The Story of Silver

by William L. Silber

  Bryan supported silver for the same reason that it dominated gold as the medium of exchange in ancient times, because the white metal was valuable but sufficiently abundant to support growing economic activity. Silver was a softer and more elastic currency than gold. Throughout history the supply of silver fed the sea of commerce like an underground spring, keeping prices and production afloat. Gold had been too scarce to serve the masses until the discoveries of the 1850s, which led to the worldwide switch to the yellow metal in 1873. But gold failed to flow as expected, and the resulting currency shortage in America sank prices. The burden of deflation fell primarily on debtors, farmers, and small businessmen who had to repay fixed dollar obligations like mortgages and bank loans with lower revenues. A typical Bryan supporter, Louis Kohnstamm, who ran a small meat market in New York City, commented, “There is not money enough in circulation, and unlimited issue of silver dollars will throw more money into business, and that’s what I want.”23

  Bryan’s pro-silver sentiments were most popular west of the Mississippi but reflected more than just a hometown bias. He thought that the power to create money belonged to the government and “can no more with safety be delegated to private individuals than we could afford to delegate to private individuals the power to make penal statutes or levy taxes.”24 This may sound obvious today but back then America had no central bank to manage its currency and much of what passed as money were national bank notes, direct obligations of privately owned commercial banks, such as the Bank of California, the Bank of New York, and the First National Bank of Birmingham, Alabama. Bryan acknowledged the creditworthiness of bank currency, which was backed by U.S. government bonds, but he wanted the government to control the quantity in circulation to promote economic growth. He believed “the great thing desirable in a dollar is stability” and the free coinage of silver would promote that goal.25 Carter Glass, a delegate to the Democratic convention in 1896, and a future congressman from Virginia who would sponsor the legislation in 1913 to create the Federal Reserve System, America’s central bank, supported the presidential candidacy of William Jennings Bryan.26 Bryan would return the favor by publicly supporting Glass’s currency bill creating the Fed.

  Resurrecting silver to full monetary status was not the only radical proposal Bryan supported at the Democratic Convention in Chicago in July 1896. He also favored an income tax, direct election by voters of U.S. senators, and women’s suffrage; radical ideas that branded him a socialist at best and an anarchist at worst but would soon become conventional wisdom. He was ahead of his time, like Barry Goldwater, the Republican Party’s presidential candidate in 1964 whose conservative stance on welfare and defense led to Democrat Lyndon Johnson’s landslide victory, but whose ideas triumphed a generation later with Ronald Reagan. Bryan and Goldwater would surely recoil at their shared fate.

  Bryan arrived at the Democratic convention without a national campaign organization but his famous “Cross of Gold” speech on July 9, 1896, turned the delegates into a volunteer army of true believers. Bryan presented himself as a humble citizen “clad in the armor of a righteous cause,” and said that “the money question was the paramount issue of the hour.”27 He claimed that free coinage of silver would promote prosperity for the common man, mark U.S. independence from the gold standard countries of Europe, and “is the issue of 1776 over again.”28 His closing plea to “not crucify mankind upon a Cross of Gold” added religious thunder to the revolutionary spirit. An eerie silence greeted Bryan’s final words in the convention hall, as though a lightning bolt had stunned the audience, and then a boisterous celebration exploded. Cheering delegates rose to their feet, threw hats, umbrellas, and newspapers into the air, while two sturdy members of the Georgia delegation raced across the floor, lifted the bulky six-foot Bryan on their shoulders, and paraded him through the hall.29 It was as though he had just hit a walk-off home run to win the World Series.

  The emotional outburst to bimetallism, with both gold and silver serving as monetary metals, a topic usually as exciting as a debate over the Malthusian Theory of Population, lay in Bryan’s oratorical skills and in the growing resentment to deflation following the Crime of 1873. Bryan had refined his message through repetition, like the preparation of a professional athlete, and had used the Cross of Gold metaphor during an earlier speech in the House of Representatives.30 No one took notice back then, but his message resonated more forcefully with the ravages of the depression that began in 1893. Unemployment was still 14% in the election year of 1896, down from 18% two years earlier but higher than anything America would experience until 1931 during the Great Depression.31

  And yet he lost the election.

