History of the United States, Volume 4

by Elisha Benjamin Andrews

In the republican platform of 1888 this policy was explicitly avowed. At that time, as next to nothing could at present be done to pay off the national indebtedness, both parties had to admit that some measure was needed to lessen the revenue. The republican plan was to effect the reduction mainly by lowering or removing the remaining internal taxes, the democratic to secure the same result by changes in customs duties, cutting down rates and enlarging the free list. President Cleveland’s message to Congress in December 1887, stated the issue with great clearness, and this issue was the main one which divided the two parties in the presidential election of the ensuing year.

Anticipating a little we may remark in this place that the Republicans, having acquired control of all three legislative branches of the Government, passed, in 1890, the McKinley Tariff Act, considerably raising rates, though somewhat enlarging the free list. It removed the duty from raw sugar, affixing a bounty to the production of sugar in the United States. But in 1892 the Democrats again acquired power, electing Mr. Cleveland and controlling the Senate. In 1894 they passed the Wilson-Senate Tariff Act, greatly reducing rates in general, and free-listing the important commodities of wool, salt, and lumber. Raw sugar was now taxed again, and the bounty upon its production abolished.

The revenue question in this campaign was not a little complicated by the existence of numerous and powerful Trusts, which anti-protectionists believed to be fostered by our high tariff. The Trust System arose about 1876, and in the course of a few years almost every great enterprise in the land was carried on under the form of a trust. The principal corporations or men engaged in an industry would enter into combination, more or less informal, for the regulation of production and prices. Usually the result was an elevation of prices, and where the trust constituted a necessary monopoly this rise might be indefinitely perpetuated. High tariff as well as low tariff newspapers made great outcry against these monopolies. The latter urged that a reduced tariff, forcing these businesses more into competition with corresponding producers abroad, was the only thing needful to break their solidarity and consequent power. Advocates of high tariff denied this.

The old silver dollar, “the Dollar of the Fathers,” had, until 1873, never ceased to be full legal tender, although it had since 1853 been too valuable as compared with the gold dollar to circulate much. In 1873 a law was passed demonetizing it, and making gold the exclusive form of United States hard money. The new German Empire did the same this very year. There at once began a great apparent depreciation of silver in comparison with gold at the historic ratio. For a long time this change involved no decrease in the value or purchasing power of silver even in the form of bullion, but consisted rather in a rise of the value of gold.

In view of this, as all the Government bonds outstanding in 1873 had been made payable in coin, it was as good as universally believed in most sections of the Union that the demonetizing of silver, if persisted in, would work hardship to taxpayers in liquidating the national debt. A bill was therefore brought forward, and in 1878 passed, restoring to the silver dollar its full legal tender character. In this legislation, however, so great was the then disparity in value between gold and silver at the ratio of 16 to 1, Congress did not venture to give back to the white metal the right of free coinage, but instead required the Secretary of the Treasury to purchase monthly not less than $2,000,000 worth of silver and coin it into dollars.

The act was disapproved by President Hayes, but immediately passed over his veto, February 28, 1878. The advocates of gold monometallism believed that the issue of these dollars would speedily drive gold from the country. Owing to the limitation of the new coinage no such effect was experienced, and the silver dollars, or the certificates representing them, floated at par with gold, which, indeed, far from leaving the country, was imported in vast amounts nearly every year. After 1880 the money in circulation in the United States was gold coin, silver coin gold certificates, greenbacks or United States notes, and the notes of the national banks. The so-called Sherman Law, of 1890, added a new category, the treasury notes issued in payment for silver bullion. It stopped the compulsory coinage of full-tender silver, though continuing and much increasing the purchase of silver bullion by the Government. The repeal of the purchase clause of this law, in 1893, put an end to the acquisition of silver by the United States.

January 1, 1879, the next year after the silver bill was passed, the United States, under the Resumption Act of January 14, 1875, began again the payment, which had been suspended ever since 1862, of specie in liquidation of greenbacks. The possibility of this had been under discussion for some years, and was disbelieved in by many thoughtful financiers and public men. The credit of the momentous step was mostly due to John Sherman, Secretary of the Treasury in the cabinet of President Hayes. He believed resumption to be as possible as it was important. By the sale of 4-1/2 per cent. bonds redeemable in 1891, he had accumulated before the appointed day $ 138,000,000 of coin, nearly all in gold, amounting to about forty per cent. of the greenbacks then outstanding.

Resumption proved easier than even he anticipated. The greenbacks had risen to par—the first time in seventeen years—December 18th, thirteen days before the date fixed for beginning gold payments, and when the day arrived only straggling applications for coin were made, less in amount than was asked for in greenbacks as interest by bondholders, who could have demanded coin. During the entire year only $11,456,536 in greenbacks were offered for redemption, while over $250,000,000 in them were paid out in coin obligations. It was found that people preferred paper to metal money, and had no wish for gold instead of notes when assured that the exchange could be made at their option. Notwithstanding our acceptance of greenbacks for customs—$109,467,456 during 1879—the treasury at the end of that year experienced a dearth of these and a plethora of coin, having actually to force debtors to receive hard money.

Such popularity of the greenbacks stimulated to fresh life the “fiat greenback” theory, long in vogue and very influential in many parts of the country. Its pith lay in the proposition that money requires in its material no intrinsic value, its worth and purchasing power coming entirely from the “fiat” of the government issuing it, so that paper money put forth by authority of a solvent and powerful government will be the peer of gold. This idea was the rallying point of the National Labor Greenback Party, organized at its Indianapolis convention, May 17, 1876, when Peter Cooper was put in nomination for President. At the subsequent presidential election in November, he received 82,640 votes. The next year his party polled 187,095 votes; in 1878, 1,000,365.

From the moment of its issue, there had been in the country many who went to the opposite extreme with reference to the greenback. They believed it unconstitutional and pernicious, a menace to the nation’s credit and financial weal. The question came to the Supreme Court during the war, and this form of contracting debt on the part of the Government was then justified as a war measure. When the war was over the question whether the greenback’s legal tender quality could still be maintained, also had to be passed upon by the court. The first decision was in the negative, but it was subsequently reversed. Still a third question was whether a man could be forced to take greenbacks in liquidation of debt after the resumption of specie payments. This was tried out in the famous case of Juilliard vs. Greenman, and the decision was, as on the other two occasions, in favor of the greenback. In spite of all this, however, the zeal for the fiat or non-promissory theory and practice of paper money almost totally died away after about 1880.