The Republic for Which It Stands: The United States during Reconstruction and the Gilded Age, 1865-1896 (Oxford History of the United States)

by Richard White

By limiting the money supply in a growing economy, the gold standard led to deflation, which transferred wealth from debtors to creditors and hurt producers, particularly in the South and West. Between 1865 and 1897 prices fell at about 1 percent a year, and the consumer price index declined from 196 to 100, according to retrospective calculations (1860 = 100). Wealthy creditors gained premiums beyond interest payments since deflation meant that the dollars paid to them in interest, and ultimately in the repayment of principal, were always more valuable than the earlier dollars they had lent. The monetary system transferred wealth from the debtor West and South to the East, whose banks and investors controlled the money that was lent. The gold standard also allowed a much smoother integration of New York and London capital markets.