  William McKinley defeated William Jennings Bryan for many reasons. Republican expenditures were fourteen times bigger than the Democrats even though McKinley never left his front porch during the campaign, while Bryan crisscrossed the country like a travelling salesman.32 McKinley, aged fifty-three, was an experienced executive as governor of Ohio and had served in the Union Army during the Civil War, while Bryan, aged thirty-six, had served two terms as a congressman and was holding a rattle rather than a rifle during the War Between the States. Harper’s Weekly magazine lampooned the contrast in a cartoon entitled “The Deadly Parallel,” showing a soldier in full dress facing a nearly naked toddler.33 McKinley’s carefully scripted speeches never missed their mark while Bryan’s impromptu remarks often gave the opposition explosive ammunition. The Nebraska congressman explained that he launched his campaign in New York’s Madison Square Garden so that “our cause might be presented first in the heart of what now seems to be the enemy’s country.”34 Newspapers skewered Bryan on that final divisive phrase, helping the Republicans win every state in the Northeast as well as four southern border states—Maryland, Kentucky, West Virginia, and Delaware—that had been Democratic strongholds since the Civil War.35

  But the man who orchestrated McKinley’s victory, campaign manager Mark Hanna, an Ohio millionaire businessman with interests in coal, steel, and railroads, said it best early in the campaign: “[Bryan’s] talking silver all the time and that’s where we’ve got him.”36 Newspapers throughout the country denigrated Bryan’s obsession with the free coinage of silver, running stories promoting a sound currency backed by gold rather than silver dollars filled with bullion worth half its face value. The New York Times quoted an immigrant cabinet maker, M.E. Thoesen from New York City, “I am for gold through and through and all the time and do not want any fifty-three-cent dollars. What good would such money [do] to the workman?”37 The Washington Post followed up: “These jokes about the 53-cent dollar won’t go any more. It’s only a 50-cent dollar now. The price of silver has dropped.”38 Senator James K. Jones of Arkansas, chairman of the Democratic National Committee, was not amused: “The thing which hurts us most is the constant statement that free silver means a fifty-cent dollar.” 39

  The Republican arithmetic was right. Silver sold for an average of 63.5¢ an ounce in 1896 and the silver dollar contained threequarters of an ounce of the white metal, so the silver dollar was worth about 49¢ of bullion.40 But Bryan should have said that the value of a dollar depends on how much it can buy and not on its intrinsic value, an obvious fact today in a world of fiat currency, where dollars are worth more than the paper they are printed on because the government promises to keep them scarce. But back then almost everyone believed, and many still do, that making the currency convertible into a precious metal keeps the government honest, ensuring that it will not debase the currency by printing too much money and causing inflation. Concern over the intrinsic value of money may seem like a medieval superstition similar to ghosts and goblins, but John Maynard Keynes, who considered the gold standard a barbarous relic, worried at the start of the Great War that a break with gold would undermine the credibility of the British pound.41

  Bryan answered his fifty-cent critics by saying “free and unlimited coinage by the United States alone will raise the bullion value of sil
ver to its coinage value and thus make silver bullion worth $1.29 per ounce.”42 And he invoked the law of supply and demand for support: “Any purchaser who stands ready to take the entire supply of any given article at a certain price can prevent that article from falling below that price. So the Government can fix a price for gold and silver by creating a demand greater than the supply.”43 Bryan was right about purchases and sales by the mint setting the price of precious metals and he added an analogy about eggs for the common folk: “If any man in this community would offer to buy all the eggs produced at 25 cents a dozen … nobody would sell eggs for less, no matter what the cost of production, whether one cent or five cents a dozen. So with silver.”44

