Coins of the month - December 2013
Gold bugs and silver bugs or the battle between expansionary and restrictive monetary policy in the US elections of 1896 and 1900
After independence, the United States adopted a bimetallic monetary system, meaning that both silver and gold coins represented the official monetary standard of the country. In 1834 a 16 to 1 silver to gold ratio was fixed. This meant that regardless of what the price of the two metals was on the market any individual could bring bullion to a Mint and have it freely transformed into coins at the rate of 16 grams of silver for every gram of gold (a silver dollar weighed 26.73 grams and a gold dollar 1.672 grams). With the beginning of the Civil War in 1861 an inconvertible paper currency (called greenbacks in the North) was introduced to finance the war, and it immediately displaced metallic coinage, hoarded by savers and banks.
In 1867, during the international Monetary Conference of Paris and in line with most other participants, the US government expressed its preference for the introduction of an international gold standard to replace bimetallism. After a long preparation, in 1873 the US Congress passed an act rationalising the old monetary legislation and suspending the mintage of silver dollars (except for a few trade dollars aligned to the old Spanish Piece of 8 and dedicated to commerce with China and Mexico). Effectively this made gold the only metallic standard, a decision similar to that adopted by Germany and Scandinavian countries in 1873, followed by the suspension of new issues of silver coinage in France and Belgium a few months later, while the UK had already adopted the gold standard in the early eighteenth century. All these measures precipitated the fall of the market price of silver bullion, which was losing one of its main purposes through demonetization.
The US was far from united on the issue and the adoption and consequences of a Gold Standard were not fully understood. The supporters of Bimetallism dubbed the decision "the crime of 1873" and accused gold monometallists of imposing a very restrictive monetary policy, reducing the money supply (silver was demonetized while it was becoming cheaper). They argued that this caused a deflation that was hitting debtors, particularly producers, agricultural labourers and miners, favouring creditors at the expense of economic growth. The argument is somewhat familiar to today's critics of Eurozone economic policy. It appeared to have been confirmed by the fact that 1873-96 became a period of banking crises (particularly the panics of 1873 and 1893) and of economic difficulties known at the time as "the Great Depression"; a definition later employed in reference to the more severe crises of 1929-37.
In 1878 a limited overture to silver production led to the reopening of US mints to some silver dollars on behalf of the federal Government (but not for private individuals), producing the so called Morgan dollar. Three international conferences took place in 1878, 1881 and 1892 to try to stabilize the international monetary system and the price of silver by re-introducing at least part of the monetary function of silver, without reaching agreement. In 1893 the democratic President Grover Cleveland repealed measures for silver issue and lost the support of his party over the question.
Cleveland was repudiated by the Democratic Party in the 1896 elections and a young lawyer, William Jennings Bryan, stormed the Democratic National Convention with a fervent speech in support of Bimetallism, with religious overtones. "You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold." Bryan obtained the nomination and focused the campaign on 16 to 1 bimetallism.
1896 was the first presidential election with the mass production of celluloid pin back campaign buttons and other novelties, often centered on monetary policy. We present here only a minimal selection of the colossal output of monetary propaganda in that election.
The supporters of the Republican candidates, William McKinley and Garret Hobart, carried propagandistic pins and buttons in the form of "gold bugs", while the bimetallists wore "silver bugs" in response. Silver Democrats screamed on their buttons that "free coinage means higher wages" and higher prices for agricultural products ending deflation, "Europe wants gold, we want silver", "16 to 1, no compromise", "Silver should rule the world", "Democracy and sound money". Bryan was "the great commoner", defending through "free silver" the common people against the financial elite, banks, corporations and monopolies. He impersonated silver to such an extent that some coins were modified to carry his three-dimensional image emerging from them (here illustrated).
Republicans instead defended the gold standard as "Sound Money", associating it with protectionist policies on foreign trade ("Protection to American industry"). They pointed to the depreciation of the market price of silver as a threat to the real value of the dollar, to purchasing power and to prosperity, if Bimetallism were to be restored. A "mechanical dollar" (here illustrated) showed the supposed effects of the two alternatives. With the gold standard a dollar was worth 100 cents and the America eagle was straight and proud. With "free silver" a dollar was worth only 50 cents and produced "Bryanarchy", "adversity" and a depressed eagle.
Bryan's "First battle" in the defense of silver turned out to be the last of significance, despite a replay between the two candidates in 1900. Immediately after the conclusion of the campaign, gold discoveries increased world monetary supply and associated the gold standard with a more expansionary monetary policy (for some time), fuelling the economic boom of the "Belle époque" and destroying the political attractiveness of bimetallism. Bryan became the most successful loser of the history of US presidential elections, winning the Democratic nomination three times (1896, 1900, 1908), imposing his views of democracy and always ending up losing the election. McKinley won two elections but was murdered by an anarchist and served only a single presidential term, He left his office to his more charismatic Vice President, Teddy Roosevelt, who adopted some of the antimonopolistic views of Bryan, eclipsing both men. The gold standard, as an excessively restrictive monetary mechanism, again became a problem between the two wars -- Keynes' "barbarous relic" -- and it took another Roosevelt to abandon it for good in 1933, during the new "Great Depression".
Luca Einaudi, Centre for History and Economics