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History of the United States by Charles A. Beard and Mary R. Beard

«·DOMESTIC ISSUES BEFORE THE COUNTRY (1865-1897) · The Protective Tariff and Taxation·»

The Currency Question

Nevertheless these years of muddled politics and nebulous issues proved to be a period in which social forces were gathering for the great campaign of 1896. Except for three new features—the railways, the trusts, and the trade unions—the subjects of debate among the people were the same as those that had engaged their attention since the foundation of the republic: the currency, the national debt, banking, the tariff, and taxation.

Debtors and the Fall in Prices.—For many reasons the currency question occupied the center of interest. As of old, the farmers and planters of the West and South were heavily in debt to the East for borrowed money secured by farm mortgages; and they counted upon the sale of cotton, corn, wheat, and hogs to meet interest and principal when due. During the war, the Western farmers had been able to dispose of their produce at high prices and thus discharge their debts with comparative ease; but after the war prices declined. Wheat that sold at two dollars a bushel in 1865 brought sixty-four cents twenty years later. The meaning of this for the farmers in debt—and nearly three-fourths of them were in that class—can be shown by a single illustration. A thousand-dollar mortgage on a Western farm could be paid off by five hundred bushels of wheat when prices were high; whereas it took about fifteen hundred bushels to pay the same debt when wheat was at the bottom of the scale. For the farmer, it must be remembered, wheat was the measure of his labor, the product of his toil under the summer sun; and in its price he found the test of his prosperity.

Creditors and Falling Prices.—To the bondholders or creditors, on the other hand, falling prices were clear gain. If a fifty-dollar coupon on a bond bought seventy or eighty bushels of wheat instead of twenty or thirty, the advantage to the owner of the coupon was obvious. Moreover the advantage seemed to him entirely just. Creditors had suffered heavy losses when the Civil War carried prices skyward while the interest rates on their old bonds remained stationary. For example, if a man had a $1000 bond issued before 1860 and paying interest at five per cent, he received fifty dollars a year from it. Before the war each dollar would buy a bushel of wheat; in 1865 it would only buy half a bushel. When prices—that is, the cost of living—began to go down, creditors therefore generally regarded the change with satisfaction as a return to normal conditions.

The Cause of Falling Prices.—The fall in prices was due, no doubt, to many factors. Among them must be reckoned the discontinuance of government buying for war purposes, labor-saving farm machinery, immigration, and the opening of new wheat-growing regions. The currency, too, was an element in the situation. Whatever the cause, the discontented farmers believed that the way to raise prices was to issue more money. They viewed it as a case of supply and demand. If there was a small volume of currency in circulation, prices would be low; if there was a large volume, prices would be high. Hence they looked with favor upon all plans to increase the amount of money in circulation. First they advocated more paper notes—greenbacks—and then they turned to silver as the remedy. The creditors, on the other hand, naturally approved the reduction of the volume of currency. They wished to see the greenbacks withdrawn from circulation and gold—a metal more limited in volume than silver—made the sole basis of the national monetary system.

The Battle over the Greenbacks.—The contest between these factions began as early as 1866. In that year, Congress enacted a law authorizing the Treasury to withdraw the greenbacks from circulation. The paper money party set up a shrill cry of protest, and kept up the fight until, in 1878, it forced Congress to provide for the continuous re-issue of the legal tender notes as they came into the Treasury in payment of taxes and other dues. Then could the friends of easy money rejoice:

“Thou, Greenback, ’tis of thee
Fair money of the free,
Of thee we sing.”

Resumption of Specie Payment.—There was, however, another side to this victory. The opponents of the greenbacks, unable to stop the circulation of paper, induced Congress to pass a law in 1875 providing that on and after January 1, 1879, “the Secretary of the Treasury shall redeem in coin the United States legal tender notes then outstanding on their presentation at the office of the Assistant Treasurer of the United States in the City of New York in sums of not less than fifty dollars.” “The way to resume,” John Sherman had said, “is to resume.” When the hour for redemption arrived, the Treasury was prepared with a large hoard of gold. “On the appointed day,” wrote the assistant secretary, “anxiety reigned in the office of the Treasury. Hour after hour passed; no news from New York. Inquiry by wire showed that all was quiet. At the close of the day this message came: '$135,000 of notes presented for coin—$400,000 of gold for notes.' That was all. Resumption was accomplished with no disturbance. By five o’clock the news was all over the land, and the New York bankers were sipping their tea in absolute safety.”

The Specie Problem—the Parity of Gold and Silver.—Defeated in their efforts to stop “the present suicidal and destructive policy of contraction,” the advocates of an abundant currency demanded an increase in the volume of silver in circulation. This precipitated one of the sharpest political battles in American history. The issue turned on legal as well as economic points. The Constitution gave Congress the power to coin money and it forbade the states to make anything but gold and silver legal tender in the payment of debts. It evidently contemplated the use of both metals in the currency system. Such, at least, was the view of many eminent statesmen, including no less a personage than James G. Blaine. The difficulty, however, lay in maintaining gold and silver coins on a level which would permit them to circulate with equal facility. Obviously, if the gold in a gold dollar exceeds the value of the silver in a silver dollar on the open market, men will hoard gold money and leave silver money in circulation. When, for example, Congress in 1792 fixed the ratio of the two metals at one to fifteen—one ounce of gold declared worth fifteen of silver—it was soon found that gold had been undervalued. When again in 1834 the ratio was put at one to sixteen, it was found that silver was undervalued. Consequently the latter metal was not brought in for coinage and silver almost dropped out of circulation. Many a silver dollar was melted down by silverware factories.

