By Bob Q Jones
Fulfilling his campaign promise of a return to the gold standard, McKinley signed the Gold Standard Act into law in 1900. Although the act ended bimetallism in one sense and established gold as the official legal standard, it did not prove to have a deflationary effect. In practice, bimetallism did not end as silver was the circulating medium found in most of the small coinage throughout the country.
Easy-money blocs had advocated expansion of coin and currency as the primary means of increasing money in circulation. But, by 1900, demand deposits had become the fastest growing component of the money supply. Furthermore, gold discoveries in Alaska, South Africa, and Colorado combined with the invention of new mining and refining methods to produce a rapid increase in gold. With ample gold to serve as reserves, the quantity of money expanded at roughly 6 percent a year from 1900 to 1912, effectively quieting the clamor for easier money. Banking once again became the focus of the financial reform movement.
By 1900, the weaknesses of the national banking system were widely recognized, as was the decentralized nature of American banking relative to the central banking systems developing in Europe. But, once again, only a dramatic crisis--the 1907 money market panic--could focus the attention of legislators on bank reform.
An economic boom had ended in early 1907 and was followed by a recession that remained relatively mild for about 6 months. Then, in late October, the failure of the Knickerbocker Trust Company triggered a concerted run on other trust companies and banks. Banks were forced to contract their loans, interest rates soared, and reserves began to run down. The pyramiding of reserves that was permitted under the National Banking Act seriously compounded the difficulty, as country banks withdrew deposits at the first sign of a crisis and impaired the solvency of large city banks.
To alleviate the crisis, the Secretary of the Treasury deposited $36 million in New York banks in a single 2-week period. But before the panic eased at the end of the year, banks and savings institutions were forced to restrict deposit withdrawals. The panic brought into sharp relief the defects of the banking system.
In the wake of the crisis, Congress passed the Aldrich-Vreeland Act to provide emergency relief in the event of another panic. The act also created a National Monetary Commission to study banking and its problems and to help prepare a permanent banking act. Studies by that commission led eventually to a comprehensive bill introduced by Carter Glass, chairman of the House Banking and Currency Committee. This bill, signed shortly after Woodrow Wilson became President in 1913, was the Federal Reserve Act.
Fulfilling his campaign promise of a return to the gold standard, McKinley signed the Gold Standard Act into law in 1900. Although the act ended bimetallism in one sense and established gold as the official legal standard, it did not prove to have a deflationary effect. In practice, bimetallism did not end as silver was the circulating medium found in most of the small coinage throughout the country.
Easy-money blocs had advocated expansion of coin and currency as the primary means of increasing money in circulation. But, by 1900, demand deposits had become the fastest growing component of the money supply. Furthermore, gold discoveries in Alaska, South Africa, and Colorado combined with the invention of new mining and refining methods to produce a rapid increase in gold. With ample gold to serve as reserves, the quantity of money expanded at roughly 6 percent a year from 1900 to 1912, effectively quieting the clamor for easier money. Banking once again became the focus of the financial reform movement.
By 1900, the weaknesses of the national banking system were widely recognized, as was the decentralized nature of American banking relative to the central banking systems developing in Europe. But, once again, only a dramatic crisis--the 1907 money market panic--could focus the attention of legislators on bank reform.
An economic boom had ended in early 1907 and was followed by a recession that remained relatively mild for about 6 months. Then, in late October, the failure of the Knickerbocker Trust Company triggered a concerted run on other trust companies and banks. Banks were forced to contract their loans, interest rates soared, and reserves began to run down. The pyramiding of reserves that was permitted under the National Banking Act seriously compounded the difficulty, as country banks withdrew deposits at the first sign of a crisis and impaired the solvency of large city banks.
To alleviate the crisis, the Secretary of the Treasury deposited $36 million in New York banks in a single 2-week period. But before the panic eased at the end of the year, banks and savings institutions were forced to restrict deposit withdrawals. The panic brought into sharp relief the defects of the banking system.
In the wake of the crisis, Congress passed the Aldrich-Vreeland Act to provide emergency relief in the event of another panic. The act also created a National Monetary Commission to study banking and its problems and to help prepare a permanent banking act. Studies by that commission led eventually to a comprehensive bill introduced by Carter Glass, chairman of the House Banking and Currency Committee. This bill, signed shortly after Woodrow Wilson became President in 1913, was the Federal Reserve Act.
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1 comments:
Bring back the gold standard.
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