Coin's Financial School is an 1894 pamphlet written by lawyer, politician and resort founder William Hope Harvey (1851–1936). It advocated a return to bimetallism, where the value of a monetary unit is defined as a certain amount of two different kinds of metals, often gold and silver. In the book, Harvey charged that the demonetization of silver caused by the Coinage Act of 1873 led to the Panic of 1893 by halving the supply of available redemption money in the economy. This lowered the prices of goods throughout the country and hurt farmers and small business owners, according to Harvey. Harvey argued that by returning silver to the same monetary status as gold, the American economy would benefit from stabilized prices, resulting in higher revenue, and ease of repayment of debts. The pamphlet sold about 1 million copies, which helped popularize the free silver movement with the public. Harvey would go on to aid Democratic candidate William Jennings Bryan’s presidential campaign in 1896, which ran on the platform of free coinage of silver. The issue of bimetallism remained controversial throughout the remainder of the 19th century.
Background
The Founding Fathers The Coinage Act of 1792, passed under president George Washington, established silver and gold as the legal tender of the United States, as gold was to be coined into eagles ($10), half-eagles ($5) and quarter-eagles ($2.50). Silver was to be coined into dollars ($1), half-dollars ($0.50), quarter-dollars ($0.25), dimes ($0.10) and half-dimes ($0.05). While the Coinage Act provided with coinage of copper as cent ($0.01) and half-cent ($0.005), copper was not accepted as legal tender.
The Gold Rush In 1848, gold was discovered in Sutter's Mill, and the news of this discovery spread throughout the country. This would start a gold rush to the California territory. While merchants made more money than most miners did, it led to a substantial amount of gold flowing into the Treasury. Debate started in Congress on how to utilize the extra gold flowing into the reserves, and whether to abandon bimetallism in favor of the increasing supply of gold.
The Civil War and Beyond During the American Civil War, Abraham Lincoln’s administration understood that the federal government would need millions of dollars to finance the war, and as the war dragged on, the government’s deficit and debt grew. It did not help that the previous administration, led by James Buchanan, left over $20 million budget deficit at the end of Buchanan’s term in 1861 as a result of a recession in 1857 that persisted throughout Buchanan’s term. More gold and silver left the nation to finance the war effort, reducing the nation’s resources in the long run, so Congress had metallic payments suspended in 1861 to stop the outflow. Lincoln and his Secretary of the Treasury, Salmon P. Chase, needed more loans to finance the war, but bankers, as a result of shaken public confidence, charged 24 percent in interests for the loans. As a solution, the government issued "demand notes", or federal notes requesting for a certain amount of money to be redeemed in gold or silver. In 1862, the government issued "greenbacks", which were unbacked notes that relied on government credit to retain value by themselves without the backing of metal. By the end of the war, gold was worth 1.5 greenback. This, combined with the amount of debt the government already owed, threatened the war-torn economy as it prepared to pay off its war debts.
As a response to the growing concerns regarding the amount of paper money used and growing debt of the United States, the Congress passed the Fourth Coinage Act in 1873. This law eliminated silver as the legal tender of the United States by abolishing the rights of the silver holders to have their silver bullions struck into U.S. Dollar coins. Proponents of free silver came to criticize the act as the "Crime of ‘73", while proponents of gold standard argued that since most world powers of the time, including England (in 1816) and the German Empire (in 1871), used the gold standard, it would facilitate international commerce.
The Panic of 1873 followed shortly after the passage of the act, and another panic followed in 1893, which continued to affect businesses and investors as of the pamphlet's publish date. Banks continued to close as panicked investors and customers made runs on the bank, forcing them to run out of money, while businesses failed as a result of loss of customers and shortage of money. The bank runs dried up the gold reserves in the federal treasury. As a result, then-president Grover Cleveland was forced to borrow $65 million from J.P. Morgan and the Rothschild family. The latest panic restarted a heated debate on the merits of bimetallism and the role of the Fourth Coinage Act on the panics.
Book Summary
Plot summary Throughout the pamphlet, the audience is introduced to a fictional financier called Coin, who holds financial lectures in Chicago. Over six days, he summarizes the United States’ financial history from the passage of the Coinage Act in 1792 to 1894, when the pamphlet was published. Coin introduces the audience to what he calls the "Crime of 1873", or the Fourth Coinage Act, which became controversial as the nation's debt and money supply went into doubt after the Civil War. In between Coin's various lectures, he is interrupted with questions from the audience, which is filled with prominent real-life individuals such as Lyman Gage and Joseph Medill. His school gradually gains more audience and media attention, most mocking him at first, but showing him more respect as they check the facts that Coin presents throughout his lectures. Coin presents U.S. financial history from 1792 to 1894 mostly from the populists and free silver supporters’ point of view.
