The Subtreasury Plan and Free Silver

The Subtreasury Plan and Free Silver

Delegates to the 1890 meeting drafted what became known as the Ocala Demands, a list of proposed changes to the nation’s political and financial system that challenged the conservative and laissez-faire policies of the era. The National Alliance dominated the Ocala meeting, and most alliance chapters endorsed the Ocala Demands and supported its vision of federal action on behalf of farmers. Chief among these reforms was a proposal to create federally subsidized warehouses where farmers could store their grain until they decided the market price was favorable. Many local alliance chapters had already tried to provide this service for their members, but most had failed in their objective because their members were in debt and could not afford to store their grain for more than a few weeks. Dubbed subtreasuries, alliance members believed these federal warehouses would solve their dilemma by issuing immediate payment of up to 80 percent of the crop’s present value. As a result, buyers would no longer be able to force cash-strapped farmers to sell their grain shortly after harvest. If all farmers participated in subtreasuries across the nation, the alliance argued, brokers and trusts could no longer dictate the price of grain.

The subtreasury planA proposal that was advocated by farmer’s organizations such as local Alliance chapters wherein the federal government would subsidize the construction of grain warehouses where farmers could store their grain in anticipation of better market prices. Farmers believed this would stabilize commodity prices and protect indebted farmers who often had no choice but to sell their grain as soon as it was harvested regardless of market conditions. demonstrated a revolution in sentiment among America’s farmers away from the concept of limited government that had typified Thomas Jefferson’s ideal of rural America. Instead of achieving freedom from government via laissez-faire policies and small government, the idea was now freedom through government via regulation and the subtreasury plan. In addition to this novel innovation, the Ocala Demands included a host of other ideas that had been proposed by both rural and urban reformers in the previous two decades. The delegates called for lower tariffs and greater regulation of railroads, although they stopped short of advocating direct government ownership of railroads. The platform also recommended the reinstatement of federal income taxes, which had been abandoned since the end of the Civil War. Although the wording of the resolution itself was nonspecific, alliance members intended that only the middle and upper classes would pay taxes, with the wealthiest paying higher rates. The Ocala Demands also supported the notion of governmental reform and direct democracy. The current practice at this time was for state legislators to appoint U. S. senators, but the Ocala Demands called for the direct election of US senators by popular vote. Relatively obscure in its own time, the Ocala convention and its demands would shape American political debate for the next decade.

The platform also supported a monetary policy that would soon be known as “free silverThe shorthand nickname given to the idea that the government should print money that was backed by both gold and silver. This would place more money into circulation, which would make it easier to obtain loans and provide a measure of relief for indebted farmers. Opponents believed that abandoning the gold standard would reduce foreign investment and destroy value of the dollar.”—an abbreviation of the phrase “the free coinage of silver.” This phrase simply meant that the US mint would create silver coins and/or print bills redeemable for silver and place them into circulation alongside the existing currency that was backed by gold. The word free simply meant “unlimited” in this context and was meant to differentiate their plan from the Sherman Silver Purchase Act of 1890, which will be described later. Because currency was redeemable for a certain amount of gold, the government could only print an amount of money equal to the total value of gold reserves it controlled. While the population and the total amount of wealth increased each year, new discoveries and purchases of gold lagged behind. As a result, the strict application of the gold standard would mean that there would be such a small amount of currency in circulation that the laws of supply and demand would actually cause the dollar to increase in value each year.

Deflation caused the value of currency to increase over time. Although this sounds good in theory it can have disastrous effects on the growth of the economy. Deflation meant that those who wished to borrow money had to pay very high rates for two reasons. First, the relative amount of currency in circulation was shrinking, which meant borrowers faced stiff competition from other borrowers and lenders could practically name their terms. Secondly, because the value of currency increased each year, banks could also make money by simply hoarding their cash. This deflation of the currency was exactly what those with money wanted, and exactly what indebted farmers feared. For those who have more debt than currency, printing more money and causing inflation would actually bring a measure of relief.

The Sherman Silver Purchase Act of 1890 was intended to provide a small measure of that relief to farmers and others in debt. It required the government to purchase a limited amount of silver each month and then increase the amount of money in circulation by creating silver certificates that would be used just like the dollar. However, the plan did not work because consumers and investors preferred gold-backed currency. To make matters worse, the Silver Act financed the purchase of silver by issuing notes that could be redeemed in either silver or gold. Most holders of these notes immediately exchanged the notes for gold, which did nothing to increase the amount of money in circulation. Worse, these redemptions pushed US gold reserves dangerously low. The result was deflation, panic on Wall Street, and banks further restricting the amount of money they were willing to loan.

Figure 3.10

A political cartoon showing William Jennings Bryan who backed the idea of free silver on a one dollar bill. The bill bearing the image of his opponent William McKinley, a defender of the gold standard, is worth almost twice as much as Bryan’s money. The intended message was that the idea of free silver would cause economic instability. The slogans “We Want No Change” and “Four More Years of the Full Dinner Pail” were meant to support the status quo and the reelection of William McKinley.

Those who favored maintaining the gold standard cited the failure of the Sherman Silver Purchase Act as “proof” that increasing the idea of “free silver” was dangerous. In fairness, the Sherman Silver Purchase Act was not a fair test of the idea because it did not provide for the “free” (unlimited) coinage of silver. More importantly, the Sherman Silver Purchase Act did not treat silver-backed money as regular currency. The Ocala Demands sought to remedy this situation by having US currency backed by both gold and silver. It would create a flexible exchange rate that would eliminate any incentive for speculation or redeeming currency for one metal or the other. It also required the government to issue enough currency backed by silver that at least $50 per capita was in circulation at any given moment.

