Two of the great issues of President William McKinley’s term that began in 1897, tariff reform and free silver, became intertwined.
Ways and Means chairman Nelson Dingley, Jr. introduced a new tariff bill (later called the Dingley Act) to revise the Wilson–Gorman Tariff Act of 1894.
President McKinley supported the bill, which increased tariffs on wool, sugar, and luxury goods, but the proposed new rates alarmed the French, who exported many luxury items to the United States.
The Dingley Act passed the House easily, but was delayed in the Senate as they assessed the French objections.
French representatives offered to cooperate with the United States in developing an international agreement on bimetallism if the new tariff rates were reduced; this pleased silverite Republicans in the Senate, whose votes were necessary for passage.
The Senate amended the bill to allow limited reciprocity (giving France some possibility of relief), but did not reduce the rates on luxury goods.
President McKinley signed the bill into law and agreed to begin negotiations on an international bimetallism standard.
American negotiators soon concluded a reciprocity treaty with France, and the two nations approached Britain to gauge British enthusiasm for bimetallism.
In economic terms, bimetallism is a monetary standard in which the value of the monetary unit is defined as equivalent both to a certain quantity of gold and to a certain quantity of silver; such a system establishes a fixed rate of exchange between the two metals.
The defining characteristics of bimetallism are:
Both gold and silver money are legal tender in unlimited amounts.
Highly popular use of currency in the early 1900s
The government will convert both gold and silver into legal tender coins at a fixed rate for individuals in unlimited quantities. This is called free coinage because the quantity is unlimited, even if a fee is charged.
The combination of these conditions distinguish bimetallism from a limping standard, where both gold and silver are legal tender but only one is freely coined (example: France, Germany, or the United States after 1873), or trade money where both metals are freely coined but only one is legal tender and the other is trade money (example: most of the coinage of western Europe from the 1200s to 1700s.) Economists also distinguish legal bimetallism, where the law guarantees these conditions, and de-facto bimetallism where both gold and silver coins actually circulate at a fixed rate.
Bimetallism was intended to increase the supply of money, stabilize prices, and facilitate setting exchange rates.
Some authors, such as Angela Redish or Charles Kindleberger have argued that bimetallism was, by construction, unstable. Changes in gold-silver exchange were, in their eyes, leading to massive changes in the money supply.
Bimetallism was thus inherently flawed and the advent of the gold standard was inevitable.
British Prime Minister, Lord Salisbury, and his government showed some interest in the idea and told the American envoy, Edward O. Wolcott, that he would be amenable to reopening the mints in India to silver coinage if the Viceroy’s Executive Council there agreed.
News of a possible departure from the gold standard stirred up immediate opposition from its partisans, and misgivings by the Indian administration led Britain to reject the proposal.
With the international effort a failure, President McKinley turned away from silver coinage and embraced the gold standard.
Even without an agreement, agitation for free silver eased as prosperity began to return to the United States and gold from recent strikes in the Yukon and Australia increased the monetary supply even without silver coinage.
Then, in the absence of international agreement, President McKinley favored legislation to formally affirm the gold standard, but was initially deterred by the silver strength in the Senate.
By 1900, with another campaign ahead and good economic conditions, President McKinley urged Congress to pass such a law, and was able to sign the Gold Standard Act on March 14, 1900, using a gold pen to do so.
Gold Standard Act
This Gold Standard Act established gold as the only standard for redeeming paper money, stopping bimetallism (which had allowed silver in exchange for gold).
The Act made the de jure gold standard in place since the Coinage Act of 1873, whereby holders of debts could demand whatever metal was preferred (usually gold), a de facto gold standard alongside other major European powers at the time.
The Act fixed the value of the dollar at 25 8⁄10 grains of gold at “nine-tenths fine” (90% purity), equivalent to 23.22 grains (1.5046 grams) of pure gold.
The Gold Standard Act confirmed the United States’ commitment to the gold standard by assigning gold a specific dollar value (just over $20.67 per Troy ounce). This took place after McKinley sent a team to Europe to try to make a silver agreement with France and Great Britain.
However, on April 25, 1933, the United States and Canada dropped the gold standard.
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