The United States Since the Civil War

by Charles Ramsdell Lingley

In the next Congress the Democrats controlled both House and Senate and they advanced to the attack on the remainder of the election laws. Attempts were made to prevent the appointment of special deputy-marshals by forbidding the payment of any compensation to them or to the regular marshals when used in elections. Each time that Congress passed such a law the President vetoed it, even though special sessions had to be called to make up for lost time. He saw in the use of the rider a dangerous assertion of coercive power on the part of Congress. By means of it, Congress was withholding funds essential for military and civil purposes until the President should assent to legislation totally unconnected with the appropriations. He felt himself being threatened and driven by a hostile legislature. For the President to give way before such constraint would be to lose the veto power and to destroy the independence of the executive as a branch of the government. The Democrats were unable to muster force enough to overrule the veto, and here the matter rested while other forces, which have already been described, were sapping the strength of the election laws. On the whole, the result was probably to bring the Republican factions together and so to strengthen the party for the election of 1880. The Democrats, on the other hand, probably lost ground.

In the meanwhile a difficult and technical problem—the monetary question—was forcing itself upon the attention of Congress and of the country. The rapid development of the economic life of the United States was demanding an increased volume of currency with which to perform the multitude of exchanges which constantly take place in the life of an industrial people. Unless the volume of the currency expanded proportionately with the increase of business, or there was a corresponding increase in the use of bank checks, the demand for money would cause its value to go up—that is, prices to go down. If the volume expanded more rapidly than was necessitated by business, the value of money would fall and prices would go up. A change in the price level in either direction, as has been seen, would harm important groups of people. The exact amount, however, by which the volume should be increased was not easy to determine. Furthermore, assuming that both gold and silver should be coined, what amount of each would constitute the most desirable combination? What ought to be the weight of the coins? If paper currency was to supplement the precious metals, what amount of it should be in circulation? These are difficult questions under any circumstances. They did not become less so when answered by a bulky and uninformed Congress acting under the influence of definite personal, sectional and property interests.

Several facts tended to restrict the kind of money whose volume could be greatly increased. It was not advisable to expand the greenbacks because legislation had already limited their amount and because such action would unfavorably affect the approaching resumption of specie payments. The quantity of national bank notes, another common form of paper money, was somewhat rigidly determined by the amount of federal bonds outstanding, for the national bank notes were issued upon the federal bonds as security. Moreover, the bonds were being rapidly paid off during the seventies and it was, therefore, impossible to expect any increase of the currency from this source. Normally the supply of gold available for coinage did not vary greatly from year to year and certainly did not respond with exactness to the demand of industry for a greater or smaller volume of circulating medium. It seemed to remain for silver to supply any needed increase.

But silver was not in common use except as a subsidiary coin. For many years the value of the bullion necessary for coining a silver dollar had been greater than the value of the coin. Nobody therefore brought his silver to the mint but sold it instead in the commercial markets. Indeed so insignificant was the amount of silver usually coined into dollars that an act of 1873 systematizing the coinage laws had omitted the silver dollar completely from the list of coins. The omission was later referred to by the friends of silver currency as the "Crime of 1873." At the same time a remarkable coincidence was providing the motive power for the demand that silver be more largely used as currency. Early in the seventies Germany and the Latin Monetary Union, (France, Switzerland, Belgium, Italy and Greece), had reduced the amount of their silver coinage, thus throwing a large supply of bullion on the market. Simultaneously, enlarged supplies of silver were being found in western United States. A Nevada mine, for example, which had produced six hundred and forty-five thousand dollars' worth of ore in 1873 had turned out nearly twenty-five times that amount two years later. Naturally the market price of silver fell and the mine owners began to seek an outlet for their product. Thus the people who were convinced that the volume of the currency was insufficient for the industrial demands of the nation received a new and powerful reenforcement from the producers of silver ore. There arose what the New York Tribune referred to as "The Cloud in the West."

