THE FINANCIAL CONTEXT

Under the gold standard, the United States redeemed dollars on demand, in gold, at the rate of $20.64 to the ounce. Americans thereby anchored their currency to those of other gold standard countries—France; Germany; and most important, Britain—which were their chief trading partners and a major source of investment capital.Footnote ³ To maintain the gold standard, however, the United States pursued a restrictive monetary policy that forced prices down. Between 1873 and 1896, prices fell by roughly one-third. This decline particularly hurt farmers, who were often in debt and saw the prices of their crops sink even more than average—in the case of the most important crops, cotton and wheat, by 50 percent. Persistent deflation kept the currency issue at the forefront of politics. Initially, inflationists focused on greenbacks, the paper currency issued during the Civil War.Footnote ⁴ Yet the discovery of huge deposits of silver in the American West made it an increasingly attractive vehicle for inflation. By the 1880s, those squeezed by falling prices were demanding the “free coinage” of silver at $1.29 an ounce. Because the market price of silver was well below $1.29, free coinage would almost certainly lead to a substantial increase in the money supply, inflation, and devaluation. The results would probably help farmers but might well disrupt international trade and investment.Footnote ⁵

The currency issue cut across party lines. Democrats from the South and Republicans from the Great Plains, who represented cotton and wheat farmers, respectively, were amenable to inflation. Democrats from New York and Republicans from Massachusetts, centers of commerce and industry, preferred gold. An all-out fight over the currency threatened to splinter both parties, giving political leaders a strong incentive to compromise. In the late 1870s, the government forged a workable accommodation between gold and silver. In 1879, the United States adopted the gold standard, replacing the paper currency forced upon it by the Civil War; but at the same time, it began to coin a limited but significant amount of silver.Footnote ⁶ This policy expanded the money supply, even as buoyant growth and a substantial federal budget surplus allowed the government to keep silver money at par with gold. This compromise failed to mollify the most committed partisans of either metal, popularly known as silverites and goldbugs, but most Americans seemed satisfied with it as long as the compromise worked financially, which it did for almost a decade.

This equilibrium began to unravel in the late 1880s when, after several years of relative stability, farm prices began falling again, generating new calls for inflation. Deflation encouraged the rise of the Farmers' Alliance and the People's Party (the Populists)—both of which challenged the existing political structure. Once again, politicians devised a compromise, having the government purchase all the silver mined in the United States with Treasury Bills that it promised to redeem, on demand, in gold. This expedient collapsed in 1893. A devastating financial crisis and an alarming drop in the U.S. government's gold reserve convinced President Grover Cleveland that compromise was no longer realistic, and he rammed through Congress legislation ending the purchase of silver. Victory came at a high price, however. The president's policy alienated much of his own Democratic Party, and he had to rely on Republicans to get his measure through the Senate. Cleveland believed that the affirmation of the gold standard would dispel the financial panic, but instead depression settled on the country, lasting into 1897.Footnote ⁷ Between them, the bitter debate over silver coinage in 1893 and the Depression destroyed the middle ground and inaugurated the Battle of the Standards, which dominated national politics through the 1896 presidential election, when Republican William McKinley's victory over Democrat William Jennings Bryan settled the matter in favor of gold.

Yet the question remains: why did free silver and the gold standard arouse such passions? As William Dillon, a prominent Chicago journalist and lawyer, put it, “This is a question of enormous complexity about which men of the highest capacity, who have made a special study of the subject, are still at variance. But to read the gold papers in the country one would conclude that no man who was not a born idiot could see any merit on the silver side. And to read the silver papers one would suppose that no man not fit subject for the penitentiary could advocate the single gold standard.”Footnote ⁸

THE CRIME OF ‘73

According to silverites, the course of American history pivoted on events in 1873. As they saw it, silver coinage constituted part of the fabric of the American Republic. In 1792, at the urging of Alexander Hamilton, Congress authorized the free coinage of both gold and silver. As Senator John Daniel (D-VA) insisted, “The great men who framed our institutions were bimetallists. Our system was designed by Hamilton and Jefferson and approved by Washington; and it existed, flourished, and fulfilled its function from 1793 to 1873 … We flourished as no one nation has ever flourished since time began.”Footnote ⁹ Even the Civil War could not permanently halt the country's progress. After that conflict, as one silverite wrote, “hope sang is the hearts of America's millions; the nation, despite the terrible ravages of the late war, was springing in unparalleled prosperity.” The reason was simple: “Money was plentiful.” Unfortunately, “there were … two classes disturbed over the prosperity of the people. One was England's capitalists, and the other was the usurer class in our country—the drones in the hive of civilization.”Footnote ¹⁰

In 1873, Congress demonetized silver. An otherwise routine piece of legislation standardizing the coinage dropped the silver dollar from the list of authorized coins. Because this coin was the only silver money subject to free coinage, the omission effectively left gold as the sole basis for the currency. At the time, few commented on the measure, and many then in Congress would later insist that they did not recall the bill. The record clearly shows that the measure went through the usual procedures and that some senators and congressmen did discuss it, but most lawmakers probably paid little attention to what was apparently a technical measure without policy implications.Footnote ¹¹ The country was still on a paper standard—neither silver nor gold coins circulated in the normal course of business.Footnote ¹² Given the many issues competing for the attention of legislators, it is easy to imagine that few studied the bill carefully.

