The Occasional Correctness of Folk Science

by Will on October 15, 2010

People mostly frame things in ways that are in one respect or another inaccurate. Scientists tend to do a better job. But people aren’t cursed to always be wrong, and scientists have no guarantee of correct knowledge.

In the wake of the Civil War, the United States went back on the Gold Standard, meaning that all of its currency could be converted into gold on request. The quantity of gold was fixed, while the economy was growing. So the supply of money remained constant, though economic activity became ever more broad. This led to a situation where prices were continuously falling, to accommodate the artificially limited amount of money. This had the effect of making debts more expensive over time to the debtors, and more lucrative to the creditors. And this burden fell more heavily on farmers than on anyone else. And so farmers got pretty ticked off.

Farmers recognized that the Gold Standard was hurting them. They organized the Greenback party, demanding a return to paper currency. Amazingly, they elected fourteen Greenback candidates to congress and one to the senate. But their demands went unanswered. In good pragmatic fashion, they realized that paper money was not going to be acceptable to the powerful any time soon, and instead sought a bi-metalic monetary regime, with silver doing the work of expanding the monetary base. They organized the Populist Party and elected some representatives, and then managed the coup of taking over the Democratic party. In 1896 they stymied hard-money president Grover Cleveland from a third presidential bid, instead nominating William Jennings Bryan, an avowed opponent of the Gold Standard, who declared:

“You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”

This was in the midst of a long depression that had started in 1893, characterized by chronic deflation, business failure, and bankruptcy. Bryan barely lost the election: just a few hundred votes in a few western states would have given him the presidency.

Considering the economic morass of the 1890s, in their Monetary History of the United States, Friedman and Schwartz write:

It should perhaps be noted explicitly that we do not intend to suggest that the alternative involving abandonment of the gold standard was economically undesirable. On the contrary, our view is that it might well have been highly preferable to the generally depressed conditions of the 1890s. We rule it out only because, as it turned out, it was politically unacceptable

That’s a quite understated way of saying: the Greenbackers were right, the Populists were right, and Bryan was right. Impressively, they were right at a time when economists were wrong. It is a curious fact of history that theseĀ aggrievedĀ farmers preceded scholarly economists by several decades in concluding that the monetary base should not be constrained, but should grow with economic activity. It is also a curious fact that when scholars eventually arrived at this same conclusion, they gave no due whatsoever to the Greenbackers and Populists who had preceded them.

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