The silver purchase program, initiated by President Franklin Roosevelt in late 1933 in response to the economically small but politically potent silver bloc, gave a large short-run subsidy to silver producers at the cost of destroying any long-run monetary role for silver. More important, it imposed severe deflation on China, the only major country still on a silver standard, and forced it off the silver standard and on to a fiat standard, which brought forward in time and increased in severity the subsequent wartime inflation and postwar hyperinflation. The silver purchase program thereby contributed, though perhaps only modestly, to the ultimate triumph of the Communists.

The silver purchase program, initiated by President Franklin Roosevelt in late 1933 in response to the economically small but politically potent silver bloc, gave a large short-run subsidy to silver producers at the cost of destroying any long-run monetary role for silver. More important, it imposed severe deflation on China, the only major country still on a silver standard, and forced it off the silver standard and on to a fiat standard, which brought forward in time and increased in severity the subsequent wartime inflation and postwar hyperinflation. The silver purchase program thereby contributed, though perhaps only modestly, to the ultimate triumph of the Communists.

The U.S. Coinage Act of 1873 eliminated provision for the free coinage of silver. That act cast the die for a gold standard. The conventional view is that "the act of 1873 was a piece of good fortune." This paper indicates that it was the opposite--a mistake that had highly adverse consequences. This is a judgment about 1873, not 1896. By 1896, when William Jennings Bryan ran for president on a "free-silver ticket," it was too late to undo the damage. Bryan was trying to close the barn door after the horse had been stolen.

The U.S. Coinage Act of 1873 eliminated provision for the free coinage of silver. That act cast the die for a gold standard. The conventional view is that "the act of 1873 was a piece of good fortune." This paper indicates that it was the opposite--a mistake that had highly adverse consequences. This is a judgment about 1873, not 1896. By 1896, when William Jennings Bryan ran for president on a "free-silver ticket," it was too late to undo the damage. Bryan was trying to close the barn door after the horse had been stolen.

Quarterly data for the period from 1961 to 1986 suggest that the real quantity of money (defined as M2) demanded relative to income is positively r elated to the deflated price of equities (Standard and Poor's composi te) three quarters earlier and negatively related to the contemporane ous real stock price. The positive relation appears to reflect a weal th effect; the negative, a substitution effect. The wealth effect app ears stronger than the substitution effect. The volume of transaction s has an appreciable effect on M1 velocity but not on M2 velocity. An nual data for a century suggest that the apparent dominance of the we alth effect is the exception, not the rule. Copyright 1988 by University of Chicago Press.