Silverites considered this measure an epic piece of deceit. In Seven Financial Conspiracies Which Have Enslaved the American People, one of the seminal texts of the Populist movement, Sarah Emery claimed, “In 1872, silver being demonetized in France, England, and Holland, a capital of $500,000 was raised, and Ernest Seyd of London was sent to this country with the fund, as agent of the foreign bond holders and capitalists, to effect the same object (demonetization of silver), which was accomplished.”Footnote ¹³ Although few other silverites were as specific as Emery, a large portion of them saw the 1873 act as the product of conspiracy. A report issued in 1890 by silverite members of the House of Representatives asserted, “The conspiracy formed in the Old World, planned and so successfully carried through there and here, was aimed to confine the debt-paying medium of the nations concerned to the single metal, gold … Gold decreed to rapidly rise in value, thus adding fifty percent to the value of credits, enriching creditors, public and private, at the expense of debtors and taxpayers.”Footnote ¹⁴ This was the “Crime of ‘73.” The results were disastrous. Sen. Wilkinson Call (D-FL) asserted, “There have been tyrants, there have been desolating armies, there has been scourges of disease, but at no period in the history of the world have a larger proportion of the great mass of people been placed, even in the midst of the splendid inventions and progress of civilization, in greater conditions of suffering and poverty.”Footnote ¹⁵

Silverites saw the conspiracy's success as marking a deeper shift in political power. In 1893, Representative Thomas Stockdale (D-MO) insisted, “A truthful history of the last thirty years of legislation touching finances would disclose a continuous, vigilant and powerful (and I may say successful) organization of the money interests of the country to dominate the currency to private interests. Those people have been most remarkably successful and have continuously grown strong and made their opponents correspondingly weaker.”Footnote ¹⁶ During the 1896 campaign, William Jennings Bryan stated, “With all laws in favor of trusts and monopolists, the coercion of the government has allowed the few to tax and absorb the entire earnings of the common people. All the wealth created by the ingenuity of the masses in mechanical arts, in industrial and agricultural pursuits, has gone into the coffers of the few.”Footnote ¹⁷ As Frank Parsons, an engineer and educator with a broad interest in social reform, declared in 1896, “It is a question not of the remonetization of silver, but of the remanitization of government—a question of entrusting the federal power to men in hearty sympathy with the great common people, or to men in sympathy with Wall Street and the whole army of parasites and monopolies.”Footnote ¹⁸

Silverites viewed the history of the Republic as an ongoing struggle between the wealthy—particularly bankers and other financiers—and the great mass of ordinary people for control of the government. They considered Thomas Jefferson's resistance to the First Bank of the United States and Andrew Jackson's war against the Second Bank as precedents for their own campaign. Silverites also enlisted the foremost saint in the nation's secular pantheon, Abraham Lincoln, citing a letter attributed to him in late 1864: “As a result of the war corporations have been enthroned and the era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands, and the Republic is destroyed. I feel at this moment, more anxiety for the safety of my country than ever before, even in the midst of war.”Footnote ¹⁹ In 1873, these fears became fact, and the country fell under the control of a financial oligarchy.

Silverite history did considerable violence to the facts. No silver dollars circulated in the United States in 1873, so demonetization did not reduce the supply of money.Footnote ²⁰ Most legislators who voted to eliminate the silver dollar believed they were doing away with an obsolete coin that no one had used for twenty-five years. Financial sophisticates such as Senator John Sherman (R-OH), who managed the bill in the Senate and would, as Treasury Secretary from 1877 to 1880, engineer the American return to the gold standard, did understand that this measure committed the United States to gold. Sherman, and most others who had studied the question carefully, expected silver prices to fall as a result both of Germany's shift to the gold standard and the discovery of huge deposits of silver in the American West, but even they did not anticipate the scale of the collapse.Footnote ²¹ Nor is there evidence that foreign interests ever lobbied the U.S. Congress about the currency. The charge of bribery against Ernest Seyd, for example, was a complete fabrication. Seyd, a noted expert on coinage, did not visit the United States in 1872 or 1873. At the request of one of the representatives managing the 1873 coinage bill, he did write a lengthy memo on the legislation, but this document strongly criticized the decision to drop silver coinage.Footnote ²² The oft-cited letter from Lincoln was a forgery. Silverites had a legitimate claim to the political legacy of Thomas Jefferson and Andrew Jackson, but Lincoln had signed legislation creating the national banking system, a bête noire of silverites.

This mixture of conspiracy theory and pseudo-history has led many to discount silverites entirely. In his Pulitzer-Prize-winning 1955 study, The Age of Reform, Richard Hofstadter wrote, “Populist thought showed an unusually strong tendency to account for relatively impersonal events in highly personal terms,” and was driven by “a common fear of an impending apocalypse.” He considered such thinking typical of “those who have obtained only a low level of education, whose access to information is poor, and who are … completely shut out from access to the centers of power.”Footnote ²³ Yet conspiracy theories have a long if not exactly honorable history in American politics. Even Thomas Jefferson and Abraham Lincoln sometimes blamed conspiracies for political developments that alarmed them. As historian Jeffrey Ostler convincingly argues, silverites merely tapped into some of the less attractive language and habits of thought of the political culture to which they belonged to justify their attack on the existing political parties.Footnote ²⁴ Moreover, political corruption was pervasive in the Gilded Age, as most silverites (and many goldbugs) recognized. Their error was to conflate many small, varied conspiracies into one vast, focused one.

