The Free Silver Movement was a political coalition of Western silver miners and Midwestern and Southern farmers who supported an inflationary monetary policy by using the free coinage of silver for a bimetallic standard for U.S. currency. Opponents of the Movement were Northeastern creditors and businessmen who favored the gold standard. The issue started over the passage of the 1873 Coinage Act but peaked from 1893 to 1896, when the economy was in a severe depression. It became a central issue in the 1896 presidential election. But after the 1896 defeat of William Jennings Bryan, the Democratic presidential candidate who had supported the Free Silver Movement, the United States government adopted the gold standard.
The Coinage Act of 1873 officially demonetized silver in order to move the United States to adopt the gold standard, as most countries already had done. “Silverites,” who wanted a bi-metallic standard for U.S. currency and initially came from the western mining states, labeled this measure as “The Crime of ’73.” The Coinage Act reduced the money supply, which in turn raised interest rates that hurt farmers who normally carried heavy debt loads. The contraction of the money supply, in addition to railroad speculation, led to the Panic of 1873, triggering a five-year economic depression. In response to this dire economic situation and political pressure, Congressman Richard P. Bland and Senator William B. Allison proposed the Bland-Allison Act in 1877 which would return the United States to silver coinage.
The Bland-Allison Act directed the U.S. Treasury to purchase silver at a high price and put it into circulation as silver dollars. Although the bill was vetoed by President Rutherford B. Hayes, Congress overrode Hayes’ veto to enact the law. The Bland-Allison Act reintroduced bimetallic monetary policy for the United States, but it led to a greater disruption in the economy. Because of the discovery of silver in Nevada and other western states, the price of gold was more stable than that of silver. For example, the price of silver to gold declined from a ratio of 16:1 in 1873 to 30:1 by 1893.
In 1890 the Bland-Allison Act was replaced by the Sherman Silver Purchase Act, named after John Sherman, an Ohio Republican and former chairman of the Senate Finance Committee who previously served as Secretary of the Treasury under President Hayes. Later in his life, Sherman would serve as Secretary of State under President William McKinley. Responding to demands of miners and farmers, the Sherman Silver Purchase Act was enacted to boost the economy and to cause inflation which would allow farmers to pay their debts with cheaper dollars. Under the Act, the U.S. government was required to purchase 4.5 million ounces of silver bullion every month – twice the amount mandated by the Bland-Allison Act. By artificially increasing the demand for silver, the U.S. government also helped silver miners whose oversupply had driven the price of their product so low as to be unprofitable.
Proposed in tandem with the Sherman Silver Purchase Act was the McKinley Tariff. This additional legislation was necessary in order to gather political support for the Sherman Silver Purchase Act in both the Senate and White House. The McKinley Tariff Act raised the average duty on imports almost fifty percent to protect domestic industries from foreign competition. This tactic of protectionism, supported by the Republicans and opposed by the Democrats, was not popular with the American public who suffered a steep increase in the cost of products after the McKinley Tariff was enacted. In the 1890 election, the number of Republican House seats went from 166 to 88; and the Democrats won control of Congress and the Presidency in 1892. Lawmakers immediately drafted new tariff legislation and passed the Wilson-Gorman Tariff in 1894 which lowered U.S. tariff averages.
But most importantly, the Sherman Silver Purchase Act required the Treasury to purchase silver with a special issue note that could be redeemed for either silver or gold. However, the plan backfired, as investors turned in the new notes for gold dollars, thus depleting the U.S. gold reserves. This problem was further compounded by the Panic of 1893 with the collapse of the railroad industry and agricultural prices which in turn started a run on the banks. President Cleveland oversaw the repeal of the Sherman Silver Purchase Act in 1893 to prevent further depletion of the country’s gold reserves. The crisis was eventually resolved when J.P. Morgan formed a banking syndicate that saved the United States from bankruptcy with a massive gold loan. However, the Panic of 1893 led the United States into its worst economic depression (1893-97) it had experienced until that point with unemployment reaching a peak of 19%.
Democrats blamed the Sherman Silver Purchase and McKinley Tariff Acts for causing the economic depression, while Republicans held responsible the Democrats and President Cleveland who were in power. Thus, the political issue of which party and its policies were responsible for the depression created a national debate for the coming elections. Republicans scored a landslide victory in the 1894 Congressional elections against both the Democrats and the Populists, the latter represented farmers’ interests and was led by William Jennings Bryan. As the Populists lost most their strength in the 1894 elections, they had to support the Democratic Party in 1896. With the presidential nominations of Bryan for the Democratic Party and McKinley for the Republicans in 1896, the American public had a clear choice on whether the United States should have a bimetallic or single standard for its currency.
The Democrats supported a bimetallic standard of gold and silver, after Bryan’s “Cross of Gold” speech at his party’s convention, while the Republicans advocated the single standard of gold. The primary issue of the 1896 campaign was whether the United States would remain on the gold standard or switch to “free silver.” Bryan argued that adopting free silver would allow impoverished farmers in the South and West to pay their debts and lift the nation out of the 1893 economic depression. McKinley responded that if the United States went off the gold standard, the value of paper currency would be cut into half and inflation would soar. Campaigning from his front porch, McKinley outlined his monetary policy:
After losing to McKinley in 1896, Bryan would win the Democratic presidential nomination again in 1900 (and later in 1908) and tried to raise the issue of free silver but lost by large margins. After the United States adopted the Gold Standard Act in 1900, which established the value of the dollar at 25 8/10 grains of gold at ninety percent purity ($20.67 per Troy ounce), the debate over bimetallism was effectively over. However, the symbol of free silver became increasingly associated with populism, unions, and ordinary Americans against bankers, railroad monopolist, and Robber barons. Although it was no longer considered a viable economic option, free silver retained political potency for later progressive political movements.
Monetary History Highlights
The Rueffian Synthesis