The principle focus of American monetary Populism during the latter half of the nineteenth century involved the debate over whether or not to base the currency of the United States on the gold standard or to allow the free coinage of silver. The populist free silver movement in the South and the West began shortly after the Civil War with an attempt to preserve the paper currency standard adopted by the Greenback Labor Party in 1862. Post–Civil War attempts to appreciate the dollar to resume gold convertibility at the prewar rate put pressure on traders, producers, manufacturers, and farmers. The initial support for greenbacks, or paper money, came from manufacturers and railroad workers. Western farmers and miners joined with the Greenbackers in the early 1870s as farm and mineral prices began a decline. However, Populist monetary demands shifted from an emphasis on greenbacks and paper currency to free coinage of silver. In 1873, silver was removed from circulation by the treasury and the federal government as its price began to decline relative to gold. Miners and greenback supporters developed a plan to remonetize silver at the old 16-to-1 rate against gold. Populists believed that exerting pressure on the federal government to buy silver well above the market rate would subsidize silver miners and keep the country off of the gold standard and on a de facto silver standard. The declining price of silver bullion directly benefited bondholders and wealthy individuals with fixed incomes. Yet the deflation of the economy negatively affected debtors in the South and the West. For silver supporters, limited coinage of bullion meant less paper money or greenbacks in circulation. As a result, miners and farmers in the midwestern and plains states and the South were negatively affected by the lack of paper money in the economy. Populists argued that the free coinage of silver contributed to inflation. Free silver supporters claimed that greater circulation of paper currency would ultimately help farmers and miners to get out of debt.
In reality, the Populist concerns about gold versus silver were superficial. The pressing issue facing the nation following the election of 1892 was what actions should be taken by the federal government to prevent the deflation of the economy. Declining prices benefited bondholders and individuals with stagnant incomes while injuring debtors. Industrial laborers directly profited from deflation except during periods of depression when unemployment rates rose. This fact explains why the Populists gained little support among this population. In contrast, southern farmers and those from Plains states who had been oppressed by the crop lien system were negatively affected by the downward spiral in the economy.
At the beginning of the 1890s, debates over federal monetary policy centered on the coinage of silver. From its inception, the U.S. currency had been based on a bimetallic standard. Gold and silver were coined, and the number of grains of each in dollar coins was continuously adjusted to reflect the commercial value of both metals. An act of Congress in 1792 established a ratio of 15:1—371.25 grains of silver and 24.75 grains of gold. Each form of specie, gold and silver, was worth one dollar at the mint. However, in 1834 the ratio was changed, reducing the overall value of gold to reflect the new finding of precious metals in California. The discovery of the Comstock Lode in Nevada and increased silver mining in Colorado steadily decreased the price of gold until, in 1874, it became profitable for miners to coin silver bullion. Yet when the Silverites attempted to coin their bullion, they discovered that the Coinage Act of 1873 had devalued the metal due to the fact that no silver had been presented to the U.S. mint in years, which had literally demonetized the metal. Therefore, the tradition of a bimetallic currency was rapidly becoming extinct.
President Grover Cleveland felt that the controversy over free coinage had contributed to the depression by upsetting the confidence of the business community. He believed that the only viable solution to the nation's fiscal woes was to return to a single gold standard. Cleveland called a special session of Congress, and he successfully pushed through a repeal of the Sherman Silver Purchase Act in 1893. However, the repeal of the Sherman Act only served to split the national Democratic Party. The president's Populist supporters in the South and the West largely abandoned him. Cleveland had reneged on his campaign promise to preserve bimetallism, and his political support in the South and the West eroded because of his support of the gold standard.
As a result of Cleveland's support of the gold bugs, Populist Silverites aggressively sought a new candidate who would actively endorse the free coinage of silver. The Populist platform in the presidential campaign of 1896 demanded free coinage of silver at a ratio of 16 to 1. The two major parties found it increasingly impossible to avoid the free silver controversy. During the 1894 congressional election, the Populist vote had increased by 42 percent. Southern and western leaders of the Democratic Party feared that they would lose the support of their constituency unless they publicly repudiated the fiscal policies of the Cleveland administration. Western Republicans, led by Senator Harry M. Teller of Colorado, threatened to throw their support to the Populists unless their party fully endorsed silver coinage.
Meeting in St. Louis to select a nominee in June of 1896, the Republican Party wholeheartedly announced its support of the gold standard. The Republican platform proclaimed “We are therefore opposed to the free coinage of silver . . . the existing gold standard must be maintained” (Garraty 701 ). The religious metaphor of the common Populist sacrificing himself upon the cross of gold became the political rallying cry of the Silverites. At the conclusion of the convention, the Democrats unanimously adopted a platform endorsing bimetallism and endorsing the free coinage of both silver and gold at the ratio of 16:1. They went on to nominate Bryan for president.
The Democratic nomination of Bryan in 1896 placed tremendous pressure on the Populists. If they threw their support behind Bryan, they risked losing their unique party identity. However, if they nominated their own candidate, they would most likely ensure McKinley's election. The Populists were not successful at finding a candidate of enough stature to run against Bryan. In the final analysis, the Populists supported the Democratic candidate, but exercising their clout within the party, they successfully nominated Watson as vice president instead of the favored Arthur Sewell of Maine.
Global economic support for the gold standard eroded during World War I. Gold-backed currency was briefly reinstated from 1925 to 1931 as the gold exchange standard. However, this attempt to revive the gold standard broke down in 1931 after Britain's rejection of gold in the aftermath of substantial gold and capital outflows. In 1933 Franklin Delano Roosevelt attempted to nationalize gold owned by private citizens and abolished contracts where payment was specified in gold. From 1946 to 1971, many countries operated under the Bretton Woods system. This attempt to modify the gold standard resulted in most countries settling their international balances in U.S. dollars, but the U.S. government promised to redeem other central banks’ holdings of dollars for gold at a rate of $35 per ounce. This method of payouts for balances rapidly depleted U.S. gold reserves. Ultimately, this method reduced confidence in the ability of the United States to redeem its currency in gold. Finally, in August 1971, President Richard Nixon publicly announced that the United States would abandon redeeming paper currency for gold. This abandoning of the Bretton Woods system represented the final step in gold-backed currency.
Christopher Allan Black
See also: Bland, Richard P. (1835–1899) ; Bryan, William Jennings (1860–1925) ; Cleveland, Grover (1837–1908) ; Crime of ’73 ; Democratic Party ; McKinley, William, Jr. (1843–1901) ; People's Party ; Sherman Silver Purchase Act (1890) ; Silver Republicans ; St. Louis Convention of 1896
Carnes, Mark C., and John A. Garraty. American Destiny: Narrative of a Nation. Vol. 2. New York: Penguin, 2003.
Freidman, Milton. “The Crime of 1873.” Journal of Political Economy 98 (6): 1159–1194.
Frieden, Jeffrey A. “Monetary Populism in Nineteenth-Century America: An Open Economy Interpretation.” Journal of Economic History 57 (2): 367–395.
Garraty, John A. The Story of America. New York: Holt Rinehart & Winston, 1994.