I’d like to present a rather eccentric comparison of two market environments; the emerging market boom of the 21st Century and the US boom of the 1830s.

 

The 1830s

 

During the 1830s, gold, silver and copper circulated as money throughout most of the world. In the US, both gold and silver were the legal tenders, but silver was practically the only one in use. This was the result of the misguided policies of bimetallism. Simply put, the US government decreed that silver should trade with gold at a rate of 15 to 1, whereas the world market rate stood at ~15.75 to 1. This put silver at an overvalued status and gold at an undervalued status; so the process described by Gresham’s law ensued. Silver rushed into circulation whereas gold disappeared into hoards and flowed abroad.

 

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