Goldbugs and Greenbacks
Gretchen Ritter, 1997

In some of my articles about novels I've mentioned that, despite having a very good teacher my junior and senior years, I got virtually nothing out of my high school English classes.  I'd be really interested to see what I said in my old papers, because in retrospect I can see that I didn't understand any of the books really at all.  The same goes for history.  What I understood about the battle of the standards in the late nineteenth century went something like this:  Western farmers were poor, and in debt to Eastern bankers.  They wanted free silver, and voted for the Populist Party.  In 1896, the Democrats nominated William Jennings Bryan for president, and he adopted the Populists' free silver policy with his "Cross of Gold" speech.  He lost, and that was the end of free silver.  That was enough to get me a good grade, despite the fact that I didn't know what "free silver" was — I imagine that I took it to mean that Western farmers wanted the government to give them some silver, for free — nor what the "Cross of Gold" speech said, other than that it was about how the gold standard was bad for some reason, possibly because it somehow prevented free silver.  I'm pretty sure that's about as much depth as my teacher went into it, too.  That became a problem a few years later when I had to teach it myself.

When I started taking history students as part of my old tutoring job, I had to do a little research in order to explain the free silver thing better than it had been explained to me back in the day.  One saving grace was that, since I was teaching to a test, it was not only acceptable but preferable to give the simplest possible account of things, so the fact that my own understanding remained pretty simplistic wasn't that big a problem.  I had a core spiel that could be expanded as needed if the student was bright or, even better, inquisitive.  It went something like this:

— the SAT U.S. History version —

The debate over gold vs. silver vs. greenbacks was really a debate about inflation.  Making silver or fiat greenbacks legal tender would have increased the money supply, causing inflation.  Debtors like inflation.  Debt payments are easier to make if the value of the dollar drops.  Creditors, on the other hand, like deflation.  The payments they receive are worth more if the value of the dollar rises.  The readoption of the gold standard shrank the money supply, causing deflation.  So, if you can remember that Western and Southern farmers were debtors, and Northeastern bankers were creditors, you can figure out what standards they would support without having to memorize anything.

What does the money supply have to do with inflation?

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What is the gold standard?

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Why was the gold standard deflationary?

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Why is deflation particularly bad for debtors?

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What are greenbacks, and why would they cause inflation?

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Why would monetizing silver cause inflation?

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What did the "free" in "free silver" mean?

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But, again, this account is pretty simplistic, and not just because I was trying to make things easier for my students' benefit.  Take what I said about the greenback movement (if you read that part).  I left out the part about how the supply of greenbacks was supposed to be automatically regulated through the issuance of interconvertible bonds, because no matter how much I read about financial instruments more complex than banknotes and specie, I never come away with more than the sketchiest understanding of them.  So I figured that before my presidents series moved on to the twentieth century and left the battle of the standards behind, I should read a book about the politics of finance in postbellum America and try to get a better handle on this stuff.

— the actual history book version —

Goldbugs and Greenbacks is an academic book, and I confess that I skimmed over some of the minutiae, but the main point it makes applies to virtually any political battle you care to name.  Both the conservatives and the reformers, Gretchen Ritter argues, had coherent arguments to make in favor of their positions — but very few people, then or now, arrive at their viewpoints on economics by reasoning from first principles.  Nor did people choose sides in the debate based on self-interest.  Ideologies may derive from socioeconomic conditions, but once they're out in the world, they spread according to their own rules and are frequently adopted by people who don't benefit from them.  If only those who actually benefited from the gold standard had supported it, it would never have been restored after the Civil War — yet it was.  And the reason conservatives triumphed in the battle of the standards, according to Ritter's account, is that they were better positioned than the reformers to win supporters the way they're usually won: by playing on people's pre-existing affiliations.