Silver Demonetized in 1873.—So things stood in 1873. At that time, Congress, in enacting a mintage law, discontinued the coinage of the standard silver dollar, then practically out of circulation. This act was denounced later by the friends of silver as “the crime of ’73,” a conspiracy devised by the money power and secretly carried out. This contention the debates in Congress do not seem to sustain. In the course of the argument on the mint law it was distinctly said by one speaker at least: “This bill provides for the making of changes in the legal tender coin of the country and for substituting as legal tender, coin of only one metal instead of two as heretofore.”

The Decline in the Value of Silver.—Absorbed in the greenback controversy, the people apparently did not appreciate, at the time, the significance of the “demonetization” of silver; but within a few years several events united in making it the center of a political storm. Germany, having abandoned silver in 1871, steadily increased her demand for gold. Three years later, the countries of the Latin Union followed this example, thus helping to enhance the price of the yellow metal. All the while, new silver lodes, discovered in the Far West, were pouring into the market great streams of the white metal, bearing down the price. Then came the resumption of specie payment, which, in effect, placed the paper money on a gold basis. Within twenty years silver was worth in gold only about half the price of 1870.

That there had been a real decline in silver was denied by the friends of that metal. They alleged that gold had gone up because it had been given a monopoly in the coinage markets of civilized governments. This monopoly, they continued, was the fruit of a conspiracy against the people conceived by the bankers of the world. Moreover, they went on, the placing of the greenbacks on a gold basis had itself worked a contraction of the currency; it lowered the prices of labor and produce to the advantage of the holders of long-term investments bearing a fixed rate of interest. When wheat sold at sixty-four cents a bushel, their search for relief became desperate, and they at last concentrated their efforts on opening the mints of the government for the free coinage of silver at the ratio of sixteen to one.

Republicans and Democrats Divided.—On this question both Republicans and Democrats were divided, the line being drawn between the East on the one hand and the South and West on the other, rather than between the two leading parties. So trusted a leader as James G. Blaine avowed, in a speech delivered in the Senate in 1878, that, as the Constitution required Congress to make both gold and silver the money of the land, the only question left was that of fixing the ratio between them. He affirmed, moreover, the main contention of the silver faction that a reopening of the government mints of the world to silver would bring it up to its old relation with gold. He admitted also that their most ominous warnings were well founded, saying: “I believe the struggle now going on in this country and in other countries for a single gold standard would, if successful, produce widespread disaster throughout the commercial world. The destruction of silver as money and the establishment of gold as the sole unit of value must have a ruinous effect on all forms of property, except those investments which yield a fixed return.”

This was exactly the concession that the silver party wanted. “Three-fourths of the business enterprises of this country are conducted on borrowed capital,” said Senator Jones, of Nevada. “Three-fourths of the homes and farms that stand in the names of the actual occupants have been bought on time and a very large proportion of them are mortgaged for the payment of some part of the purchase money. Under the operation of a shrinkage in the volume of money, this enormous mass of borrowers, at the maturity of their respective debts, though nominally paying no more than the amount borrowed, with interest, are in reality, in the amount of the principal alone, returning a percentage of value greater than they received—more in equity than they contracted to pay.... In all discussions of the subject the creditors attempt to brush aside the equities involved by sneering at the debtors.”

The Silver Purchase Act (1878).—Even before the actual resumption of specie payment, the advocates of free silver were a power to be reckoned with, particularly in the Democratic party. They had a majority in the House of Representatives in 1878 and they carried a silver bill through that chamber. Blocked by the Republican Senate they accepted a compromise in the Bland-Allison bill, which provided for huge monthly purchases of silver by the government for coinage into dollars. So strong was the sentiment that a two-thirds majority was mustered after President Hayes vetoed the measure.

The effect of this act, as some had anticipated, was disappointing. It did not stay silver on its downward course. Thereupon the silver faction pressed through Congress in 1886 a bill providing for the issue of paper certificates based on the silver accumulated in the Treasury. Still silver continued to fall. Then the advocates of inflation declared that they would be content with nothing short of free coinage at the ratio of sixteen to one. If the issue had been squarely presented in 1890, there is good reason for believing that free silver would have received a majority in both houses of Congress; but it was not presented.

The Sherman Silver Purchase Act and the Bond Sales.—Republican leaders, particularly from the East, stemmed the silver tide by a diversion of forces. They passed the Sherman Act of 1890 providing for large monthly purchases of silver and for the issue of notes redeemable in gold or silver at the discretion of the Secretary of the Treasury. In a clause of superb ambiguity they announced that it was “the established policy of the United States to maintain the two metals on a parity with each other upon the present legal ratio or such other ratio as may be provided by law.” For a while silver was buoyed up. Then it turned once more on its downward course. In the meantime the Treasury was in a sad plight. To maintain the gold reserve, President Cleveland felt compelled to sell government bonds; and to his dismay he found that as soon as the gold was brought in at the front door of the Treasury, notes were presented for redemption and the gold was quickly carried out at the back door. Alarmed at the vicious circle thus created, he urged upon Congress the repeal of the Sherman Silver Purchase Act. For this he was roundly condemned by many of his own followers who branded his conduct as “treason to the party”; but the Republicans, especially from the East, came to his rescue and in 1893 swept the troublesome sections of the law from the statute book. The anger of the silver faction knew no bounds, and the leaders made ready for the approaching presidential campaign.

«·DOMESTIC ISSUES BEFORE THE COUNTRY (1865-1897) · The Protective Tariff and Taxation·»