However, there were parts of the country where the demonetization was indeed noticeable: silver mines and the local economies that depended on them. Another overlooked omission in the 1873 act was that it did not mandate that Treasury mint coins for anyone who brought it silver bullion, as had been common earlier in the century when silver coins were still in circulation. By 1876, for example, the San Francisco Mint was telling silver miners along the Owhyee River in Idaho that it was six months to a year behind in its operations and could not promise to mint coins at all by any firm date—which was ruinous to miners who needed to cover expenses. “This dilatory policy on the part of the Government in coining the precious metal,” an Idaho newspaper scolded, “is ruinous beyond calculation.”19
As similar complaints mounted, western legislators and their journalistic allies began portraying the Coinage Act as a massive financial fraud perpetrated on the public. In 1876, Nevada senator John P. Jones, a doctrinaire advocate of the silver standard, called the law a “grave wrong.” It was difficult, however, for members of Congress to explain why they had so overwhelmingly passed such a terrible law. The first, and reasonably plausible, excuse was that they didn’t know what they were voting on. One after another, congressmen and senators lined up to profess their ignorance of what the act did to silver. Senator Allen Thurman was typical: “There is not a single man in the Senate . . . who had the slightest idea that it was even a squint toward demonetization.” Even President Grant, according to some widely distributed but rarely attributed accounts, declared, “I did not know that the act of 1873 demonetized silver. I was deceived in the matter.”
Another supposed culprit was shadowy foreign influence. A tale emerged about a British economist and author named Ernest Seyd who, it was said, had raised $500,000 from various European bondholding interests and come to the United States to bribe members of Congress to demonetize silver. Newspapers and magazines (particularly, though not limited to, those favorable to the Democratic Party) peddled versions of this “fake news” story, some of which contained doctored quotations and made-up publications. These were offered as proof that “European money kings” had “hoodwinked” both houses of Congress into demonetizing silver. The plan, charged Ohio Democrat Thomas Ewing, was that “they wanted to have the United States, and the other nations whose bonds they held, to demonetize silver and pay their bonds in gold.”20
As an assessment of European financial interests, this view had some basis in fact, although at the time Ewing spoke the United States was actually a net importer of gold. The Seyd bribery tale, however, was garbled to a nearly comical degree. Seyd was a distinguished, careful author who had indeed provided counsel on the Coinage Act. But he was also a renowned advocate of bimetallism, and his lengthy 1872 letter to the House argued forcefully in favor of keeping the silver dollar.21 Despite the flimsiness of such claims, popular anger, especially strong in midwestern and western states, continued to boil, and by the late 1870s it was very common for Democrats and western Republicans to blame the “Crime of 1873” for the nation’s recurring economic woes.
Part of the argument from silver advocates was simple economics: they claimed the supply of gold was simply insufficient to carry the nation’s economic burdens. In 1877, it was deemed to be only about half as large as it had been in 1852 “and is always so fitful and irregular from the manner of its production that no metal is so ill-suited to be a sole measure of values,” as a congressional report put it. (The flip side of this argument, of course, is that the silver boom that was well under way—global silver production from 1850 to 1900 was four times what it had been from 1800 to 1850—introduced its own potential monetary distortions.)
Especially given the reliance on false tales and even forged documents, it is clear that the fervent movement that began in the late 1870s to remonetize silver was motivated by forces beyond mere economic reasoning. In some ways, the silver movement and the related greenback movement—the Greenback Party had launched in midwestern states in the middle of the decade—represented a restaging of Jacksonian populism with different metallic costumes. Because silver was plentiful and associated with western states where it was produced, it was treated as the currency of the common rural farming man. With gold increasingly scarce (for the time being) and used largely in international transactions, it was associated with wealthy, eastern banking and industrial interests. As one mining executive asserted, “There can be no question as to silver being the money of the poor man, for where there is one man carrying $5 in gold there are twenty who carry the less amount in silver.”22 Such class differentiators extended even to the tonsorial. Richard Bensel notes that pro-gold eastern Democrats were usually clean-shaven, “allowing at most a mustache and sideburns to adorn their face.” The pro-silver Democrats from the South and West cultivated “long, unkempt” beards.23 These identities were more symbolic than fixed, but as the century moved on they would grow and harden into the Populist movement—and reshape American politics largely along the question of what combination of metal or paper should constitute a dollar.
Despite many attempted legislative fixes, the government in the last quarter of the nineteenth century could find no way to maintain a stable system of metal-backed currency. In 1875, Congress set the stage for returning the United States closer to a full gold standard by passing the Specie Resumption Act, which required Treasury to redeem the greenbacks “for coin” beginning in 1879. As a result, Treasury began accumulating a gold reserve. Yet during the same period, political pressure from western states also made sure that silver would maintain some role in the monetary system.
