Chrissy has taught secondary English and history and writes online curriculum. She has an M.S.Ed. in Social Studies Education.
A Sack of Coins or a Stack of Money?
Imagine you're on your way to the Apple Store to buy the newest iPhone. You don't have any credit cards or paper money; instead you only have coins. A new smartphone can cost hundreds of dollars...think about how heavy hundreds of dollars worth of coins would be, not to mention how much space it would take up! Luckily, in the United States, our currency, or system of money, is a combination of both paper and coins. It's much easier to carry around a hundred dollar bill than four hundred quarters.
The Gold Standard and the Bimetallic System
Paper currency has been used in the United States since the late 1600s. During the mid-1800s, the U.S. Treasury, along with other countries around the world, adopted a system called the gold standard. Instead of actually paying for things with gold coins, the government purchased gold and then issued treasury notes or money that represented the value of the gold. If gold went up in price, then the value of a dollar also increased; if gold went down in price, so did the value of the dollar. Under the gold standard, you could take your paper money and actually trade it in for the amount of gold it represented. If you walked into a bank today and asked to trade your money for gold, they'd probably laugh at you!
There were a few issues with the gold standard. The Gold Rush in the United States caused the value of gold to go up and down; as a result the value of a dollar went up and down as well. Farmers were the ones that suffered the most from the devaluation of our currency. Over time, the U.S. adopted a bimetallic system, where the government purchased both gold and silver and printed money that was backed by both metals. Both silver and gold are precious metals but think about it...which would you rather trade your paper currency in for and which one is worth more? Even though the Treasury used both metals, they purchased very little silver.
The Bland-Allison Act
In 1873, the Treasury decided to stop minting silver dollars. The people who owned silver mines and farmers were furious. Because the government stopped making silver dollars, the demand for silver dropped and so did the price. The Free Silver Movement began to take shape; people all over the country pushed the government to mint silver dollars again. In 1878, the Bland-Allison Act required the government to purchase a certain amount of silver every month (anywhere from $2 million to $4 million) and mint silver dollars with it. They also used the silver to back treasury notes.
Within a few years, the country was struggling with another depression. Democrats, mine owners, and farmers continued to push for more silver in the U.S. Treasury. These 'Silver Democrats' believed that if they increased the amount of silver in the Treasury, the government would have more precious metal to back the currency, and they could then print more money. More money in circulation would make it easier to pay off debts and would help farmers. The majority of Republicans, however, disagreed with this idea. Instead, they wanted to stick to the gold standard.
The Sherman Silver Purchase Act of 1890
After much debate and compromise, Congress passed the Sherman Silver Purchase Act of 1890, a bill backed by Ohio Senator John Sherman. The Sherman Silver Purchase Act was very similar to the Bland-Allison Act, but increased the amount of silver the government had to buy each month to 4.5 million ounces. At first, the act seemed to be a good idea. The Treasury was able to print over $150 million in paper currency, which immediately increased the price of silver (good for mine owners!) and helped struggling farmers. Unfortunately, there were a few issues with the Sherman Silver Purchase Act that caused it to fail. Remember, at the time you could, in theory, trade in your paper money for its full value in gold or silver. However, the way the law was written, the Treasury had to pay you in gold if it was available. As a result, the United States' gold supply went down and became a cause for concern among Republicans. After just three years, the Sherman Silver Purchase Act was repealed.
During the 1800's, the United States used a bimetallic system that backed paper money with gold and silver purchased by the U.S. Treasury. After years of depression, deflation and inflation, and lobbying from pro-silver Democrats, farmers, and mine owners, Congress passed the Sherman Silver Purchase Act of 1890. The act required the government to purchase 4.5 million ounces of silver every month to mint coins and to back paper currency. The act was ultimately considered a failure and it was repealed in 1893.
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