Why Farmers Believed an Increased Money Supply Would Help

The late 19th century in the United States, often called the Gilded Age, marked a period of significant economic transformation. While manufacturing and mining grew rapidly, agriculture remained a foundational sector, with many Americans engaged in farming. This era presented considerable economic challenges, including periods of deep downturns that impacted various segments of the population.

The Farmers’ Economic Hardship

American farmers in the late 19th century faced severe economic difficulties. A primary concern was the steady decline in commodity prices for agricultural products like corn and cotton. For instance, corn prices dropped from 41 cents a bushel in 1874 to 30 cents by 1897, significantly reducing farmer income. Farmers often found themselves in a cycle of overproduction, where increased yields paradoxically led to lower market prices. This meant that even with greater output, their revenues diminished.

Heavy debt was another pressing issue for many farmers. They frequently borrowed money to acquire land, purchase essential equipment, and invest in fertilizers. These loans often came with high interest rates, sometimes exceeding 10% annually. As commodity prices fell, the fixed nominal value of their debts meant the real value of their obligations increased. This pushed many into financial distress and foreclosure.

Transportation costs further exacerbated farmers’ financial strain. Railroad freight rates were perceived as exorbitant and discriminatory, particularly in agricultural regions. These high shipping costs reduced crop profitability, consuming a significant portion of earnings. In some instances, transportation costs were so prohibitive that farmers burned crops rather than pay for shipment.

This combination of falling prices, high debt, and burdensome transportation expenses created a cycle of hardship. Many farmers found it impossible to generate sufficient income to cover operating costs and debt payments. This widespread financial distress fueled a demand for significant economic and monetary reforms.

The Era’s Monetary System

During the late 19th century, the United States largely operated under a monetary system tied to the gold standard. This system meant the national currency’s value was directly linked to a fixed quantity of gold, and paper money could be converted into physical gold on demand. The gold standard inherently limited the money supply, as currency in circulation was constrained by gold reserves. This linkage aimed to provide stability and confidence in the currency.

However, adherence to a gold-backed currency led to periods of deflation, which proved problematic for farmers. Deflation is a general decline in prices, meaning money gains purchasing power. While beneficial for consumers, it severely impacted those with substantial debts. As agricultural prices fell, farmers’ income decreased, but their loan amounts remained fixed. This increased the real burden of their debt, making repayment difficult.

Proposed Solutions for Monetary Expansion

Farmers and their advocates championed proposals aimed at expanding the nation’s money supply. A prominent solution was bimetallism, particularly the free coinage of silver. Under this standard, currency would be backed by both gold and silver at a fixed ratio. Proponents believed incorporating more abundant silver would significantly increase the total amount of money in circulation. This policy aimed to expand the currency base beyond gold standard limitations, becoming a central political issue for the Populist Movement.

Another proposal for monetary expansion came from the Greenback movement. This movement advocated for the increased issuance of paper currency, known as “Greenbacks,” backed by government credit. These notes had been used during the Civil War, demonstrating a currency not tied to precious metals could function. The Greenback Party aimed to increase this paper money in circulation, providing a more accessible form of money for farmers and laborers. They believed issuing more paper currency would expand the money supply, circumventing metallic standard constraints.

Expected Benefits of Increased Money Supply

Farmers strongly believed an increased money supply would directly address their economic problems through inflation. They understood a larger volume of currency in circulation would likely lead to a general rise in prices. This anticipated inflation was seen as a necessary corrective to the deflationary pressures they had been enduring. They expected rising prices for goods and services to translate into higher prices for their agricultural products. With higher crop prices, farmers anticipated an improvement in their income, making operations more profitable.

An increased money supply was also expected to provide significant debt relief. In a deflationary environment, the real value of debt increases, making it harder to repay. However, with inflation, the opposite occurs: the real value of existing debts would effectively decrease. Farmers believed that if their crop prices rose due to inflation, they could repay their fixed-amount debts with dollars worth less in real terms. This would alleviate the burden of loans taken out during periods of higher purchasing power.

Beyond inflation and debt relief, farmers anticipated an expanded money supply would lead to greater credit accessibility and lower interest rates. A more abundant money supply would increase the funds available for lending, thereby reducing borrowing costs. Farmers, who often relied on loans for land, equipment, and seasonal expenses, would benefit from more affordable credit. Lower interest rates would decrease their financial obligations and make it easier to invest in their farms or manage cash flow. This combination of higher incomes, easier debt repayment, and more accessible credit was the core of why farmers believed an increased money supply was the solution to their economic struggles.