The argument for greenbacks

The chief underpinning of the greenback movement was producerism.  Producerists argued that what differentiates a banknote from any other scrap of paper is not that it represents a certain amount of gold — that just raises the question of what differentiates a gold coin from any other scrap of metal.  Rather, what gives any currency its value is the understanding that it represents a certain amount of labor.  Without money, we would have to exchange goods and services directly, and the odds of striking an agreement would be low: "I'll teach you algebra if you make me a burrito. You already know algebra? Dang."  Meeting everyone's needs requires us to construct chains of trades in which everyone contributes something that someone else wants: I teach you algebra, you knit Xochitl a scarf, Xochitl drives Yitzhak to the airport, Yitzhak gives Zenobia 0.004% of a condominium, and so on down the line until a few thousand deals later someone makes me a burrito.  These chains of trades would be virtually impossible to construct in advance, but money allows us to add links on an ad hoc basis.  A piece of money serves notice that the holder has performed labor that someone in society found to have a certain value.  And our economy is based on the universal acceptance that this credential entitles the holder to claim a commensurate portion of the fruits of other people's labor, in return for passing the credential along and continuing the chain.  The upshot of this is that, since money is nothing more than a representation of work performed, it doesn't really matter what form it takes.  Therefore, greenbackers argued, paper banknotes can represent labor directly — and should, because unlike gold coins, the number of banknotes can be increased to reflect increases in the amount of labor performed throughout the economy.

The holders of capital needed to keep this idea from gaining traction.  Not only did it threaten the gold standard whose deflationary power worked in their favor, but it also suggested that granting vast purchasing power to people who hadn't contributed any labor to expand the pool of goods and services was unfair.  But what sort of argument could they make on behalf of the idle rich?  "The nobility of inherited wealth! The audacity of the gambler! The cleverness of multiplying money through accounting tricks! Surely these deserve a greater reward than mere productivity!"  No, once a critical mass of people started to mentally divide society up into producers and non-producers, the game would already be over.  It wouldn't be long before they started taking steps to keep the latter group from amassing fortunes by dicking around with the tokens that are supposed to represent value added to the commonwealth.  The solution was to get the public thinking along very different sets of axes.  Here are a few of them.

God vs. man

"By common consent of all nations, gold and silver are the only true measure of value.  They are the necessary regulators of trade.  I have myself no more doubt that these metals were prepared by the Almighty for this very purpose, than I have that iron and coal were prepared for the purposes in which they are being used."
—Hugh McCulloch, Secretary of the Treasury 1865-9, 1884-5

Conservatives didn't have to argue that the gold standard had a beneficial effect on the economy if they could get enough people to believe that deviating from it was sacrilege.  Yes, the idea that gold and silver were carefully placed in the earth's crust by a deity so that people could dig them up and use them as money is silly.  And the claim that money has "natural and objective" value falls into the category of "not even wrong": to value something is a psychological phenomenon, so to speak of "value" as something that just exists, quite apart from the mind of the person who's doing the valuing, is just gibberish.  So is attributing to an object a "purpose" that doesn't depend on the intentions of living beings.  It's like saying that everything has a name that is an intrinsic, objective property of that thing, irrespective of language.  But in the United States, if one side attempts to win supporters by making logical arguments and the other side attempts to win supporters by saying "we're right because God says so," the logic side might as well pack up and go home.  Why did supporters of inflation switch their proposed vehicle from greenbacks, the supply of which could be engineered for maximum benefit to the economy, to the cruder instrument of silver?  This is pretty much it.  For all its disadvantages, silver was at least immune to theological objections.  In fact, silver advocates wound up employing theological arguments themselves, in an attempt to boost silver's legitimacy:

"Silver and gold are nature's money, and their uses as such are plainly shown in the Holy Scriptures."
—William Oliver, Address to the National Silver Convention

And the reason they had to do so was that conservatives had other cards to play:

Pride vs. shame

"The true policy seems then to retain the gold the better instrument, the most valuable, the cheapest in the end, and export the silver to China, India, and other nations who still adhere to the wooden plows and old fashioned spinning wheels of our less enterprising ancestors."
—F.R. Chandler, A Strike for the Revival of Business

Advocates of the gold standard benefited from three facts: (a) the world's richest country, the United Kingdom, had been on the gold standard since 1816, and virtually all other wealthy European countries had adopted it in the mid-1870s; (b) the world's poorest countries outside of Africa, China and India, were on the silver standard; (c) Americans were extremely insecure about their place in the hierarchy of nations.  Had the U.S. risen far enough to join the great powers, or was it still a sprawling hinterland half a world away from the real shapers of the world?  This argument wasn't really about economics; this was was currency as status symbol, a financial equivalent of designer jeans.  Interestingly, the greenbackers had earlier tried wading into these rhetorical waters; future Massachusetts governor Benjamin Butler argued against silver because it would leave the American economy vulnerable to "the caprice of some Indian prince or Chinese merchant."  But he also argued against gold, precisely because a gold standard would put the U.S. in the same camp as the European monarchies.  Attempting to tap into America's revolutionary tradition and its longstanding isolationism, he declared that the very fact that greenbacks had no value outside national borders was what made them the ideal form of money: they couldn't be siphoned off to London, but could instead be counted on to keep fueling the American economy.  "A paper currency," he said, "is the currency for a free people […] strong enough to sustain the measure of the business transactions with each other independent of kings."  Future president James Garfield scoffed at this "patriotic dollar."  National pride no longer meant doing things our own way; it meant a seat at the table of power, and that required what Garfield called "a currency that can walk like an American all over the world."  That's kind of a weird phrasing, given that at the time Americans didn't really do that.  But it wouldn't be all that long before it became very much an American thing to walk all over the world, in the Nancy Sinatra sense.

