The Gilded Age, Part 2: From "Our Country, Then and Now"

Serialization of selections from my book Our Country, Then and Now continues with the cooperation of my publisher, Clarity Press.

During the 35 years between the end of the Civil War and the start of the 20th century, the Industrial Revolution exploded in innovation and transformed the world—or at least the Western world, including the US.

But there were some big problems with the effects of the Industrial Revolution. One problem was that much of the world suffered in the throes of colonialism, with the Western nations reaping unheard-of profits and the rest of the world laboring in poverty as their countries supplied the raw materials for productive enterprise. Another problem was that while the people in charge—the capitalists—became vastly more rich than anything ever seen before, the people who did the work in their factories worked at or even below starvation level. So an age of revolution also began.

In the US, the period became known as the Gilded Age. It was no accident that the monetary system itself continued its reliance on a gold-backed currency.

To this day, the US has still never solved the currency problem, even with the gold standard having been eliminated. The US government is more than $36 trillion in debt, while the billionaires rule the country by using money the banks create “out of thin air” to constantly expand their dominion. Meanwhile, inflation creeps ahead of peoples’ incomes, leading to expanding poverty and desperation, as endless wars are generated to stave off collapse.

Our Country, Then and Now may be ordered directly from the publisher here.

The Fate of Silver

The most important political issue of this period continued to be imposition of the gold standard as backing for US currency, a measure promoted most strongly by the wealthy bankers and financiers, especially J.P. Morgan and the up-and-coming New York banker Jacob Schiff in the US, along with the Rothschilds, Barings, and other British and European financial magnates abroad.

By the late 19^th century, investment by the Rothschilds in the economies of the US and in Britain’s “white colonies” of Canada, Australia, and New Zealand was ballooning. Investments were also underway to support British financial interests in South Africa, particularly in diamond and gold mining. It was the gold standard that held back inflation and made these investments fabulously profitable.

A large portion of the Rothschilds’ investments was in minerals—not just gold and silver, but also mercury, copper, and lead. The Rothschilds invested in gold mining in California and Mexico. In 1886, they consolidated their mining ventures in what they called the Exploration Company. By the 1890s, they began to focus on South Africa after making a fortune investing in diamonds with British entrepreneur Cecil Rhodes.

After 1895 the Rothschilds’ Exploration Company was the main source of finance for the Anaconda Mining Company in Montana, which continued operations until 1982. Anaconda also ran a substantial logging operation in Montana to produce timber for their mines and railroads. My grandfather Carlton “Bill” Peilow worked for Anaconda Lumber in the area around Seeley Lake, Montana. More on life around Seeley Lake later.

The controversies surrounding monetary policy in the US did not go away. As mentioned previously, the Greenback Party was active between 1874 and 1889 and ran candidates for president in 1876, 1880, and 1884. But it is extremely difficult for a third party to sustain momentum, and the Greenback Party, like third parties before and after, faded away.

Still, public confidence in the Greenbacks remained. The Specie Payment Resumption Act of 1875 required that Treasury redeem outstanding Greenbacks in gold, thus to retire them from circulation and restore a single, gold-backed bank-issued currency. Though the Treasury stockpiled gold in preparation for the public to present their Greenbacks for exchange, few people did. Only $130,000 of the outstanding $346,000,000 in Greenbacks were actually redeemed, with Greenbacks remaining in circulation into the 20^th century. Thus Lincoln’s “people’s money” remained an economic force.

What did not fade away was agitation for silver coinage after the “Crime of 1873” discontinued production of the US silver dollar. Price deflation continued to the point where farmers and debtors alike began to advocate “free silver.” This would mean unlimited coinage of the US silver dollar as legal tender, hearkening back to the Coinage Act of 1837.

In 1878, Congress passed the Bland-Allison Act over President Hayes’s veto which restored silver as legal tender and directed the Secretary of the Treasury to purchase silver bullion at its market price in the amount of two to four million dollars monthly and to coin the bullion into US silver dollars.[i] The measure did increase the money supply, though the abundant quantity of silver being mined depressed the price paid for bullion by the US Mints.

The Sherman Silver Purchase Act of 1890 introduced a new feature, whereby Treasury would pay for silver with new legal-tender Treasury notes. While the action further increased the amount of silver in circulation, it was still far from the demands of free silver advocates, including politicians from the western and southern states who now begun to shift their support from the Republican to the Democratic Party.

When another financial panic struck in 1893, the bankers blamed the Sherman Act, with Democratic President Grover Cleveland convening a special session of Congress to demand its repeal. Congress did in fact repeal the silver-purchase and note-issuance provisions of the Sherman Act, although the legal-tender status of silver coin and Treasury notes remained. While he was the first Democrat elected to the presidency since the Civil War, Cleveland remained a “hard money” man.

