Sherman learned from this battlefield setback and countered with a diversion strategy worthy of study at West Point. He introduced new legislation prepared by the Treasury in April 1870, called “Revising the laws relative to the mints, assay offices, and coinage of the United States.”23 The bill quietly buried the demonetization of silver under mind-numbing instructions to the mint, such as “the assayer shall assay all metals and bullion whenever such assays are required in the operations of the mint.”24 The proposed legislation also removed the link to the French franc. Most newspapers ignored the 1870 bill, as well as the resulting Coinage Act of 1873, and those publications that commented put the withdrawal of the silver dollar at the bottom of the pyramid.25
No one cared about the mint, other than residents of Philadelphia (where the main branch was located), and fewer worried about the silver dollar in 1873, which was an “unknown coin” in the country according to Sherman.26 And the senator was right.27 For more than a generation silversmiths had turned the white metal into forks and knives rather than letting it circulate as currency. The value of shiny cutlery at the dinner table was worth more per ounce than the mint price of $1.29. Sherman added a personal observation in his memoirs: “Although I was quite active in business which brought under my eye different forms of money, I do not remember at that time ever to have seen a silver dollar.”28
From Sherman’s perspective the legislation simply ratified the status quo, suggesting that no one would miss the silver dollar, and justifying his early observation that the bill “does not adopt any new principles.” But that perspective ignores an important aspect of bimetallism even when one metal dominates, as gold did in the decades before the Coinage Act of 1873. Alexander Hamilton made both gold and silver legal tender primarily to avoid the scarcity of circulating currency, to serve as a buffer against deflation, but that also gave taxpayers and debtors the option to pay their obligations in the cheaper metal. Everyone likes options, which, by definition, confer the right but not the obligation to do something, and are valuable even if they remain unused.
For example, homeowners value the right to refinance their mortgages, such as replacing a 6% loan with one costing 4% as interest rates decline, and that right facilitates the initial decision to borrow and buy a home. Few homeowners refinanced their mortgages in the United States during the 1970s because interest rates rose throughout the decade, and some may have forgotten how profitable refinancing could be, but no mortgage borrower would willingly abandon that option without a fight. Congressmen who quietly passed legislation to remove the refinancing option because it had fallen into disuse would have to find alternative employment after the next election.
During the decades before the Coinage Act of 1873 few Americans exercised the option to pay obligations in silver because the white metal was more valuable as bullion. In the colorful horseracing language of finance professionals, it was an out-of-the-money option because it failed to pay off, like the losing thoroughbreds in the Kentucky Derby, and that explains the giant yawn greeting the Coinage Act of 1873. But the market price of silver declined sharply soon after, making those out-of-the-money options quite valuable. The price of $1.29 per ounce at the mint looked cheap in 1872, when silver bullion averaged $1.32, but when silver hit $1.16 in 1876 that same mint price would have been a bonanza.
The Coinage Act was passed with the help of Sherman’s subterfuge, but that legislation did not precipitate the price slide that led to the outcry of criminal behavior. The price of silver had already reached the lowest point in more than twenty years in the London bullion market in December 1872, two months before the act became law.29 European countries dominated the demonetization of silver and the switch to gold, beginning with the Imperial Coinage Law in Germany, passed on December 4, 1871, at the urging of Chancellor Bismarck, and followed by Sweden and Denmark adopting gold in 1873.30 Belgium, Italy, France, and Switzerland moved towards the gold standard by restricting the free coinage of silver.31 France cut the maximum silver coinage to 250,000 francs per day in September 1873 and reduced it further to 150,000 francs in November.32 Holland ended the practice of buying silver at a fixed price in 1872 and stopped all silver coinage in 1873.33 In what appears like a coordinated ambush, massive sales of silver by Germany, which had been on a silver standard until then, combined with the absence of buyers from the rest of Europe, pushed down the price of the white metal to then unprecedented levels.34
The unlikely provocation for this European offensive against silver began in the gold mines of California, Russia, and Australia in the 1850s. Silver dominated gold as the preferred currency for most of recorded history primarily because it was scarce but not too scarce, so that it held its value but was sufficiently abundant to support expanding trade. But the explosion in gold production beginning in 1848 at Sutter’s Mill, California, coupled with discoveries in Russia and Australia, appeared to solve the gold shortage.35 Total world production in the twenty-five years between 1850 and 1875 matched the entire gold output of the previous 350 years.36 The growing circulation of gold coins and the natural advantage of gold as international money, settling large transactions in world trade because it is compact and inexpensive to ship, convinced representatives in 1867 at the international monetary conference to recommend the gold standard.37 And four years later, after Germany defeated France in the Franco-Prussian War, Bismarck rushed to adopt the conference recommendations. The Iron Chancellor wanted to create a German Goliath and what better initiative than to emulate Britain, the dominant economic superpower, which had been on the gold standard since 1816.38 The other European countries followed like anxious freshmen pledging for a fraternity.
