The great depression was caused because government wanted to win a war it had declared against its subjects. At the beginning of the Depression (we’ve even learned to spell it with a capitol “D”, the way we capitalize any war) the government stopped putting money into circulation.
The economy literally dried up.
In its endless pretence of “making things better”, various new programs and projects were started. Some, like the TVA, are still wasting money. At the beginning of the Depression, people had coins of real value.
In order to become the sole arbiter of value, the Government made it illegal to own gold. It sent people around to the homes of those rumored to own gold, and made them sell their gold to the government. They were given a green piece of paper that said “$20.00” for every ounce of gold they lost.
After the government got all the gold, they decided that gold was worth more. Suddenly, all the gold for which they’d paid $20.00 an ounce was decreed to be worth $35.00 an ounce.
It was a very profitable enterprise. The government nearly doubled its reserves. The people lost nearly half their gold, since the piece of green paper marked $20.00 could only be redeemed for a little more than half the amount that was taken from them.
It was soon discovered that people were keeping “too much” gold in safety deposit boxes. By the early 1930s, it became illegal to open some safety deposit boxes without a federal inspector on hand.
So, all the best pieces of gold that people had hoarded were all confiscated. Gresham’s Law had helped the government get all the best coins into its possession.
Bad money had driven out good money, and the government got all the good money. So, Gresham’s Law also teaches that bad government drives out good government.
