Contemporary American History, 1877-1913

by Charles A. Beard

In 1792, the new Federal government began to coin gold and silver at the ratio of 1 to 15, but it was soon found that at this ratio gold was undervalued, and consequently little or no gold was brought to the Treasury to be coined. At length, in 1834, Congress, by law, fixed the ratio between the two metals approximately at 16 to 1; but this was found to be an overvaluation of gold or an undervaluation of silver, as some said, and as a result silver was not brought to the Treasury for coinage and almost dropped out of the monetary system. Finally, in 1873, when the silver dollar was already practically out of circulation, Congress discontinued the coinage of the standard silver dollar altogether—"demonetized" it—and left gold as the basis of the monetary system.[29]

It happened about this time that the price of silver began to decline steadily, until within twenty years it was about half the price it was in 1870. Some men attributed this fall in the price of silver to the fact that Germany had demonetized it in 1871, and that about the same time rich deposits of silver were discovered in the United States. Others declared that silver had not fallen so much in price, but that gold, in which it was measured, had risen on account of the fact that silver had been demonetized and gold given a monopoly of the coinage market. On this matter Republicans and Democrats were both divided, for it brought a new set of economic antagonisms into play—the debtor and the creditor—as opposed to the antagonisms growing out of slavery and reconstruction.

Some Republicans, like Senator Morrill, of Vermont, firmly believed that no approach could be made to a genuine bimetallic currency, both metals freely and equally circulating, without the coöperation of the leading commercial nations of the world; and they also went so far as to doubt whether it would be possible even then to adjust the "fickle ratio" finely enough to prevent supply and demand from driving one or the other metal out of circulation. Other Republicans, like Blaine, declared that the Constitution required Congress to make both gold and silver coin the money of the land, and that the only question was how best to adjust the ratio. In a speech in the Senate on February 7, 1878, Blaine said: "I believe then if Germany were to remonetize silver and the kingdoms and states of the Latin Union were to reopen their mints, silver would at once resume its former relation with gold.... I believe the struggle now going on in this country and in other countries for a single gold standard would, if successful, produce widespread disaster throughout the commercial world. The destruction of silver as money and establishment of gold as the sole unit of value must have a ruinous effect on all forms of property, except those investments which yield a fixed return in money."

It was this exception made by Blaine that formed the crux of the whole issue. The contest was largely between creditors and debtors. Indeed, it is thus frankly stated by Senator Jones of Nevada in a speech in the Senate on May 12, 1890: "Three fourths of the business enterprises of this country are conducted on borrowed capital. Three fourths of the homes and farms that stand in the name of the actual occupants have been bought on time, and a very large proportion of them are mortgaged for the payment of some part of the purchase money. Under the operation of a shrinkage in the volume of money, this enormous mass of borrowers, at the maturity of their respective debts, though nominally paying no more than the amount borrowed, with interest, are, in reality, in the amount of the principal alone, returning a percentage of value greater than they received—more in equity than they contracted to pay, and oftentimes more in substance than they profited by the loan.... It is a remarkable circumstance that throughout the entire range of economic discussion in gold-standard circles, it seems to be taken for granted that a change in the value of the money unit is a matter of no significance, and imports no mischief to society, so long as the change is in one direction. Who ever heard from an Eastern journal any complaint against a contraction of our money volume, any admonition that in a shrinking volume of money lurk evils of the utmost magnitude?... In all discussions of the subject the creditors attempt to brush aside the equities involved by sneering at the debtors." Both parties to the conflict assumed a monopoly of virtue and economic wisdom, and the controversy proceeded on that plane, with no concessions except where necessary to secure some practical gain.

By 1877, silver had fallen to the ratio of seventeen to one as compared with gold, and silver mine owners were anxious to have the government buy their bullion at the old rate existing before the "demonetization" of 1873. In this they were supported by the farmers and the debtor classes generally, who thought that the gold market was substantially controlled by a relatively few financiers and that the appreciation of the yellow metal meant lower prices for their commodities and the maintenance of high interest rates. Criticism was leveled particularly against the bondholders, who demanded the payment of interest and principal in gold, in spite of the fact that, at the time the bonds were issued, the government had not demonetized silver and could have paid in silver dollars containing 412½ grains each. In addition to the holders of the national debt, there were the owners of industrial, state, and municipal bonds and railway and other securities who likewise sought payment in a metal that was appreciating in value.

In the Forty-fourth Congress, the silver party, led by Bland, of Missouri, attempted to force the passage of a law providing for the free and unlimited coinage of silver approximately at the ratio of sixteen to one, but their measure was amended on the motion of Allison, of Iowa, in the Senate, in such a manner as simply to authorize the Secretary of the Treasury to purchase not less than two million nor more than four million dollars' worth of silver each month to be coined into silver dollars. The measure thus amended was vetoed by Hayes, but was repassed over his protest and became a law in 1878, popularly known as the Bland-Allison Act. The opponents of contraction were able to secure the passage of another act in the same year forbidding the further retirement of legal tender notes and providing that the Treasury, instead of canceling such notes on receiving them, should reissue them and keep them in circulation.

None of the disasters prophesied by the gold advocates followed the enactment of the Bland-Allison bill, but no one was satisfied with it. The value of silver as compared with gold steadily declined, until the ratio was twenty-two to one in 1887. The silver party claimed that the trouble was not with silver, but that the appreciation of gold had been largely induced by the government's discriminating policy. The gold party pointed to the millions of silver dollars coined and unissued filling the mints and storage vaults to bursting, all for the benefit of the silver mine owners. The retort of the silver party was a law issuing silver certificates in denominations of one, two, and five dollars, in 1886. This was supplemented four years later by the Sherman silver purchase act of 1890 (repealed in 1893), which provided for the purchase of 4,500,000 ounces of silver monthly and the issue of notes on that basis redeemable in gold or silver at the discretion of the Treasury. Congress took occasion to declare also that it was the intention of the United States to maintain the two metals on a parity—a vague phrase which was widely used by both parties to conciliate all factions. Neither the Republicans nor the Democrats were as yet ready for a straight party fight on the silver issue.

Tariff Legislation

At the opening of Hayes' administration the Civil War tariff was still in force. It is true, there had been some slight reduction in 1872, but this was offset by increases three years later. During the two decades following, there was much political controversy over protection, as we have seen, and there were three important revisions of the protective system: in 1883 on the initiation of the Senate, in 1890 when the McKinley bill was passed, and in 1894 when the Wilson bill was enacted under Democratic auspices.

The first of these revisions was induced largely by the growing surplus in the Federal Treasury and the inability of Congress to dispose of it, even by the most extravagant appropriations. In 1882, the surplus rose to the startling figure of $145,000,000, and a tariff commission was appointed to consider, among other things, some method of cutting down the revenues by a revision of duties. This commission reported a revised schedule of rates providing for considerable reductions, but still on a highly protective basis. The House at that time was Republican, and the Senate was equally divided, with two independents holding the balance of power. The upper house took the lead in the revision and escaped the constitutional provision requiring the initiation of revenue bills in the lower house by tacking their measure to a bill which the House had passed at the preceding session.