Why Did the United States Avoid the Silver Standard?

When Hugh McCulloch became Secretary of the Treasury in 1865, he proposed a return to the gold standard by using the Government's surplus to retire the greenbacks. In the Funding Act of 1866, the Secretary received authority to retire million of greenbacks within 6 months and million a month thereafter.

A Nation Without Money.

Continental Class

Secretary McCulloch wasted no time in removing these bills of credit, the greenback, from circulation. Because of the greenback, money had disappeared from circulation. This was due to Congress' official price set for gold redemption from the U. S. Treasury, which effectively included state banks. Once the greenbacks began circulating (to pay for the Civil War), it created such a supply of government bills of credit, that gold and silver supplies could not meet the demands of the abundant greenbacks at official prices. Instead, gold and silver were sent overseas to buy imports, removed from the banks, or traded at market rates.

Effectively, the people of the United States used bills of credit (i.e. greenbacks and demand notes), bank credit (bank notes), and demand deposits (checking accounts) as a substitute for the money that had disappeared from circulation. It was in this environment that Secretary McCulloch began removing the greenback.

Returning Money Into Circulation.

Predictaby, the reduction in circulating paper currency contributed to an economic contraction. This precipitated one of the most intense and dramatic struggles in the history of money. In the controversy, which continued intermittently for 30 years, advocates of easy money (credit, bills, and notes) pressed various plans.

One of the first proposals called for the Government to refund all outstanding Government bonds with additional issues of greenbacks. The Greenback party formed to give the public the chance to vote for easy money and entered candidates in three presidential campaigns, but without success. On the contrary, national sentiment continued to favor a return to the gold standard.

Getting Gold And Silver In Circulation.

In 1875, Congress passed the Resumption Act, directing the Treasury to redeem in coin any greenbacks presented for resumption after January 1, 1879. According to the act, the Treasury was to retire of greenbacks for every 0 of national bank notes issued after 1875. Since banks were using greenbacks as reserves, this had a deflationary effect on bank credit. However, it began the process of returning gold back into circulation.

The Resumption Act helped convince the easy money bloc that greenbacks did not offer a promising way of increasing credit in circulation. The public distrusted paper currency. Experiences with Continental currency, state bank notes, and Confederate paper had left indelible impressions. So, easy money advocates turned to silver coins as the means of increasing money in circulation.

Why Did the United States Avoid the Silver Standard?

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