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Money reform advocates today tend to argue that the solution to the country’s financial woes is to return to the “gold standard,” which required that paper money be backed by a certain weight of gold bullion. But to the farmers and laborers who were suffering under its yoke in the 1890s, the gold standard was the problem. They had been there and knew it didn’t work. William Jennings Bryan called the bankers’ private gold-based money a “cross of gold.” There was simply not enough gold available to finance the needs of an expanding economy. The bankers made loans in notes backed by gold and required repayment in notes backed by gold; but the bankers controlled the gold, and its price was subject to manipulation by speculators. Gold’s price had increased over the course of the century, while the prices laborers got for their wares had dropped. People short of gold had to borrow from the bankers, who periodically contracted the money supply by calling in loans and raising interest rates. The result was “tight” money – insufficient money to go around. Like in a game of musical chairs, the people who came up short wound up losing their homes to the banks.
The solution of Jacob Coxey and his Industrial Army of destitute unemployed men was to augment the money supply with government-issued United States Notes. Popularly called “Greenbacks,” these federal dollars were first issued by President Lincoln when he was faced with usurious interest rates in the 1860s. Lincoln had foiled the bankers by making up the budget shortfall with U.S. Notes that did not accrue interest and did not have to be paid back to the banks. The same sort of debt-free paper money had financed a long period of colonial abundance in the eighteenth century, until King George forbade the colonies from issuing their own currency. The money supply had then shrunk, precipitating a depression that led to the American Revolution.
To remedy the tight-money problem that resulted when the Greenbacks were halted after Lincoln’s assassination, Coxey proposed that Congress should increase the money supply with a further $500 million in Greenbacks. This new money would be used to redeem the federal debt and to stimulate the economy by putting the unemployed to work on public projects. The bankers countered that allowing the government to issue money would be dangerously inflationary. What they failed to reveal was that their own paper banknotes were themselves highly inflationary, since the same gold was “lent” many
times over, effectively counterfeiting it; and when the bankers lent their paper money to the government, the government wound up heavily in debt for something it could have created itself. But those facts were buried in confusing rhetoric, and the bankers’ “gold standard” won the day.
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