Sherman’s removal of the silver dollar from the Coinage Act of 1873 did not trigger the metal’s price decline, but the snub eroded its value and altered the course of American history. The worldwide switch to gold supported the price of the yellow metal despite the increased supply and created waves of silver selling that, combined with renewed output from the Comstock Lode, cut silver’s value in half by the mid-1890s.39 The pro-silver forces fought to prop up the white metal throughout this period but failed.
Representative Richard Bland of Missouri and Senator William Allison of Iowa sponsored legislation to restore the legal tender status of silver. The Bland-Allison Act of 1878 made the silver dollar acceptable once again in all payments, both for private debts, unless otherwise specified, and for public obligations, like taxes.40 But the act stopped short of free and unlimited coinage at the U.S. Mint and instead made the Treasury buy between two and four million ounces of silver per month to support the price. Twelve years later, in an ironic twist, silver’s archenemy, Senator John Sherman, sponsored what was called the Sherman Silver Purchase Act of 1890, repealing the purchase clause of Bland-Allison and ordering the U.S. Treasury to buy even more silver, 4.5 million ounces per month, to help boost demand.41 Sherman explained his apparent about-face: “A large majority of the Senate favored free silver … [and] some action had to be taken to prevent a return to free [and unlimited] silver coinage, and the measure [that] evolved was the best attainable. I voted for it, but the day it became law I was ready to repeal it, if repeal could be had without substituting in its place absolute free coinage.”42 The Sherman Silver Purchase Act was repealed in 1893.
Neither Bland-Allison nor the Sherman Act restored Alexander Hamilton’s free coinage of silver under which the U.S. Treasury was obligated to purchase the white metal in unlimited amounts at the mint price of $1.29 per ounce. The United States would have pegged the price at $1.29 with unlimited purchases, the country would have been on a silver standard courtesy of Sir Thomas Gresham and avoided some of the turmoil plaguing America during the last quarter of the nineteenth century.43
No one knows the pitfalls of the path not taken, but the gold discoveries of the 1850s failed to deliver as expected, creating the feared consequences of insufficient circulating currency in America. The outcome was twenty years of price deflation
beginning in 1876, including the declining price of silver, but more importantly increasing the burden of debts like mortgages, which remained fixed in dollar terms even though home prices declined.44 The drop in wages and agricultural prices launched a generation of social combat, pitting “silverites” against “goldbugs,” debtors versus creditors, and midwestern farmers against East Coast bankers, all combining to darken the political landscape like a dust storm.
Many consider L. Frank Baum’s children’s story, The Wonderful Wizard of Oz, an allegory of the contemporary class warfare.45 The cyclone that carried Dorothy to the Land of Oz represents the economic and political upheaval, the yellow brick road stands for the gold standard, and the silver shoes Dorothy inherits from the Wicked Witch of the East represents the pro-silver movement. When Dorothy is taken to the Emerald Palace before her audience with the Wizard, she is led through seven passages and up three flights of stairs, a subtle reference to the Crime of ’73 which started the class conflict in America.46 The story scares some children, and with good reason. It was a turbulent time.