However overwrought, this rhetoric points to debt as a basic cause of unrest, as well as to the regional animosities that undergird conflict. In the recently settled West, mortgages were ubiquitous, and chattel loans (short-term credits) were common as well, while most Southern farmers depended on the crop lien simply to get through the year. Lindley Keasbey, an economist living in the West, wrote, “The settler of this region has ever been a borrower of eastern capital. He needed the money at the outset to redeem the barren lands stretching out before him. He has needed extra funds ever since to enlarge his original holdings. With his face turned resolutely toward the setting sun, for years the western farmer has toiled assiduously, striving to save enough to pay off his eastern debt after providing at least a decent living for his family. The harder he labored, and the greater the amount of produce he sent to eastern markets, just so much more difficult it seemed to him to keep up with the ever-increasing interest on his eastern farm mortgage.”Footnote ²⁵ As even Hofstadter grudgingly conceded, silverites had a respectable financial argument.Footnote ²⁶ The price of silver fell below the official price of $1.29 an ounce in 1876, and it continued to fall, bottoming out around $.63 an ounce in the mid-1890s. Under the old coinage law, this decline would have led to the minting of silver dollars in huge quantities, increasing the supply of money and at least limiting the fall in prices that caused such hardship among farmers. The 1873 legislation foreclosed this possibility.Footnote ²⁷ Silverites never made a convincing case that this measure was a crime, but they could reasonably argue that it was an error.

MONETARY JUSTICE

Those on both sides of the money question agreed that debtors had a moral as well as a legal obligation to repay their creditors in money with value roughly equal to that lent. The question was how to reckon that value. Here, silverites had a strong case because they could point to the substantial fall in prices since 1873. William Harvey, perhaps the foremost propagandist for silver, produced a table demonstrating that cotton and wheat prices had closely followed that of silver since 1870, with all falling by half.Footnote ²⁸ Senator William Stewart (R-NV) insisted, “An ounce of silver in any part of the world will buy as much of labor and property as it would twenty years ago, and no more. An ounce of gold will buy twice as much of the necessities of life as it would twenty years ago.”Footnote ²⁹ Free silver would simply return prices to their previous level and require lenders to accept dollars with the same purchasing power as those they had lent.

Defenders of the gold standard focused on the cost of labor. Sen. George Gray (D-DL) insisted, “I find measured by labor, … measured by the wages of artisans and the toiling people of this country as well as Europe, that gold has not appreciated, and I have yet to hear why that test is not the best test which can be applied to ascertain, whether it [gold] be appreciated or no.”Footnote ³⁰ Frank Taussig, one of the country's outstanding economists, found this argument persuasive. He wrote, “In such a state of things, there can hardly be said to be any real hardship for the debtor. It is true that prices have fallen, and that the money he repays the creditor will buy more goods than it did when the loan was contracted; but his own money income has risen, or at least not fallen, and the repayment of the loan can cause him no special hardship.”Footnote ³¹

Although other prices had fallen relative to labor, defenders of the gold standard contended that this phenomenon reflected great advances in productivity that allowed producers to sell for less while enjoying the same money income. David A. Wells, a distinguished scientist and former Special Commissioner of Revenue for the federal government, argued, “Man, within the last thirty or fifty years, has attained such a degree of control over the forces of nature, and has so compassed their use, that he has been able to do far more work in a given time and produce far more product, measured by quantity in ratio to a given amount labor, than ever before … We have, therefore, a natural, sufficient, and non-disputable cause of the remarkable decline in prices under consideration.”Footnote ³² Technological advances also accounted for the fall in the price of cotton and wheat. Railroads opened the American prairies and the Argentine pampas to the cultivation of wheat, while steamships linked these regions to the markets of Europe. Likewise, the development of steamships and the opening of the Suez Canal facilitated India's growing exports of cotton and wheat. Together, these factors had created a worldwide glut of those two commodities. As a campaign pamphlet supporting McKinley noted, American wheat production had doubled between 1870 and 1895, and “nobody pretends there were twice as many people in the country to eat up the flour.” Meanwhile, other grower nations had tripled their exports. “I don't see,” the author wrote, “how any amount of silver coined at our mints is going to stop these fellows raising wheat and shipping it to Liverpool.”Footnote ³³ Silverites reacted angrily to the idea that farmers were suffering from their own efficiency. One widely circulated pamphlet written by a veteran of the Union Army stated, “This is devilish doctrine! … If overproduction brings down values, let us try an overproduction of money, to bring that down within the reach of the common people.”Footnote ³⁴

The issue of monetary justice and fair repayment also depended on when loans were made. Prices had declined substantially since 1873, but as Senator William Allison (R-IO) said in 1893, “When you come to the question of debts of twenty years ago they are very few indeed. It is stated by those who have examined the matter that debts on the average are only nine months old. I appeal to the experience of Senators around me. How many of them owe a debt that they owed in 1873?”Footnote ³⁵ As one report issued by representatives favorable to the gold standard put it, “Substantially all obligations now existing in this country … have been incurred since this nation resumed specie [gold] payments [in 1879] … The gold dollar is, therefore, not only the best, but the only honest dollar in which obligations can now be discharged.”Footnote ³⁶ Silverites and goldbugs wrangled over the average age of debts—a debate perpetuated by the absence of reliable statistics on the matter. Yet even accurate statistics probably would not have resolved the question, because debtors and creditors saw debts differently. For instance, farm mortgages generally ran five years, but when they matured, farmers usually paid off only part of the loan and rolled over the rest into a new mortgage, often with a different lender. The same was often true of short-term credits. Farmers—understandably—dated such debts from when they first took out a loan, while lenders—just as understandably—dated the obligation from when they extended the current loan.

