Bimetallism

For most of its existence, the United States recognized gold and silver as the basis for the dollar, adhering to what is known as bimetallism. Beginning in the 1870s, the government’s monetary policy changed. The Coinage Act of 1873 demonetized silver by removing the silver dollar from circulation. This law made gold the only monetary standard for the nation. Increased silver production soon caused the price of silver to drop, and if it were coined as in the past, the money supply would be increased and have an inflationary effect. Western silver mining interests and debtor groups referred to the Coinage Act as the Crime Of ’73 and demanded the unlimited remonetization of silver (Free Silver movement).

By the mid 1870s the demand for a return to bimetallism was gaining momentum, but Congress made only a token response with passage of the bland-Allison act over President Ruthereord B. Hayes’s veto in 1878. This law required the Treasury to purchase and coin not less than $2 million or more than $4 million of silver monthly. As a result silver dollars were again minted, but not in sufficient numbers to drive the United States from the monetary gold standard or to cause inflation. Bimetallists wanted more action from the government.

Congress followed up the Bland-Allison Act with the Sherman Silver Purchase Act of 1890. This law increased the amount of silver coinage in circulation by obligating the government to purchase 4.5 million ounces of silver per month. Supporters of sound-money principles (the gold standard) feared that the Sherman Silver Purchase Act threatened the stability of the nation’s money supply. In 1893 an economic depression set in, and President Grover Cleveland, an advocate of sound-money principles, blamed the financial crisis on the Sherman Silver Purchase Act. Cleveland’s view prevailed, and Congress repealed the Sherman Silver Purchase Act on November 1, 1893.

The repeal of the Sherman Silver Purchase Act set the stage for one of the most bitter and emotionally charged political contests in American history. Bimetallists such as William H. Harvey, the author of Coin’s Financial School (1894), and Ignatius Donnelly led protests against the law’s repeal. The People’s Party (Populist Party) also joined the bimetallist movement. In 1896 the Democrats and the Populists nominated William J. Bryan for president on a platform calling for the “free” (unlimited) coinage of silver. Bryan, however, was overwhelmingly defeated by the Republican candidate, William McKinley, who supported the gold standard. Bryan’s defeat was a major setback for bimetallism. In 1900 Congress enacted the Gold Standard Act, which recognized the gold dollar as the standard of value in the United States. Bimetallists were silenced until the Great Depression of the 1930s.

See also currency issue.

Further reading: Milton Friedman and Anna J. Schwartz, Monetary History of the United States, 1867-1960 (Princeton: Princeton University Press, 1971); Walter T. K. Nugent, Money and American Society, 1865-1880 (New York: The Free Press, 1968).

—Phillip Papas