Goldbugs vs. Silverites

Gold and silver proponents today are largely like-minded in their support of the precious metals.

With the silver-gold price ratio at 88-to-1, most stackers believe the white metal has greater potential for price gains than its rarer, golden cousin while agreeing a half-dozen, 1-ounce gold coins are more convenient to transport and store than a bulky box of 500 silver dollars.

But generally gold and silver enthusiasts concur that both monetary metals serve as a sound hedge against inflation and are reliable assets for long-term investment.

Gold and silver advocates, however, haven’t always seen eye-to-eye.

Disputes over the role and relative value of gold and silver date back more than 150 years in the United States. The feud surfaced as the nation’s predominant monetary issue during the late 19th century after the passage of the Coinage Act of 1873, which demonetized silver and put the nation on the international gold standard.

The simmering conflict pitted the banking and monied elite against rank-and-file Americans. Politicians were caught in the middle of the fray and forged legislative compromises in an attempt to satisfy both gold and silver proponents. Congress ultimately sided with financial interests by passing the Gold Standard Act of 1900, which defined the value of the U.S. dollar as a fixed weight in gold.

Bankers and Financial Interests Sought Silver’s Demonetization

During the Gilded Age, banking moguls, business tycoons, and industrial magnates prized gold to amass and flaunt their wealth. Goldbugs wanted silver removed, demonetized, or at least severely limited and subordinated in the monetary system. Financiers regarded rarer gold as king over more plentiful silver. Creditors preferred debtors, including the federal government, to make interest payments in gold rather than silver.

With an exclusive and restrictive gold standard, banks and financiers could maintain their money monopoly; more easily control the money supply, credit, and interest rates; and wield power over the domestic financial system and economy. Since European and other Western countries had adopted or were transitioning to a gold standard, foreign creditors demanded payment in gold and U.S. industries and manufacturers needed gold to engage in global commerce and international trade.

As silver mining boomed across the American West in the mid-to-late 1800s and the metal’s price fell relative to gold, some gold proponents disparaged the silver dollar as “dishonest,” described silver as a “menace” and considered bimetallism obsolete.

Silver Considered the Money of the Working Classes

Silverites, on the other hand, viewed silver as the people’s money and a means to prosperity for the working classes. They included Western silver miners, who needed a market for their metal, as well as indebted farmers and cash-poor laborers who’d suffered from silver’s demonetization, known to victims as the Crime of ’73. Devotees of the Free Silver movement weren’t opposed to gold, but they wanted silver coins to be minted and to circulate freely without quantity limitations imposed by the banks or government. They also wanted silver accepted as payment for all debts.

Citing the U.S. Constitution’s legal tender clause—which states “no state shall . . . make any Thing but gold and silver a Tender in Payment of Debts”—and the precedent set by the nation’s original coinage laws, including the Coinage Act of 1792, which established the silver dollar as the nation’s official currency unit, Silverites believed all silver and gold bullion delivered to the U.S. Mint should be coined into lawful money at no cost to the supplier of the metal. They also insisted the silver-to-gold weight/value ratio be fixed at 16-to-1 regardless of the market or commodity price of the metals.

Maintaining a stable gold-silver value ratio was difficult, if not impossible, because metal prices were volatile, fluctuating with mine supply and global demand. While domestic gold production gradually declined after California’s gold rush peak in the early 1850s, silver output skyrocketed following major discoveries in the Western states, beginning with the Comstock Lode in Nevada in 1859.

The divergence in precious metal production depressed silver prices relative to gold. Coupled with the decline of bimetallism across Europe and other countries, rising silver stocks in the United States created a surplus and the metal’s price tumbled from $1.29 an ounce in 1860 to 65 cents in 1900.

As the silver price fell, a silver dollar’s face value was worth more than its metal content. This created a monetary imbalance, enticing speculation and stirring financial turbulence, which Goldbugs asserted would lead to economic chaos and crisis. The price discrepancy and abundance of silver fueled a fiery debate.

Populist Movement Propelled Silver’s Remonetization

Fomenting since silver was demonetized with the passage of the Coinage Act of 1873, the smoldering dispute reignited five years later when silver was remonetized by the Bland-Allison Act of 1878. Named after its co-sponsors, Rep. Richard “Silver Dick” Bland of Missouri and Iowa Sen. William Allison, the legislation was driven by political pressure from the populist Free Silver movement and resulted in a compromise intended to appease both gold and silver advocates.

Rejected by pro-gold President Rutherford B. Hayes, whose veto was overridden by Congress, the law required the U.S. Treasury to purchase at a market price between $2 million and $4 million in silver bullion each month for coining into silver dollars.

