Money and Banking Lec3-4

I’ve been making the odd note about Mehrling's course . This week I’ll comment on a few more segments from Lecture-3

Money is Still Not Gold

Just wanted to make a note that in this lecture it finally makes sense why Mehrling is obsessed with gold.

It is because he has a strong history buff spirit about him.

It is really the first time in the MOOC series when gold becomes important. Domestically taxes always drive sufficient demand. For the Civil War it made sense that the North would grab the gold and use it as an export to get imports. But even then, the gold is not the currency here, it’s a commodity. The promise to pay is the currency, and that’s never gold.

For gold coins it is not the metal that is the currency, it is the stamp of the issuer on it promising to be redeemed.

Having said that, in the historical context of the American Civil War it makes perfect sense to me way Salmon P Chase took the actions he did, as US Treasury Secretary going off the gold standard and issuing tax credits (paper money) once the gold ran out. Which, to me (call e dumb) proves the point that the gold was never the currency.

A “Gold Standard” is a peg to gold — your currency becomes a promise to redeem for gold. The issue before the Civil War was there was no central bank acting as the tax repository, and so taxation was decoupled from banking, hence all the chaos and bank runs and gold fever. All needless ideally, but historically a tad unavoidable due to America being an immature nation fairly unaccustomed to a strong central government.

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