured during the presidency of the 7th President of the United States of America.

Specie Circular for kids - President Andrew Jackson Video
The article on the Specie Circular provides an overview of one of the Important issues of his presidential term in office. The following Andrew Jackson video will give you additional important facts and dates about the political events experienced by the 7th American President whose presidency spanned from March 4, 1829 to March 4, 1837.

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Watch the video: Νόμος Συνημιτόνου - Γ Γυμνασίου (January 2022).