ECON 2200 Lecture Notes - Lecture 37: Money Supply, Pound Sterling, Free Silver
14 May 2018
School
Department
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ECON 2200
Lecture 37
○ Impact of deflation
▪ Borrowers (especially farmers) – represented by Democrats
▪ Lenders (especially U.S. bondholders) – represented by
Republicans
▪ Unanticipated deflation is bad for debtors and good for lenders
(because lenders are paid back in dollars with greater
purchasing power)
▪ Became a political debate between Republicans (for lenders)
and Democrats (for borrowers/farmers)
1 Both parties agreed that decreasing price level and resuming
specie-payment were desirable fiscal goals, but they
disagreed on how to do it.
• Severe Contraction (Republicans) v. Moderate Contraction
(Democrats)
○ Severe contraction
▪ Republicans wanted:
1 Wanted return to specie payment as quickly as possible. To
do this:
Burn Greenbacks as they came in. This would:
➢ Decrease M = cause P to decrease
○ Moderate contraction
▪ Democrats wanted:
1 Wanted to gently bring back specie payment. To do this:
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Impact of deflation: borrowers (especially farmers) represented by democrats, lenders (especially u. s. bondholders) represented by. Republicans: unanticipated deflation is bad for debtors and good for lenders (because lenders are paid back in dollars with greater purchasing power, became a political debate between republicans (for lenders) and democrats (for borrowers/farmers) 1 both parties agreed that decreasing price level and resuming specie-payment were desirable fiscal goals, but they disagreed on how to do it: severe contraction (republicans) v. moderate contraction (democrats) 1 wanted return to specie payment as quickly as possible. Decrease m = cause p to decrease. 1 wanted to gently bring back specie payment. Hold m constant = y will naturally grow, p will gently fall: 1865 contraction act (severe, because republicans controlled congress at the time andrew jackson was president) M fairly severe decline led to p fairly severe decline.