Creditors vs. debtors

"I suppose, by the brute force of congressional votes and presidential approval, if we should be wicked enough to do it, we might wipe out all debts by a universal law of bankruptcy, which declared that on a certain day all debts should be counted as canceled.  But the man who would counsel that, or would counsel the making of a paper dollar that would accomplish the same thing, would be denounced by the world as a villain […].  It is a fearful thing for one man to stand up in the face of his brother man and refuse to keep his pledge; but it is a forty-five million times worse thing for a nation to do it.  It breaks the mainspring of faith."
—James Garfield

I said above that the foundation of the greenback movement, and of the free silver movement that followed it, was producerism.  In the agrarian regions where the free silver movement really took hold, "producers vs. non-producers" largely boiled down to "farmers vs. bankers."  Farmers went into debt, with high interest rates for Western mortgages and usurious ones under the Southern crop-lien system, putting up their crops and land as security.  Ritter quotes a letter to the editor circa 1889 which uses the example of oat farming: right at harvest time, the writer relates, speculators would open up their warehouses and flood the market with oats, causing the price to drop through the floor.  Those speculators would then buy up the new crop for a pittance — and then stash it, along with the oats they had just released, back in their warehouses, sending the price skyward and allowing them to make exorbitant profits.  Meanwhile, the farmers would be left unable to pay off their debts and forced to give up their land to the banks.

Even so, banks frequently failed and were bailed out by the government.  When farmers asked for similar allowances, they were told that that would constitute "paternalism" (one of Grover Cleveland's favorite refrains).  "Is it paternalism for the government to issue to the farmers of the country money on short time at 1 percent on evidences of wealth, when for a quarter of a century it has been issuing money to the banks at 1 percent on evidences of indebtedness?" one polemicist asked.  Stonewalled, the farmers turned to currency reform as their only hope of easing their debts.  How could conservatives continue to support a standard that victimized the worker and favored the parasite?

The answer: change the terms of the debate.  The farmer who spent months doing backbreaking labor and contributed to the nation's pool of goods and services?  He's not a producer — he's a debtor!  The financier who sent a few telegrams, added nothing to the commonweal, and made a fortune?  He's not a non-producer — he's a creditor!  A "creditor" connotes someone who conscientiously saved his money, and is now generous enough to help out someone in need; a "debtor" connotes an irresponsible burden to society.  As long as the national debate focused on the big picture, on whether the way the economic system ended up allocating purchasing power was just, conservatives were bound to lose.  But if it could just be refocused on individual transactions, on the question of whether someone who lent money deserved to be paid back in full, victory was assured.  Whenever possible, goldbugs personalized the issue, talked about hypothetical human lenders rather than banks, encouraged people to imagine themselves in the place of the prosperous creditor — much more pleasant than identifying with the struggling debtor.  This tactic worked just as well on silver as it had on greenbacks, since both measures were aimed at making debts easier to repay.  Here's a Republican congressman arguing that, when silver is allowed to coexist with gold as a monetary instrument,

"[…] you can compel a man, who may have sold you gold bullion of 100 dollars' value, to accept for it 100 slugs of silver weighing 412½ grains, 9/10 fine, and worth only $39 — and he cannot by law obtain the value of the gold bullion for the hundred slugs of silver.  Why should not the same creditor who has parted with his gold bullion be compelled to accept 100 slugs of copper, worth $3.90, or 100 slugs of iron, worth 39 cents, or 100 strips of paper worth nothing, the same being irredeemable?  Has the government any more moral right to compel a man to accept 60 cents of fiat in a silver dollar than 100 cents of fiat in colored paper?"
—Rep. Charles Fowler (R-NJ, 1895-1911)

This kind of rhetoric swayed many people, right up to Ulysses Grant when he was on the fence about the Inflation Bill.  It was less effective on actual debtors, of course.  Even though many different banks, brokerage houses, futures traders, and financial players, all pursuing their own individual ends, were responsible for the debtors' plight, from colonial days up to the present American society has been given to conspiracy theory, and Southerners and Westerners began to grumble about the "money power" based in New York City.

