Free Silver

Free Silver was an important political issue in the late 19th century United States. To understand exactly what is meant by "free coinage of silver", it is necessary to understand the way mints operated in the days of the gold standard. Essentially, anyone who possessed uncoined gold, such as successful prospectors, or assayers or refiners to whom they had sold their holdings, could deposit it at one of the U.S. Mints, where it would be made into gold coins. The coins would then be given to the depositor, less a small deduction for processing and funding Mint operations. Possibly in most cases the depositor would not receive coins made of the actual gold he had deposited, but would receive his due compensation in coins the mint already had ready. Free silver advocates wanted silver to be accepted by the mints in the same way; if you deposited enough silver, by weight, to manufacture a silver dollar, then the mint should pay out a silver dollar to you.

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After the discovery of large silver reserves such as the Comstock Lode in the Western United States in the 12 years immediately after the American Civil War, one faction in American politics began to agitate for the federal government (which under the United States Constitution was responsible for coinage) to allow it to be minted freely at the rate of $1 per troy ounce. As the gold standard in effect at the time valued gold at the official price of $20 per troy ounce, the result of this policy would have been a considerable increase in the money supply and resultant inflation.

At the time, the general price level was in a long term deflationary trend, and so inflation was seen by many as an appropriate way of maintaining wages and real interest rates. Modern economists who have studied the period are divided on whether free coinage of silver would have been inflationary, but it was clear that geographically centered interests had particular views. Eastern interests, trading with an increasingly gold standard–based world, wanted gold money; interior interests, and particularly mining interests, wanted silver money. Since banks were based primarily on the two coasts, deflation's effect of increasing the real rate of interest for loans already made was popular, for manufacturers the ability to hold wages down was also popular. For farmers, who borrowed to plant every year, and for laborers outside of the factory economy, also perpetually in debt, the idea of higher wages was attractive.

Many populist and radical organizations actually favored a very inflationary monetary policy on the grounds that it enabled debtors (often farmers, laborers, and industrial workers) to pay their debts off with cheaper, more readily-available dollars; those who suffered under this policy were the wealthy creditors such as banks, leaseholders, and landlords, who under this theory could well afford any loss this caused them. Other supporters obviously included silver miners and those who supplied them, territorial and state governments in silver-producing areas, and other interests who desired to see gold demonetarized or at least reduced in prominence, including many Southerners.

For the most part, the Republican Party steadfastly opposed Free Silver, arguing that the best road to national prosperity was "sound money," a policy of attempting to maintain or even increase the dollar's value, as this rewarded those who had accumulated wealth and provided them with a strong incentive to produce and accumulate even more, which they saw as the engine driving economic growth. In 1896, some pro-Free Silver Republicans from western states split from the main Republican Party to form the short-lived Silver Republican Party.

The Populist Party had a strong Free Silver element; its subsequent combination with the Democratic Party moved the latter from the support of the gold standard which had been the hallmark of the Cleveland Administration to the Free Silver position epitomized by 1896 presidential nominee William Jennings Bryan in his Cross of Gold speech. Bryan's 1896 candidacy was supported by Populists and Silver Republicans as well as Democrats.

Largely as a result of the support of monied interests which gave the Republicans an unmatchable campaign war chest, the Democrats failed to win any presidential elections in which the Free Silver issue was paramount, and the next Democratic President to be elected, Woodrow Wilson in 1912, had a very different plan for monetary reform which resulted in the creation of the Federal Reserve Banking system in 1913. Free Silver ceased to be a major issue, although its influence could perhaps be seen 20 years after the creation of the Federal Reserve in President Franklin D. Roosevelt's devaluation of the dollar (fixing the value of gold at $35 per troy ounce rather than $20 per troy ounce) and (partial) abandonment of the gold standard and ban against private ownership of gold coins and bullion, adopted in 1933 as measures intended to counter the Great Depression.

See also

• Bimetallism