The First Day
The first pages of the pamphlet introduced the reader to Coin, a young financier who held a financial school in the Art Institute of Chicago. Coin started his first lecture by outlining the financial problems that plagued the nation at the time. Still suffering from the Panic of 1893, the nation's crime rate, government budget deficit and unemployment remained dangerously high. He then introduced his audience to the basics of coinage in the United States, where in 1792, Congress passed the first Coinage Act. The Coinage Act defined a dollar as 371.25 grains of pure silver, as well as 24.7 grains of pure gold. In this case, both silver and gold were accepted as legal tenders of the United States, with a silver to gold exchange ratio of 15 to 1. The ratio was later changed to 16 to 1. Coin states that the Founding Fathers chose silver as the principal money because it was very commonly used among the working class as well as business owners. Gold was seen as the money of the rich, since the working and middle class rarely owned it, let alone handled it.
At that point, Joseph Medill, an editor from the Chicago Tribune, asked Coin about why only eight million silver dollars were coined during the bimetal period from 1792 to 1873. Coin corrected Medill by stating that it was not eight million silver dollars that were coined, but rather, it was eight million silver dollars that were coined, in addition to the eighty-nine million dollars in other silver coins, Coin added, there were 97 million dollars coined in halves, quarters and dimes18. Not only that, the United States received about 100 million dollars in foreign silver prior to 1860, further adding to the Treasury's silver reserves. Coin then claimed that silver was leaving the country by 1853 as a result of France establishing a ratio of 15.5 silver to 1 gold for its currency. To combat this, Congress lowered the amount of pure silver in its coins to prevent them from being exported.
Coin then introduced the audience to the "Crime of 1873", when the Fourth Coinage Act was passed. The act demonetized silver, as well as abolished its right to free coinage. Under free coinage, the government purchased and coined any silver that was sold. At the time, most people were using paper money, diminishing the importance of gold and silver coins. This gave the news and the people little reason to care about the demonetization of silver, according to Coin. The law was passed in relative obscurity, as newspapers did not report on it at the time of the law's passage, and then-president Ulysses S. Grant claimed that he did not know that the new law demonetized silver when he signed it into law. Coin concluded his first lesson by criticizing the secrecy that this law was passed with, given the effects it had.
The Second Day The major newspapers in Chicago were taking note of Coin's first lecture, but all of them dismissed Coin as inconsequential and some others threw insults at the bimetallists such as "fraudulent free silverites" and "blatant orators". Coin started his second lesson in the Art Institute amid the increased media attention. Right after Coin called for start of the lesson, Lyman Gage, a prominent financier, asked Coin how two different metals can be coined at the same value at a fixed ratio when both metals fluctuate in value over time. Coin replied by noting that while prices are determined by the goods’ supply and demand, the government artificially inflated gold and silver's demand with free coinage. Under free coinage, the government took any gold and silver that came, effectively creating unlimited demand. To keep both metals from becoming infinitely expensive, the government artificially set a value for each metal to be used as units of money.
This was disrupted by the Coinage Act of 1873, according to Coin, as eliminating free coinage for silver also eliminated the unlimited demand for silver and its status as the legal tender. This made silver much more vulnerable to the market demands as all goods, including silver, was only redeemable in gold now. Coin then presented a chart to demonstrate the falling price of silver in comparison to gold, from hovering in between 15 and 16 silver per gold until 1873 to 23.72 silver per gold by 1892. Coin then claimed that there were $3,727,018,869 in gold and $3,820,571,346 in silver throughout the world. By eliminating silver as a legal tender, the world reduced its redemption money supply by a little over half, Coin concluded.
The Third Day Even more people showed interest in Coin's financial school, and more bimetallists joined Coin's lessons every day. Coin started off the day's lecture by distinguishing between the two kinds of credit money: paper money, which include bank notes, and token money, which are forms of metal that do not enjoy free coinage. Credit money was used as promises that the government will redeem the owner with the primary money, which in this case was gold. Coin pointed out that by abolishing free coinage of silver, the government turned silver from one of the primary money to a token money, no longer redeemable by itself. This, in turn, reduced the nation's supply of primary money by half. By reducing the nation's primary money supply, the government effectively rendered many checks and greenback bank notes more volatile, since they were no longer backed by properties, but by speculation and federal government's credit.