The Depression and the Silver Issue



Deflation Dooms the Debtor

The Depression and the Silver Issue

I. The Grange- Farmers became tied to one crop and this made them susceptible to market prices exactly like the southern plantation owners. Prices fell in the 1880s. Low prices and deflation created a double pinch on the farmers. The deflationary pinch resulted from a static money supply. Farm tenancy rather than farm ownership was spreading like stinkweed.

A. The National Grange of the Patrons of Husbandry was begun in 1867. By 1875 it claimed 800,000 members.

1. Began with a focus on individual improvement

2. Evolved into an institution focused on collective strength.

II. the Farmer’s Alliance- Intended to break the grip of railroads through communal buying and selling.

1. Eventually a Colored Farmer’s Alliance arose as well.

2. Gave rise to the Populists

III. The People’s Party, aka, the Populists.

A. Populists Wanted

1. Nationalization of Railroads, telephone, & telegraph

2. graduated income tax

3. subtreasury (loans to hold farmers over until market prices rose)

4. free and unlimited coinage of silver.

a. leaders such as Mary Elizabeth Lease, Kansans should “raise less corn and more hell.”

B. Election of 1892- the Populist elected several congressmen and polled more than 1 million votes for their candidate, James B. Weaver.

C. Racial divisions hobbled the populists in the South (sounds familiar), yet membership in the west continued to grow.

IV. Sherman Silver Purchase Act- This law fixed the amount of silver to be purchased in ounces rather than dollars:

A. 4.5 million ounces per month, approximately the amount of national production of the metal in 1890. The silver was to be paid for in Treasury notes of full legal tender value, which could be redeemed in either gold or silver at the discretion of the government.

B. As it turned out, the government chose only to redeem the notes in only in gold, and the price of silver dropped the treasury was required to spend fewer dollars to purchase the specified number of ounces.

C. The act produced no currency expansion. The product of weak and shifty statesmanship, it pleased neither side nor contributed nothing of importance toward solving the currency problems of the nation.

V. President Cleveland’s simple explanation for the Depression of 1893, he believed it was the Sherman Silver Purchase Act.

A.Cleveland’s solution was to repeal the act and maintain the Gold Standard at all costs. The economic consequences of Cleveland’s decision did not make an impact either way. Disastrous political consequences

B. Cleveland’s theory clashed head on with a theory held with equal dogmatism by the silverites. According to the silverites, the cause of the economic disaster lay in the “Crime of ‘73”, that demonetized silver, and the remedy lay in the free and unlimited coinage of silver at a ratio of sixteen to one of gold.

C.The admission of six new western states Montana, North Dakota, South Dakota, and Washington in 1889, and Idaho and Wyoming in 1890, reinforced the silverites in Congress.

D. Cleveland was wed to idea that the Silver Act was the main cause of the economic decline, and demanded its repeal. The only way to restore confidence and prosperity to the economy, was to maintain a gold reserve of $100 million in the Treasury. There was a cause to be made in favor of the gold standard in the 1890s, but there were many causes for the drain on the gold reserve, and there were many causes of the depression rather than just the silver issue.

E. Congress repealed the Sherman Act due to intense pressure from Cleveland. Business confidence was not restored and the hoarding of gold continued.

F. The blight that previously only affected the farmers was now affecting the factory and the city. As much as 20% of the population was unemployed. “Coxey’s Army” marched on Washington in 1894 due to the government’s refusal to provide work relief that Coxey proposed to improve roads. Coxey traveled most of the way in a horse drawn carriage with his wife and newborn baby, appropriately titled, “Legal Tender Coxey.”

VI. Election of 1894- the Republicans swept Congressional races by identifying the party with sound money and prosperity.

A. The Democrats once again found themselves split as they were in 1860, except this time it was the northern industrialists who were isolated from the southern and western faction of the party

IV. McKinley and gold versus Bryan and Silver- McKinley was easily nominated in 1896 for the Republican ticket. He was obviously associated with a protectionist tariff, and by the end of the convention, the Gold Standard was firmly implanted in the party’s platform.

A. Bryan was nominated by the Democrats with the conservative Arthur Sewall of Maine as his running mate. He was also nominated as the Populist party candidate with Thomas E. Watson as his running mate. WJB, at the age of 36, traveled more than 18,000 miles by train. Made more than six hundred speeches, and spoke to 3 million people.

“You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.”

B. The Republicans built up a war chest of $3.5 million, compared to WJB’s meager $300,000.

C. Similar to the Election of 2004, William Jennings Bryan received more votes than any other presidential candidate up to that time, yet he still lost to McKinley.

1. Another similarity to 2004 was the presence of Marcus Alonzo Hanna, who after making his fortune in the iron business turned being a “president maker.” Very similar to the current republican strategist, Karl Rove.

2. The Republican’s were a smoothly oiled machine, clearly nominating McKinley. The Democrats (like today) were divided and spilled their own blood in the nomination process.

D. During McKinley’s first term, the price of wheat rose slightly due to a drop in European production. Also, the discoveries of Gold in Alaska, South Africa, and the new technology for extracting gold from ore gave the United States government the ability to have an expansionist monetary policy without abandoning the gold standard.

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