Neither grassroots silver supporters nor gold-loving financiers were pleased with or placated by the compromise. Silverites desired “free and unlimited coinage” of silver to help mortgage-holding farmers and other debtors pay their financial obligations, while gold standard proponents opposed the law, fearing monetary and price inflation.

However, silver mine owners in Nevada, Colorado and other Western states were delighted the U.S. government bought their metal as they profited handsomely from the sale of their bullion. Between 1878 and 1894, the U.S. Treasury purchased 460 million ounces of silver for $464 million, enriching the Silver Kings, some of whom were affluent investors or owners of related industries, such as banks that financed the mines, railroads that hauled the ore and smelters that processed it.

Through a succession of pro-gold U.S. presidents, including Hayes, James A. Garfield, Chester A. Arthur and Grover Cleveland, the unsettled hard-money question lingered because their respective Treasury secretaries limited the minting of silver dollars to the minimum required by law.

Bimetallism Dispute Resulted in Political Compromise

The gold-silver debate remained a political issue during the 1888 presidential election, which saw Indiana Republican Benjamin Harrison prevail over incumbent Cleveland, a New York Democrat and staunch gold standard proponent.

“I have always been an advocate of the use of silver in our currency,” President Harrison said in his State of the Union address on Dec. 3, 1889, while warning against the perils of free and unlimited coinage of silver dollars. “We are large producers of that metal, and should not discredit it.”

Like many politicians of the era, Harrison tried to strike a balance on the contentious bimetallism issue, claiming to support it while acknowledging its risks and the need for caution.

Out of political expediency, Republican lawmakers united to negotiate another monetary compromise they hoped would be amenable to—or at least mollify—everyone, especially indebted farmers and the West’s powerful silver mining interests.

Silver’s role and relationship to gold was deliberated in Congress before a bill was passed—along party lines—that replaced the Bland-Allison Act. Signed by Harrison on July 14, 1890, the Sherman Silver Purchase Act required the U.S. Treasury to purchase 4.5 million ounces of silver each month at market price with paper currency redeemable in gold or silver.

With the declining silver price, the measure nearly doubled the amount of metal bought from Western silver mines—almost their entire output—but it didn’t authorize the free and unlimited minting of silver dollars demanded by Silverites. The U.S. Mint in 1890 produced a record 38 million Morgan silver dollars, but production of the coin fell precipitously over the next five years and silver bullion accumulated in the Treasury’s vaults.

Once again, neither side was satisfied with the middle-ground legislation, so the controversy remained unresolved, culminating with the act’s subsequent repeal and promising future political clashes.

President Cleveland: “Gold and Silver Must Part Company”

After President Cleveland was reelected and returned to the Oval Office in 1893, he set about rescinding the Sherman Silver Purchase Act during a severe financial crisis and the onset of a deep worldwide economic depression. The crisis was precipitated by the collapse of London-based Baring Brothers, a systemically important British merchant bank, which along with other European creditors and investors began liquidating U.S. bond and stock holdings for gold four years earlier.

As the Panic of 1893 unfolded, stock markets plunged and banks failed, speculators hoarded gold, and bank depositors rushed to withdraw their money and exchange paper notes for gold coins, reducing the Treasury’s gold reserves from below $100 million on April 22, 1893, to $45 million on Nov. 1, 1894.

Cleveland blamed the crash on the Sherman Silver Purchase Act and feared the U.S. Treasury’s gold reserves would be depleted. He convened a special session of Congress and urged repeal of the law, hoping to restore confidence in the dollar, stem gold withdrawals, and stabilize the currency.

“At this stage, gold and silver must part company and the Government must fail in its established policy to maintain the two metals on a parity with each other,” President Cleveland wrote in an Aug. 8, 1893 message to Congress regarding the economic crisis.

He continued: “The people of the United States are entitled to a sound and stable currency and to money recognized as such on every exchange and in every market of the world.”

The president’s insistence, which antagonized his detractors, inspired an impassioned and sometimes academic debate in Congress among Goldbugs, Silverites, and those attempting to straddle the monetary fence, as well as provoking an unsuccessful 46-day Senate filibuster.

Nebraska Sen. William V. Allen, a member of the newly formed Populist Party, argued against the act’s repeal. “The People’s party is not clamoring for silver because they prefer it to gold, but simply because they are thoroughly convinced that there is not enough gold in the world to do the money work of the world with and that we must have more money to bring to the homes of this nation that degree of prosperity to which they are entitled, and which they so much need,” he said on Aug. 24, 1893.

