Free Silver and the Cross of Gold: America's Great Money Debate

In the last quarter of the nineteenth century, the question of what backed American money was not a technical matter for economists. It was the central issue in national politics. Farmers, miners, bankers and industrialists fought over whether the United States should coin silver freely alongside gold. The struggle produced some of the most famous words in American political history and ended with the formal adoption of the gold standard in 1900.

Background: a bimetallic country

From 1792, US law defined the dollar in terms of both gold and silver, at a fixed legal ratio. Anyone could bring either metal to the Mint and have it coined, a principle called free coinage. In practice, the metal that was undervalued at the Mint tended to disappear from circulation, and for much of the century little silver was presented for coinage because it was worth more on the market. The history of these legal ratios is covered in The Gold-Silver Ratio.

The Coinage Act of 1873

In 1873, Congress passed a law revising the coinage system. Among other changes, it dropped the standard silver dollar from the list of coins and ended the free coinage of silver. At the time, the change drew little attention, since few silver dollars were being struck.

Soon afterwards, however, rising output from Western mines such as the Comstock Lode in Nevada, together with the adoption of gold by Germany and other countries pushed the price of silver sharply down. Silver interests realised that, had free coinage continued, they could have sold their metal to the Mint at the old legal price. Critics began calling the 1873 law the “Crime of ‘73”, accusing its authors of quietly demonetising silver.

Deflation and discontent

The decades that followed were marked by falling prices in the United States. For farmers, who often borrowed to buy land and equipment, falling crop prices made debts harder to repay. Many came to believe that the gold standard kept money too scarce, and that coining more silver would raise prices and ease their burden.

The free silver movement brought together:

• Western mining states, which wanted a market for their silver.
• Farmers in the South and West, burdened by debt and low crop prices.
• Populists and reformers critical of eastern banks and railroads.

Opposed were most bankers, creditors and eastern business interests, who saw gold as the guarantee of sound money and of America’s credit abroad.

Compromises: Bland-Allison and Sherman

Congress responded with two partial measures:

The Bland-Allison Act gave birth to the Morgan silver dollar, first struck in 1878 and now a favourite of collectors. The Sherman Act’s notes were in practice redeemed in gold on demand, and as holders did so, the Treasury’s gold reserves fell. During the Panic of 1893, President Grover Cleveland pushed for repeal of the Act to protect the gold reserve, splitting his own Democratic Party.

The Cross of Gold

The battle peaked in 1896. At the Democratic National Convention in Chicago, a young former congressman from Nebraska, William Jennings Bryan, delivered a speech in defence of free silver. Its closing line accused the gold standard of crucifying mankind upon a cross of gold. The speech electrified the convention, and Bryan won the presidential nomination. He was also backed by the Populist Party.

The Republican candidate, William McKinley, ran on the gold standard and a strong campaign organisation. McKinley won the election. Bryan ran again in 1900, and lost again.

The Gold Standard Act of 1900

With the Republicans in control, Congress passed the Gold Standard Act in March 1900. It defined the dollar solely in terms of gold and required the Treasury to maintain a gold reserve. By then, new gold discoveries in South Africa and the Klondike, together with improved extraction methods, had increased the world’s gold supply and ended the long deflation, which took much of the urgency out of the silver cause.

Echoes today

The free silver debate is still invoked whenever people argue about money supply, inflation and the role of precious metals. It is also part of the reason so many silver dollars survive, struck under the purchase laws and stored for decades in Treasury vaults. For the international side of this era, see The Classical Gold Standard, and for how monetary policy affects metals today, Interest Rates, QE and Precious Metals.

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