North vs. South, East vs. West

"The capital of the country, as far as it is represented in the currency, flows to the places where it belongs.  Therefore, it naturally accumulates in the city of New York."
—George Boutwell, Secretary of the Treasury 1869-73

Once again, we have a treasury secretary attempting to pass off human institutions as the products of physical law.  It wasn't that humans placed value on gold — gold just inherently had value!  And it wasn't that humans constructed an economic system that channeled money to New York — it just naturally flowed there!  The difference is that gold had been considered valuable for millennia.  The system that channeled money to New York had been created by the National Bank Act in 1864.

The National Bank Act of established a network of federally chartered banks that operated under a pyramid reserve structure.  Country banks were required to keep a sizeable reserve to cover withdrawals — but some of that reserve could be kept in interest-bearing accounts in "reserve city banks."  Those banks in turn could deposit some of their reserve in interest-bearing accounts in the national banks in New York City.  The result was that money from all over the country was siphoned off to Wall Street.  There it bought luxuries for the financiers, gave them bankrolls to gamble with, and in the best-case scenario, got invested in infrastructure — but even that generally meant that the money went to build railroads and manufacturing facilities in the Northeast.  This wasn't just a difference of a few percent: in the postbellum period 35 dollars circulated per capita in Massachusetts, while in Alabama the figure was 35 cents.  And so, in a recurring theme in American history, what could have been a conflict between socioeconomic classes devolved into a sectional one.  In the West, it wasn't just the bankers who were hated, it was the Eastern bankers; in the South, it wasn't just the bankers who were hated, it was the Northern bankers; in both sections of the country, it wasn't just the bankers who were hated, it was the New York bankers.  This was great news for the creditor class: sectional conflict gave them way more allies than class conflict did. 

I've been writing about the battle of the standards as though the reformers were the good guys and the conservatives were the bad guys.  Unsurprisingly, the real picture is more complicated.  Backers of the gold standard were able to make a sectional argument to which I'm quite sympathetic: it was okay that more money circulated in Massachusetts than in Alabama, because Massachusetts was better than Alabama.  Any extra money that circulated in Alabama in the postbellum period, Northeastern goldbugs argued, would have just ended up swelling the coffers of the Ku Klux Klan.  Reform rhetoric out of the South and Plains did tend to be tainted by racism, anti-Catholicism (for Catholic immigrants overwhelmingly settled in Northeastern cities), anti-Semitism ("New York bankers" was often a code phrase meaning "Jews"), and anti-intellectualism.  Really, the constituency of the financial reform movement looked an awful lot like Andrew Jackson's base.  Jackson's approach to monetary policy was the exact opposite — he forced the U.S. government back onto specie, with disastrous results — but both he and the reformers of the late nineteenth century were motivated by enmity toward central banking.  Now, this might seem like another strike against the reformers, given that Jackson was a terrible human being.  But one thing Jackson did do, for better or for worse, was to further democratize American society.  Elitism was the enemy.  Voting was opened up to nearly all white men, because requiring property was elitist; government jobs were opened up to political allies, because requiring expertise was elitist.  And in this, too, financial reformers were heirs to Jackson.  A big part of the argument for greenbacks was that the money supply would be under the control of officials elected by the people rather than of an unelected, international cabal of bankers.  Some went so far as to argue that government control of the currency, right down to direct government issue of paper bills, was not only desirable, but mandated by the Constitution:

"[…] the founders of the republic recognized the power to make money and regulated its value as among the essential attributes of sovereignty […].  While Congress has an undoubted right to exercise the powers here enumerated […] there is not a shadow of authority given to that body to delegate them to any class of individuals or corporations, or in any way to divest itself for one moment of the right to exercise them.  The states or people granted these powers to Congress for the public good, and not for the benefit of any privileged class of individuals or corporations."
—Rep. Alexander Campbell (I-IL, 1875-7)

