Political battles over currency issues became intensely divisive during the last quarter of the 19th century as industrialization accelerated in the Northeast, while the South and newly settled areas of the Midwest remained dependent on farming. From 1873 through the late 1890s, the U.S. suffered through two major economic depressions that heightened sectional and class conflict. By the 1896 election, designated by historian Walter Dean Burnham as “the first confrontation . . . among organized political forces over industrial capitalism,” positions on currency had solidified into a “battle of the standards.” “Gold bugs” believed that a “sound” national economy must be based on the gold standard to ensure the dollar’s stability, guarantee unrestricted competition in the marketplace, and promote economic liberty. “Silverites” believed that currency should be redeemable in silver as well as gold. They agitated for “free silver,” or unlimited coinage of silver, a metal that could be mined in abundance in the West, to produce an increased and more flexible money supply that they hoped would lead to a more equitable economy and foster social reforms.

Congress had discontinued the minting of silver coins in 1873 in an act that came to be known as the “Crime of ’73.” Professor of government Elizabeth Sanders includes the demonetization of silver as one of a few significant policies of the period that led many working people, especially farmers, to believe that a “fraud against the people” was being “perpetrated by the national state on behalf of a financial elite.” With silver coins delegitimized, the amount of money in circulation decreased. A tightened money supply benefited creditors, like banks and merchants, at the expense of debtors, especially farmers who had to borrow annually from banks and merchants in order to plant cash crops that could bring in money for the repayment of their debts only at harvest time. Farmers sought inflation of the money supply so that more money would be available to them for credit, prices for their crops would rise, and debts would become easier to repay.

Advocates for inflating the money supply ranged from those who proposed that the federal government print paper money not backed by either gold or silver to those who called for the remonetization of silver. Free silver proponents came to believe in the 1890s that unlimited coinage of silver, a reform less extreme than others that agrarian radicals earlier had supported, could unite divergent groups into a national coalition to challenge politicians who supported monied interests.

The People’s Party, also known as the Populists, formed as a political party in 1891. As Sanders emphasizes, “Its philosophy was anti-corporate, though not anti-capitalist.” The Populist platform during the 1892 election campaign advocated free silver and other reforms with the intent, Sanders writes, “not to turn the clock back on industrial development but to harness the new technological power for social good, to use the state to check exploitative excesses, to uphold the rights and opportunities of labor (farm and factory), and to maintain a healthy and creative business competition.”

Populists hoped to win the 1896 election and supplant the Democrats as one of the nation’s two major national parties. Their strategy relied on convincing silverites from the Democratic Party to vote with the Populists rather than for the expected Democratic nominee, President Grover Cleveland, who supported the gold standard, as did the Republican nominee, Ohio governor William McKinley. The Democrats, however, selected as their candidate William Jennings Bryan, a strong advocate for free silver. McKinley forces, mounting a well-funded campaign supported by the Northern intelligentsia, church and business interests, and the urban press, tarnished Bryan as a radical with an economic program that would lead to disastrous consequences for the nation. McKinley soundly won the election, and although Bryan triumphed in 22 states to McKinley’s 23, McKinley captured nearly 100 more electoral votes and prevailed in every city of more than 100,000, with the exception of Denver, where the silver mining interest was strong.

Some historians believe that many urban workers voted for McKinley because they had become convinced that Bryan’s policies would destroy the economy and result in reduced wages and increased unemployment. Some argue that Bryan’s “revivalist” style of campaigning and the Prohibitionist views of some of his supporters were distasteful to Catholics, especially Germans, in the urban labor force. Sanders contends that reporters’ coverage of Bryan’s campaign provides strong evidence that his message, in fact, did resonate with urban workers. She suggests, however, that “the powerful economic warnings of the core establishment” and the claim that a program to benefit farmers would wreck havoc upon the Northern industrial economy “were ultimately persuasive on election day.”