Despite the ambiguities, defenders of the gold standard emphasized honest repayment. In his 1896 letter accepting the Republican nomination, William McKinley wrote, “The American people hold the financial honor of our country as sacred as our flag, and can be relied to guard it with the same sleepless vigilance.”Footnote ³⁷ Goldbugs seethed at what they considered the dishonesty of Free Silver, which they referred to as “repudiation.” They thought of money as a sort of contract that the government and population were honor bound to support. Many silverites, including Harvey “Coin” and Bryan, acknowledged this concern by vehemently insisting that the free coinage of the white metal would not entail devaluation.Footnote ³⁸ The content of the debate suggests that many Americans shared the goldbugs’ moral understanding of money, which helps account for McKinley's victory.

THE PRODUCING CLASSES

Silverites never doubted that they represented the great mass of working people, who were the victims of the gold standard. The “producing classes” of the country, however, had different interests when it came to the currency. Rising prices would no doubt benefit farmers, but urban workers would probably suffer. A combination of steady wages and falling prices had substantially increased the real income of workers since the 1870s, and that class naturally looked askance at any scheme to raise the cost of what they bought.Footnote ³⁹ Defenders of the gold standard certainly emphasized the point, contending that, because the silver in a silver dollar had a market price of only about $.50, under free silver the dollar would be worth only half as much as the current (gold) dollar. One McKinley campaign pamphlet insisted, “The answer from the American wage-earner to the proposition to reduce his wages by one-half should be prompt and unhesitating … The American laborer is entitled to the best dollar at all times.”Footnote ⁴⁰ Silverites had trouble refuting this charge because the point of free silver was inflation. William Harvey took refuge in semantics, insisting that a dollar was always a dollar, be it silver or gold, ignoring the possibility that a silver dollar, while still a dollar, might buy less than a gold one.Footnote ⁴¹ More thoughtful silverites contended that free silver would benefit workers by stimulating the overall economy. Frank Parsons argued, “When prices go up wages will also rise, and employment will become more continuous and secure. The first effect will be that a day's wages will buy somewhat less than at present—prices will be lifted first—then the resulting stimulation of business will call for more labor, mills and factories will run full time instead of half or a third of the time, men at work will have work for a larger part of the year, and many not at work at all will be able to get work; the result will be that a year's wages will buy a good deal more than at present.”Footnote ⁴² To later observers, steeped in Keynesian economics, Parsons's argument seems almost intuitive, but his contemporaries were not so sure. The editors of the New England Magazine, who were sympathetic to reform in general and to labor unions in specific, warned that free silver would create “an inflated, depreciated currency. The workingmen of the country, whose wages never rise in proportion to the rise of general prices under an inflated currency, would be the quickest, the acutest and the longest sufferers.”Footnote ⁴³ The experience of the Civil War, during which prices rose substantially but wages followed only after a lag of several years, seemed to bear out such warnings.Footnote ⁴⁴ McKinley's strong showing in working-class districts indicates that the goldbugs' argument had traction.

Bryan had another explanation for his poor showing among workers. After the election, he wrote, “Many employees were either directly or indirectly compelled to support the Republican ticket.”Footnote ⁴⁵ This claim became an article of faith among silverites, and many historians picked it up. In his 1931 classic, The Populist Revolt, John D. Hicks asserted that, in 1896, “Probably also there was much intimidation of voters.”Footnote ⁴⁶ Some businessmen did harangue their employees about the evils of free silver, warning that it would force companies to close plants, but however heavy handed, such rhetoric stopped short of threatening to fire workers who opted for Bryan.Footnote ⁴⁷ Moreover, by 1896, most states had adopted the secret or “Australian” ballot, which made it very difficult to identify how a citizen voted.Footnote ⁴⁸ Outside the solidly Democratic South, intimidation and fraud did not play a decisive role in the 1896 election. More recently, historians have focused on the cultural gap between silverite farmers and the working class. As Lawrence Goodwyn wrote, “What could a Protestant agrarian organizer say to an Irish Catholic factory worker in Boston?”Footnote ⁴⁹ This argument has merit, but it still does not explain why so many Catholic workers ended up supporting the Republican Party, which was first and foremost the party of the Protestant middle class. The answer almost certainly lies in economics, as the gold standard promised to protect the interests of workers better than did free silver.Footnote ⁵⁰

CURRENCY AND CREDIT

Defenders of the gold standard often argued that instead of focusing on minting more currency, silverites should focus on expanding credit. They insisted that roughly 95 percent of business transactions occurred without cash changing hands: through bank drafts, bills of exchange, or similar devices. James Eckels, the Comptroller of the Currency, wrote, “Currency becomes efficient to the extent that it is passed from hand to hand and to the extent it discharges the largest number of different obligations. With better banking facilities the country over … the complaint now so frequently heard of the scarcity of currency would no longer be made.”Footnote ⁵¹ The most perceptive defenders of the gold standard recognized that farmers' demand for more money often reflected a bad experience with credit. As Thomas Shearman, a prominent New York attorney, wrote, “The bulk of transactions in the rural districts, especially in the South and Southwest, are carried on with even less use of money than is usual in the great cities of the north and east … Everyone keeps an account at the country store, and everything is done upon credit.”Footnote ⁵² Rates on such loans were high, and “it is needless to say that the vast class of producers are fully convinced that they would obtain far better prices for what they sell, and would pay much lower prices for what they buy, if they could be supplied with money … instead of depending upon store trading.”Footnote ⁵³ Nevertheless, better banking facilities could meet the need for credit at lower rates without upsetting the gold standard.

