Free silver

Republican campaign poster of 1896 attacking free silver

Free silver was a major United States policy issue in the late 19th century. Its advocates were in favor of an inflationary monetary policy using the "free coinage of silver" as opposed to the less inflationary gold standard; its supporters were called "Silverites". The Silverites promoted bimetallism, the use of both silver and gold as currency at the ratio of 16 to 1 (16 ounces of silver would be worth 1 ounce of gold). Because the actual ratio was about 32 to 1 at the time, most economists warned that the cheaper silver would drive the more expensive gold out of circulation. Everyone agreed that free silver would raise prices; the question was whether or not this inflationary measure would be beneficial. The issue peaked from 1893 to 1896, when the economy was in a severe depression—called the Panic of 1893—characterized by falling prices (deflation), high unemployment in industrial areas, and severe distress for farmers.[1]

The debate pitted the pro-gold financial establishment of the Northeast, along with railroads, factories and businessmen, who were creditors who would benefit from disinflation (resulting from demand pressures on the relatively fixed gold money supply against a backdrop of unprecedented economic expansion), against poor farmers who would benefit from higher prices for their crops (resulting from the prospective expansion of the money supply by allowing silver to also circulate as money). Free silver was especially popular among farmers in the wheat belt (the western Midwest) and the cotton belts (the Deep South), as well as silver miners in the West. It had little support among farmers in the Northeast and the Corn Belt (the eastern Midwest). Free silver was the central issue for Democrats in the presidential election of 1896 and that of 1900, under the leadership of William Jennings Bryan. The Populists also endorsed Bryan and free silver in 1896, which marked the effective end of their independence. In major elections free silver was consistently defeated, and after 1896 the nation moved to the gold standard.[2]

The debate over silver lasted from the passage of the Fourth Coinage Act in 1873, which demonetized silver and was called the "Crime of '73" by opponents, until 1913, when the Federal Reserve Act completely overhauled the U.S. monetary system.

Definitions and explanation

Under the gold specie standard, anyone in possession of gold bullion could deposit it at a mint where it would be processed into gold coins. Less a nominal seigniorage to cover processing costs, the coins would then be paid to the depositor; this was free coinage of gold by definition. The objective of the free silver movement was that the mints should accept and process silver bullion according to the same principle, notwithstanding the fact that the market value of the silver in circulating coins of the United States was substantially less than face value.[3]

As a result, the monetary value of silver coins was based on government fiat rather than on the commodity value of their contents, and this became especially true following the huge silver strikes in the West, which further depressed the silver price. From that time until the early 1960s the silver content in United States dimes, quarters, half dollars, and silver dollars was worth only a fraction of their face values.[4] Free coinage of silver would have amounted to an increase in the money supply, with inflation as the result.

Response

Cartoon from Puck showing a silverite farmer and a Democratic donkey whose wagon has been destroyed by the locomotive of sound money

Many populist organizations favored an inflationary monetary policy on the grounds that it would enable debtors (often farmers who had mortgages on their land) to pay their debts off with cheaper, more readily available dollars; those who would suffer under this policy were the creditors such as banks and landlords. The most vocal and best organized supporters were the silver mine owners (such as William Randolph Hearst) and workers, and the western states and territories generally, as most U.S. silver production was based there and the region had a great number of highly indebted farmers and ranchers.

Outside the mining states of the west, the Republican Party steadfastly opposed free silver, arguing that the best road to national prosperity was "sound money", or gold, which was central to international trade. They argued that inflation meant guaranteed higher prices for everyone, and real gains chiefly for the silver interests. In 1896, Senator Henry M. Teller of Colorado led many western Republicans to bolt and form a third party that supported William Jennings Bryan, the short-lived Silver Republican Party.

The Sherman Silver Purchase Act of 1890, while falling short of free silver's goals, required the U.S. government to buy millions of ounces of silver (driving up the price of the metal and pleasing silver miners) for money (pleasing farmers and many others). However, the U.S. government paid for that silver bullion in gold notes—and actually reduced their coinage of silver. The result was a "run" on the Treasury's gold reserves which was one of the many reasons for the Panic of 1893 and the onset of the 1890s Depression. Once he regained power, and after the Panic of 1893 had begun, Grover Cleveland engineered the repeal of the Act, setting the stage for the key issue of the next presidential election.

Climax

The Populist Party had a strong free-silver element. Its subsequent combination with the Democratic Party moved the latter from the support of the gold standard which had been the hallmark of the Cleveland administration to the free-silver position epitomized by 1896 presidential nominee William Jennings Bryan in his Cross of Gold speech. Bryan's 1896 candidacy was supported by Populists and "silver Republicans" as well as by Democrats.

The issue was over what would back the US currency. The two options were: gold (wanted by the Goldbugs and William McKinley) and silver (wanted by the Silverites and Bryan). Unbacked paper (wanted by the Greenbacks) represented a third option.

Result

The city voters—especially German Americans—overwhelmingly rejected the free-silver cause out of conviction that it would lead to economic disaster, unemployment, and higher prices. The diversified farmers of the Midwest and East opposed it as well, but the cotton farmers in the South and the wheat farmers in the West were enthusiastic for free silver. Bryan tried again in 1900 to raise the issue but lost by larger margins, and when he dropped the issue it fell out of circulation.[5]

Symbolism of free silver

Free silver became increasingly associated with Populism, unions, and the fight of ordinary Americans against the bankers, railroad monopolists, and the robber barons of the laissez-faire capitalism era and was referred to as the "People's Money" (as opposed to the gold-based currency, which was portrayed by the Populists as the money of "exploitation" and "oppression"). Around the time of the Panic of 1893, William H. Harvey's popular pamphlet Coin's Financial School illustrated the "restorative" properties of silver; through devaluation of the currency, closed factories would reopen, darkened furnaces would be relit, and the like. But Henry Demarest Lloyd was much harsher, writing:

"The free silver movement is a fake. Free silver is the cow-bird of the reform movement. It waited until the nest had been built by the sacrifices and labor of others, and then it lay its own eggs in it, pushing out the others which lie smashed on the ground."[6]

See also

References

  1. ↑ Charles Hoffmann, "The Depression of the Nineties". Journal of Economic History (1956). Vol. 16, No. 2) 16 (2): 137–164. in JSTOR
  2. ↑ Williams, 1910
  3. ↑ Walter T. K Nugent, Money and American Society, 1865–1880 (1968)
  4. ↑ Milton Friedman, "Bimetallism Revisited", Journal of Economic Perspectives Vol. 4, No. 4 (Autumn, 1990), pp. 85–104 in JSTOR
  5. ↑ Russell L. Mahan, "William Jennings Bryan and the Presidential Campaign of 1896". White House Studies (2003). 3 (1): 41. doi:10.2307/1917933. JSTOR 1917933.
  6. ↑ The Populist Response to Industrial America p142 Norman Pollack – 1976 "This was followed by his blistering indictment of silver: "The Free Silver movement is a fake. Free Silver is the cow-bird of the Reform movement."

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Further reading