4 Responses to How Banks Create Money | Economist

1. Joe R. says:

   July 10, 2023 at 2:14 PM

   Is there actually any historical truth behind that story? I mean the first part about the banks and gold. It is a story we are always told but is it real or invented?

   Reply
   • macromon says:

     July 10, 2023 at 3:31 PM

     What Is a Gold Certificate?
     A gold certificate, issued as U.S. currency equivalents until 1934, proves ownership of a specific amount of gold.

     KEY TAKEAWAYS
     The U.S. issued gold certificates that were identical in face value to their dollar denominations from 1879 until 1934 when the country abandoned the gold standard.
     U.S. gold certificates now have only collectible value.
     Gold certificates are still issued by some banks and other companies as proof of ownership of the stated amount of gold bullion.

     https://www.investopedia.com/terms/g/goldcertificate.asp#:~:text=The%20U.S.%20issued%20gold%20certificates,now%20have%20only%20collectible%20value.

     Note, on of the first things Roosevelt did was default on these gold certificates.

     This was followed by the abandonment of the gold standard, the unilateral and retroactive rewriting of contracts, and the devaluation of the dollar. Anyone who held public and private debt suddenly saw its value reduced by nearly half, and debtors — including the U.S. government—suddenly owed their creditors far less. Revaluing the dollar imposed a hefty loss on investors and savers, many of them middle-class American families. The banks fought back, and a bitter battle for gold ensued. In early 1935, the case went to the Supreme Court. Edwards describes FDR’s rancorous clashes with conservative Chief Justice Charles Evans Hughes, a confrontation that threatened to finish the New Deal for good—and that led to FDR’s attempt to pack the court in 1937.

     https://press.princeton.edu/books/hardcover/9780691161884/american-default

     Reply
2. macromon says:

   July 10, 2023 at 3:26 PM

   Yes, very real. I will find you some documentation.

   Reply
   • Joe R. says:

     July 11, 2023 at 11:11 AM

     It is okay Gregor, thanks. That is enough. I hadn’t heard of the first US ditching of the gold standard so that is interesting.

     I guess I meant the question in a more broad historical way. I will read a book by David Graeber soon called ‘Debt: the first 5000 years’ so probably there is an answer in there!

     Reply

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