The former district judge also made an accurate prediction that would benefit the government’s debt financiers. “The same means by which the Treasury has been depleted and looted in the past of its gold may be resorted to in the future, and we will be compelled to issue more bonds to buy more gold, and by this means a perpetual national debt will be created and will rest upon our people for years to come,” Allen added.

A day later, New York Sen. David B. Hill, an 1892 Democratic presidential nominee, favored repeal of the act while supporting bimetallism. “I am a bimetallist,” he declared. “I do not believe in a single gold standard nor a single silver standard, but I do believe in the use of both gold and silver as the standard money of the country, and in their free coinage in our mints at a proper ratio, without any discrimination in favor of one or the other.”

The following day, another New York Democrat spoke in support of repealing the law. “I think it safe to assert that every commercial crisis can be traced to an unnecessary inflation of the currency, or to an improvident expansion of credit,” Rep. Bourke Cockran remarked. “The operation of the Sherman Law has been to flood the country with paper money without providing any method whatever for its redemption. The circulating medium has become so redundant that the channels of commerce have overflowed and gold has been expelled.”

After nearly three months of animosity, conflicting arguments and declarations, the Democrat-controlled Congress repealed the law, which was signed by Cleveland on Nov. 1, 1893. Repeal, however, didn’t stem the outflow of U.S. gold holdings or end the deflationary depression, which witnessed violent labor strikes and soaring unemployment.

Bond Deal Struck with Wall Street Banker to Avoid Default

Desperate times called for desperate measures. With the Treasury’s gold reserves being rapidly depleted and the nation facing default, Cleveland in 1895 struck a deal with Wall Street financier and investment banker J.P. Morgan, whose bank was a major dealer in government debt, to coordinate a private sale of U.S. bonds.

Without congressional approval, Cleveland authorized the issuance of 30-year, interest-bearing government bonds to purchase—actually borrow—$65 million in gold from Morgan as head of a European banking syndicate, which included London-based N M Rothschild & Sons, a specialist in global mining finance. The arrangement restored the nation’s gold holdings to more than $100 million while enlarging and perpetuating the national debt, just as Sen. Allen had predicted.

Goldbugs considered Morgan a hero for coming to the nation’s rescue in time of need. Silverites condemned the deal struck between the president and the millionaire financier. They regarded it as proof of corruption and a conspiracy against the people and silver interests, particularly after the U.S. Mint reduced production of silver dollars, the U.S. Treasury halted silver purchases and the silver price continued its decline.

Passage of the Gold Standard Act of 1900 Ended Bimetallism

The confrontation grew bitter, generated further class division, and climaxed during the 1896 presidential election, which featured a political realignment pitting former Ohio governor William McKinley, a Republican and gold standard disciple, against former Nebraska congressman William Jennings Bryan, a Democrat and silver stalwart.

Calling for “sound money,” the Republican Party platform opposed the “free coinage of silver, except by international agreement” and objected to “every measure calculated to debase our currency or impair the credit of our country.”

The Democrat Party’s money plank opposed the gold standard and demanded “the free and unlimited coinage of both silver and gold at the present legal ratio of 16 to 1.”

On the campaign trail, Bryan demanded bimetallism be restored while vowing to fight the gold standard, which he suggested enriched the Eastern financial establishment and international bankers at the expense of American farmers, laborers and the struggling masses.

“You shall not press down on the brow of labor this crown of thorns,” said the polished orator, rhetorically concluding his remarks at the Democratic National Convention in Chicago. “You shall not crucify mankind on a cross of gold.”

While Bryan’s powerful and stirring speech won him the Democratic nomination, he lost both the 1896 and 1900 elections to McKinley, as well as the 1908 presidential race against William Howard Taft. The battle for bimetallism was over. The Goldbugs and bankers had won, defeating the Silverites and Free Silver movement once and for all.

During the final year of his first term, McKinley made monometallism official by signing the Gold Standard Act of 1900. The law defined the U.S. dollar as a fixed weight in gold only, driving the final nails into the Silverites’ coffin nine months before McKinley’s re-election and a year and a half before his assassination by a disgruntled laborer and anarchist who lost his job during the Panic of 1893.

Among the assassin’s last words: “I killed the president because he was the enemy of the good people, the good working people,” Leon Czolgosz reportedly said before his execution. “I am not sorry for my crime.”

McKinley ostensibly was a victim of the gold-silver feud, sparked by the Crime of ’73 and the demonetization of silver.