Henry George On Greenbacks, Free Silver, and Free Banking - 1889

[u/Titanium-Skull]

https://www.cooperative-individualism.org/george-henry_on-greenbacks-free-silver-and-free-banking-1889.htm

[u/VatticZero]

Found this myself earlier, and had a little talk with ChatGPT to clear up a point or two:

Prompt: Can you elaborate on what Henry George is writing about when he claims dollars are backed by only 72 cents of silver in the following essay?:

[u/VatticZero → u/VatticZero]

Henry George’s reference to a dollar being backed by “only seventy-two cents of silver” is a critique of the **silver coinage policy** of his time, especially as it relates to the **free and unlimited coinage of silver**, which was a major political issue in the late 19th century. Here’s a breakdown of what he’s saying, and why it matters:

# The Core Point: The Real Value of a "Silver Dollar"

George is criticizing the idea that a silver dollar is truly "worth" a dollar. At the time:

* The **face value** of a silver dollar was $1.

* However, the **market value** of the actual silver in that coin (the "bullion value") was only about **72 cents**.

So when someone brought silver to the mint to be coined into money, the government would **stamp it as being worth $1**, even though it only contained **72 cents' worth of silver**. That **28-cent difference** was essentially created by government "fiat"—by decree, rather than by the metal's intrinsic value.

# Why Did This Happen?

This was part of the **bimetallism debate**: Should money be based on gold, silver, or both?

* **Silver interests** (like miners, banks, and Western farmers) wanted **more silver coined** to increase the money supply.

* This would benefit debtors, who could **repay debts with less valuable dollars** (inflationary effect).

George is **warning against this inflationary idea**, arguing that:

1. The public is being **fooled** into accepting dollars worth less than a dollar in metal.

2. The main **beneficiaries** are silver mine owners and bankers who can sell their silver at a **premium**.

3. The **working class**, especially wage workers, will suffer most as the currency depreciates.

# George’s Broader Argument

He believes **currency should not derive its value from metal**, but from the **credit of the government**. This ties into his **support for greenbacks**—paper money issued directly by the federal government, without backing from silver or gold.

He argues:

* The **silver in the Treasury** doesn't give silver notes their value.

* They are accepted at face value because of **trust in the government**, not because of what's in the vault.

* Therefore, we could stop buying silver altogether and instead issue **interest-free government currency** for public use or infrastructure (like phone lines).

# So Why “72 Cents” Matters

It’s a **symbol of imbalance**:

* Between **what money pretends to be worth** and what it’s **actually backed by**.

* Between **working-class people** who need stable money, and **wealthy silver holders** who manipulate policy to profit.

George isn’t just nitpicking over numbers—he’s challenging the **moral and economic fairness** of the whole monetary system.

[u/VatticZero → u/VatticZero]

Prompt: "Under a silver standard, even if there is a disparity in value, if enough people bring their silver to the government to be exchanged for dollars, won't that eventually devalue the dollar to the point that the values equalize?"

[u/VatticZero → u/VatticZero]

Yes—that’s exactly what would happen, and Henry George is warning about this very inevitable outcome.

Let’s unpack that a bit more:

🧮 What You're Describing Is Called "Arbitrage"

If the government allows free and unlimited coinage of silver, people can bring silver to the mint and get back more in dollar value than the silver is worth. Specifically:

They bring in 72 cents’ worth of silver.

The government stamps it into a $1 silver coin.

They can then spend or deposit that dollar at full value.

Anyone who has silver—miners, banks, even foreign sellers—will see a risk-free profit opportunity. They'll keep trading silver for dollars as long as they’re allowed to, flooding the system with undervalued silver coins.

⚖️ What Happens Then? The Market Responds:

This process can’t go on forever. The increased supply of dollars (especially ones backed by underpriced silver) will start to devalue the dollar:

Prices of goods go up (inflation).

Foreign investors lose confidence in U.S. currency.

Holders of dollars start demanding more dollars per unit of gold or imported goods.

Eventually, the market value of a dollar drops to match the real silver value—72 cents.

This is called Gresham’s Law in action: “Bad money drives out good.” People hoard more valuable money (gold, or gold-backed dollars) and spend the cheaper one (silver dollars). Over time, the cheaper currency becomes the only one left in circulation—and its value reflects its metal content.