Silverites would have none of it. A Kansan wrote, “We have unbounded confidence in the dollars which jingle in our pocket, but very little in those which exist only in the imagination, and are represented by stocks, bonds, checks, drafts, clearing-house certificates, and other devices, which always fail to perform the function of money in the last extremity, when money is most needed.”Footnote ⁵⁴

The silverite indictment of banking had two sides. First, advocates of silver insisted that the credit system was inherently unstable. No bank ever had enough money to pay all its depositors if they demanded their money at once, and in a panic that was exactly what happened. Sen. William Allen (P-NE) asserted, “Another prolific source of evil contributing … in large measure to produce the distress we are now experiencing, lies in over expanding bank credit, making money panics probable, or at least possible, by sudden and extreme inflation or contracting of the volume of currency. We have too much credit … and not enough actual money.”Footnote ⁵⁵

Many silverites went further, denouncing finance and banking as a whole. They believed not simply that corruption existed in financial circles—which no one could deny—but that the essence of finance itself was corrupt. Senator James George (D-MS) insisted, “Bank paper and bank contrivances for minimizing the use of money are the means by which the power of the moneyed class is made absolute.”Footnote ⁵⁶ Silverites focused their particular ire on the system of national banks, which could issue currency (national banknotes) against U.S. government bonds lodged with the Treasury. The author of Seven Financial Conspiracies complained, “Of all the villainous schemes of robbery ever practiced upon any people our national banking system stands preeminent … On the one hand, he draws interest from the government; on the other, from the same investment he draws interest from his individual debtors.”Footnote ⁵⁷ National banks were merely the most rancid organs of a rotten system, however. One silverite wrote, “The radical and fundamental defect of the present banking system is the theory of ‘doing business upon the money of depositors, with a minimal capital.’ Why indeed should not banks, like individuals, do business upon their own resources?”Footnote ⁵⁸

Few silverites understood finance. For instance, it was true that the national bank system allowed bankers to make money coming and going, drawing interest both on their bonds and from loaning out notes backed by the bonds. Yet the returns from this business were no greater than from taking deposits and making loans. In fact, during the 1890s, many national banks actually got out of the business of issuing notes because they could use the capital more profitably in other areas. Even a relatively sophisticated silverite such as Frank Parsons would grouse, “Gold is not in circulation; it is hoarded in bank and Treasury and private nook.”Footnote ⁵⁹ The gold in banks and the Treasury, however, supported bank deposits and notes far greater than the amount of gold in question. Senator Daniel complained, “It would require all of our currency, greenback, gold, and silver, more than ten times over, to discharge our private indebtedness. It would require all of our gold three times over to pay interest on it at 6 percent.”Footnote ⁶⁰ Yet debts were usually not paid in cash, but by offsetting credits. New England textile mills sold cloth to Midwestern farmers, and Midwestern farmers sold flour to New England mill hands. Every year, vast numbers of such transactions simply cancelled each other out through the banking system without any exchange of currency, saving the considerable time, trouble, and expense of shipping money back and forth.

Their hostility to banking led silverites to forego opportunities to expand credit that might have helped their constituents. Many defenders of the gold standard were open to schemes to extend credit in the South and rural areas either by increasing the number of national banks, allowing national banks to organize branches, or relaxing restrictions on the issues of notes by state banks. Such measures probably would not have raised the price of cotton and wheat, which international markets set, but they could have reduced interest rates. The benefits might well have been substantial, particularly in the South, where the farmer who paid 15 percent for money counted himself lucky. In the 1890s, the Cleveland administration proposed several reforms to extend credit and make the money supply more “elastic”—that is, amenable to seasonal shifts in the demand for money.Footnote ⁶¹ These proposals foundered on the indifference of Republicans, who were reluctant to give the Cleveland administration a major victory, and the hostility of silverites, who refused to consider any solutions to the country's financial problems other than Free Silver. As Senator George argued, “We are asked to take these ingenious contrivances as substitutes for real money, and therefore demonetize silver, which is real money.”Footnote ⁶²

As Gretchen Ritter notes in her book Goldbugs and Greenbacks, proposals to expand banking were a double-edged sword. They “would have improved circulation with minimum government regulation,” but the issue of more banknotes would have reduced the role of government-issued greenbacks and Treasury notes, shifting the balance of power in the financial sector toward private banks.Footnote ⁶³ At the same time, proposals for banking reform indicate that many supporters of the gold standard were aware of at least some of the problems confronting farmers and willing to address them—as long as doing so did not threatened the gold standard. They had not given up hope of finding a middle ground.

If silverites poorly understood how banks managed current transactions, they rarely thought at all of the financing of long-term projects such as railroads, which only paid off over many years. The gold standard facilitated such investments, primarily by attracting foreign capital. During the late nineteenth century, foreign investors (chiefly British) put several billion dollars into the country. Because the United States was on gold, British, French, and German investors were sure of getting back the same amount of money—in pounds, francs, or marks—as they lent, which allowed Americans to borrow much more cheaply. Mira Wilkins, the foremost historian of foreign investment in the United States, provides figures that suggest that, in 1890, British investment in American railroad securities alone was over $1.4 billion, equal to roughly 10 percent of the country's entire output. Likewise, she presents statistics indicating that in the 1870s, before the United States adopted the gold standard, American railroads had to pay 2.5 percentage points more than British railroads for money, but that by the early 1890s, under the gold standard, the gap had fallen to 1.25 percent.Footnote ⁶⁴ On $1.4 billion, the savings came to $17.5 million, or almost as much as the United States earned from the export of tobacco. This fact explains the support of most railroad executives for the gold standard, even though their organizations were among the country's largest debtors. As Judge George Aldredge of Texas put it, “England has loaned us money at a lower rate of interest than anybody else would. This is the very head and front of all her offendings, and the violent 16 to 1 people want to punch her in the head for doing this. There is an old adage that runs this way, ‘If you want to lose a friend, lend him money.’”Footnote ⁶⁵

