A new book by NYU Professor William Silber has just come out offering an explanation for the 4-1/2-month shutdown of the New York Stock Exchange in 1914 on the eve of World War I.
First, he points out that the explanation given at the time (to protect share prices on the market) doesn’t even make sense, so it must have been a lie. Silber says it was to keep the US on the gold standard, which begs the question, how is the US “on the gold standard” if the government is conducting massive interventions in markets to “keep it” there?
And he reveals the impetus for the move to be yet another of the immortal lies that constitute what passes for history among the few who even care about it: the move was not initiated by the Exchange’s Board of Governors – it was ordered by William McAdoo, Woodrow Wilson’s Secretary of the Treasury.
For this, McAdoo makes the grade as Silber’s hero. Silber’s evident attitude toward what staying on the gold standard justifies leads me to surmise that his book in fact does not disclose the true purpose of the measure. I even have my own theory of it, admittedly on little evidence. Since I haven’t even read the book, I’ll spare my fellow bloggers the particulars.
But the incident and the period, not to mention That War, make fascinating subjects, and I suspect there are many on this blog who would be interested.
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Is this a timely reminder to use gold weights and not paper money even if the paper money is supposedly redeemable for gold? At least with gold you can bury it a secret location, forget about it and recover it decades when it’s safe to use again. The fact that even in a ‘gold standard’ people all of sudden couldn’t get gold doesn’t give me any faith that it’s better than a fiat standard. After all, it’s interesting to hear a story (urban myth?) that during the gun buyback scheme in Australia, hardware stores were having trouble keeping the materials suitable for burying firearms for extended periods on their shelves . . .
Don’t be so coy! What is your theory?
Me? I’m just saying using gold (maybe silver and platinum too) weights is the only safe way not to be caught out with holding worthless currency.
Any standard imposed by government is dangerous; they hinder the ability of people to switch to different types of money should the currently popular standard lose its usefulness.
For example, let us say that the U.S. went back on a gold standard, but continued its habit of meddling; it imposed on its victims price controls on labor, price gouging laws etc.
Then, someone discovers a rich vein of gold in Peru, that effectively quadruples the supply of gold. If the government stubbornly sticks to the gold standard and maintains its price controls, it will have the same results as we currently have with the fed printing notes.
If the government does not impose a standard, on the other hand, gold would rapidly lose value relative to other fungible commodities, and if people decide that it is not a safe way to store value they will switch to other more desirable commodities.
Granted, a gold standard is an improvement over the current system, but it is not a panacea. Only a policy of complete non-intervention on the part of the government would be appropriate.
Absolutely. If the United States government declared gold was good for the payment of taxes they would in effect be creating a two-trillion dollar intervention in the commodities market. Forcible collection of gold would not necessarily be better than forcible collection of fiat dollars.
Incidentally, I would like to hear N. Joseph Potts’ theory on the 1914 closure of the stock market.
From the book’s website:
William McAdoo stepped in with courageous action, we read in Silber’s gripping account. He shut the New York Stock Exchange for more than four months to prevent Europeans from selling their American securities and demanding gold in return. And he launched the United States as a world monetary power by honoring America’s commitment to the gold standard.
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So – he refused to give the European investors their rightful property – their gold – while “honoring America’s commitment to the gold standard”?
Uuummmm…OK.
It can’t be said much better than by Tarran above.
It’s not the particular standard to be chosen that’s important. The question is, does the free individual choose, or does some social philosopher choose for him?
AK
i assume, but dont know for sure, that the gold in Fort Knox and perhaps other areas contains a lot of gold that was confiscated from Americans from througout the decades ….”In addition to cancelling the redemption of dollars into gold, Roosevelt in 1933 committed another criminal act: literally confiscating all gold and bullion held by Americans,….” ( http://mises.org/rothbard/moneyback.asp )
Would it be proper to make some attempt to return that gold to the people? Its probobly impossible to determine who exactly had gold stolen by the government – but could it at least be auctioned off? Would that be a step in resuming some sense of a free market ‘commodity’ metal?
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