The alliance also formed partnerships with the Knights of Labor and especially laborers in mining and the railroad industry. Hoping to create a political party representing all productive laborers from the factories to fields, the Populist Party (known officially as the People’s Party) was formed after a series of conventions in 1892. National Farmer’s alliance president Leonidas L. Polk was nominated as the new party’s presidential candidate. Unfortunately, Polk died prior to the party’s national convention which was held in Omaha, Nebraska, in July 1892. Delegates at the Omaha convention nominated the former Greenback leader James B. Weaver in his place. Building on the ideas of the Ocala Demands, delegates created the Omaha PlatformThe formal statement of the policies of the People’s Party (also known as the Populists) that was issued at its formative meeting in Omaha, Nebraska, in July 1892.. This Populist statement of policy was drafted in hopes of uniting the demands of labor unions and the Farmer’s Alliance.

The Omaha Platform of 1892 may have been the most significant political document of the late nineteenth century, even though the Populist Party itself would dissolve within a decade. Although many of its specific regulations regarding economic and agricultural reform were not adopted, the ideas of the Omaha Platform would shape debate for years to come. In addition, many of its provisions would eventually become law. For example, the Omaha Platform called for immigration restriction (adopted in 1921 and 1924), the establishment of federal income tax (adopted in 1913 with the ratification of the Sixteenth Amendment), and the direct election of US senators (also adopted in 1913 with the ratification of the Seventeenth Amendment). The platform also advocated more direct democracy by granting the people the power to submit laws through referendum and the ability to recall elected officials before their term ended. The Omaha Platform also advocated the eight-hour working day, term limits for politicians, use of secret ballots in all elections, and printing money that was not backed by gold. With the exception of government ownership of railroads and telegraph lines, nearly all of the major goals of the Populist were eventually adopted by law or custom.

Figure 3.11

Populist candidate for president in 1892 James B. Weaver and vice presidential candidate James G. Field ran under the banner “Equal Rights to All, Special Privileges to None.” Field was a former Confederate general from Virginia while Weaver was a former abolitionist from Iowa. The two hoped to demonstrate national unity in an era of continued sectionalism in politics.

In the near term, however, the Populists struggled to attract supporters. Populists believed that the Republicans and Democrats both represented the money interest, a term referring to bankers and wealthy corporations who benefitted from the limited amount of currency in circulation. As a result, their platform advocated many of the ideas of the Greenback Party. However, most industrial workers were not in debt as farmers were. They feared inflation would increase prices faster than wages would rise. They also shared many of the same concerns of their employers and feared that altering the nation’s financial system could lead to instability and unemployment.

Workers also tended to support tariffs on foreign imports because these taxes protected domestic production. Tariffs are taxes on imported goods. Without tariffs, overseas factories could sell their products in the United States for lower prices. Farmers tended to oppose tariffs because the nation was an exporter of cotton, grain, and other agricultural commodities. When the United States charged tariffs on foreign manufactured goods, other nations retaliated by imposing taxes on American exports. Farmers hoped reducing America’s tariffs would inspire other nations to do the same, reducing the taxes placed on American exports like cotton and grain. In short, farmers and workers may have shared similar experiences, but they often did not share identical financial interests. As a result, the Populist Party struggled to expand from an agrarian movement to one that united both farmers and urban laborers.

Populist presidential candidate James B. Weaver won over a million votes and carried Idaho, Nevada, Colorado, and Kansas in the 1892 election. The Populists also influenced the national election in 1892 when the Democratic candidate Grover Cleveland defeated incumbent Republican Benjamin Harrison—a reversal of the 1888 election in which Harrison had defeated Cleveland. The Republican and Democratic campaigns focused on issues such as the tariff. From the perspective of the Populists, this was only one of many issues and one that distracted from the more meaningful reforms they proposed. On a local level, Democrats and Republicans vied for control of Eastern cities and states, while the rising Populist Party secured numerous victories in the South and West. Populists even claimed victory in a majority of the districts of the Kansas state legislature. However, a three-day “war” between armed Populist and Republican politicians within the state capital led to arbitration and the Republicans ended up claiming a majority of the seats in the legislature.

Figure 3.13

A map showing county-by-county results in the 1892 election. Notice the success of the Populists in the West and the pockets of support for the Populists in the otherwise solidly Democratic South.

The Populists were a growing political force beyond the West. After the 1892 election, Populists controlled a significant number of seats in state legislatures throughout the South as well as the western plains and mountain states. The party even sent 14 delegates to Congress, while a dozen states selected Populist governors for at least one term during the 1890s. The growth of the People’s Party also led to cooperative efforts between members of the two major parties and the Populists. Representatives of the Republicans and Democrats often nominated a single ticket composed of candidates from their party and a handful of Populists. This strategy of two political parties joining together to defeat the dominant party of a particular region became known as fusionIn this context, fusion was the strategy of merging two independent political parties under one ticket in order to increase the likelihood of winning elections.. In Western states such as Nebraska, where the Republican Party was dominant, Populists and Democrats often joined forces. Pockets of Republicanism managed to survive past Reconstruction in Southern states such as Tennessee, Virginia, and Texas, but the Democrats still dominated state politics. In these states, Populists and Republicans used the strategy of fusion to defeat a number of Democratic candidates. Fusion was most effective in North Carolina where black Republicans and white Populists created a fusion ticket and together swept the 1894 legislative and gubernatorial elections.