A bimetallic system was difficult to maintain both economically and politically. As part of a broad economic compromise that included the nation’s first antitrust laws and a higher tariff, the Republican-controlled Congress passed the Sherman Silver Purchase Act in 1890. It mandated Treasury to buy a much higher amount of silver than in the past—4.5 million ounces a month, essentially all the silver being produced in the country—and to issue legal-tender notes in exchange that could be redeemed for gold. The act, which was urged by the silver and greenback “inflationist” forces, also required the government to maintain gold and silver “on parity with each other.” Almost immediately the law was a disaster. Gold and silver might have had equal legal status but given a choice, nearly everyone took gold. Domestically, just about anyone who had to pay custom duties chose to do so in silver or greenbacks. In 1890, 95 percent of custom duties were paid in gold; three years later, it shrank to 5 percent.24 Outside the United States and particularly in Britain, where the pound was fixed on a gold standard, many of those who held bonds or other American securities that could be cashed in for gold did so; gold-packed steamships pushed out of New York harbor every day. According to one estimate, 10 percent of the $3 billion in US securities held abroad were redeemed between 1890 and 1894.25
As a result, the US Treasury experienced what would be a recurring problem during gold-standard periods: there was no way to keep the gold supply from migrating into private hands at home and abroad. Cleveland pointed to the legal requirement for Treasury to put greenbacks back into circulation after they had been redeemed for gold as an “endless chain” that would drain Treasury’s gold, and indeed, the early 1890s witnessed the fastest reduction of gold from US reserves in the country’s history. At the beginning of the decade, the United States held approximately $190 million worth of gold in reserve; by 1895 nearly two-thirds of that gold had gone elsewhere.26 In 1895, there was more coined American gold in the vaults of the Bank of England than in the US Treasury. The law on the books said that Treasury had to keep $100 million in reserves to back up the currency (although there was some disagreement between Democrats and Republicans about whether those funds could be tapped for other purposes).27 But both Benjamin Harrison and Grover Cleveland, who took office for a second time in January 1893 with a Congress that was heavily pro-silver, were powerless to stop the outflow of gold and stood in o
pen violation of the law.
Nonetheless, 1892 had been a year of economic expansion following a mild recession in 1890 and 1891. But 1893 began ominously; the railroad business had expanded haphazardly and with shaky financing, and several prominent railroads declared bankruptcy in February. Then in early May, the National Cordage Company—which imported hemp and manufactured rope—went bankrupt and caused a stock market sell-off as multiple brokerage firms went under. The Panic of 1893 had begun, and it would become the worst and longest economic depression the United States had ever seen. At the lowest point, as many as 20 percent of American workers were jobless, and more than eight hundred banks closed between 1893 and 1897. In June 1893 alone, twenty-five national banks closed, the largest monthly number that had ever been recorded. Banks became protective of their own gold stashes, and began inserting clauses into mortgages and other contracts that they be repaid in gold. More than one hundred railroads went bankrupt by 1894, and the breakneck pace at which the West was being settled slowed down.28 The infamous Pullman Strike, in which union firebrand Eugene Debs led nearly 100,000 men to shut down huge portions of the country’s rail commerce and the US mail, exacerbated the effects, and as the financial crisis on the East Coast spread west, it encountered failing farms and families pushed toward desperation. Amidst a global drop in prices for grains and food, farmers dumped their grain into the street rather than accept the low prices that they were being offered. Reports of families on the brink of starvation began to fill the newspapers. In Seward County, Kansas, for example, bonds had been issued just a few years earlier to build schoolhouses worth $30,000, but now dozens of families were going without food for days on end.29
These desperate financial conditions found their political expression in silver versus gold. Cleveland held firm in his belief that the gold standard would protect the nation’s credit standing and thus its ability to borrow and trade abroad. This stance led to his total political isolation, as even members of his own party became converts to greenbacks and silver-based currency. In a sense, western and southern legislators were working in tandem with foreign financiers to squeeze the Treasury, in hopes of forcing Cleveland to impose a silver standard. The country’s largest trading partners were on a gold standard and thus were unwilling to accept silver or paper as payment. Yet the law required the government to maintain two metals at parity. Every time Congress proposed a move in the direction of a silver standard, Cleveland vetoed it; every time Cleveland tried to issue bonds that would help protect the nation’s gold reserves, Congress refused to approve it. With the country in a deep recession and completely split on the currency question, the Democratic Party was demolished in the 1894 congressional elections. In the House of Representatives, the Democrats went from a majority of 220 to 124 to a minority of 93 to 254—the single largest shift in a midterm election in US history.
In early 1895 the country’s gold reserves, already well below the $100 million level required by law, came perilously close to disappearing altogether. Once again, Cleveland tried and failed to pass legislation that would allow him to issue bonds payable in gold and to stop the circulation of greenbacks and silver certificates. Cleveland and his cabinet were desperate. In late January, even before the bill met its inevitable demise, Cleveland sent Assistant Treasury Secretary W. E. Curtis to New York to meet with Wall Street financiers in search of a solution that was eluding Washington. Curtis met with August Belmont—son of a Democratic railroad magnate who inherited his father’s business, and who also built New York’s race track Belmont Park—and with J. Pierpont Morgan, typically considered the most powerful man on Wall Street. Morgan was not unknown to the president; between his two terms in the White House, Cleveland worked for a law firm that handled much of J. P. Morgan’s business, and Morgan had also generously supported Cleveland’s presidential campaign.
