William McKinley
25th US President
Assassinated
Sept. 14, 1901
William Jennings Bryan
- McKinley’s Opponent
in 1896 Election
The Cross of Gold Speech
“You come to us and tell us that the great cities are in favor of the gold
standard. I tell you that the great cities rest upon these 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……
“…we shall fight them to the uttermost, having behind us the producing
masses of the nation and the world. Having behind us the commercial
interests and the laboring interests and all the toiling masses, we shall
answer their demands 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.”
www.americanrhetoric.com/speeches/williamjenningsbryan1896dnc.htm
Crucifixion of Labor
www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb050302.pdf
Fig. 19-1: The Macro-Trilemma (Impossible Trinity)
David Hume, 1711-1776
Empiricist Philosophy
and Monetary Theory
MV = PY
• When gold reserves low, CBs should decrease Ms
• Sell Bonds, reduce Ms, increase R, draw in Gold
• When gold reserves high, CBs should
• Buy Bonds, increase Ms, decrease R, drive out Gold
• But Gold Surplus countries comfortable, no political push
for stimulus.
• Analogous to position of Germany in Eurozone today.
• Comfortable position makes it harder for other countries
to achieve surplus.
Krugman et. al. note: “The U.S. unemployment rate
was 6.8% on average from 1890 to 1913, but it was
less than 5.7% on average from 1946 to 1992.”
But note:
UE 1948 to 2007 = 5.6%.
UE 1948 to 2013 (I) = 5.9%.
And UE 1869 to 1890 = 4.8%
(J.R. Vernon, 1994, Jou. of Macroeconomics)
• All major countries pegged to US Dollar –
no independent Monetary policy.
• All other countries ‘import US inflation.’
• Growth of Trade and accumulation of
Dollars meant more Dollars than Gold.
• Dollar tied to Gold, $35 per ounce – until
1971.
• 1973, most currencies go ‘managed float.’
• Fiscal Stimulus powerful under Fixed Exchange Rates,
since Monetary Policy must be Accommodative
• Monetary Stimulus powerful under Flexible Exchange
Rates, since Fiscal Policy must be Accommodative.
IS-LM, Fixed Rates:
M accommodates since E (and R) fixed
R
_2
1
LM1
3
LM2
IS1
IS2
Y
IS-LM, Flex Rates:
Change in R and E drive IS
R
_1
3
2
LM1
LM2
IS1
IS2
Y