Sanders and others emphasize that labor organizations of the time did not want to rely on government to resolve its disputes with management. Unions sought to effect change through exerting leverage at the work site itself. Burnham writes, “From the perspective of the urban voter committed to the network of urban-industrial social and economic relationships that now existed, currency inflation could only be regarded as irrelevant at best and disruptive at worst.”

All of the major economic events of the Jacksonian Era can be linked to Andrew Jackson's determination to pay off the national debt. Not only did he enforce the steady shrinking of the debt by paying it off and being strictly frugal with federal funds, but he also established policies to ensure that the government would not incur new debt. As a result, the U.S. actually did become debt free, for the first and only time, at the beginning of 1835 and stayed that way until 1837. It remains the only time that a major country was without debt.

Jackson and his followers believed that freedom from debt was the linchpin in establishing a free republic. It freed the country and its citizens from burdens and bondage to creditors. It freed the majority from dependence on a minority.

As Jefferson had thought of it, debt involved dependence on one's creditors, whoever they might be, domestic or foreign, and, as he famously wrote in Notes on the State of Virginia, "Dependence begets subservience and venality, suffocates the germ of virtue, and prepares fit tools for the designs of ambition." If the government involved itself in the creation and sustaining of credit and debt, it would naturally encourage "public and private profligacy," as Jackson put it in his first inaugural address, which meant that the government would overextend itself into the liberty of its citizens.

The government, then, should insert itself into the lives of its citizens as little as possible, and the government should strive for its own freedom from dependence on creditors. In some respects, this was simply a reading of indebtedness as enslavement and as incompatible with the status of liberty. The determination to abolish America's debt was also of one piece with the other "reform" movements of the early 19th century, the temperance movement, for example.

Alexander Hamilton's 1791 financial plan for the U.S. had included the implicit acceptance of a national debt, along with the establishment of a central bank, and the federal government's assumption of the debts of the individual states. Hamilton saw it as the federal government's duty to promote economic development, including an expansion of the money supply and credit in order to finance investment in economic growth, and even direct government subsidies of businesses.

Jeffersonians were skeptical of this. For them, debt freedom would vindicate the U.S. as an exception among countries, and would demonstrate that the new country was the golden example for the rest of the world to follow. The implication of this was, for Jackson (following Jefferson), that government should stay out of the economy as far as possible.

When Jackson came into office, the government's economic activities were being conducted along the lines of Whig Senator Henry Clay's "American System," that had two main components—high protective trade tariffs and the funding of domestic "internal improvements," mostly in the form of roads and canal projects.

High protective tariffs protected and promoted the growth of U.S. manufacturing against cheap imports. They also provided most of the federal government's revenue. The South, however, saw protective tariffs as a system of sucking money out of the region (by penalizing them with higher prices, domestic and foreign, for manufactured goods and by encouraging reciprocal tariffs levied by other countries against American agricultural products, such as tobacco and cotton) and funneling it to the North and West, as well as into the pockets of northern manufacturers.

Provided with an extended rationale by Jackson's own vice president, John C. Calhoun, South Carolina passed an ordinance that "nullified" federal tariffs, based on the argument that the federal government did not have the power to levy them. Jackson responded by threatening South Carolina with force. Both sides eventually compromised, with the passage of a reduced tariff in 1833.

Jackson believed that the federal government did have the power to levy and enforce tariffs and he recognized a need for the revenues that they generated, but for two reasons. The first was to stimulate production of military supplies for national defense, and the second, to raise money to pay off the national debt, resulting primarily from the War of 1812. The debt surpassed $100 million after the war (including carryover from the Revolutionary War), but by the time Jackson entered office in 1829, it had been reduced to $58 million. Jackson did not agree with northern manufacturers that a tariff did much to promote industry and he did not agree with southern planters that it did much to penalize agriculture.