By effectively devaluing the dollar, free silver would have disrupted this relationship. In the short run, free silver would, as a House report issued by supporters of the gold standard claimed, “invite foreign holders of our securities to sell at any price to escape loss by repudiation [devaluation].”Footnote ⁶⁶ Foreigners held several billion dollars' worth of American securities, the sudden liquidation of which could well spark a disastrous financial panic. In the long run, “The effect of this repudiation upon future attempts to borrow money will be disastrous to the borrower. Money is loaned at rates which accord with risk, and repudiation will raise the rates of interest and a fluctuating standard of value will burden the borrower.”Footnote ⁶⁷ Such concerns penetrated the population as a whole. One periodical cited a man who worked as a printer saying, “When things are in a more settled state, we are assured that large sums of money will be put into productive enterprises in this country by small investors in Europe if they can be sure of getting three and one half or four percent.”Footnote ⁶⁸

Silverites made a common mistake, confusing money with capital. Senator William Stewart insisted, “We are a debtor nation with unbounded resources to develop and with mines of gold and silver sufficient to supply a basis for all the circulating medium required.”Footnote ⁶⁹ The United States did have immense potential, but its development required investment. Simply increasing the number of dollars in circulation would not increase the resources available for capital spending, and—by deterring foreign investment—might actually decrease such resources.

For historians intent on rehabilitating the late nineteenth century's many movements for currency reform, silverite ignorance of finance represents a major obstacle. Reformers frequently offered cogent objections to the financial system in general and to the gold standard in specific, but that was not the same as providing a realistic alternative. Gretchen Ritter insists, “There was a politically significant and economic reasonable alternative to the development of financial conservatism,” which she identifies with the gold standard and, more broadly, the centralization of financial power in cities like New York and Chicago.Footnote ⁷⁰ Charles Postel writes in The Populist Vision, “The Populists soft-money treatises were usually superior to the formalistic arguments about the alleged virtues of gold.”Footnote ⁷¹ The most articulate silverites did discuss money as intelligently as their critics did, but their grasp of banking and credit was much weaker, and the historians who champion them too often repeat the silverites' mistakes. Notably, Ritter and Postel largely ignore the vital question of foreign investment, which loomed particularly large in the discussion of money in the 1890s.

INTERNATIONAL BIMETALLISM

In the 1890s, many goldbugs occupied a middle position known as “international bimetallism.” The generation-long drop in prices concerned them, and they hoped to remonetize silver in concert with the other leading commercial nations: Britain, France, and Germany. Together, these countries would be strong enough to impose a fixed ratio between gold and silver that would allow silver to supplement gold as the basis for international trade and finance. The supply of money would increase without disrupting international finance and trade because countries would retain a common basis for their money. The idea first gained currency in the late 1870s, and hard times in the 1890s renewed interest.

The odds were always against the project. Strong support existed in France, Germany, and particularly Britain for the gold standard. Even an agreement in principle might not lead to an accord because each country wanted the others to assume the risk of rehabilitating silver. Yet neither was the cause hopeless. Widespread concern existed over both the decline in prices, which was worldwide, and the precipitous fall of silver, which was still the basis of the currencies of India, China, Japan, and Mexico. Many would agree with the statement, sometimes attributed to German Chancellor Otto von Bismarck, that gold was “a too scanty blanket on a bed occupied by more than one person, each trying to pull as much of the blanket as possible over himself.”Footnote ⁷² Some leading politicians in each country were open to an agreement on silver—for instance, Arthur Balfour, the leader of Britain's Conservative Party in the House of Commons and, later, Prime Minister, embraced bimetallism.Footnote ⁷³ In 1892, the United States sponsored a well-attended, though ultimately unsuccessful, international conference on the matter, and in 1897, the McKinley administration dispatched a delegation to Europe led by Sen. Edward Wolcott (R-CO) to explore possibilities for agreement.Footnote ⁷⁴

In the 1896 election, however, international bimetallists supported William McKinley almost to a man. The Democratic platform demanded free coinage “without waiting for the aid or consent of any other nation,”Footnote ⁷⁵ whereas McKinley himself was sympathetic to international bimetallism, and the Republican platform endorsed negotiations to remonetize silver—the only exception to its otherwise staunch defense of the gold standard. In his 1897 inaugural address, William McKinley said, “The question of international bimetallism will have early and earnest attention. It will be my constant endeavor to secure it by cooperation with the other great commercial powers of the world.”Footnote ⁷⁶ McKinley pushed for the legal consolidation of the gold standard only after it was clear that talks on silver had failed. Despite their reservations about the gold standard, however, international bimetallists believed a unilateral policy of free silver would sever the country from the international financial system, with disastrous results. The cure was worse than the disease. As Senator George Hoar (R-MA) said, “There should be no further coinage of silver, except by unanimous consent of commercial nations. Upon that policy … we can stand.”Footnote ⁷⁷

