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31 Jan 2014
One of the great divisions in the US (it's #2, with #1 being slavery and race) is between the creditor class, historically eastern bankers and industrialists, and the debtor class, historically western farmers. The creditors want hard money, no inflation, and preferably deflation. The debtors want cheap money, to make it easier to pay their loans.
During its first century, the U.S. engaged in the financially kinky practice of bimetalism. Anyone could present silver or gold to the US Mint, and the mint would turn it into coins. There was an official ratio of value of gold and silver that was adjusted now and then, but in practice it meant that price levels depended on whichever metal was more abundant. When there was a lot of metal being mined, a lot of money would be coined, leading to inflation. There's far more silver than gold, so creditors have always preferred gold-only, which tended to keep the money supply down and the values of their loans high. Debtors, needless to say, feel the other way.
The Coinage Act of 1873 demonetized silver, no more silver dollars, just gold. Unsurprisingly this led to deflation, the Panic of 1873, the aptly named Long Depression, and subsequent Panics of 1884, 1893, and particularly 1907. The free silver movement wanted to resume coining silver, which would increase the money supply, relieve debtors, and resuscitate the economy. This was the major political topic for the next several decades until the creation of the Federal Reserve in 1913 made the issue mostly moot.
At the 1896 Democratic political convention, William Jennings Bryan, who was then a moderately well known congressman from Nebraska, made his famous speech, in which he said, among other things:
There are two ideas of government. There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them. You come to us and tell us that the great cities are in favor of the gold standard; we reply that the great cities rest upon our broad and fertile prairies. Burn down your cities and leave our farms, and your cities will spring up again as if by magic; but destroy our farms and the grass will grow in the streets of every city in the country. ...
Having behind us the producing masses of this nation and the world, supported by the commercial interests, the laboring interests, and the toilers everywhere, we will answer their demand for a gold standard by saying to them: "You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold!"
So what does this have to do with Bitcoins?
As I've mentioned before, Bitcoins combine the advantages of the gold standard with the disadvantages of the gold standard, minus the option to turn them into jewelery, electronic circuits, and dental work, and the ever inflating Bitcoin bubble is a deflationist creditor's dream.
Bitcoin enthusiasts seem to envision a world where everyone's a banker and nobody's a farmer. That sounds appealing, I suppose, but I don't know what you plan to eat.
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