Stuart Banner


On his book Speculation: A History of the Fine Line between Gambling and Investing

Cover Interview of September 11, 2017

A close-up

The book begins with a story that took place during the Civil War. In 1862, the cost of the war forced the government to abandon the gold standard. The “greenback,” the Union paper currency, had previously been fixed at one paper dollar per gold dollar, but once the greenback floated against gold, a speculative market in gold quickly sprang into existence, and the value of the greenback plummeted. By the summer of 1864, a dollar of gold was trading for nearly $2.50 in greenbacks. The Union currency had lost more than half its value. Because the government paid for the war in greenbacks, a weaker currency meant a weaker military.

Abraham Lincoln was just one of many political leaders who blamed speculators for the depreciation of the greenback. He thought they were deliberately driving down the value of the dollar in order to sabotage the war effort. So did Salmon Chase, the Secretary of the Treasury. So did many members of Congress, who quickly enacted a law that prohibited trading in gold futures—that is, contracts for the sale of gold to be delivered at a later date.

The ban on gold futures did nothing to halt the dollar’s slide. As many bankers pointed out, the price of gold was determined by worldwide supply and demand. It could not be influenced for long by a small group of traders in New York. The law’s only effect was to shut down the New York Gold Exchange, which made it harder even for lawful buyers and sellers of gold to find one another. A hastily assembled group of New York merchants traveled to Washington to urge Congress to repeal the gold law. The prohibition of gold futures lasted only two weeks.

In its details, the controversy over gold futures grew out of the unique crisis of the Civil War, but the controversy shared a structure with many other debates that took place in the early republic, and many more that would arise in later years. It required drawing a line between transactions thought to be harmful and those thought to be beneficial, a line between gambling and legitimate commerce. Everyone agreed that gambling was bad and that commerce was necessary. The difficulty was in telling the two apart.