Domestic Concerns: Monetary Reform

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Domestic Concerns: Monetary Reform

Declining Prices. Throughout the post-Civil War era heated political fights over whether paper money should be backed by silver and gold or gold alone and how much currency should be available reflected deep social divisions among Americans, pitting easterners against west-erners, farmers against businessmen, and the poor against the wealthy. This debate was accompanied by a long, steady decline in prices. In general, wholesale and retail prices in the United States fell from a high-water mark at the end of the Civil War to a low point in the 1890s. As a result the value of a dollar increased; in 1892 it could buy twice what it could in 1866. Americans who had money could buy more for less, but for anyone with goods to sell this downward trend constituted a crisis.

Farmers. Farmers were particularly hard hit by the long-term price decline. While they had fixed mortgages and other debts to pay on their land, buildings, and equipment, the amount of revenue farmers earned from their crops declined with each year. During this period a farmer who had to make loan payments of $500 a year might have his annual income from the sale of his crops decrease from $1,000 to $700. Bad crops and poor weather often made conditions worse, and many farmers went bankrupt during the 1880s.

Hard versus Soft Money. The decline in prices was driven in part by the rapid growth of the American population and the national output of products without a corresponding increase in the supply of money. During the Civil War the government had issued “greenbacks,” paper currency that could not be exchanged for gold or Silver. This increased money supply caused inflation, and the government intended to retire the greenbacks from circulation. A postwar depression, however, resulted in a division of opinion on the paper-money issue. During the late 1860s and throughout the 1870s “hard money” advocates argued that withdrawing all paper money or limiting the supply and backing it with gold or silver would keep the value of the dollar high. “Soft money” advocates, or “greenbackers”—including the Greenback-Labor Party—argued that increasing the amount of inconvertible money in circulation helped farmers pay their debts, keeping them solvent and spurring economic growth. After President Ulysses S. Grant successfully vetoed an 1874 bill that would have increased the supply of paper money, Congress passed the Specie Reduction Act of 1875, which reduced the paper-money supply to $300 million and authorized the redemption of paper money for gold, effective 1 January 1879.

Gold versus Silver. After the passage of the Specie Reduction Act, advocates of increasing the money supply turned their focus to advocating the coinage of silver money. The Coinage Act of 1873 had removed the silver dollar from coinage and established a single gold standard, angering silver miners in the West, especially after new discoveries in the mid 1870s resulted in an increased production of silver. Supported by these silverites as well as farm and labor groups, the Bland-Allison Act of 1878 restored the silver dollar as legal tender, instructing the secretary of the treasury to buy between $2 million and $4 million in silver every month. Because the secretary acted conservatively, the results were not inflationary, but neither did they increase the money supply sufficiently to please free-silver advocates.

The Sherman Silver Purchase Act. In 1890 politicians struck a compromise between backers of the gold standard and those advocating a silver and gold standard, or “bimetallism.” The Sherman Silver Purchase Act of 1890 directed the treasury to purchase 4.5 million ounces of silver each month, the same amount being produced by western silver mines. The Treasury Department would then issue notes equal in value to the costs of these purchases, redeemable in gold or silver. The compromise was based on the agreement that Republican members of Congress would support the Sherman Silver Act in return for Democratic support of the McKinley Tariff, which established the highest duties to date on imported manufactured goods. The “Million Dollar Congress” angered reformers, farmers, and workers, who gained little from the compromise.

Political Divisions over Money. Gold-standard advocates, mostly members of the business community, argued that the introduction of silver damaged the economy. In November 1890 the failure of Baring Bros., a British banking house, caused British investors to sell U.S. securities, causing a drain on American gold reserves. This event—coupled with a decrease in revenues because of the McKinley Tariff and a sharp decrease in government funds because the Pension Act of 1890 vastly increased the number of Civil War veterans who were eligible for pensions—caused the U.S. gold reserve to decline below $100 million by 21 Aprii 1893, bringing on the Panie of 1893. Facing an economy in ruins, President Cleveland called a secret session of Congress for August 1893 and urged the repeal of the Sherman Silver Purchase Act. Only a gold standard, he insisted, could puli the country out of economic depression. Cleveland won repeal after a bitter battle that divided the Democrats, causing severe damage politically for him and his supporters.

BRYAN’S CROSS OF GOLD

Among the most memorable lines in American political oratory are the last two sentences of William Jennings Bryan’s speech during the platform debate at the 1896 Democratic National Convention: “You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind on a cross of gold.” By the time he reached these lines Bryan, who had a well-deserved reputation as a spellbinding orator, had gained the rapt attention of all the delegates with many other quotable lines. Beginning with the theme that the monetary issue had divided the East from the West, rich from poor, and big businessman from store-keeper, farmer, and laborer. Bryan responded to claims that unlimited coinage of gold and silver was bad for the country because it was bad for business, appealing to the sentiments of people for whom the bloody divisions of the Civil War were still recent history:

In this contest brother has been arrayed against brother and father against father. The warmest ties of love and acquaintance and association have been disregarded. Old leaders have been cast aside when they have refused to give expression to the sentiments of those whom they would lead, and new leaders have sprung up to give direction to his cause of truth...
... When you come before us and tell us that we shall disturb your business interests, we reply that you have disturbed our business interests by your course. We say to you that you have made too limited in its application the definition of a business man. The man who is employed for wages is as much a business man as is his employer. The attorney in a country town is as much a business man as the corporation counsel in a great metropolis. The merchant at the cross-roads store is as much a I business man as the merchant of New York The farmer who goes forth in the morning and toils all day, begins in the spring and toils all summer, and by the application of brain and muscle to the natural resources of this country creates wealth, is as much a business man as the man who goes upon the board of trade and bets upon the price of grain.
The miners who go a thousand feet into the earth or climb two thousand feet upon the cliffs and bring forth from their hiding-places the precious metals to be poured into the channels of trade are as much business men as the few financial magnates who, in a back-room, corner the money of the world.
We come to speak for this broader class of business men. Ah, my friends, we say not one word against those who live upon the Atlantic coast; but those hardy pioneers who braved all the dangers of the wilderness, who have made the desert to bloom as the rose — those pioneers away out there, rearing their children near to nature’s heart, where they can mingle their voices with the voices of the birds — out there where they have erected school-houses for the education of their young, and churches were they praise their Creator, and cemeteries where sleep the ashes of their dead — are as deserving of the consideration of this party as any people in this country....
There are two ideas of government There are those who believe that if you legislate to make the well-to-do prosperous that their prosperity will leak through on those below. The democratic idea has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class and rest upon it. You come to us and tell us that the great cities are in favor of the gold standard. I teli you that the great cities rest upon these broad and fertile prairies. Burn down your cities and leave our farms and your cities will spring up again as if by magic. But destroy our farms and the grass will grow in the streets of every city in the country.

Source: The Speeches of William Jennings Bryan, 2 volumes (New York: Funk & Wagnalls, 1913).

Bryan versus McKinley. At the 1896 Democratic Convention “Silver Democrats” won the upper hand, securing the nomination of free-silver advocate William Jennings Bryan. Republicans, committed to gold, linked their future to hard money and William McKinley of Ohio, who won the election. A general upturn in prices in the late 1890s lessened the drive for monetary reform. The increased minting of coins and the discovery of gold

in Alaska contributed to an easing of the money-supply crisis. The United States did not abandon the gold standard until 1933, in the midst of the Great Depression.