Another part of Clay's "American System" was funding transportation projects, mostly in the north and west. The rationale was to fund development that had a national effect, not a purely local one, and would bind together the different regions of the country. The legislative process for funding these projects, however, often devolved into corrupt "log rolling," with politicians swapping votes and investors gaming the system to advance special privileges through subsidies. In addition, using federal funds in this way meant that fewer funds were available for paying off the debt and so postponed the day when the U.S. would be debt free.

Jackson, therefore, began vetoing these bills, deliberately minimizing the government's involvement in the economy. He believed that the government should not be a vehicle for privileged interests and that it should remain small.

Out of this belief, Jackson came to oppose the Bank of the United States because it entangled the government, which capitalized it, into protecting the interests of private stockholders. He shocked the bank's president, Nicholas Biddle, as well as many other people, when he vetoed the rechartering bill in 1832. In his veto message to Congress, Jackson summed up his sense of the proper, limited role of government: "If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing."

Instead, the rechartering of the bank would have required heavy capitalization using public funds that would not simply keep the bank going, but make a profit. To Jackson, the bank's purpose had been only to establish a national currency and to meet interest and principal payments on the national debt. Because the debt was soon to be paid off, much of the bank's original purpose was about to disappear.

Jackson, in fact, believed that the bank was an "abominable institution—the monster, that has grown up out of circumstances, and has attempted to control the government." He had closely read accounts of the disastrous "South Sea Company Bubble" of 1720, which had implicated the English King and his ministers in a series of financial manipulations, aided by the government's executive power. When the speculative bubble burst, it caused widespread loss, debt, and poverty. The fear of such executive power had partially inspired mid- and late-18th century radicals to agitate for a more limited central government. It inspired American revolutionary thinking and informed the Founding Fathers' determination to set up a system of limited government wherein the executive's power would be checked.

From the time that Hamilton's plan was implemented at the very beginning of the republic, opponents—including Jefferson—feared that it would consolidate moneyed interests and threaten individual liberty. That fear came to be focused on the Bank of the United States. Biddle and the like-minded staff of the bank, however, believed that it was a good thing for the government to invest in private enterprises because it would promote industry and business, and would make a profit for the government.

Late 19th-century historian James Parton wrote that, "Financiers of the Biddle school, some of whom proclaimed the national debt a national blessing, regarded the solicitude of the President on this subject as primitive and puerile." As part of his battle against the Bank of the United States, Jackson had the government remove its deposits with the Bank and place them in a number of regional banks, chartered by the various states. Unfortunately for Jackson, however, this only stimulated financial speculation, rather than dampening it, because the state-chartered banks, as a rule, operated under looser lending procedures than the national bank did. The combined debt of individual states, through state-issued bonds meant to finance "internal improvements," had climbed to nearly twice the total of the national debt.

As a result, a speculative balloon grew, based on the relatively unconstrained lending by these newly rich banks to people who were speculating in the sales of the government's western lands. In fact, for the "mercantilists" like Henry Clay and Nicholas Biddle, it was to the government's advantage to keep land prices high in order to generate more government revenue from their sale.

To try to restrain the growth of this balloon, Jackson issued an executive order, known as the "Specie Circular," in 1836, requiring that payment for western lands be accepted only in the form of gold coin. He also attempted to replace as much paper money as he could with gold coins—eagles ($10), half-eagles ($5), and quarter-eagles ($2.50). In this, he was counseled and supported by his long-time associate, Senator Thomas Hart Benton. Benton gained the nickname "Old Bullion," for this, and the gold coins came to be called "Jackson Yellow Jackets," "Yellow Boys," or "Benton Mint Drops."

The requirement to use gold to buy federal lands suddenly deflated the speculative balloon, resulting in the Panic of 1837, just as Jackson was leaving office. The sudden contraction of credit that was a consequence of Jackson's "tight money" policies continued under his successor, Martin Van Buren, even though the panic made it necessary for the government to begin borrowing money again, and since that time, the United States has never again been without a national debt.