Bimetallism

In economics, bimetallism is the use of both gold and silver as money. The controversy comes over the use of silver since the monetary ratio between the two metals is fixed by law, while the supply and demand of the two metals in the marketplace sets a different ratio. In economic history the debate took place primarily inside the United States in the late 19th century, as the U.S. was the only major country that was a large producer of both gold and silver.

This monetary system is very unstable. Due to the fluctuation of the commercial value of the metals, the metal with a commercial ratio less than the currency ratio will be used as money and the other metal will be withdrawn from circulation as money (Gresham's Law). That is, if silver is cheaper to buy from the minds people will use it for money and not the more expensive gold. This occurred in the United States throughout the 19th century as the official bimetallic standard became in effect a silver standard.

Political debate — 1890s U.S.

In the United States, toward the end of the nineteenth century, bimetallism became a center of political conflict. Newly discovered silver mines in the American West caused an effective decrease in the value of money. In 1873 the government passed the Coinage Act of 1873, at the same time as these resources were beginning to be exploited. This was later denounced by Silverites as “The Crime of ’73,” as it was judged to have prevented inflation. Improvements in rail transport meant it was cheaper for farmers to ship their grain to Europe, and they over-expanded production until there was a glut on the market. The Sherman Silver Purchase Act of 1890 was a concession to the silverites, requiring the Treasury to purchase 4.5 million ounces of silver a month, and issue notes that could be redeemed in gold or silver. This was mildly inflationary, but at the time the money in use was switching from coins and paper to bank checks, which greatly expanded the money supply. In 1890 the ratio at the mines was 20 to 1 (20 oz of dilver cost the same as 1 oz of gold). Heavy production of silver moved the ratio to 35:1 in the mid 1890s.

The Panic of 1893 was a severe nationwide depression that brought the money issue to the fore. The silverites demanded the government make silver money on a 16:1 ratio. They hoped this would flood the nation with silver, raise prices and lower the cost of old debts. Whether any of that would happen is a matter of speculation. The "silverites" argued that using silver would inflate the money supply and mean more cash for everyone, which they equated with prosperity. The gold advocates said silver would permanently depress the economy, but that sound money produced by a gold standard would restore prosperity. The gold advocates won decisively in 1896 and 1900.

GOP poster warns the middle class in 1896 that free silver means poverty

Bimetallism and "Free Silver" were demanded by William Jennings Bryan who defeated the anti-silver Bourbon Democrats and took over leadership of the Democratic Party in 1896. He was nominated for president by the Democrats, as well as the Populist Party and the Silver Republican Party, which was strong in silver-mining states. The Republican Party nominated William McKinley on a platform supporting the gold standard which was favored by financial interests in the East Coast.

Bryan, the eloquent champion of the cause, gave the famous “Cross of Gold” speech at the National Democratic Convention on July 9, 1896 asserting that “The gold standard has slain tens of thousands.” He referred to “a struggle between ‘the idle holders of idle capital’ and ‘the struggling masses, who produce the wealth and pay the taxes of the country;’ and, my friends, the question we are to decide is: Upon which side will the Democratic party fight?” At the peroration, he said “You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.” However, his presidential campaign was ultimately unsuccessful due to economic upturn caused in part by the failure of Russian harvests and the resultant increase in commodity prices. The 1896 election saw the election of William McKinley who implemented the gold standard and ran on it in his 1900 reelection. The standard lasted until the Great Depression. It was abandoned in 1934 in FDR’s New Deal economic recovery program.

As Friedman and Schwarz (1963) have shown, the money supply was steadily expanding in the 1890s because bank checks were becoming common.

Wizard of Oz

Since the 1960s historians and economists have explored the bimetallism symbolism in The Wonderful Wizard of Oz/ The original 1900 book centers on a yellow brick road (gold), traversed by magical silver slippers (the 1939 movie changed them to ruby slippers), as Dorothy leads a political coalition of farmers (Scarecrow), workers (Tin Woodman) and politicians (Cowardly Lion) to petition the President (Wizard) in the capital city of Oz (the abbreviation for ounce, a common unit of measure for precious metal). The real enemy of the little people (Munchkins) is the giant corporation or Trust (Wicked Witch of the West), whom Dorothy dissolves, just as the progressives of the era tried to dissolve the corporate trusts.

Monometallism

The practical difficulties pf having two metals as money led one nation after another to abandon the effort, and to adopt a system of monometallism, with gold as its basic unit of trade.