  Students at the Metropolitan Business College in downtown Chicago tossed eggs at a Bryan campaign parade as it passed the corner of Michigan Avenue and Monroe Street but that was a minor indignity compared with the splatter greeting Bryan’s metaphor in the press.45 The Chicago Daily Tribune offered the following narrative:46 “Let us see what would happen with the eggs. First, everybody would want to sell eggs. … Second, eggs would be sent in from Mexico, from Canada, and from every country which had eggs. … Third, people could not afford to eat eggs kept so dear. … Fourth, … the man [buying the eggs] would have his hands full and his barns full of rotten eggs. … The man would be bankrupt long before he bought all the eggs. [And] any government would be bankrupt long before it bought all the silver. The eggs would rot. The ‘dollar’ would be rotten too.”

  The eggs analogy laid bare the consequences of Bryan’s proposal to raise the price of silver to $1.29 per ounce from the 63.5¢ prevailing in the bullion market in 1896. Mexico and Canada would have shipped silver at its inflated value to the United States in exchange for gold. And so would every European country on the gold standard, which included Britain, France, and Germany. Bryan had touted the support of the Iron Chancellor, Prince Otto von Bismarck, to bolster his campaign for free silver until the press headlined Bismarck’s ulterior motive: to dump Germany’s store of pre-1870 silver at the U.S. Mint.47 Recall that Bismarck had triggered the run on silver by adopting the gold standard after the Franco-Prussian War ended in 1871.

  Bryan’s campaign to coin silver at the pre-1873 ratio of 16 to 1 would have increased the domestic stock of money in the United States and promoted easier credit, a desirable outcome in the 1870s, when America faced decades of deflation, but was counterproductive in 1896, when gold became more plentiful and fueled an emerging inflationary spiral.48 His timing was bad, like selling umbrellas during a drought, and the economic resurgence kept the Democrats out of the White House until Woodrow Wilson was elected in 1912. Bryan served as Wilson’s secretary of state between 1913 and 1915, which was the closest he ever got to being president. At that time the secretary of state was second in line, after the vice president, to succeed an incapacitated or impeached president.49

  During the final years of his life, Bryan applied the righteous fervor he felt for silver to fighting the teaching of Charles Darwin’s theory of evolution. His most famous confrontation was the 1925 battle with prominent lawyer Clarence Darrow, who defended John Thomas Scopes, a substitute science teacher accused of violating a Tennessee law forbidding the teaching of evolution in public schools.50 Bryan’s prosecution brought a guilty verdict in the Scopes Trial, fictionalized in the hit 1960 movie Inherit the Wind. William Jennings Bryan died less than a week after the trial ended and did not live to see the verdict overturned by the State Supreme Court. His death may have been merciful from that perspective, but he also never lived to see the resurrection of his 16 to 1 war cry for silver during the Great Depression and its influence on master politician Franklin Delano Roosevelt.

  FIGURE 5. Bryan as statesman.

  CHAPTER 4

  * * *

  SEEDS OF ROOSEVELT’S MANIPULATION

  PRESIDENT FRANKLIN ROOSEVELT AND NEVADA SENATOR KEY Pittman seem like an odd couple of financial coconspirators. “Young Roosevelt knows nothing about finance,” California politician Franklin K. Lane said, which sounds terrible, but most people know even less.1 The problem went deeper according to Lane, who served as Woodrow Wilson’s interior secretary: “But he doesn’t know he doesn’t know.” FDR’s aristocratic upbringing on a country estate in New York’s Hudson Valley infused a self-confidence in the future president that served him well in politics but undermined his business decisions. His optimism seduced the public during his campaign tours but left him vulnerable to Wall Street scams.

