Free silver

Republican campaign poster of 1896 attacking free silver

Free silver was a major economic policy issue in the United States in the late 19th century. Its advocates were in favor of an expansionary monetary policy featuring the unlimited coinage of silver into money on demand, as opposed to strict adherence to the more carefully fixed money supply implicit in the gold standard. Free silver became increasingly associated with populism, unions, and the perceived struggle of ordinary Americans against the bankers, monopolists, and robber barons of the Gilded Age. Hence, it became known as the "People's Money".

Supporters of an important place for silver in a bimetallic money system making use of both silver and gold, called "Silverites", sought coinage of silver dollars at a fixed weight ratio of 16-to-1 against dollar coins made of gold. Because the actual price ratio of the two metals was substantially higher in favor of gold at the time, most economists warned that the less valuable silver coinage would drive the more valuable gold out of circulation.

While all agreed that an expanded money supply would inevitably inflate prices, the issue was whether this inflation would be beneficial or not. The issue peaked from 1893 to 1896, when the economy was suffering from a severe depression characterized by falling prices (deflation), high unemployment in industrial areas, and severe distress for farmers. It ranks as the 11th largest decline in U.S. stock market history.

The "free silver" debate pitted the pro-gold financial establishment of the Northeast, along with railroads, factories, and businessmen, who were creditors deriving benefit from deflation and repayment of loans with valuable gold dollars, against farmers who would benefit from higher prices for their crops and an easing of credit burdens. Free silver was especially popular among farmers in the Wheat Belt (the western Midwest) and the Cotton Belt (the Deep South), as well as silver miners in the West. It had little support among farmers in the Northeast.

Free silver was the central issue for Democrats in the presidential elections of 1896 and 1900, under the leadership of William Jennings Bryan, famed for his Cross of Gold speech in favor of free silver. The Populists also endorsed Bryan and free silver in 1896, which marked the effective end of their independence. William McKinley's victory led to passage of the Gold Standard Act in 1900.

The debate over silver lasted from the passage of the Fourth Coinage Act in 1873, which demonetized silver and was called the "Crime of '73" by opponents, until 1963, when the Silver Purchase Act of 1934 (also known as Executive Order 6814), which allowed the president and the Department of the Treasury to regulate U.S. silver, was completely repealed by Public Law 88-36.

Definitions and explanation

"The free silver highwayman at it again" in 1896

Under the gold specie standard, anyone in possession of gold bullion could deposit it at a mint where it would then be processed into gold coins. Less a nominal seigniorage to cover processing costs, the coins would then be paid to the depositor; this was free coinage of gold by definition. The objective of the free silver movement was that the mints should accept and process silver bullion according to the same principle, although the market value of the silver in circulating coins of the United States was substantially less than face value.

As a result, the monetary value of silver coins was based on government fiat rather than on the commodity value of their contents, and this became especially true following silver strikes in the West, which further depressed the silver price. From that time until the early 1960s the silver content in United States dimes, quarters, half-dollars, and silver dollars was worth only a fraction of their face values. Free coinage of silver would have amounted to an increase in the money supply, resulting in inflation.

Response

Cartoon from Puck showing a silverite farmer and a Democratic donkey whose wagon has been destroyed by the locomotive of sound money

Many populist organizations favored an inflationary monetary policy because it would enable debtors (often farmers who had mortgages on their land) to pay their debts off with cheaper, more readily available dollars. Those who would suffer under this policy were the creditors such as banks and landlords. The most vocal and best-organized supporters were the silver mine owners (such as William Randolph Hearst) and workers, and the western states and territories generally, as most U.S. silver production was based there