Inevitably the cloud in the West threw its shadow into Congress where the demand was insistent that the government "do something for silver." A commission had been appointed in 1876 to study the currency problem and make recommendations. When the report was made it appeared that the opinions of the members were so divergent that little was gained from the investigation. While the commission was deliberating, Richard P. Bland of Missouri introduced a bill providing for the free and unlimited coinage of silver. Under its provisions the owner of silver bullion could present any quantity of his commodity to the government to be coined under the conditions which controlled the coinage of gold. The House responded readily to Bland's proposal. In the Senate, under the leadership of William B. Allison, the free and unlimited feature of the bill was dropped and a provision adopted limiting the purchase of bullion to an amount not greater than four million dollars' worth per month and not less than two million dollars' worth. The bullion so obtained was to be coined into silver dollars, which were to be legal tender for all debts public and private. Bland was ready to accept the compromise because he hoped to be able to increase the use of silver by subsequent legislation. "If we cannot do that," he said, "I am in favor of issuing paper money enough to stuff down the bond-holders until they are sick." The remark was typical of the sectional and class hatreds and misunderstandings which this debate aroused, and of the maze of ignorance in which both sides were groping. To the silver faction, their opponents were "mendacious hirelings" and "Gilded Shylocks." God, in His infinite wisdom had imbedded silver in the western mountains for a beneficent purpose. "The country," said one speaker, "is in an agony of business distress and looks for some relief by a gradual increase of the currency." On the other hand, the opponents of silver scorned the "delusion" of a "clipped" coin and the dishonest proposition to make ninety cents' worth of silver pass as a dollar. The "storm-driven, buffeted, and scarred" ship of industrial peace, an easterner declared, "deeply laden with all precious and golden treasure is sighted in the offing!… shall we put out the lights?… Dare we remove the ship's helm, leaving her crippled and helpless!"

Sherman believed that this limited amount of silver could be taken into the currency system without difficulty, but President Hayes thought that harm would result from making the silver dollar a legal tender when the market value of the bullion in the coin was not equal in value to that of the gold dollar. He therefore vetoed the bill on February 28, 1878. He could not carry Congress with him, however, and the measure was passed over the veto on the same day.

Party lines had disappeared during the debates over the passage of the act. Eastern members of both houses and of both parties had been opposed, with few exceptions, to the increased use of silver; the westerners had been equally united in its favor. The East, the creditor section and the holder of most of the Civil War bonds, had no desire to try an experiment with the currency which would, in their opinion, reduce the purchasing power of their income. The debtor West looked with disfavor upon an increase in the real amount of their debts which was brought about by an inadequate supply of currency. Since prices continued to decline they believed that the remedy was a greater quantity of money. Evidently the greenback controversy was reviving in a new garb.

The approach of the resumption of specie payments which had been set, it will be remembered, for January 1, 1879, increased the burden under which the westerners and the debtor classes in general were working. Favorable commercial conditions and Sherman's foresight, tact and intelligence made it possible to overcome the various difficulties in the way of accumulating a sufficient reserve of gold, and on December 31, 1878, the Treasury had on hand about $140,000,000 of the precious metal, an amount nearly equal to forty per cent. of the paper in circulation. Despite the desirability of resumption, the first effects of preparations for it were harmful to considerable bodies of people. As January 1 approached, the greenbacks, which had been circulating at a depreciated value, rose nearer and nearer to par. Debts which had been incurred when paper dollars were worth sixty cents in gold, had to be paid in dollars worth eighty, ninety or a hundred cents, according to the date when the debt fell due. Business men who were heavily in debt and farmers whose property was mortgaged found their burden daily growing in size.

Notwithstanding the steady advance of paper toward par value, Sherman nervously awaited business hours on January 2, 1879, (since the first fell on Sunday) to see whether there would be such a rush of holders of paper who would wish gold that his slender stock would be wiped out. New York, the financial center, was watched with especial anxiety. To Sherman's surprise, only $135,000 of paper was presented for redemption in gold; to his amazement and relief, $400,000 in gold was presented in exchange for paper. Evidently, now that paper and metal were interchangeable, people preferred the lighter and more convenient medium. Favorable business conditions enabled the government to continue specie payments; a huge grain crop in 1879, coupled with crop failures in England, caused unprecedented exports of wheat, corn and other products, and a corresponding importation of gold. The damage resulting from the appreciation of paper was temporary in character; the public credit was vastly benefited; and the greater amount of stability in the value of paper proved invaluable to industry.

Happily Hayes's stormy political relations were balanced by comparative quiet in foreign affairs. Only Mexico caused trouble, and that was of negligible importance. A few raiders made sporadic excursions into Texas, which necessitated an expedition for the punishment of the marauders. General Ord was directed to cross the border if necessary, but General Diaz, at the head of the Mexican government, concluded an agreement for cooperation with the United States in the protection of the boundary. The agreement was only partly successful, however, and on several occasions troops crossed the Rio Grande and fought with bandits.