Chapter 37 from Ellen Brown's Web of Debt
Goldbugs Vs Greenbackers
Why not return to gold as the national currency? Since that question has come up often on this blog, a chapter from “Web of Debt” addressing it is posted below.
Chapter 37
THE MONEY QUESTION: GOLDBUGS AND GREENBACKERS DEBATE
“You shall not crucify mankind upon a cross of gold.”
– William Jennings Bryan, 1896 Democratic Convention
At opposite ends of the debate over the money question in the
1890s were the “Goldbugs,” led by the bankers, and the “Greenbackers,” who were chiefly farmers and laborers.1 The use of the term “Goldbug” has been traced to the 1896 Presidential election, when supporters of gold money took to wearing lapel pins of small insects to show their position. The Greenbackers at the other extreme were suspicious of a money system dependent on the bankers’ gold, having felt its crushing effects in their own lives. As Vernon Parrington summarized their position in the 1920s:
To allow the bankers to erect a monetary system on gold is to subject the producer to the money-broker and measure deferred payments by a yardstick that lengthens or shortens from year to year. The only safe and rational currency is a national currency based on the national credit, sponsored by the state, flexible, and controlled in the interests of the people as a whole.2
The Goldbugs countered that currency backed only by the national credit was too easily inflated by unscrupulous politicians. Gold, they insisted, was the only stable medium of exchange. They called it “sound money” or “honest money.” Gold had the weight of history to recommend it, having been used as money for 5,000 years. It had to be extracted from the earth under difficult and often dangerous circumstances, and the earth had only so much of it to relinquish. The supply of it was therefore relatively fixed. The virtue of gold was that it was a rare commodity that could not be inflated by irresponsible governments out of all proportion to the supply of goods and services.
The Greenbackers responded that gold’s scarcity, far from being a virtue, was actually its major drawback as a medium of exchange. Gold coins might be “honest money,” but their scarcity had led governments to condone dishonest money, the sleight of hand known as “fractional reserve” banking. Governments that were barred from creating their own paper money would just borrow it from banks that created it and then demanded it back with interest. As Stephen Zarlenga noted in The Lost Science of Money:
[A]ll of the plausible sounding gold standard theory could not change or hide the fact that, in order to function, the system had to mix paper credits with gold in domestic economies. Even after this addition, the mixed gold and credit standard could not properly service the growing economies. They periodically broke down with dire domestic and international results. [In] the worst such breakdown, the Great Crash and Depression of 1929-33, . . . it was widely noted that those countries did best that left the gold standard soonest.3
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