WI: Free Silver

All fans of the Campaign Trail Game know that William Jennings Bryan was a fierce supporter of "free silver" (i.e. inflation). What would happen if Bryan were elected and free silver became law? Hopefully some economically minded people could answer. . .
 
Well, for one the general deflationary bias of the post-war years would end. I can only imagine the US economy would be significantly less fragile from a monetary perspective.

Specifically what happens, however, depends entirely on the details. What gold parity is silver minted at? I'll go and look into the specifics on the National Banking Acts. I'm not 100% sure how this will effect things (the Federal government will still be retiring Treasury Bonds at an accelerating pace, shrinking the supply of legal bank note backing), but it might have some effect.

Time to go read some old laws!
 
Specifically, he was a proponent of free coinage of silver at a ratio of 16:1 (1 oz gold = 16 oz silver). The market ratio was somewhere around 30:1, so the effect would have been a currency devaluation of about 50%: this would produce a large transfer of wealth from creditors to debtors (by cutting the real value of all dollar debts in half -- this would be a major boon to households and business with high debt loads (mainly small farmers, hence Bryan's rural political base), but could be ruinous to pensioners and anyone else dependant on fixed-income assets), and in the short term would reduce both real wages and unemployment (the value of wages would be inflated down, so businesses could hire more people for the same nominal wage until prospective employees caught on).

Export industries would particularly prosper in the short term, since a pound or franc would buy twice as many dollars worth of goods, at least until US prices reacted to the devaluation. The reverse would be the case for major purchasers of imported goods.

Longer-term, there will be negative effects on foreign trade and foreign employment. The US would be on a de facto silver standard at a time when most of our trading partners were on a gold standard, so currency risk would raise the cost of trade and investment. The devaluation would also raise perceptions of regime risk of doing business with the US: if the US government devalued the currency once, what would stop the government from doing so again?
 
Well, for one the general deflationary bias of the post-war years would end. I can only imagine the US economy would be significantly less fragile from a monetary perspective.

Specifically what happens, however, depends entirely on the details. What gold parity is silver minted at? I'll go and look into the specifics on the National Banking Acts. I'm not 100% sure how this will effect things (the Federal government will still be retiring Treasury Bonds at an accelerating pace, shrinking the supply of legal bank note backing), but it might have some effect.

Time to go read some old laws!

Bryant was pushing for 16 to 1
 
Specifically, he was a proponent of free coinage of silver at a ratio of 16:1 (1 oz gold = 16 oz silver). The market ratio was somewhere around 30:1, so the effect would have been a currency devaluation of about 50%: this would produce a large transfer of wealth from creditors to debtors (by cutting the real value of all dollar debts in half -- this would be a major boon to households and business with high debt loads (mainly small farmers, hence Bryan's rural political base), but could be ruinous to pensioners and anyone else dependant on fixed-income assets), and in the short term would reduce both real wages and unemployment (the value of wages would be inflated down, so businesses could hire more people for the same nominal wage until prospective employees caught on).

Export industries would particularly prosper in the short term, since a pound or franc would buy twice as many dollars worth of goods, at least until US prices reacted to the devaluation. The reverse would be the case for major purchasers of imported goods.

Longer-term, there will be negative effects on foreign trade and foreign employment. The US would be on a de facto silver standard at a time when most of our trading partners were on a gold standard, so currency risk would raise the cost of trade and investment. The devaluation would also raise perceptions of regime risk of doing business with the US: if the US government devalued the currency once, what would stop the government from doing so again?

I'm not 100% sure Bryan would get the ratio he wanted.

However, it's unlikely that the market ratio would continue once silver was monetized. Where exactly it would go would be unpredictable, but it is almost certain it wouldn't still be 30 to 1. The sudden spike in demand for silver would drastically increase its price.
 

katchen

Banned
It would be a shot in the arm for Colorado and Idaho and Nevada, which have large silver depsits. Also Alaska, which might get statehood in 1907 ITTL. The area north of Nome has large silver deposits and would be developed (the Kobuk and Noatak and Colville Basins) instead of remaining wilderness as would the Pebble Mine that Alaska is arguing about now and Prince of Wales Island. Ketchikan might even get a railroad to the mainland and the Grand Trunk Railway with Alaska getting a railroad to the Lower 48. (And just think about how different US history would be with a well developed Alaska by the 1940s). Mexico, which has the world's largest silver deposits would also prosper.
 
How about if Bryan is forced by Congress to compromise and the US ends up with a 30-1 ratio, which is periodically adjusted to match actual prices in order to avoid a run on the Treasury's Gold reserves ?
 
How about if Bryan is forced by Congress to compromise and the US ends up with a 30-1 ratio, which is periodically adjusted to match actual prices in order to avoid a run on the Treasury's Gold reserves ?

Thats in the game and most people pick it as it helps your chances of being elected rather then 16-1.
 
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