While the United States was consumed by its Civil War during the 1860s, the rest of the world was rapidly moving toward a global gold standard. By the time the U.S. was ready to take its first steps back into the world’s gold club, an upsurgent and recently united Germany had also switched to gold. With worldwide demand for silver thus plummeting, the price of silver began falling. Not so good for silver miners in western North America.
By the early 1870’s, the United States had succeeded in demonitizing silver and discontinuing the Silver Dollar, but the country was still using the Greenback— a Treasury Note, unbacked by specie, printed and declared as legal tender during the Civil War by the Lincoln administration.
But almost as soon as silver was dismissed from the currency spectrum, people began clamouring for its return. In large part, the people who had embraced the expansion Greenback-volume during the previous decade were the same ones who fell in love with silver-as-currency during the later quarter or so of the 1800s. That is, these were “Soft Money” folks, people who favored a flexible, plentiful, and generally expanding Money Supply.
Because the worldwide value of silver was falling against gold, it was understood that a silver-based currency would depreciate over time. This would make it easier for debtors to repay their loans, since the silver coin they would pay-off their loans with would be worth less than the money they had borrowed months or years earlier. Advocates of silver-money pointed out that, in a time of great government debt, this was not just a private sector benefit– if the U.S. could pay-off its Civil War loans in a depreciating silver currency, it would reduce the U.S. debt burden substantially.
There were other reasons to support silver as well. Some proponents were onboard merely because they favored anything which might delay the day that the U.S. returned to the gold standard (detractors felt gold made for an overly constrictive money-base). Even some in the respectable business community favored the production of silver-coin, as they had grown suspicious that a gold standard did not allow for enough flexibility to nurture business growth.
Another segment of silver supporters was even more obviously self-serving… These were the silver-mining interests (known to some by the pejorative nickname, “Bonanza Kings”). The silver-mining interests figured that if the country started minting silver coin, then the demand for silver would rise, and the price of silver would not only halt its decline– but begin rising.
The more moderate Silverites favored a bi-metal system in which both gold and silver coins were minted. Some of these silver supporters advocated making international agreements establishing a gold-silver exchange value between nations.
On the other hand, there was the decidedly immoderate “Free Silver” camp. These Silverites advocated the unlimited coining of silver– but with the exchange rate of silver-to-gold being kept artificially fixed at 16-to-1 no matter how much silver flooded the market. This would have the effect of driving gold out of circulation (gold would then become more valuable sold abroad then used as coin in the States). With gold out of circulation, even more silver would be needed for coin– very good for the Bonanza Kings obviously, and for others involved in the silver market.
Treasury Secretary John Sherman was committed to America’s resumption of the gold standard during the 1870s. Nevertheless, he was also fine with the idea of having some silver in circulation as well. For one thing, every Silver Dollar that replaced a Greenback Dollar meant that many less Greenbacks needing to be redeemed for gold after resumption.
The U.S. resumed the gold standard on 1 Jan 1879— nearly 14 years after the end of the War Between The States. But the argument for silver was just getting started.
Irwin Unger, in The Greenback Era, writes that the passage and implementation of the Resumption Act was “only the opening round of a thirty-five year struggle” between the interests of gold and those of silver. During the late 1880s, America’s POPULISM political movement would pick-up the banner of silver currency, with many Populists convinced of the power of silver to make all things better– arguing with the unreasoning, stubborn ferocity of religious converts.