The problem reformers ran into when arguing for the money supply to be put in the hands of the people through its elected representatives was that voters didn't seem to want financial reform.  They kept electing politicians who supported the gold standard.  Which brings us to the last way conservatives were able to recast the battle of the standards in a manner favorable to them:

Republicans vs. Democrats

For most of the postbellum period neither major party took a unified position on the currency question.  It was a sectional issue, and neither party wanted to risk alienating an entire region of the country.  Republicans, as the party of the Northeast, tended to favor the gold standard, but Western Republicans made enough of a clamor for silver that Benjamin Harrison felt it necessary to step up silver purchases.  Democrats, as the party of the South, tended to favor easier money, but some of the most adamant goldbugs were Northeastern Democrats such as Grover Cleveland.  It was therefore left to the Greenback Party and the People's Party (a.k.a. the Populists) to make a full-throated call for financial reform.  These parties won some gubernatorial and congressional elections, and in the 1892 presidential election the Populists even managed to win a few states.  But mostly what they did was split the vote.  This is always an unstable state of affairs in U.S. politics, as people who have dared to vote for a third party see that all they've done is throw the election to the major party they hate more.  They flee back to the lesser of two evils — which will often have co-opted some watered-down form of the third party's ideas — and it's back to a two-party system.  In both the greenback and silver eras, the major party that became identified with financial reform was the Democratic Party, and this was a disaster for financial reform.

Before the Republicans became the party of the rich, they were the party of free soil, the party of the North.  Even after Grant made right-wing economics a hallmark of the Republican Party, many Republicans disagreed with their party on currency issues.  Many others had no opinion, and could easily have been won over to the idea of expanding the money supply.  But once Republican leaders could tag that as a Democratic idea, those on-the-fence voters were lost.  Above, I asked how conservatives could make an argument on behalf of an economic policy that benefited only a small class of investors.  Here's one answer: "You shed your blood and lost many of your brothers fighting these traitorous Democrats. To a great extent, you owe your victory to those who pledged their fortunes to fund the Union war effort. Now these same Democrats are proving their disloyalty once again by trying to pay back our heroes with worthless paper."  The greenbackers didn't really have a prayer of competing with such emotional rhetoric by talking about wheat prices.

As the Civil War receded into the past and the currency issue returned to the forefront under the banner of free silver, the Democratic label once again proved fatal.  The one Democrat to be elected president between 1856 and 1912 was Grover Cleveland.  He was a gold man through and through, but when the U.S. economy collapsed on his watch in 1893, voters didn't blame the gold standard — they blamed the Democratic Party.  When the Democrats nominated William Jennings Bryan in 1896, it didn't matter that Bryan's economic policies were the exact opposite of Cleveland's; it had already become accepted wisdom that Democrats couldn't manage the economy.  Had Cleveland been a member of the Republican Party, where his economic views would have been very much at home, the Republicans would have been tarred with the same brush and Bryan might well have crushed William McKinley, setting American history on a distinctly different course. 

— the TLDR version —

In the late 19th century, one of the main disputes in American politics was over the gold standard.  The gold supply was small and shrinking, so an economy based on the gold standard was subject to deflation, which benefited creditors such as banks but hurt debtors such as farmers.  Two proposed alternatives were greenbacks — paper money which could be printed in whatever quantities the government chose — and silver, the supply of which was large and growing.  Both of these measures would have increased inflation, benefiting debtors and hurting creditors.  I used to teach that people therefore supported silver/greenbacks or gold based on whether inflation or deflation would benefit them.

However, people don't actually choose their politics based on mere self-interest.  Each side in this dispute represented a cluster of concepts, and people chose sides based on which cluster of concepts spoke to them:

Gold Silver
urban sophistication beats the stupidity of rural life the real America is the countryside, not slums full of wretched immigrants
national greatness means becoming a big player on the world stage national greatness means fierce independence from the rest of the world
generous, self-disciplined creditors should be favored over irresponsible debtors honest workers who contribute to society should be favored over parasites who just dick around with money
the economy should be left to the experts in the financial sector the economy should be put in the hands of the people through their elected representatives
things happen the way they are meant to happen things happen the way people make them happen

Finally, gold's victory in the battle of the standards was not inevitable.  Historical contingency played a key role; put a Republican in the White House in 1893 and free silver probably becomes the law of the land in 1897.  Nor was it a final resolution to the question.  There was another century after the nineteenth, and during it the gold standard was abandoned by every country in the world.

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