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The Crime
Macroeconomic Consequences
Political Constituencies
The Cross of Gold Speech
The Elections
Gold Inflation
The Wonderful Wizard of Oz
Monetary History

The crime itself

What is known in Populist rhetoric of the late XIX century as The Crime of 1873 was the demonetization of silver enacted by the Coinage Act of 1873. Alexander Hamilton had set the United States on a bimetallic standard in 1792 and, with the notable exception of the Civil War, the country had not moved from this system. In practice this was a continuous switching from a gold standard to a silver standard. When the legal price of gold in term of silver, that is, how many pounds of silver you get for one pound of gold, which was set by the Coinage Act at 15 for 1, was greater than the market price, then nobody would bring gold to the mint and the country would be on a de facto monometallic silver standard.

The consequences of this technical decision were enormous, and it seems to be clear in the view of recent research that many people suffered from until the end of the century. Go to the next slide to see what were those consequences. 

Immediately after the United States went for a gold standard regime in 1873, the market price of gold in term of silver began to rise, starting from about 15 in 1870 to reach a maximum of about 40 in 1900.

The demonetization of silver was accompanied by several circumstances which led to a strong secular deflationary trend of about 1.7 % a year in the general CPI from 1875 to 1896.

For a summary of a presentation I have given on this topic at Prof. Charles Wyplosz's seminar at the the Institute for International Studies in Geneva, please scroll down.

NB : By clicking on words in the commentary, you will be taken to the glossary where I have defined most of the specialized terms for you. Please use your BACK button to come to the original page.

Alexander Hamilton set the United States on a Bimetallic Standard in 1792


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The Crime of 1873

Summary of a presentation given the 16 April 1997 by François Micheloud at the seminar of professor Charles Wyplosz at HEI in Geneva.

This presentation is centered around a paper Milton Friedman published in 1990 (The Crime of 1873, namely, in the JPE) about the silver agitation in the USA during the last quarter of the 19th century.

Bimetallism and how it worked

The dollar was defined as consisting of either 22.5 grains of gold or 270 grains of silver. This sets the legal price of silver in terms of gold at 16:1.

Gold and silver had other uses besides from being coined, and consequently there was also a market for metal bars. They exchange at a market price.

If the market price differs sufficiently (because of arbitrage costs) of the legal price, a stabilizing arbitrage occurs, where people buy the relatively cheaper metal in the bullion market and go to the mint to coin it. The flow of the metal from monetary uses to non-monetary uses (and vice-versa) keeps the market price in line with the legal price as long as the discrepancies are not too large, or that the bimetallic countries as a whole are big enough.

If the market price differs too much from the legal price, the metal that is the cheapest in the bullion market will drive the other out of the money stock. This is a consequence of the generalized Gresham’s law which states that the metal whose worth is less as a metal than as a legal-tender coin will be the only one used to settle debts, while the other will be hoarded or used as jewelry.


The American monetary system 1792-1911

From 1792 on, the United States are on a gold/silver bimetallic standard at a ratio of 15:1 and then 16:1, with the exception of the Greenback period of fiduciary financing of the Civil War.

After the tremendous gold discoveries during the 50’s, gold became grossly overvalued as a legal tender and thus silver coins ceased to circulate. The country was then on a (monometallic) de facto gold standard.

The 1873 Coinage Act lists all the coins to be minted, omitting the silver dollar. This removed de jure the country from the bimetallic regime it was on thus far. There was no effect on the money stock at this moment, because silver was still more valuable in the market than at the mint.

Soon afterwards, many countries shifted from a bimetallic to a gold standard, unloading tons of silver and increasing the demand for gold. The market silver price of gold rose from 16:1 to 40:1.


Effects on the Money Stock, Output and Prices 1873-1896

Between 1873 and 1896 the strong worldwide deflation struck especially hard in the US, with a 1% annual decline in the general CPI for the whole period.

The money stock could not keep pace with the tremendous rise in output during that period (?? % a year) and the spreading monetization of the economy. Even with a more efficient banking system, the total money stock could not be stretched far enough on the currency base, the increase in the rate of increase of which had declined, to avoid deflation.


Political agitation in favor of the free coinage of silver

Particularly hurt were the net debtors, and among them the peasant class at most because they had to face a rising real value of their (generally heavy) debts combined with a decline in agricultural prices of about 3% a year.

The silver producers, the Populist Party, the peasants and other classes badly struck bad the new monetary regime united behind William Jennings Bryan, candidate of the Democrats for the Presidential elections of 1896 on an bimetallist (for inflation’s sake) and progressive platform which included women vote, income tax, end of American imperialism.

The urban electorates, the net creditors (bondholders, bankers and financiers) and other apostles of "sound money " joined the platform of the Republicans led by their nominee William Mc Kinley.


Epilogue and Assessment

Bryan lost the 1896 election due to a swing of the farm vote (following a rise in agricultural prices) and the following, but became secretary of State.

A new gold extraction process using potassium cyanide led in the 90’s to a strong worldwide gold inflation which lasted until WW1.

Bryan himself agreed that what he sought to achieve with the free coinage of silver (inflation, or at least stability of prices) had been made possible with gold, and the main tenet of his platform was thus gone.

For Friedman, the free coinage of silver (that is, bimetallism) would have been desirable in 1873, not in 1896. At the time when Bryan could have established it, this regime would have been strongly inflationary and anyway gold became a lot cheaper immediately afterwards. Bryan was trying to close the barn door after the horse had been stolen. He was right, but 20 years too late.

The Wonderful Wizard of Oz, a children book written by Frank Baum in 1900, seems actually to be an allegory of the battle for bimetallism, Hugh Rockoff makes a good case for it in his 1990 paper.



Monetary policy and even monetary regimes can be debated by non-specialists and can even be a crucial element of a political party’s platform.

Monetary policy is the object of deep interest struggles, not a neutral variable affecting all people equally and better left to non-accountable specialists.

There can be a strong output growth even with secular deflation.


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