Ludwig von Mises Institute

Panic of 1884

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Credit expansion resumed in 1878 in the United States and France. In the latter the issuance of industrial shares soared and an ambitious public works program was introduced. Banks played a very active role in attracting family savings and in the massive granting of loans to industry. The Crisis of 1882 erupted with the failure of the Union Générale. Also on the verge of failure, the Crédit Lyonnais faced a massive withdrawal of deposits (around half). In the United States over 400 banks (from a total of 3,271) failed, and unemployment and crisis spread mostly to the industries furthest from consumption.[1]

United States[edit]

America went off the gold standard in 1861 and remained off after the war’s end. Arguments between hard-money advocates who wanted to eliminate unbacked greenbacks and soft-money men who wanted to increase them raged through the 1870s until the Grant administration decided in 1875 to resume redemption of paper dollars into gold at prewar value on the first day of 1879. At the time (1875) greenbacks were trading at a discount of roughly 17 percent against the prewar gold dollar. A combination of outright paper-money deflation and an increase in official gold holdings enabled a return to gold four years later, which set the scene for a decade of tremendous economic growth. Both consumer prices and nominal wages fell by about 30 percent during the last decade of greenbacks. But from 1879–1889, while prices kept falling, wages rose 23 percent. So real wages, after taking inflation—or the lack of it—into effect, soared.

The financial panic in 1884, coming during a mild contraction after 1882, lowered the supply of bank money. Total bank notes and deposits dropped slightly, from $3.19 billion in 1883 to $3.15 billion. The panic was triggered by an overflow of gold abroad, as foreigners began to lose confidence in the willingness of the United States to remain on the gold standard. This understandable loss of confidence resulted from the inflationary sop to the pro-silver forces in the Bland-Allison Silver Purchase Act of 1878. The shift in Treasury balances from gold to silver struck a disquieting note in foreign financial circles.[2]

References[edit]

  1. Jesús Huerta de Soto. "Money, Bank Credit, and Economic Cycles", Second English edition 2009, p.486. Referenced 2011-01-15.
  2. Murray N. Rothbard. "A History of Money and Banking in the United States: The Colonial Era to World War II" (pdf), The War of 1812 and its Aftermath, p.160-161. Referenced 2011-01-15.

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