Veiled threats of violence emerged from unlikely places during that period. At the National Convention of the American Bimetallic League, held in Chicago’s First Methodist Church on August 1, 1893, the group’s president, General A.J. Warner of Ohio, delivered the opening address. Referring to the Act of 1873, he said: “The members of Congress, the Speaker of the House who signed that bill, the President who approved it, never knew that it demonetized silver. There was but one man in the United States Senate who knew that the Act of 1873 demonetized silver, and yet he has never been hanged or shot for treason. … The Act will be known in history as the Crime of 1873.”47 The great applause following Warner’s reference to John Sherman’s fate anticipated the acclamation of William Jennings Bryan as the Democratic Party’s presidential candidate in 1896.
CHAPTER 3
* * *
FREE SILVER
WILLIAM JENNINGS BRYAN, A NEBRASKA CONGRESSMAN WHO RAN unsuccessfully three times for the American presidency, made headlines soon after arriving in the capital. The Washington Post reported Bryan’s speech on tariffs in the House of Representatives in March 1892 under the banner “Fame Won in an Hour.”1 The newspaper ignored the congressman’s detailed attack on protectionism, which would have put its readers to sleep, and focused instead on Bryan’s delivery, his “eloquent words in picturing his thoughts.”2 Bryan’s theme was, “We are demanding for the people equal and exact justice to every man, woman, and child. We desire that the laws of the country shall not be made, as they have been, to enable some men to get rich while many get poor.”3
Bryan’s biographer Paxton Hibben expanded on his subject’s way with words: “If anyone knew how to give emotional expression to a practical matter it was William Jennings Bryan.”4 But even Bryan’s eloquence failed to sway the electorate in favor of “free silver,” which meant the free and unlimited coinage of silver, the dominant issue in the 1896 presidential campaign between Democrat Bryan and Republican William McKinley. The defeat of William Jennings Bryan buried silver as a monetary standard in the United States, forcing the white metal to battle for price respectability at the dinner table.
Billy Bryan was born in Salem, Illinois, on March 19, 1860, to a frugal mother, Mariah Elizabeth, and a disciplinarian father, Silas, whose religious outlook shadowed the household. Young Bryan recalled, “My parents were quite strict with me and I sometimes considered the boys more fortunate who were given more liberty.”5 His father’s favorite quote was from the Book of Proverbs: “Foolishness is bound in the heart of a child; but the rod of correction will drive it from him.” Despite the severity, young Billy idolized his father, a district judge in Marion County, who disciplined himself as well. The Honorable Silas Bryan would interrupt judicial proceedings three time a day, fall to his knees and pray in full view of his courtroom, and then resume deliberations.6
FIGURE 4. A William Jennings Bryan performance.
Billy Bryan attended court as a young boy, sitting like an obedient puppy on the steps leading up to the bench, watching his father rule. Silas resembled an Old Testament prophet dispensing justice and Billy knew then that he wanted to be a lawyer, although some of his teachers would say otherwise. When he first arrived in school the teacher asked, “ ‘Well, little man, … What do you mean to be when you grow up?’ ‘President of the United States,’ gravely replied Billy Bryan.”7 No one could accuse him of not trying.
