On this day in 1869, gold prices plummeted in what was know as one of at least a dozen Black Fridays. What was happening was that two speculators, Jay Gould and James Fisk, were trying to corner the gold market. Following the Civil War, the US government was badly in debt. It was thought that the government would eventually have to pay this back with gold. So Gould and Fisk figured they could make a mint if they cornered the market. They succeeded at first, but were ultimately defeated when the Grant administration flooded the market with gold. Prices went back down within minutes of the news.
This was one of many scandals during the Grant administration — most of all because Grant’s brother-in-law was in on the whole thing and secretly encouraging Grant not to sell any gold. He also got Grant to appoint Daniel Butterfield as assistant Treasurer — where he acted as a mole for Gould and Fisk. I’m not actually that interested in any this. What most interests me is how easy it was for a small group of men to monkey with the price of gold. And if it weren’t for the government stepping in, they would have succeeded at their dastardly plan.
What I still don’t understand is why so many libertarian friends of mine have been so hung up on the idea of the gold standard. Basing a currency on gold does not magically fix the problem of inflation. In fact, inflation has been far less of a problem since we stopped basing our currency on it than it was before. Regardless, gold prices fluctuate. There is nothing special about it. I think the appeal of it is simply based upon the fact that these libertarians really don’t have a clue as to how money actually works.