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years from 1878 to 1894. For later years, I have estimated the physical stock of silver from the dollar stock of silver dollars and subsidiary silver as reported in U.S. Secretary of the Treasury (1928, pp. 552–53) by dividing by the legal price, allowing roughly for the lesser amount of silver in subsidiary silver, and have differenced the series to get annual purchases. When the Treasury bought silver it paid the market price, but it valued the silver for monetary purposes at the legal price, which is why the physical stock can be estimated from the monetary stock by dividing by the legal price of silver. The allowance for the different treatment of subsidiary silver is rough, but the amounts involved are small, so no great error is introduced. The final estimates are for fiscal years ending June 30, whereas SPROD and EWMDS are for calendar years, so I have converted the fiscal-year data to calendar-year data by a two-year moving average.

UMG$ 1879–1914: Friedman and Schwartz (1963, table 5, [>]); 1866–78: estimates by Anna J. Schwartz based on same sources.

UM Friedman and Schwartz (1982, table 4.8).

y Friedman and Schwartz (1982, table 4.8).

V = Nominal income from Friedman and Schwartz (1982, table 4.8) divided by UM.

WI = Warren and Pearson (1933, table 12, [>]) index number of world's physical volume of production, 1880–1914 = 100, divided by 2.

Record of Notation.

EWMDS actual monetary demand for silver in rest of world (external)

EWMG rest of world actual monetary gold stock

k1 = SPR . y/V

k2 = SPROD - EWMDS - 58.28 - 2.13WI - 0.88RPGH

LP legal price of silver

P U.S. price level

PHN naive estimate of price level

PH16 estimate of price level on assumption that gold-silver price ratio is 16 to 1

PS nominal price of silver

RPG real price of gold in 1929 dollars

RPGH hypothetical real price of gold in 1929 dollars

RPS real price of silver in 1929 dollars

RPSH hypothetical real price of silver in 1929 dollars

RPSH16 hypothetical real price of silver on assumption of 16 to 1 ratio

SNM silver available for nonmonetary use

SPR specie reserve ratio

SPROD total silver production

UKP British price level

UKPH hypothetical British price level

UM U.S. actual stock of money

UMDS actual annual monetary demand for silver in U.S.

UMDSH hypothetical U.S. annual monetary demand for silver

UMG U.S. monetary gold stock in ounces

UMG$ U.S. monetary gold stock in dollars

UMGR$ U.S. monetary gold stock in 1929 dollars

UMS actual U.S. monetary stock of silver

UMSH hypothetical U.S. monetary stock of silver

V U.S. velocity

WI real world income (including U.S.)

WMG world monetary gold

WNMG world nonmonetary demand for gold (including U.S.)

x RPSH

y U.S. real income

CHAPTER 5

William Jennings Bryan and the Cyanide Process

In 1896, William Jennings Bryan was nominated for president by the Democratic, the Populist, and the National Silver parties. He ran on a platform committed to "free silver" at "16 to 1"—that is, the adoption of a bimetallic monetary standard at mint prices for gold and silver whereby 16 ounces of silver would have the same value as 1 ounce of gold. His Republican opponent, William McKinley, ran on a platform committed to the retention of a monometallic gold standard. McKinley beat Bryan by a popular vote margin of less than 10 percent. That was the high point of the free-silver movement. Although Bryan was twice again the Democratic nominee, he lost by increasingly wide margins.

In 1887, three Scottish chemists—John S. MacArthur and Robert W. and William Forrest—had invented a commercially viable cyanide process for extracting gold from low-grade ore. The process turned out to be particularly applicable to the vast goldfields discovered at about that time in South Africa. The output of gold in Africa went from zero in 1886 to 23 percent of total world output by 1896, and to more than 40 percent of total world output during the first quarter of the twentieth century.*

Strange as it may seem, these two sets of events in nearly opposite parts of the globe were intimately related.