Bryan grew up on a farm just outside of Salem, a small community in southern Illinois that had more in common with citizens of adjacent Missouri and Kentucky than with Abraham Lincoln’s Illinois. The locals may not have been outright segregationists as in the rural regions of those neighboring states, but they surely believed in the evils of the East Coast banking elite, a prejudice that permeated Bryan’s brain by osmosis. It would bubble forth later in life with complaints like “We simply say to the East take your hands out of our pockets and keep them out.”8
Young Billy built a muscular back baling hay on the family farm and then sharpened his tongue in the debating society at Illinois College in Jacksonville. He benefited from a clear baritone voice that commanded attention but usually came in second during debating competitions, a yellow caution sign ignored by the Democratic Party.9 When he returned to Salem on vacation and addressed the crowd during a Saturday night rally at the courthouse, the men dressed in their best denim overalls were overheard saying as they left the gathering, “Well, Billy Bryan’s got a nice voice, but he ain’t the man his father was—and never will be.”10
Bryan learned to support both sides of an issue during his debating days, often taking the unpopular position simply for the sake of argument.11 His life as a politician, which began when he moved to Lincoln, Nebraska, in 1887 after failing to prosper as an Illinois lawyer, benefited from this rhetorical flexibility. Bryan separated his personal preferences from what mattered to his constituents. The Prohibition Party, which had been active in the United States since 1869 and would sponsor a candidate for the presidency in the 1890s, threatened Nebraska’s thriving brewing industry. Bryan personalized his teetotalism during the 1890 congressional elections: “Although I do not touch liquor myself, I do not endorse the prohibition amendment.”12 He won with support from the brewers, despite a finding by the Nebraska legislature of fraud by the liquor interests.13
Soon after arriving in Washington Bryan witnessed the dislocations of the Panic of 1893, including the suspension of almost five hundred banks in the United States, more than ten times the previous decade’s annual average, and causing the bankruptcy of popular rail companies, such as the Union Pacific Railroad and the Atchison, Topeka, & Santa Fe.14 The unemployment rate of 18% in 1894, combined with falling industrial output and sinking agricultural prices, resembled the conditions of the Great Depression that would prevail some forty years later.15 In a preview of the 1930s, voters turned their backs on prohibition and towards the money question, whether America should remain on the rigid gold standard, which gave the dollar international credibility, or remonetize silver under Hamilton’s bimetallic system, which would expand U.S. currency and promote easier credit to support the domestic economy.
Bryan knew what to do. He had told a crowded gathering of his constituents in September 1892, “I don’t know anything about free silver. … The people of Nebraska are for free silver and I am for free silver. I will look up the arguments later.”16 It sounded good and got a laugh, but Bryan had already studied the silver coinage question when he was first elected to Congress in 1890, reading popular pamphlets issued by the Bimetallic League and wading through a dense academic critique by Professor J. Laurence Laughlin of the University of Chicago.17 Bryan knew all the arguments and had adopted the free silver motto long before his public quip, but he was a ham and could not resist.
William Jennings Bryan not only favored the restoration of bimetallism in the United States, but he also wanted free and unlimited coinage of silve
r at the pre-1873 ratio of 16 to 1, which meant sixteen ounces of silver would be equivalent in value to an ounce of gold.18 In 1894 the price of silver averaged 64¢ an ounce, so with gold fixed at $20.67 per ounce by the U.S. Treasury, the prevailing gold to silver price ratio was 32:1, making an ounce of gold worth thirty-two ounces of silver.19 Restoring the 16 to 1 ratio meant raising the price of silver through unlimited purchases by the Treasury until it reached $1.29, the mint price established in the Act of 1792, which would have enriched mine owners and diluted the currency according to Bryan’s critics. The Chicago Tribune raised the obvious question: “Silver mining has never been one of the interests of Nebraska. It has raised wheat, corn, hogs, sheep, and some statesmen like Bryan, who are sillier and ‘absurder’ than sheep, but it has produced no silver. Why then should Nebraskans run their legs off to give the miners to the west of them more for their metal than it is worth in the world’s markets?”20
The congressman’s constituents favored the free coinage of silver because they believed more circulating currency would bring higher prices for wheat, corn, hogs, and sheep, not to mention higher prices for their heavily mortgaged farmlands, which were threatened with foreclosure. The New York Times reported that “the most powerful argument [for silver] … is wheat at 35¢ per bushel on Kansas farms. At this price no Kansas farmer can get either a gold or a silver dollar or a day’s labor to say nothing of [paying] interest on either farm mortgage[s] or cost of machinery.”21 The superintendent of the New York State Banking Department had criticized investments by “some of the savings banks of the eastern states” in “western farm mortgages” because “the market value of real estate … has at times depreciated to such an extent as to induce borrowers to surrender their holdings in preference to paying the mortgage loans.”22
The Story of Silver Page 4
