Gold and the gold standard is peeking into the news again. Generally the
gold standard is seen as a instrument that tethers currency to reality,
avoiding shifts in value created by currency availability. But there
are two sides to that concern. In September 1857, the S.S. Central
America sank during a hurricane off Cape Hatteras, killing about 400
people and taking 30,000 pounds of gold to the bottom of the ocean.
The
economy, already in recession, was reeling from bank and insurance
company failures in August. Without the Central America's gold shipment,
destined for the U.S. government and Eastern banks, people began to
worry that their banks would be unable to exchange paper money for gold.
A few weeks later, a prominent Philadelphia bank announced it had
suspended payment in gold, sparking a nationwide run on the banks.
In
addition, while most of the world has been searched for gold, a major
strike would lead to inflation — as it did when the U.S. discovered gold
in California and in Alaska.
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