To understand why the bimetallism movement ended we have to understand why the bimetallism movement started and what were the driving proponents behind support for a standard where there were two metals - both viewed as legal tender - and a rate of exchange between those two metals.

Bimetallism as a movement intended to increase the supply of money and stabilize prices. This alludes to the fact that there needs to be a growing supply of money if we have a growing economy. This can be exemplified by looking at a small closed, fictitious, and growing economy where there are only two people.

Let us imagine that the two people in our fictitious economy are Bob and Joe. Bob and Joe both produce seasonal goods, which means that Joe produces his wheat over the summer, while Bob produces his coal during winter. To facilitate trade between both these individuals there needs to be money.

To understand why the bimetallism movement ended we have to understand why the bimetallism movement started and what were the driving proponents behind support for a standard where there were two metals - both viewed as legal tender - and a rate of exchange between those two metals.  

Bimetallism as a movement intended to increase the supply of money and stabilize prices. This alludes to the fact that there needs to be a growing supply of money if we have a growing economy. This can be exemplified by looking at a small closed, fictitious, and growing economy where there are only two people.

Let us imagine that the two people in our fictitious economy are Bob and Joe. Bob and Joe both produce seasonal goods, which means that Joe produces his wheat over the summer, while Bob produces his coal during winter. To facilitate trade between both these individuals there needs to be money.

It can be seen that in the second year, where output has doubled that prices for goods have fallen by 50% due to the fact that the money supply remained constant even when the economy is growing. This fall in prices is called deflation (a sustained decrease in the general price level of goods and services).

The reason as to why in the United States since the enactment of the first Coinage Act of 1792 there had always been insufficient Gold is somewhat complicated. The first explanation is that there simply wasn’t enough gold to be minted due to supply issues, as the majority of the gold mines that were in operation in Latin America had either completely stopped or significantly reduced their production due to the political and revolutionary situation there. The second explanation is to do with bimetallic ratio of 15 to 1 that was implemented in the Coinage Act of 1792 which undervalued gold and overvalued silver. This links in with Gresham’s law which states that bad money drives out good money. In this instance the bad money is silver, and the good money is gold. According to Gresham’s law the metal overvalued by the bimetallic ratio will in fact be the actual monetary standard, whereas the undervalued metal will not be coined because it would not be profitable to do so. This meant that in the early years of the 19th century not much gold was minted into coins.

As a tangent: Monetarists believe that the money supply should only grow at the same rate of economic growth. This also links in with the split that the Fed was facing in the 1980s in regard to whether it would be a reserve-targeting or an interest-rate targeting regime, in which it decided that it would be an interest-rate targeting regime. There are some issues with the Fed trying to implement a strictly monetary policy, as doing so meant that the Fed would lose control over interest rates. We saw this prior to the Fed having decided to change its modus operandi to interest-rate targeting, there had been a roller coaster ride in interest rates. It is clear that the Fed cannot have independent policies, one to control money supply and a second to influence interest rates. This exemplified by the fact that if through its open market operations the Fed decided to cut back on the growth of bank reserves, and thus tighten the supply of reserves available, it would drive up the Federal Funds Rate, which would then also drive up other short term interest rates. Therefore, any expansionary or contractionary monetary policy followed by the Fed necessarily alters not only money supply growth, but interest rates as well.

Getting back to bimetallism, to understand why it was important and why people pushed for it, we have to understand the problems associated with deflation and the economic consequences of this phenomenon.

Deflation has many impacts, such as lowering consumer spending by making consumers hold out on purchases or to delay purchases in order to get cheaper and lower prices in the future. Deflation also leads to high unemployment due to the lower consumer spending. But the real key issue in the context of the United States in the late 19th century is to do with the issue of borrowing and loans. Even though incomes may decline, debt and interest payments remain constant and still need to be paid, but now they need to be paid in a more expensive currency. Deflation impacts borrowers the most, as the real value of their loan keeps appreciating so they have to pay for the cheap money they borrowed with more expensive money. This on the other hand is great for creditors as they are making more money than they had anticipated.

The United States secretly shifted to making gold the sole legal tender in 1873, by passing the Coinage Act of 1873, which dropped the silver dollar from the list of authorized coins. When this act was passed, people were not worried and did not take notice, but soon it received a flurry of attention and both debtors and silver miners uttered charges of fraud, and suggested a conspiracy theory of the creditors being successful in their endeavours to defraud the debtors by forcing them to make payments in an ever-appreciating dollar.

As concession to the silver miners and debtors the Sherman Act had been passed through congress. The Sherman Act authorised the Treasury to buy 4.5 million ounces of silver bullion and to issue in payment notes of full legal tender power. However, this purchasing was suspended and repealed at the urgent request of President Cleveland, as he believed that the previously mentioned notes should be paid in gold, and he believed that to have payed people in silver might discredit the currency at the time and throw the country onto a silver standard., but this led to massive strain on gold reserves and made it very hard to maintain parity.

The election of 1896 in the United States was to be a decisive election particularly because it was arguably a referendum on whether the United States was to either stick to the gold standard or switch to the bimetallic standard. The republic nominee of the time, William McKinley, campaigned on a platform of preserving the gold standard. He essentially embodied and represented the creditors and bankers of the Northeast. William Jennings Bryan, the democratic nominee, supported the bimetallic standard, and also embodied primarily the farmers of the south and the west who were the debtors.

This struggle between the proponents of a bimetallic standard and the proponents was even expressed in the literature of the time. One of the greatest children stories, Wizard of Oz, can actually find its way back to the debate over a bimetallic standard and a gold standard. The Wizard of Oz was written by a Midwestern journalist just after the election of 1896. Dorothy represents traditional American values and makes three friends: the scarecrow, who represents the farmers, the tin woodman, who represents the industrial worker, and a lion who represents William Jennings Bryan. They follow the yellow brick road, which represents the gold standard, in hope of finding the wizard who will help Dorothy return home. Eventually when they arrive in Oz, which represents Washington, they discover that the wizard, who represents William McKinley, is just a fraud. Dorothy’s problem is solved only when she learns about the magical power of her silver slippers. Also, just as a point of clarification, Dorothy’s slippers were always silver, the colour was not changed for this example, rather it was the film director who changed the colour from silver to red to take advantage of new colour cinematography. Also, this should probably be taken with a pinch of salt as there is no direct evidence that proves that Baum intended his work to be used as a monetary allegory.

The republicans who were the proponents of the gold standard did win the election of 1896 with William McKinley becoming the 25th president of the United States. Thanks in part to the technological advancements of the time, particularly the cyanide process which was devised by gold refiners. The cyanide process facilitated the extraction of gold from ore. Furthermore, the discovery of gold in places like Alaska, Australia and South Africa helped to diversify the sources of where America got its gold from. These events meant that the advocates and believers in the bimetallic standard got the inflation that they had wanted, and thus there was no further need to pursue a bimetallic standard.

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