By John Steele Gordon
In November 1874, the Greenback Party was founded. It briefly rose to prominence in U.S. politics but in less than 15 years was gone, much of its platform co-opted by the Democratic Party. The issues it raised, however -- hard money versus soft money, inflation versus stability -- are with us still.
Like so much in late 19th-century America, the Greenback Party was a product of the Civil War. The extraordinary cost of the conflict had forced the U.S. to abandon the gold standard. The country printed $450 million in fiat money during the war -- called greenbacks after the color of the ink used in the bills.
As fiat money always does, the greenbacks caused inflation, which historians estimate had accelerated by about 75 percent by the end of hostilities. The South, unable to borrow as easily as the North could, was forced to rely on its own fiat money to a far greater extent to finance the war. The result was vastly worse inflation, which wrecked the Southern economy.
It's hard to imagine today, but after the war, the gold standard became the cause of more than a few barroom brawls -- and a deep national political divide. The Northeast and parts of the Midwest -- the most developed regions of the country with the largest banks and the greatest interest in foreign trade -- strongly favored the gold standard, as creditors always did, because it made inflation almost impossible.
But the South, crippled by the war and with few banks and many poor farmers, wanted no part of it. Debtors -- and farmers were chronically in debt -- typically prefer inflation, which allows them to pay back what they owe with cheaper money. Westerners, who had seen several major silver strikes in recent years, including the great Comstock Lode, wanted no part of the gold standard, either. They preferred the free coinage of silver, guaranteeing a market for the metal.
In 1873, pushed by industrial and financial forces from the North and Midwest, Congress passed the Coinage Act, which much of the rest of the country called the "Crime of '73." It ended the coinage of silver, requiring the Treasury to mint only gold coins. Paper money, under the National Banking Act of 1863 (as amended in 1864), could be issued only by national banks, with a uniform design, and backed 100 percent by Treasury bonds. The Resumption Act of 1875 required the Treasury to redeem greenbacks for specie (such as gold or silver) beginning Jan. 1, 1879. The result of this was the effective return of the country to the gold standard.
In September 1873, panic hit Wall Street and banks and brokerage houses failed by the dozen. The country entered a period of deep depression that would not lift until the end of the decade.
As depression worsened, industrial workers and farm organizations, such as the Grangers, pushed for inflationary policies, including government-issued paper money and a return to silver coinage, and remained opposed to the gold standard. They organized the Greenback Party in Indianapolis and soon elected many candidates to local offices and to Congress. Thirteen Greenback representatives were elected to the House in 1878.
In national elections, the party had far less success. In 1876, its members nominated Peter Cooper of New York for president and Samuel F. Cary of Ohio for vice president. Vastly rich, but with a deep social conscience, Cooper had long opposed the gold standard as hurting the average man. But he was 85 -- by far the oldest man to run for the presidency as the nominee of a national party. The ticket got a mere 0.9 percent of the popular vote.
The party did a little better in 1880, with 3.3 percent of the vote, and in 1884 with 1.7 percent. But by that time, much of its platform had been co-opted by Democrats and even farm-state Republicans. Democrats began pushing for an income tax on the rich. The Bland-Allison Act of 1878 (named for Representative Richard Bland, Democrat of Missouri, and Senator William Allison, Republican of Iowa) required the Treasury to buy $2 million to $4 million of silver per month at the market rate and coin it at the ratio of 16-to-1 to gold. Sound-money President Rutherford Hayes vetoed the bill, but Congress overrode the veto.
This had the effect of increasing the money supply, a good way to cause inflation, especially as the market price of silver declined with more and more pouring out of western mines. By the late 1880s, silver in the market was selling at 20-to-1, while still being coined at 16-to-1. By that time, the Greenback Party wasn't needed anymore.
In 1888, the party elected only one member to the House, and didn’t nominate anyone for president. Indeed, only eight delegates showed up for the convention.
(John Steele Gordon is the author of numerous books, including "Hamilton's Blessing: The Extraordinary Life and Times of Our National Debt." The opinions expressed are his own.)
To contact the writer of this blog post: John Steele Gordon at firstname.lastname@example.org.
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-0- Nov/30/2011 14:24 GMT