The Free Market 14, no. 1 (January 1996)
The Gold Standard Act of 1890, which officially established the gold standard in America, was the culmination of a twenty-year battle between inflationists, who favored unlimited government purchase of silver (the “Free Silver” movement), and the advocates of sound money based on the gold standard. The inflationists were led by Senator John Sherman, author of the 1890 Sherman Silver Purchase Act (as well as the monopolistic Sherman Antitrust Act), brother of Gen. William Tecumseh Sherman.
A fascinating aspect of this debate is that one of Sen. Sherman’s most outspoken political opponents was none other than the former Confederate General James Longstreet who, during the War Between the States, was second in command of the Army of Northern Virginia, outranking even Stonewall Jackson, and whom Robert E. Lee affectionately referred to as “My Old War-horse.” Having defeated the elder Sherman on the battlefield on several occasions, Longstreet now took on his younger brother over monetary policy.
After Appomattox, Lee’s Old War-horse rekindled his friendship with Ulysses S. Grant, a West Point classmate who had married Longstreet’s cousin before the war. Longstreet had introduced the couple and was a member of the wedding party.
After the war, Longstreet became something of an outcast in the South after accepting a government post from President Grant, becoming a Republican, and assisting in the military occupation of the South (i.e., Reconstruction). Nonetheless, by pushing for the gold standard, he was doing the South a great service: nothing restrains a central government like sound money.
Longstreet was active in Republican party politics for many years until his death in 1904 at the age of 83. In his 1896 cross-country lecture tour, the General championed the gold standard against those who demanded unlimited coinage of any silver brought to the mint, which was a prescription for hyperinflation.
The 1873 Bland-Allison Act required the Treasury to purchase between $2 million and $4 million worth of silver per month, and the 1890 Sherman Silver Purchase Act required the government to buy increasing amounts of silver, paid for in Silver Certificates and Treasury Notes that were redeemable in gold.
These two laws increased the U.S. money supply by more than $500 million and created inflationary pressures. Big silver producers simply wanted the government to purchase their product at inflated prices, while farmers and other members of the free-silver movement—like Keynesians—mistakenly believed that inflation would cause prosperity.
Longstreet’s opinions are recorded in his published speech “McKinley on the Gold Standard vs. Bryan and the Silver Standard” (from the Helen Longstreet Papers at the Georgia Historical Society). Having witnessed firsthand the economic misallocations caused by government-created inflation in the Confederacy, Longsteet was an impassioned defender of sound money.
“The last breakfast I had in Richmond, before General Lee pulled us away from there” in 1865, Longstreet recalled, “was a small steak, plain biscuit, and warm water, that had a faint suspicion of coffee about it” and it “cost me twenty-nine dollars.”
“A depreciated currency,” Longstreet warned his audience, “will reduce nearly every home” to “suffering, and many to poverty.” No nation “ever lowered its financial standard without weakening the confidence of the people in their own government, besides incurring the distrust and contempt of the great family of nations.”
As to the “clamor for ‘cheap money, more money,’” we have a “forcible illustration” in the War Between the States. For “in 1864, when one-third of [Southern] states were under the control of the Federal armies, the volume of money in circulation...had climbed” twenty times. This “cheapened Confederate money to a degree from which it never rallied.”
This happened not only in the Confederacy, but in “various other countries that have tried the wild experiment of fiat-money.” “This silver craze merely points the arduous long way all Nations must wearily travel, who wrongfully see a night cut to prosperity by a money debauch.” Moreover, while under the gold standard the silver dollar is: “an honest one-hundred cent dollar,” under “free coinage” it “becomes a dishonest dollar.”
The 1896 election was the high tide of the free silver movement, characterized by William Jennings Bryan’s famous “cross of gold” speech in which he denounced the deflation that accompanied the gold standard and advocated inflationary finance as the key to prosperity. Bryan lost the election to William McKinley, the Sherman Silver Purchase Act was repealed, and the country went on the gold standard. Such was the final victory of Lee’s “Old War-horse.”