  Franklin Roosevelt, the pampered only child of James Roosevelt and Sara Delano, both coming from inherited wealth, was born on January 30, 1882. He went to Groton, an elite boarding school, and to Harvard, where he was an average student, and then followed his fifth cousin, President Theodore Roosevelt, into public service. The Roosevelt name was already political royalty at the dawn of the twentieth century, and although Teddy was a Republican and Franklin a Democrat, the family moniker worked its magic. In 1910 FDR won election to the New York State Senate from his Dutchess County district that had last chosen a Democrat in the 1850s. His support of Woodrow Wilson in the 1912 presidential election brought him to Washington. He served as assistant secretary of the Navy in the Wilson administration, where he impressed Interior Secretary Lane with his financial acumen and supported America’s entry into the Great War in 1917. His strong chin, sunny disposition, and East Coast pedigree helped him secure the Democratic vice-presidential nomination in 1920 alongside presidential hopeful James Cox of Ohio. They lost to the Republican ticket of Warren Harding and Calvin Coolidge.

  Roosevelt was stricken with polio in 1921 and withdrew from public life to battle the disease. He launched a number of business ventures during the 1920s, but the outcomes were as predictable as if a crown prince were running a flea market. FDR’s misadventures included investing in a fleet of blimps to fly passengers from New York to Chicago, introducing vending machines that dispensed premoistened postage stamps, trading in the German mark, and trying to corner the live lobster market.2 His losses in lobsters should have restrained his foray into manipulating the silver market after he was elected president in 1932, but he never made the connection.

  Key Pittman, on the other hand, learned finance because he needed money. He was born on September 12, 1872, on a farm in Vicksburg, Mississippi, and lost both of his parents before becoming a teenager.3 He lived with relatives and then studied law at Southwestern University in Clarksville, Tennessee, where he took required Bible classes from Dr. Joseph Wilson, father of Woodrow Wilson, but was only an average student. His impulsive instincts and good looks could lead to drink and trouble, so it is no surprise that Dr. Wilson took little interest in him. The future president, however, would promote Pittman’s Senate career as a reward for his outspoken support.

  Pittman dropped out of the University in 1890 before graduating and on a whim moved west to seek his fortune, using his legal training to support land and mining speculations. He settled in a small town near Seattle but after a string of bad investments filed for bankruptcy in 1897, leaving an overdrawn checking account and unpaid bills from a physician and a clothing store. He moved to Alaska in 1897, joining the Klondike gold rush, but earned more from his legal fees than his mining skills. In 1902 he followed a former law partner to Tonopah, Nevada, a frontier town located midway between Reno and Las Vegas, after rich gold and silver mines were opened. He told his wife, Mimosa, a California beauty he had met and married while in Alaska, “I am going to make money here.”4 He did.

  Pittman learned from his earlier mistakes and profited by following his well-connected clients, including Charles M. Schwab, president of the Bethlehem Steel Company and part-owner of the Tonopah Extension Mining Company. He bought shares in Schwab’s companies and by 1907 became a major investor in the Pacific State Telephone Company and in the Nevada Hills Extension Mining Company.5 But he wanted more and told Mimosa, “[William Jennings] Bryan at my age had been two terms in Congress and two years later wa
s the nominee for president of the United States.”6 Local Democratic politicians recognized Pittman’s potential and in 1908 offered to back his candidacy for Nevada’s seat in the House of Representatives. Key rejected their initiative: “I do not believe that there is any chance of the next Congress being Democratic and for that reason any Congressman we may elect will be a nonentity in that body.”7

  Key Pittman was ambitious.

  His patience paid off in 1912 when he was elected U.S. senator from Nevada. Pittman’s timing was perfect. He took office when the Democratic Party gained control of both houses of Congress and Democratic Governor Woodrow Wilson of New Jersey became president. He would capitalize on the opportunity.

  The freshman senator from Nevada began his congressional career by preparing for reelection. He became chairman of the Senate Committee on Territories because no one with seniority wanted it and then explained to friends, “I am in a position to do more for this State than anyone else. I am preparing stuff for my constituents all the time. … I want my constituents to know that I am busy.”8 But he also knew that party loyalty mattered: “I am thoroughly in accord with the Administration and am pleased that I am in a position where I can assist in carrying out its policies.” As a result, his recommendations for federal appointments in Nevada were quickly accepted, leading a local newspaper to write that Pittman, “could smell a job across a township and was singularly adroit in getting it for one of his constituents.”9