The bull-headed Morgan proposed that the government issue $100 million in bonds, but instead of selling them through open bids—the tactic that had failed the year before—they would be sold to a syndicate that he would coordinate with Belmont, who represented the interest of the Rothschild banks. Cleveland could not help but be attracted to a deal that would not only offer him gold but the means to protect it as well.30 Morgan pressed the point that the nation’s gold reserves had nearly evaporated. He told Cleveland he’d heard that a single party was owed $10 million in gold. “If that $10 million draft is presented, you can’t meet it. It will all be over before 3 o’clock,” Morgan said. Morgan proposed a deal in which his syndicate would pay the government 3.5 million ounces in gold, at least half of which would come from Europe. He also pledged that he could keep anyone from redeeming securities for gold, so that this amount would stay in Treasury for the foreseeable future. In return, the syndicate would receive $65 million in thirty-year 4 percent gold bonds at 104½. In addition, Morgan wanted his syndicate to have first dibs on any future such bonds the government would issue. The president wondered aloud if the arrangement was even legal, and Morgan reminded him of a little-known statute passed during the Civil War that allowed the president in an emergency to issue “coin bonds” to buy gold. And so the deal was struck, an odd public-private pact that some historians label a “reverse bailout.”31 The deal also, as Cleveland biographer Alyn Brodsky put it, “amounted to an agreement to temporarily rig the gold market.”32
The gold rig worked as planned. Promises of gold came rushing in; in New York the bonds sold out in twenty-two minutes. Gold exports stopped immediately; the week that the contract was signed, a $7 million shipment of gold that had been withdrawn from the Treasury and packed for export was taken off a steamship before it sailed and returned back to Treasury. By the end of June, Treasury’s reserves were back over the $100 million mark (although they would fall well below that before the end of the year).33 Morgan also apparently made a handsome profit, although he declined in a Senate hearing to say for what price he had sold the bonds.
Never before—not even during wartime—had the US government had to turn so cravenly to Wall Street to keep itself alive financially, certainly not under conditions so nakedly favorable to the country’s richest bankers. It set a low-water mark for public confidence in banks and financial authority and also set a dangerous precedent. Nonetheless, many Cleveland biographers and other economic historians give Cleveland credit for finding a way out of a seemingly hopeless plight. After all, the country had no central banking system or means of international appeal, and Congress was dead set against anything the administration wanted to do.
The contemporary reception, however, was vicious. The paranoia and nativism that had boiled up to denounce the “Crime of 1873” gave way to open hatred and, in particular, to anti-Semitism. The New York World called the bond syndicate deal the work of “bloodsucking Jews and aliens.” And in Congress, William Jennings Bryan of Nebraska asked the clerk to read into the congressional record Shylock’s speech from The Merchant of Venice. The populist revolt against East Coast gold and its power was about to reach its apogee.
CHAPTER 3
The Dangers of the Yellow Brick Road
First published in 1900, L. Frank Baum’s fanciful novel The Wonderful Wizard of Oz can be read as a parable of the monetary debates at the end of the nineteenth century, specifically over the role of gold and silver.
WHEN GROVER CLEVELAND was cutting a desperate deal with J. P. Morgan to bail out the government of the United States in 1895, William Jennings Bryan was at best semi-employed. His congressional career had been reasonably accomplished for someone who served only two terms; he ran for Senate in 1894, but in the anti-Democratic tidal wave of that year, the seat went to a Republican. In April, what was arguably his biggest political accomplishment to date—an income tax amendment to a tariff bill—was struck down as unconstitutional. He drew a small salary editing and writing for the Omaha World-Herald, and could command decent sums for his pro-silver speeches, which sometimes went on as long as three hours. With the “Cleveland Depressi
on” in full swing, Bryan’s trained orator’s voice found a receptive (and often unemployed) audience for a message about the moral superiority of silver over gold, and specifically that the nation’s economic woes could be solved by monetizing silver at the ratio of 16 ounces to 1 ounce of gold.
Although there was talk of Bryan as a presidential candidate for 1896, and he himself never lacked confidence, he was far from an obvious choice. At 36, he was barely old enough to constitutionally qualify as president, and no one from Nebraska had ever been elected president before (or since).1 And while the cause of silver was championed in the West, the main powers within the party, still shakily led by President Grover Cleveland, favored gold. As the spring of 1896 unfolded, however, the degree of silver support within the party became more and more evident (the Republican Party, too, carried a strong pro-silver faction; when the GOP adopted a pro-gold platform at its convention in June, a significant group of delegates walked out in protest). Beginning with Oregon in April, each state Democratic Party had held a convention and declared itself for gold or silver. The largest state delegations—those from New York and Pennsylvania—favored gold. But right behind those were Illinois, Ohio, and Missouri, all of which supported silver.2 In Ohio’s state convention in June, a delegate called for the removal of a portrait of Cleveland, complaining that “looking down on this convention is that arch-traitor, that Benedict Arnold of the Democratic party, Grover Cleveland.”3 Most states bound their delegates by those choices, so it was clear weeks before the July convention that one or many pro-silver candidates would have powerful support.
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