1873: The year America ditched silver as money and all hell broke loose

**Liaquat Ahamed** (0:00)
Then in 1896, he delivered perhaps the most consequential speech at an American political convention. This was the famous Cross of Gold speech.

**William Jennings Bryan** (0:13)
If they dare to come out in the open field and defend the gold standards, the good things, we will fight them to the uttermost. You shall not press down upon the bow of labor this crown of thorns.
You shall not crucify mankind upon a cross of gold.

**Gillian Tett** (0:31)
Wow. Well, if anyone thinks that monetary policy is boring, think again.
Today on The Story of Money, a seemingly innocuous monetary reform that inflamed American politics for a whole generation. And its unanticipated consequences were so disastrous and caused such vitriol that it came to be known as the Crime of 1873 Now, Robin's away this week, sadly, but here to tell the story with me is Liaquat Ahamed, an amazing author. So, Liaquat, thanks for joining me.

**Liaquat Ahamed** (1:16)
Thank you for having me, Gillian.

**Gillian Tett** (1:18)
Now, your new book is called 1873
And it's about the many financial disasters that happened around the world in that pivotal year. And today we're looking at just one of those disasters, which at first glance appears to be rather boring. It's to do with a bit of financial legislation that was passed by US. Congress in February 1873 But this particular law would open up a vicious political divide in US politics for decades afterwards. And you're going to tell us a story of the two politicians in particular whose careers were defined by this.

**Liaquat Ahamed** (1:58)
Yes, that's right. These are two men with sharply contrasting personalities. One, an uncharismatic political insider, the other a polarizing demagogue. They were on totally opposite sides of the divide.
And each would prove to be right. But things did not work out the way that either of them expected, and neither would achieve their objectives.

**Gillian Tett** (2:26)
Well, that's called a monetary policy cliffhanger. So listen on and hear about who those two people were and why their bitter fight matters enormously for the Federal Reserve and governments today. Particularly given that we're facing a lot of inflammatory debate around monetary politics all over again.
It's all coming up here on The Story of Money from the Financial Times with me, Gillian Tett.
So our story begins back in 1873 America. It's the Reconstruction era. The United States is still piecing itself back together after a bloody and destructive civil war. You have the venerated Union General Ulysses S. Grant, who's president. And in February of that year, Grant signs a bill into law called the Coinage Act. Now, it sounds pretty unassuming, if not rather boring, but it's actually a monetary time bomb. So Liaquat, tell us about this law. What exactly was the Coinage Act? And why did no one really notice it or care about it initially?

**Liaquat Ahamed** (3:49)
So let me give you a bit of background first. For most of the US history, the country had a bi-metallic standard, which meant that currency was backed by both silver and gold. That meant that notes issued by banks were matched by either gold or silver bullion held in the vaults of those banks.
To fund the Civil War, the country had to start issuing money that wasn't backed by precious metals. This was paper money called greenbacks.
After the Civil War, the government decided to return to having its currency backed by precious metals. So, the Coinage Act was supposed to be about formalizing how the US currency would be organized once the US dollar became backed by metals again. And that is what people in Congress thought they were voting on. What people missed was that among the list of coins the US Mint would produce, the standard silver dollar, which was the official unit of US currencies since 1792, was actually left off.

**Gillian Tett** (5:09)
So Liaquat, knocking silver out of the equation was incredibly important. And it's worth stressing that because today people tend to just talk about gold backed currencies and gold and forget that silver was so important in American monetary history. So whose decision was it to knock silver out?

**Liaquat Ahamed** (5:28)
The person responsible was a senator from Ohio called John Sherman. He was the eighth of 11 children. His older brother was in fact a famous Union civil war hero, General William Tecumseh Sherman. John Sherman entered politics as one of the very early representatives of the newly formed Republican Party. In 1861, he was elected to the Senate, and there he established himself as a currency expert, eventually becoming chairman of the Senate Finance Committee.
He was not especially popular with his colleagues, and that may become significant later. In fact, he was nicknamed the Ohio Icicle by the press.