Support for international bimetallism indicates how complex the politics of money were, but historians have largely overlooked two-metal advocates. Gretchen Ritter writes, “The monetary philosophy of the financial conservatives was founded on their commitment to gold. To the faithful, belief in the value and stability of gold made any other position a heresy.”Footnote ⁷⁸ This statement would have surprised men such as John Sherman and William McKinley. Economist Laurence Laughlin of the University of Chicago and journalist Edwin Godkin of The Nation considered gold the only legitimate basis of money, but many defenders of the gold standard were more flexible, believing that an international agreement on silver might secure the benefits of the gold standard without its disadvantages. As a telegram sent by several prominent American lawmakers to a meeting of British bimetallists stated, “The free coinage of both gold and silver by international agreement at a fixed ratio would serve to maintain the blessings of a sufficient volume of metallic money, and, what is hardly less important, would secure to the world of trade immunity from violent exchange fluctuations.”Footnote ⁷⁹ International bimetallists understood the choice facing the United States: tolerate deflation or risk losing access to foreign capital. Uniting hard-core goldbugs and international bimetallists was not an adamant commitment to gold but a shared vision of economic development financed by foreign capital. Hal Williams expressed an opinion common among historians when, pointing to the rapid increase in the supply of gold after the mid-1890s because of improvements in mining technology and new discoveries, he asserted, “The result was an inflation of the currency, exactly what Bryan called for.”Footnote ⁸⁰ It would be more accurate to state that the increase provided exactly what international bimetallists wanted: an increase in the money supply within an international framework.

EXPERTISE AND DEMOCRACY

Supporters of the gold standard included the vast majority of the country's bankers, and many goldbugs considered their opinion decisive. The Nation insisted, “In all civilized countries bankers are consulted about public finances, engineers are consulted about roads and tunnels, soldiers are consulted about war, lawyers about law, and electricians about electricity. This is the only way, in fact, in which government in our day can be carried on … The Bryanites have started the theory, however, that all you need in order to be a political philosopher is to be short of money and to honor silver.”Footnote ⁸¹

The weight of authority did not impress silverites. Coin's Financial School, by William Harvey, embodied this attitude. The book purported to describe a series of lectures on the silver question by a “youth” named Coin. Coin's defense of silver stumped his many critics, including some real figures such as economist Laurence Laughlin (who was not amused about being bested in absentia). Coin made no secret of his contempt for conventional economics. “Combined capital all over the world,” he said, “has been using political economy to instruct the minds of young men to a belief in the gold standard. This is not hard to do, as these students, being young, their minds are easily molded. The error is planted deep and strong.”Footnote ⁸² The book enjoyed enormous popularity, with a circulation of as much as a million, and many of its readers apparently did not realize that the lectures were fictional. Its success spawned a variety of responses from supporters of the gold standard, though none approached the popularity of their target. The author of one of the better of these rejoinders insisted, “The science of finance does not come by nature … It requires a considerable amount of study. The suggestion in here thrown out that a boy can drop his marbles and spinning top and deliver valuable lectures on this science is likely to prove captivating, however, to persons who would be glad to acquire it without any antecedent effort, although they would not attempt to play the bones at a minstrel show without previous practice.”Footnote ⁸³

Although reasonable enough when applied to Harvey, this charge was unfair to many silverites. As Charles Postel writes, “Farm reformers believed that through their efforts at statistical calculations, research, and investigation, they could put the nation's governance on a secure footing of rapid and equitable development.”Footnote ⁸⁴ Unfortunately, in a field as complex as finance, even conscientious amateurs operated at a significant disadvantage.

Silverites had identified a basic problem of democracy. Effective government requires technical expertise, but experts have their own interests, consideration of which shapes their advice. Bryan said, “We go to the doctors when we are sick, to the lawyers when we seek redress in legal rights; but when we want our ship of state steered to harbors prosperous and safe for the whole people, we must not call to the helm the professional financial wreckers nor officer the craft of our welfare with financial parasites.”Footnote ⁸⁵ Yet beyond ignoring the experts—a dangerous course in any technically complex field—silverites had no solution to the problem.

GOLD AND PROGRESS

Supporters of the gold standard wrapped themselves in the mantle of progress. At the simplest level, their case turned on weight. Because gold had greater value than silver per ounce, it was more convenient for large transactions, and as the economy grew and became more sophisticated, transactions became progressively larger. Economist Laurence Laughlin wrote, “When new and lighter plows come into competition with the heavy and cumbrous machines of the last century, the latter will go out of use and decline in value. So will it be with the heavier and more cumbrous metal.”Footnote ⁸⁶ From this mundane point, however, supporters of the gold standard leapt to almost metaphysical heights, linking gold to material and moral progress. Nineteenth-century intellectuals tended to see progress as linear, moving from lower to higher levels in clear stages, and many viewed money in this light. The Nation insisted, “The tyranny of gold is of the same nature of the tyranny of railroads in comparison with lumber wagons, of telegraphs and telephones in comparison with postboys, of gas and electric lights in comparison with tallow dips, of the United States in comparison with Mexico and China, of coined money as against wampum, of civilization in general as against savagery.”Footnote ⁸⁷

Goldbugs' willingness to invoke racial hierarchies demonstrates how deeply ingrained were the ideas of Social Darwinism in the United States in the 1890s. Historian Michael O'Malley writes, “The triumph of the gold standard represents that same impulse as the triumph of segregation.” “The economic arguments of the 1890s,” he concludes, “make no sense considered away from their similarities to arguments about the about the nature and authenticity of the self.”Footnote ⁸⁸ This analysis would have surprised farmers worried that the prices they received for their crops were too low to cover the interest on their mortgages. O'Malley overreaches. Americans on both sides of the currency issue shared roughly the same assumptions about race—in fact, the most consistent and virulent racists in the United States, white Southerners, overwhelmingly supported Bryan and Free Silver.Footnote ⁸⁹ The discussion of people in the 1890s on the currency dealt chiefly with economics and finance. Writers invoked race to support their economic preferences, not the other way around. A selective reading of this vast literature can yield whatever the reader desires, but the emphasis was on the economic implications of the gold standard and free silver.

