Chapter 1: What is the main topic discussed in this episode?
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Listen to No Grip on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts. Welcome to Stuff You Should Know, a production of iHeartRadio. Hey, and welcome to the podcast. I'm Josh, and there's Chuck, and it's just us here today to explain something that every person in the world should know about, the gold standard. I have an intro. I have an intro. Hold on. Oh, God. Chuck.
Yes. Have you ever gone to a bank and traded a dollar in for actual gold? No, I've never even seen gold in person that wasn't like, you know, on a whatever, a ring or something. Sure. And that is a huge use for gold. I've never seen nuggets or bars, ingots. I haven't either. I have never even seen a gold coin now that I think about it. I don't think I have either.
But there was a point in time where you could see gold anytime you wanted if you went to your bank and you took a certain amount of dollars or pounds or francs or pesos, because countries all over the world were on what's known as the gold standard. And just a quick broad stroke
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Chapter 2: What was the gold standard and why was it important?
Yeah, for sure. And that happened. And when that happened, kind of the first time, I guess, for the United States, people started doing that. They started melting gold coins or keeping them and hoarding gold coins. And they started trading and using silver as currency. So all of a sudden we were like, wait a minute, we thought we were on a gold or we are heading toward a gold standard.
And now we're kind of on a de facto silver standard because that's what people are using. Yeah. So the government was like, well, let's just make this 16 to 1. And it brought everything a little bit more into parity. Then there was the minor 49er gold rush in California. And then there was also another gold rush in Australia about the same time.
So the market price for gold went down again because the supply increased, which basically made the U.S. government throw their hands up in the air and say, we give up. We're going to go watch football. Yeah, their kind of football. I guess over across the pond, Isaac Newton finished out his long storied career as the master of the mint. He did a lot of other stuff, obviously, before that.
But he worked as the master of the mint at the end of his life until his death. And he was all about gold. He was like, he encouraged overvaluing it and said, we should really just set gold as the gold standard for England. And they adopted that in what, like 1819. Yeah. So I think they were the first country on an actual gold standard.
And then it kind of spread around Europe from there because they're like, hey, this is actually a pretty good idea. Because you don't need necessarily a central bank. You don't have to have somebody figuring out what lever to pull or whatever.
The gold actually kind of naturally flows from one place to another to basically keep this homeostasis, this balance throughout the world among all the countries that are on the gold standard, right? Yeah. So the thing is, is humans are humans. You can mess up anything. Even something that naturally flows from one place to another, we can basically put our foot in it and screw it up.
And that was the case usually, as we'll see throughout history, that's usually the case when war comes along. And that happened in the United States with the Civil War. And we've talked many times about this, about how before the Civil War, there was like 8,000 different types of currency in use in the United States. Like your general store in town might have its own currency that you could use.
And as the Civil War came along, that all changed very quickly. Yeah, that was I remember we that feels like very many years ago. Yeah, we were talking about that and a few episodes. It was kind of the hot topic for us for a while. It was so hot.
We were talking about all those different currencies, like one town might have a currency and then two miles down the road, the next town might have their own currency, which, you know, within that town, as long as every again, if everyone agrees what something is worth.
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Chapter 3: How did the transition from gold to fiat currency occur?
No. No. No. I couldn't come up with something that wasn't just absolutely gross. So I'll keep moving on. But this was the time when the world was globalizing for kind of the first time. And so other countries are taking note of this and they're like, yeah. This gold standard might be a good thing.
And like you said, it kicked off a golden age from 1871 to basically through about to World War I. It was a golden age for gold. There's no other way to put it. I didn't want to say that, but there's no other way to put it.
Yeah, it's like 40 something years where everyone was sort of agreeing that the gold standard was the place to be, because there was debate like after the mess, you know, post-Civil War of like what we're even allowed to do as a country. And like, can the government even print money like that? The Supreme Court came along in 1871. They said, yes. They can print money.
Maybe they need to, you know, we need to rethink our process. But but the government printing money is is OK. Yeah. It's legal. Yeah. Yeah. So that was settled. But that still didn't mean like that the government should do that. There was still this question. Should we keep going this way as supported by the Greenback Party? who were like, yes, this actually makes a lot of sense.
Or there are other groups like the silver movement, the gold bugs were out there who were like, no, we need a commodity-backed currency, right? Apparently, the Wizard of Oz, and I'm sure we've mentioned this before, but it was supposed to be an allegory for this debate over whether to go With the greenbacks, Emerald City, go with the gold standard, the yellow brick road. Yellow brick road, yeah.
Or to go with the ruby standard, which were the slippers. Yeah. Right. Or wheat, like you suggested, that would be the scarecrow. Exactly. Yeah. So all of those scarecrow, rubies, gold, the greenbacks, all of those were part of this national debate. And finally, it was settled in 1900 when William McKinley was made president. He said, it's gold. We're just going with gold.
And even more than that, you cannot print a dollar beyond the amount of gold we have to back it up. Yeah, that was key to that whole declaration. He was a pro-gold candidate, pro-gold standard. And like you said, in 1900 when he won, he was like, we got to have some real teeth behind this. I can't just say it as president and make it so.
So they passed the Gold Standard Act of 1900, and that had some language in there that said ā Exactly that is, hey, that circulation, it's got to be tied to gold. We can't print one dollar more than we have in equal amounts of gold. And that was it. You know, that was the classic gold standard period. It meant that nations were trading with one another on equal ground.
