The Americans

by Hugo Münsterberg

But it soon appeared that such legal provisions would have no effect in restoring the value of the white metal. Although the government facilitated in every way the circulation of the new silver coins, they nevertheless came back to the treasury. No matter how many silver dollars were distributed as wages, they found their way at once to the retail shops, then to the banks, and then to Washington. It appeared that the nation could not keep more than sixty or seventy million dollars’ worth in circulation, while there were already more than $400,000,000 lying idle in Washington. The banks boycotted silver at first; but the more important fact was that the price of silver did not rise, but kept on falling. It was the amount produced and naturally consumed, and not the amount coined, which regulated the price of silver. In the year 1889 the relative values of silver and gold were as 22 to 1; and the true value of the silver dollar coined under the Bland Bill was only seventy-two cents. Congress now proposed to take a more serious measure looking toward a higher price for silver.

In July, 1890, a law was passed whereby the treasury was obliged to buy four and one-half million ounces of silver every month at the market price, and against this to issue treasury certificates to the corresponding amount, which should be redeemable either in gold or silver; since, as that law declared, the United States asserted the equal status of the two metals. The law did not prescribe the number of silver certificates which were to be issued, since the weight of silver to be purchased was fixed and the value of it depended on the market. Only a few months afterward it became clear that even this energetic stroke would not much help the price of silver. The silver and gold dollars would have been really equal to each other if an ounce of silver had brought a market price of $1.29. In August, 1890, silver came up to $1.21 an ounce, and fell the next year to $1.00, and in 1892 to $0.85. But while the price of silver was falling, gold was rapidly leaving the country.

In April, 1893, the gold reserve of the treasury fell for the first time below the traditional hundred millions. It was a time of severe economic depression. The silverites still believed that the rise of silver had not commenced because its purchase was restricted to monthly installments, and they clamoured for unlimited purchases of silver. But the nation opposed this policy energetically. President Cleveland called an extra session of Congress, and after a bitter fight in the Senate, the law providing for the purchases of silver and issue of silver certificates was repealed, in November of 1893. The Democratic party had split on this measure, and then arose the two divisions, the Gold Democrats who followed Cleveland, and the Silver Democrats who found a leader a year later in Bryan, and dictated the policy of the Democratic party for the following decade.

Looking on American economic history from the early seventies to the middle nineties without prejudice, one cannot doubt not only that the entire legislation relative to coinage has had scarcely any influence on the price of gold and silver—since the price of silver has fallen steadily in spite of the enormous amounts purchased—but also that the general industrial situation, the movement of prices, and the volume of business have been very little affected by these financial measures.

The strongest influence which they have had has been a moral one. Business became active and foreign commerce revived as soon as the confidence in the American currency was restored. This result, of course, contradicted the expectations and wishes of the apostles of silver. International confidence declined in proportion as a legal tender standing for a depreciated metal was forced into circulation. It was not the amount of silver, but the fear of other countries as to what that amount might become, which most injured American commerce. And the great achievement of Cleveland’s Administration was to reassure the world of our solidity.

Otherwise the economic fluctuations depended on events which were very little related to the actual amount of gold on hand. If, in certain years, the amount of circulation increased, it was the result rather than the cause of industrial activity; and when, in other years, a speculative movement collapsed, less money was used afterward, but the shortage of money did not cause the collapse. Then, too, harvests were sometimes good and at other times bad, and foreign commerce changed in dependence on quite external events in Europe. There were, moreover, certain technical improvements in agricultural and industrial processes which rapidly lowered prices and which took effect at independent times and seasons.

The year 1893 was a time in which a great many factors worked in one direction. The overbuilding of railways and a too great expansion of iron industries had been followed by a terrible reaction; a surplus of commodities on all the markets of the world caused prices to fall, and the international distrust of silver legislation in the United States made the situation worse. European capital, on which all undertakings then depended, was hurriedly withdrawn; thousands of businesses failed, and small men fell into debt. The actual panic did not last long, and Cleveland’s successful move of 1893 restored the international confidence. But the situation of the general public was not so readily improved. This was the psychological moment in which the silver question, which had hitherto interested relatively restricted circles, so suddenly came to excite the entire nation that in 1896 the main issue of the Presidential campaign was silver or gold currency. The silver craze spread most rapidly among the farmers, who had suffered more from overproduction than had the manufacturers. The manufacturer sold his wares more cheaply, but in greater quantities, because he improved his methods, and, moreover, he bought his raw materials more cheaply. But the fall in the prices of wheat and corn and other agricultural products which affected the farmer was only in small part due to more intensive cultivation, but rather to the greater area of land which had been planted. The farmer in one state was not benefited by the fact that great areas in some other state were now for the first time laid down to wheat and corn. As prices fell he produced no more, and thus agriculture suffered more severely than industry. While the farmer was able to get for two sheaves of wheat only as much as he used to get for one, he thought, of course, that his patrons had too little money, and was readily convinced that if more money could only be coined, he would get good prices again.

There was another argument in addition to this, which could still even more easily be imposed on the ignorant, and not only on the farmer, but on all classes that were in debt. Silver was cheaper than gold, and if debts were paid in it the creditor lost and the debtor won. It was at this time that the conflict of interests between the great capitalists and the labouring masses began to arouse political excitement. Distrust found its way into a good part of the population, and finally a hatred of capitalists and monopolies, and of the stock market most of all.

This hatred vented itself in a mad clamour for silver. If Congress would authorize an unlimited silver coinage at the ratio of 16 to 1, while the market ratio was down to 33 to 1—so that the silver dollar would be worth hardly fifty cents, and so that the farmer could sell his wheat or maize for a dollar when it was really worth but half a dollar—then at last the robbers on the stock exchange would be well come up with. In reality, these two arguments contradicted each other, for the farmer would be benefited by more silver money only if the market value of silver could be brought up to that of gold; while he would be favoured in the payment of debts only if gold could be brought down to the value of silver. But once let there be any sort of distress, and any ghost of relief haunting the general mind, then logic is totally forgotten. A new faith arises, the power of which lies in suggestion. The call for free-silver coinage at the old ratio of 16 to 1 fascinated the agricultural masses as well as the lower classes in cities, just as the idea of a future state of socialism fascinates German working-men to-day.

And just as one cannot understand the German people without taking into account their socialistic delusions, so one cannot understand the American masses to-day without tracing out the course of the silver propaganda. It was the organizing power of a watchword which gave the delusion such significance, and which, for perhaps the first time, gave voice to the aversion which the masses felt toward the wealthy classes; and so, like the socialistic movement in Germany, it took effect in far wider circles than the points over which the discussion started would have justified.