The identification of gold as an agent of civilization and progress was silly—metals do not possess such qualities. Nor was the argument about the convenience of gold particularly strong. Americans rarely used coins for anything more than small change—they preferred paper money. As Edward Ross, a professor of economics at Stanford University, trenchantly observed, “A $1000 silver certificate weighs no more than a $1000 gold certificate.”Footnote ⁹⁰

In the context of the late nineteenth century, however, the link between the gold standard and progress was plausible. The gold standard tied together the currencies of the world's leading commercial and manufacturing nations, greatly facilitating trade and investment among them. As one historian of banking summed it up: “Trade would enrich the world; anything which hindered trade was detrimental to the growth of civilization; fluctuating exchange rates hindered trade; therefore all nations must accept a single monetary standard.”Footnote ⁹¹ The argument was simplistic, but not irrational. Certainly, the gold standard had helped secure capital for America's economic development. As one defender of the gold standard wrote, “Here we have the case in a nutshell. Does the United States want to part company with the other great nations of the world?”Footnote ⁹²

Silverites responded that the United States should not follow European precedents. According to Senator William Allen, “This great nation made its struggle for liberty, its struggle against the political institutions of Europe, its struggle for the establishment of a republic in the New World, and established it, based upon different political principles and different social conditions, based upon the equality of every man, woman, and child before the law.”Footnote ⁹³

Some silverites argued that free silver would actually increase American trade. Many contended that the devaluation of India's silver currency relative to gold accounted for its growing exports of cotton and wheat. A report from a House Committee shrewdly observed, “As silver falls below gold, so also our articles of export trade, especially farm products, fall in price … Free silver would put … the American farmer on equality [when competing] with the Hindoo [of India] and other silver-using people.”Footnote ⁹⁴ Many silverites understood that devaluation could spur exports.

Defenders of the gold standard replied that any such success would depend on depressing wages. The Speaker of the House, Thomas Reed (R-ME), thundered, “Oh, but China and Japan, India and Mexico [all silver standard countries] are prosperous just now! … Manufacturers there may be prosperous, and traders may be prosperous, but the people are not prosperous at all. In silver countries labor is cheap and kept cheap by the silver dollar.”Footnote ⁹⁵ Many defenders of the gold standard recognized that devaluation forces people to accept less, in real terms, for what they produce. Such arguments had an impact. A factory foreman in one eastern city stated, “Look at the countries were silver prevails—what is their condition? Democrats are now endeavoring to bring us to a pass where a laborer will get only twenty cents a day, as they do in Mexico.”Footnote ⁹⁶

Though he avoided metallic metaphysics, William McKinley contended that the gold standard was an agent of progress. In his letter accepting the Republican nomination, he stated, “During all the years of Republican control following the resumption [of the gold standard in 1879] there was a steady reduction of the public debt, while the gold reserve was sacredly maintained, and our credit preserved without depreciation, taint, or suspicion … This policy … brought us unexampled prosperity.”Footnote ⁹⁷ During the 1880s, the number of Americans living in towns with more than ten thousand people increased 61 percent; capital invested in manufacturing doubled; steel production increased two-and-a-half times; and the country laid a staggering 92,000 miles of new railroads.Footnote ⁹⁸ The urban population, including the working class, enjoyed a substantial increase in real income.Footnote ⁹⁹ The gold standard helped underwrite this growth by attracting foreign capital. True, the depression that began in 1893 hit the country hard, but it seemed only a temporary interruption of a long upward trend.

Bryan doubted claims of progress. During the 1896 campaign, he said, “Thomas Jefferson, in his immortal inaugural, after summing up the true principles of government, said, ‘Should we wander from them in moments of error or alarm, let us hasten to retrace our steps and regain the road which alone leads to peace, liberty and safety.’ The supremacy of the bondholders in our government shows that we have neither peace, liberty, nor safety before us. We have reached Jefferson sign-board of danger. It is time to turn back.”Footnote ¹⁰⁰ Since the mid- to late 1880s, farmers in the vast cotton and wheat belts had seen their incomes decline in absolute and (in most cases) real terms. Bryan spoke for this last group, and from their perspective, the painful depression of the 1890s was but the culmination of trends long under way. The progress touted by supporters of the gold standard was, to them, no progress at all.

Historians have long debated whether silverites were forward or backward looking. Richard Hofstadter saw in the movement's rhetoric a longing for a half-imagined agrarian past, while Charles Postel sees a group seriously interested in applying the latest developments in the social and hard sciences to public questions. In Progressivism, A Very Short Introduction, Walter Nugent contends that the campaign for free silver presaged Progressive reforms.Footnote ¹⁰¹ All these views are undoubtedly correct. Like McKinley, Bryan led a diverse coalition. The 1896 Democratic platform called for the popular election of U.S. senators, an income tax, and the regulation of the railways—all staples of Progressive reform. Most of Bryan's supporters subsequently voted for Progressive candidates. Yet the crusade for free silver itself was more reminiscent of Jackson's assault on the Second Bank of the United States, with its promise to destroy a monstrous conspiracy at a stroke and to allow “natural” forces to reassert themselves, than of the various Progressive campaigns. Future Progressives such as Theodore Roosevelt and Robert Lafollette staunchly opposed Bryan in 1896. The late nineteenth century was a period of rapid, often disconcerting economic transformation. Some silverites hoped that free silver would undo change, restoring the independent, yeoman farmer to his rightful position at the center of national life. Others saw it as the thin edge of a wedge of reforms like those ultimately enacted during the Progressive Era.