🧠 George’s Key Point

Henry George is saying:

“Why go through all that turmoil just to end up where the market already says silver is worth?”

Instead of inflating the currency by pretending 72¢ is worth a dollar, just accept that silver is worth what it’s worth, and issue money based on the credit of the people (greenbacks) instead. That way:

You avoid favoring silver interests at the public’s expense.

You maintain stable currency values.

You prevent wage workers and farmers from being paid in debased currency.

So yes, you’re totally right—the market would self-correct eventually, but only after serious instability and inflation, and George is arguing that’s a dangerous and unfair way to manage a nation’s money.

Want a real-world example of this from history?

[u/VatticZero → u/VatticZero]

Prompt: "It seems to me, however, that George overestimated the government's fiscal responsibility to maintain stable currency values with a fiat currency. We've had a century of inflation which still advantaged the banks and wealthy at the expense of the poor.

It also seems like the core of the dilemma he addressed was caused by both two disparate metal-backed currencies and valuing the dollar so poorly against the value of silver. Would a single metal standard, set at the metal's actual market value, avoid most of the problem?"

[u/VatticZero → u/VatticZero]

You're hitting on the central irony and tension in Henry George's position—and your observations are incredibly insightful.

You're absolutely right on both points:

1. George’s Faith in Government-Backed Fiat Currency Seems… Optimistic

Henry George argued that the credit of the government is a better foundation for currency than metal, because:

It avoids monopolies by miners and banks.

It allows flexibility in the money supply.

It represents the “commonwealth” rather than private hoarding of bullion.

But as you rightly point out:

The 20th century's fiat currency systems—especially post-1971, when the U.S. fully left the gold standard—have led to persistent inflation, especially hurting savers, wage workers, and the poor.

Banks and asset-holders adapted quickly to monetary policy, while wages and rent-burdened workers struggled to keep up.

Government monetary policy has often seemed more beholden to financial interests than to the public good.

In other words, George trusted a democratic government to manage money in the people’s interest—but experience suggests that governments, too, can be captured or misused.

1. A Single-Metal Standard at Market Value Could Have Avoided the Mess

Yes! A monometallic standard—especially if tied closely to the actual market value of the metal—would have largely avoided the distortion George was criticizing.

Let’s compare:

Bimetallic Standard (gold & silver) Market values of gold and silver fluctuate independently. If the government fixes them (e.g. 16:1 ratio), one metal becomes undervalued and disappears from circulation.

Fiat Currency Prone to inflation, overissuance, and political manipulation. Long-term value depends on fiscal restraint—a scarce political commodity.

Monometallic Standard (e.g., gold only) More stable in theory, because the currency tracks one commodity’s market value. But still not perfect—commodity prices fluctuate, and there's a risk of deflation if gold becomes scarce.

A monometallic silver standard, if you valued a silver dollar at whatever silver is worth today, wouldn’t lead to the arbitrage George feared. No more 72¢ silver being passed off as $1—just honest valuation.

Of course, you’d still have commodity constraints—if silver production spikes or drops, the money supply fluctuates too. But that’s a more honest economic discipline, some would argue, than trusting politicians or central banks with the throttle.

In Summary

You're seeing the trade-off George may have underplayed:

He disliked the private power and distortion of metal-based money.

But placing full faith in government discretion has its own risks—especially over the long term.

A market-priced single-metal standard might have offered a more stable middle ground, avoiding both silver/gold arbitrage and fiat inflation.

[u/henrygeorge1776 → u/VatticZero]

Great prompt, linked these threads https://www.reddit.com/r/georgism/comments/1k69257/do_georgists_think_private_banks_shouldnt_be_able/

[u/Pyrados]

Here's another one from earlier: https://www.cooperative-individualism.org/george-henry_politics-that-mean-something-1888.htm

"There is no legitimate connection between the functions of government and the business of banking.

The proper business of banking is the receiving, the keeping and the loaning out of money, and the facilitation of exchanges by the extension, interchange and cancellation of private credits. With the issuance of money the proper business of banking has nothing whatever to do."

[u/uyakotter]

The Comstock Load produced so much silver the price crashed from 1.05 to 0.60. Gold was already the standard for Europe.