Main Street vs. Wall Street in the 1890s
Aspen Times Weekly
Credit swaps, bank recapitalization, toxic securities and Wall Street versus Main Street all figure in the talk of our time. Bimetallism, monetary policy, money supply and Wall Street versus debtors derailed the economy in the 1890s. As similarities between the times outnumber differences, lessons of Aspen’s seminal historic decade could presage our own.
Some books and historical timelines incorrectly ascribe President Cleveland’s 1893 repeal of the Sherman Silver Purchase Act as the end of an Aspen era. Actually, more silver was mined in Aspen after that date than before. Aspen, like many western cities, limped through national panics for the following three decades. Placing Aspen in the context of the national economic malaise and political debate of the 1890s links local lore to larger issues.
“There are those who believe that if you legislate to make the well-to-do prosperous that their prosperity will leak through on those below.” That is not Reagonomics but rather a quote from William Jennings Bryan’s “Cross of Gold” speech at the 1896 Democratic National Convention. Bryan’s speech argued for the free coinage of silver. Until 1933, members of Congress did not take office until 13 months after their election. After Bryan was first elected to Congress he spent much of the following 13 months studying the relationship between bimetallism and the economy. He concluded that the coinage of silver was the solution to the monetary crises of his time.
The “Crime of 1873” kicked off the crises. That year a banking failure led to legislation that put America completely on a gold standard. Politicians later accused New York banks of conspiring to pass the bill in order to prevent inflation. The political battle focused on money supply. If too much money flooded the system, debtors would benefit. If money was controlled, bankers profited. The gold standard favored the bankers.
For many years gold production kept up with the expansion of the economy, but over time production lagged. Consequently, crop prices dropped nearly 50 percent, wages declined relative to cost of living and loan costs increased. In both 1878 and 1890 Congress tried to increase monetary supply by reintroducing silver coinage. They succeeded with the 1890s Sherman Act. That act coincided with the end of claim ownership battles in Aspen. Silver production escalated at the same time that demand for silver increased.
Bryan, spokesman for struggling farmers and laborers, championed silver policy as a way to raise their standard of living, “We simply say to the East, take your hands out of our pockets and keep them out.” In 1891, silver coined at the set ratio with gold of 16-to-1 was worth only 75 cents. A whole dollar’s value would result. The banks required that only gold-backed currency could pay past debt. Silver was sold in bars for industrial uses and for minting. When it was worth less for industrial use, people used silver to pay debt. When industrial use was more valuable, no silver was sold to the mints.
Bryan endeared himself to the people of Aspen when he said, “the miners who go a thousand feet into the earth … bring forth from their hiding places the precious metals to be poured in the channels of trade are as much business men as the few financial magnates who in a back room corner the money of the world.”
Silver producers were suspect in Bryan’s Populist movement, but considered necessary partners to end deflation. The Republican Party held the position that “sound money” required America to stay on the gold standard unless the rest of the world moved to bimetallism. Bryan rallied the Democratic Party to declare bimetallism its premier important plank for the election of 1896.
The prices of agricultural products increased between 1892 and 1896 so Bryan lost the Midwestern farm vote and the election to expansionist William McKinley. Bimetallism lost popularity as gold production resumed a pace in line with economic growth. New gold sources and mines rejuvenated by the cyanide extraction process increased the supply of money.
The price of silver increased after a drop in 1893, but did not return to its 1892 high (although Aspen mined some of its highest quality ore between 1892 and 1900). Industrial demand for silver kept the price high enough for Aspen’s mines to profit. And the arguments over monetary policy, Wall Street vs. Main Street, debtors vs. bankers, and inflation vs. tight money continue to this day.
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