HoltesThoughts: Grant, Sound Money And Human Suffering

Learning Lessons from the Past

In my previous post on General Grant (general-grant-and-mark-twain-greenbacks.html), I was referring to a biography of Grant I had just read. There are a lot of lessons to learn from the Civil War era, and the Grant administration about what to do and what not to do to nurture and sustain an economy.

What Grant Did Right and What he did wrong

These posts are not an attack on Grant. Both I and the author of the book are sympathetic to grant. But on the issue of how to regulate and control our money supply and prevent or deal with depressions, Grant was in the wrong. The author concedes that Grant himself, in 1873, felt regret even as he took actions that were inimical to dealing with the suffering caused by the panic of 1873. In Grant's defense, the leading men of his time were "hard money" men who would have preferred that the only money available to the general public would be coins. And they were offering him advice. These men rightly distrusted private bank notes, but they also generalized that distrust to greenbacks and fiscal or monetary measures to deal with the business cycle.

Grant And Panic of 1873

The New York Times writes on how the proximate causes of the panic lay in lack of banking reserves forcing banks into panics and closures. But the subtext of the panic of 1873 was that Grant wanted "Sound Money" and was determined to get a money backed by Gold Specie. Grant insisted the USA "pay its debts in gold", not gold and silver, which were "still legal specie."

Congress and many ordinary folks begged to differ.

"On April 14, 1874, Congress passed an inflation bill that would increase the nation's money supply by $100 million."

Grant had insisted on a specie backed currency. Nick Sacco writes:

"Grant feared that passage of the bill would lead to future efforts to print even more inflationary greenbacks. S.B. 617, according to Grant, “is a departure from the principles of finance, national interest, the nation’s obligations to creditors, Congressional promises, party pledges (on the part of both political parties), and of personal views and promises made by me in every annual message sent to Congress and in each inaugural address.” The nation would ride the course and stay on the gold standard." [Sacco]

Now Grant faced a problem. Investment in the economy had mostly been funneled into building railroads on Credit, and this led to speculation and privateering under the "Credit Mobilier of America" company, who essentially looted railroad construction contracts while bribing Congress. The failure of the Credit Mobilier led to the panic of 1873 right at the beginning of his second term. The economy tanked.

Grant was buffeted by folks who wanted "soft money" solutions -- print Greenbacks. And folks who wanted hard money solutions. Treat the national economy like it was a household account. Grant "understood the plight of struggling western farmers who begged him to release greenbacks into the economy. Other farmers advocated for not increasing the greenback supply. He opted for stabilizing the money supply. In April 1874 Grant vetoed a fiscal spending bill that might have put people back to work as a "departure from true principles of finance, national interest, national obligations to creditors, Congressional promises, party pledges..." This caused untold suffering. But did protect the money supply.

I was going to make this a longer post, but then I realized that his idea of "clearing houses" was a dead end. He needed a means to regulate the private banks, regulate the currency and fiscal tools for managing the economy. But I'm not sure he even understood the problem So I'm going to stop here. Greenbacks were a very successful currency. That is probably why they were opposed. Too much untaxed money in the wrong hands drove the recession. Probably Henry George's Progress and Poverty was inspired by observing the Grant era and earlier ones.

http://holtesthoughts.blogspot.com/2017/04/general-grant-and-mark-twain-greenbacks.html

http://www.presidency.ucsb.edu/ws/?pid=29514/dd>

http://www.nytimes.com/learning/general/onthisday/harp/1011.html

https://www.senate.gov/reference/Legislation/Vetoes/Presidents/GrantU.pdf

Chicago Tribune on Veto message: [http://archives.chicagotribune.com/1874/04/24/page/4/article/the-veto-message]

Sacco: https://pastexplore.wordpress.com/2014/09/17/president-ulysses-s-grant-and-the-panic-of-1873/