And it was dependent on sending like physical gold to one another. If you were producing more and exporting more. then you had a lot of gold stockpiled in your country. If you had a trade deficit, you had a lot less gold. And everyone kind of knew what that meant. And it worked for a long time. It did work. I mean, there were dozens of nations all on the gold standard at the same time.
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Chapter 4: What were the economic impacts of the gold standard's decline?
And her question is like, if that's your goal, why don't we take some of that wealth and just start now before AI? Why do we have to wait for AI to do that? We can do it now. I thought that was rather clever. I stood up and clapped and went, whoo. Right. And she was like, that's weird. You're in our living room. She left the room. All right, so things are bad. They had that banking holiday.
Congress passes what's called the Emergency Banking Act at the time, which basically, like you said, allowed them to, in an emergency issue, just start printing money, basically, that's not pegged to the gold standard. But we had that gold standard because the Gold Standard Act of 1900. So they had to create this banking act, I guess, to work around that, right? Yeah.
They basically said, OK, this is just emergency measures and we're just printing this money to give to banks to keep them from going under. So the government is signaling all over the place. We're stepping in. We're going to make sure that this that like we're going to do something about this for the first time.
I think that was my point before I got off on the tangent for a little while, a minute ago. But the government is signaling all over the place that they're going to back up banks so you don't have to run and get all of your money out and just keep making this whole thing worse. So that was like a first step.
But the problem is, is there was still plenty of gold out there that people were hoarding. They're like, yeah, that's great. Thanks a lot. But I'm not taking this gold back to the bank right now because I don't have any confidence in the banking system. So the government figured out how to deal with this. They said, well, you know what?
We will put you in jail for 10 years and fine you the modern equivalent of $250,000 if you don't give us your gold. We'll give you the equal amount of paper dollars back, but you can't legally own gold anymore. Yeah. Yeah. And that was it. That was I mean, I think it was about a month after they sort of restored that public confidence with the Emergency Banking Act.
Like FDR was moving very quickly and said, all right, we're we're suspending the gold standard officially. And then the next year was that Gold Reserve Act of 1934 that you were talking about where they were like, yeah, you can't. I mean, you can keep your your rings and if you got like collectible coins and stuff, we're not coming after those. Yeah.
But you can't have bars of gold in a safe in your house anymore. Yeah, and Jimmy the Greek was like, whew, that was close. So yes, so now you had to have, you had to use paper currency. So this was the shift in the United States and this had already happened in other countries, like you said, especially in Europe after World War I. And the gold standard was dead.
And one of the things that demonstrated the death of the gold standard was economists generally today say that the US being able to print money And basically kickstart inflation to pull us out of the deflationary spiral, a.k.a. the depression. That's basically 90 percent of the reason that the U.S. got out of the Great Depression.
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Chapter 5: What role did the Civil War play in changing currency standards?
She did great. Yeah. She did great, too. And you did a lot of great supplemental research. Everyone's doing great, everybody. It's just great up in here. We should also say we probably got a lot of stuff wrong. We probably walked past a lot of stuff.
This is such a detailed, nuanced discussion that people who are like monetary policy wonks, this is one of their favorite things to do is to point out all of these nitpicky little things based on mind-boggling economics that are really hard to describe. We just glanced over the surface of this. But I think probably we got more right than you'd think.
Yeah, it's tough to tackle something like this because there are people that know a gazillion times more about this kind of thing than we do. Yep, and Chuck just said tackle, so he unlocked listener mail. I'm going to call this, this is from our crowds episode, and this is a classroom hack, a question hack from a, I think a teacher. Okay. Hey guys, love the episode about crowds.
Yeah, I'm a middle school teacher, and crowds are my standard environment. Your comments about being afraid to ask a question in class really spoke to me because a big part of my job, is navigating the power of language with crowds and my students. There's a simple teacher hack that is most effective and easiest
The easiest change I've ever made to my communication with students, and Aaron from New Brunswick, Canada, I will go ahead and say that, like, anyone speaking in front of a crowd where you, like, source questions, I think this is a pretty good way to go. Okay. And here it is. Instead of saying, does anyone have any questions? What I say instead is, what questions do you have?
There must be questions. Give me some questions. It really works. Completely different response from the students, guys. The assumption that questions are expected always prompts at least one kid to get the courage, which opens up the gates for everyone else who is too apprehensive.
Thanks for being my first podcast in 2012 and for continuing to bring joy and relaxation to a tired but satisfied teacher. Peace and love. And again, that is from Aaron with an E from New Brunswick, Canada. Thanks, Aaron. Peace and love back to you, too. And thanks for teaching. It's a good hack. It's a great hack. Questions? Who's got them? I know there's some. Don't lie. Right.
And then just get more aggressive. Right. Huh? Huh? Give me a question. Yeah, that works. If you want to be like Aaron and send us a great email and say peace and love, that's awesome. You can send it off again via email to the email address stuffpodcasts at iheartradio.com. Stuff You Should Know is a production of iHeartRadio.
For more podcasts from iHeartRadio, visit the iHeartRadio app, Apple Podcasts, or wherever you listen to your favorite shows. I'm Clayton Eckerd. In 2022, I was the lead of ABC's The Bachelor. But here's the thing. Bachelor fans hated him. If I could press a button and rewind it all, I would. That's when his life took a disturbing turn. A one-night stand would end in a courtroom.
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