US.5 Analyze the controversy that arose over the currency system in the late 1800’s, including the impact of gold and silver strikes in the West, the contrasting views of farmers and industrialists, the Sherman Silver Purchase Act of 1890, the Gold Crisis during the Cleveland administration, and an analysis of William Jennings Bryan’s Cross of Gold speech. (E, H, P)
US.12 Explain the characteristics and impact of the Granger Movement and Populism, including the problems between farmers and the railroads, the call for banking reform, support for a graduated income tax, and regulation of public utilities. (E, H, P)
Lesson 04. (US.5) The Populists
a. Currency Controversy of the late 1800's
b. Silver and Gold Strikes in the West
c. Farmers vs. Industrialists
d. Sherman Silver Purchase Act of 1890
e. The Gold Crisis
f. Bryan's Cross of Gold Speech
Lesson 09. (US.12) The Grangers
a. The Granger Movement (Farmers vs. the Railroads)
b. Graduated Income Tax
c. Regulation of Public Utilities
The Gold Standard: Where did it come from?
The gold standard arose from the widespread acceptance of gold as currency over time. The use of gold as money actually began thousands of years ago. Various metals have been used as money. Typically, the metal that loses the least value over time becomes the most widely accepted form of currency. Chemically, gold is of all major metals the one that is most resistant to corrosion. Therefore, historically, gold has been the most widely accepted form of money worldwide.
Original “Money” in the United States
The British had used gold and silver coins as currency for about a thousand years before the United States declared independence and became a country in 1776. The new United States had to figure out what they would use for money. In the 1790’s, the government issued gold and silver coins. individual banks began issuing “paper notes” to be used instead of gold and silver coins. However, there were issues with this new paper money. Since paper notes were issued by local banks, they often had little or no value when someone traveled to another state. However, this was the monetary system in place until the Civil War.
The Civil War and Greenbacks
During the Civil War, the northern and southern governments both decided they would print their own paper notes just as banks had been doing. They did this to pay for the war. However, these new government issued paper notes, often called “Greenbacks” also had issues. They were called Greenbacks because of the cheap green ink that was used to print them. Both governments overproduced Greenbacks and by the end of the war, inflation caused Greenbacks to be worthless. After the Civil War, the government had to figure out a new way to issue money that wasn’t worthless and that would hold their value.
The US Officially Adopts the Gold Standard and the US Dollar
After the Civil War, a political movement began that pushed for a “Gold Standard” to back a new United States paper dollar. This meant that the government could not issue more paper dollars than the amount of gold that was actually on reserve. Many people argued that this would prevent inflation and keep the dollar valuable. After a long debate that lasted many years, the US government officially adopted the gold standard in 1879. On that date, an American could exchange one ounce of gold for $20.67 (USD).
Farmers and the Populist Movement
Over time, a new political movement began in the United States in the 1890’s. Farmers all across the Midwest had gotten into huge debt and were most were unable to pay back anything they owed to the banks. This happened due to the fact that the dollar was in short supply and very valuable. All paper money had to be backed by gold, and this caused a shortage when gold became scarce. As the population grew, there was less gold to be found. This caused deflation, meaning that the dollar was actually gaining in value, making it worth more. This made it harder for people to payback the money that had borrowed at a lower rate.
Deflation was horrible for poor people who borrowed money.
Example: John borrows $1,000.00 in 1888, but by 1892, that same $1,000.00 has gone up in value and now John has to pay back the equivalent of $2,000.00, plus the interest!
But, deflation was great for rich people who had money in savings.
Example: Jane puts $1,000.00 in saving in 1888, and by 1892, that same $1,000.00 has gone up in value and now Jane actually has $2,000.00 worth of spending power with her money!
This caused a new political divide in the country between the rich and the poor. Many poor people and farmers joined together to form a new movement known as “Populism.” William Jennings Bryan rose to lead the Populists. Bryan had grown up in a very poor family in Illinois. He often attended a protestant Christian church as a boy and became very religious. When he entered politics as a young man, he wanted to fight for the common man. This earned him the nickname, “the Great Commoner.”
Bimetallism and Inflation
The main goal of the Populist Movement was “Bimetallism.” Bimetallism differed from the Gold Standard philosophy. Bimetallism is the backing of money by gold and silver. Populists argued that backing money by silver and gold would increase the money supply. Many Republicans argued that this would lower the value of the dollar by putting more dollars into the market. Both the Republicans and the Populists agreed that Bimetallism would cause inflation. Inflation was great for the Populists because it would lower the value of the dollar to make it easier for farmers to pay back their debt and poorer people would have more purchasing power with their money. Inflation was bad for rich people because it meant that the money they had in savings would be worth less.
The Presidential Election of 1896
The Democratic party began to adjust to the Populist way of thinking and eventually the Populists merged with the Democrats and the Democrats officially nominated the Populist leader, William Jennings Bryan to run for President in 1896. Bryant went up against Republican William McKinley.
McKinley and the Republicans supported the Gold Standard and they favored deflation.
Bryan and the Democrats (Populists) supported Bimetallism and they favored inflation.
William Jennings Bryan delivered the famous "Cross of Gold" speech, where he argued that the Gold Standard would eventually ruin the American economy. Despite his great speech, he still lost. The election ended with McKinley and the Republican winning, but the US would eventually abandon the Gold Standard anyways in 1933, during the Great Depression.
Currency Crisis Key Questions
The Granger movement consisted of a coalition of U.S. farmers that fought corporate monopolies in the 1870s. These monopolies had illegal business practices such as price fixing. Price fixing occurs when business owners conspire to raise prices on goods and services.
Farmers were struggling because of the railroads' high shipping rates. The Grangers influenced some states to pass legislation, called Granger laws, to regulate businesses, mostly railroad companies. These new laws proved that the farmer had political power and could demand attention.
When some of the Granger laws were declared unconstitutional by the Supreme Court, the federal Interstate Commerce Act was passed. The Interstate Commerce Act required that railroads establish "reasonable and just" rates for consumers. It established the federal government's first regulatory agency, the Interstate Commerce Commission.