So silver did not disappear from the monetary system, but advocates continued to agitate for unlimited silver. In 1896, William Jennings Bryan of “Cross of Gold” fame won the Democratic Party presidential nomination, with free silver the main plank of his platform. Bryan’s defeat, along with the increasing quantity of gold coming onto the market with discoveries in South Africa and the Yukon, combined with the new cyanide process of gold refining, put an end to silver agitation as a political threat to the big financiers.

Gold now reigned supreme, to the delight of international finance and Great Britain, whose government the Rothschilds and other financiers controlled, with South African gold destined to constitute half the world’s production. The “real” king of England during the late 19^th and early 20^th centuries can be said to have been Nathaniel “Natty” Rothschild, chief lender to Cecil Rhodes and to successive British monarchs.

The Central Financial Problem

The problem of money has been omnipresent during the entire history of the US, going back to colonial days. No government has ever solved the need for a reliable circulating medium of exchange that was neither inflationary nor deflationary and fair in its issuance and availability to all social and economic classes. [The closest anyone came was probably the Massachusetts Bay Colony, until the British Parliament passed the Currency Act of 1767, outlawing colonial currencies.]

Having a sound monetary system was never a call for “income equality.” Most agreed that income distribution could be left to market forces if the monetary system provided a level playing field. Unfortunately, a monetary system where circulation is controlled by private banks that engage in fractional reserve lending at usurious rates of compound interest makes a level playing field completely impossible.

The tilt causes bank-generated money to roll off the table into the bankers’ laps. Not only does fractional reserve banking create the most wealth for lenders at the expense of everyone else, it is subject to favoritism and abuse. All this makes the bankers the most powerful political group in any country and has done so to this day. The US, Britain, and France in particular are completely dominated by the financial class in every aspect of political and economic life, which is why the “welfare state” scarcely exists any longer.

During the late 19^th century, with the huge cutback in federal government spending after the end of the Civil War, the government ran a budgetary surplus each year from 1866 to 1893. But as we have seen, in order for the growing national banking system to be allowed to issue currency through lending, as specified by the National Bank Act of 1863, the banks were required to purchase US Treasury bonds as reserves.

Why would the government sell bonds if their revenues, mainly from customs duties, exceeded expenditures? Heaven forbid that the government would spend any substantial sums on relief for the Indian tribes the Army was destroying, for assistance in education or in building decent living and working conditions for the millions of former slaves living in destitution in the South, or for transportation or other types of infrastructure that was left to the free market or to the states and localities to finance. Or maybe the surplus could be used to pay off the $5 billion in outstanding debt carried forward from the Civil War years.

Creative financing, however, was not part of the ideology of either party. From Grant onward, the intent was to slash federal government expenditures to the minimum. Not until the election of Grover Cleveland in 1884, the first Democrat to occupy the presidency since Andrew Johnson succeeded Lincoln in 1865, did that philosophy begin to change to a small degree.

Some of the debt was in fact paid off, but not all. Instead, the debt was rolled over by new bond issues purchased from the government by the banks, then sold at a profit to their customers. But compared to countries like Britain, France, Spain, and the principalities of Germany and Italy, the budget of the US government remained relatively small. This was very irksome to the bankers who wanted more action and who got rich in Europe from financing the activities of always impecunious national states.

The leading financiers of government borrowing throughout Great Britain and the Continent were the Rothschild banks and their affiliated investment firms like the Exploration Company. The most reliable way for governments to run up debt was through war, as had happened to the US through the Civil War. Lincoln’s government had escaped the worst of the debt trap by issuing Greenbacks and through the small-dollar bonds sold by Jay Cooke. None of the European powers ever implemented such provisions.

The governments of Europe were never so bold or clever as was Lincoln’s. The only nation that tried to avoid the bankers’ control was Russia. So it’s easy to see how the bankers became the world’s biggest cheerleaders for war.

The linkage between the banking system and war was out in the open for all to see, but few were able to oppose this evil combination. In fact, the system whereby investors get rich off everyone else’s misery continues today, not only through war, but from many other types of systemic abuse, including industrial pollution, speculation with retirement funds, leveraged buyouts, and the proliferation of hedge funds and derivatives. From the bankers’ point of view, it doesn’t matter what they lend money for, so long as they are repaid with compound interest. Today, if society can’t pay, the banks are bailed out by the government through even more public debt.

Coming Next: “The 19th Century Proceeds to Its Denouement” and “Industrial Development and Financial Chaos”

---

[i] The silver dollars would be introduced into circulation through the banking system via Treasury payments on bond issues. Much later, on June 4, 1963, President John F. Kennedy issued Executive Order 11100 to re-introduce silver-backed currency, replacing Federal Reserve notes. Kennedy was assassinated less than six months later, and the notes were never circulated.