McKinley stands triumphant on the gold standard after reelection in 1900

The historical development of coinage in modern nations has been from silver monometallism through a more or less unsatisfactory experience with bimetallism, to the single gold standard. Still, in the twentieth century, both metals lost their former importance within monetary systems. Now, monometallism in the form of the gold standard has been abandoned by all nations.

Bibliography

• James A. Barnes, "Myths of the Bryan Campaign," Mississippi Valley Historical Review, 34 (Dec. 1947) online in JSTOR
• David T. Beito and Linda Royster Beito, "Gold Democrats and the Decline of Classical Liberalism, 1896-1900," Independent Review 4 (Spring 2000), 555-75.
• Bordo, Michael D. "Bimetallism." In The New Palgrave Encyclopedia of Money and Finance edited by Peter K. Newman, Murray Milgate and John Eatwell. 1992.
• Dighe, Ranjit S. ed. The Historian's Wizard of Oz: Reading L. Frank Baum's Classic as a Political and Monetary Allegory (2002)
• Friedman, Milton. "The Crime of 1873," Journal of Political Economy Vol. 98, No. 6 (Dec., 1990), pp. 1159-1194 JSTOR
• Friedman, Milton. "Bimetallism Revisited," Journal of Economic Perspectives Vol. 4, No. 4 (Autumn, 1990), pp. 85-104 JSTOR
• Friedman, Milton. "Franklin D. Roosevelt, Silver, and China," Journal of Political Economy Vol. 100, No. 1 (Feb., 1992), pp. 62-83 JSTOR
• Friedman, Milton, and Anna J. Schwartz, 1963, A Monetary History of the United States, 1867-1960
• Jeansonne, Glen. "Goldbugs, Silverites, and Satirists: Caricature and Humor in the Presidential Election of 1896." Journal of American Culture 1988 11(2): 1-8. Issn: 0191-1813
• Jensen, Richard J. The Winning of the Midwest: Social and Political Conflict 1888–1896 (1971)
• Jones, Stanley L. The Presidential Election of 1896 (1964)
• Laughlin, James Laurence History of Bimetallism in the United States (1897) online edition
• Littlefield, Henry M., 1964, "The Wizard of Oz: Parable on Populism," American quarterly, Vol. 16, No. 1, Spring, pp. 47-58.
• Morgan, H. Wayne. From Hayes to McKinley: National Party Politics, 1877-1896. Syracuse University Press, 1969. online edition
• Angela Redish, "Bimetallism"
• Rockoff, Hugh, 1990, "The Wizard of Oz as a monetary allegory," Journal of Political Economy, Vol. 98, No. 4, August, pp. 739-760.
• Velde, Francois R. "Following the Yellow Brick Road: How the United States Adopted the Gold Standard" Economic Perspectives. Volume: 26. Issue: 2. 2002.
• Hofstadter, Richard. "Free Silver and the Mind of "Coin" Harvey" in Hofstadter, The Paranoid Style in American Politics and Other Essays (1996)ISBN 0-674-65461-7

Primary sources

• Bland, R. P. "The Hopes of Free Silver," The North American review. Volume 158, Issue 450 May 1894. online edition Congressman Bland was the leading silverite in Congress
• Bryan, William Jennings. "The Election of 1900" The North American Review Volume 171, Issue 529 Dec 1900 online edition
• Democratic Party (U.S.) National Committee. Campaign Text-book of the National Democratic Party. 1896. This is the handbook of the Gold Democrats or Bourbons; it strongly opposed Bryan.
• Giffen, Robert. Case against Bimetallism (London, 1896) online edition
• Mills, Roger Q. "What shall we do with silver?" North American Review, Volume 150, Issue 402, May 1890 pp 573-96 online edition
• Nicholson, Joseph Shield. Money and Monetary Problems (London, 1895) online edition
• Powderly, T. V. "The Workingman and Free Silver" The North American review. (Dec 1991) Volume 153, Issue 421 pp 728-37; Powderly was head of the Knights of Labor (and opposed free silver) online edition
• Walker, Francis Amasa. Money (New York, 1878) online edition
• Walker, Francis Amasa. International Bimetallism (New York, 1896) online edition
• Walker, Francis A. International Bimetallism (New York, 1896) online edition

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External link

• The Bimetallic Standard, a series of pages on bimetalism from Micheloud & cie.