The Populist Movement’s Embrace of Free Trade Shows That Even They Wanted Deflation in the Price Sense of the Word

 As in commonly taught in schools, the People’s Party, usually referred to today as the “Populists”, comprised a movement of indebted farmers who, among other things, wanted both an increase in the money supply by the coinage of silver and free trade. They wanted the former so that their debts could be more easily paid off due to the price inflation that increasing the amount of money in circulation would create and they wanted free trade so that the products they purchased for their agricultural work would be less expensive and not burdened by the sky-high tariffs that America had in place in this period. They were originally a third party, who won certain western states in the Electoral College in the 1892 election and they then managed to co-opt the Democratic Party in 1896 with their candidate, William Jennings Bryan. He lost this election, but the plight of the farmers eventually died down, due to the increase of gold in the world from mines in Alaska, Australia, and South Africa, and the movement faded out of existence as prices for their crops increased and debts could be paid down. This is a decent summary of the situation from a purely historical point of view, but it leaves much to be desired from an economic point of view.

The biggest question this history lesson leaves a student of economics wondering is why did the Populists understand the value of price deflation when it suited their benefits, such as would have occurred had America have done the most efficient thing and embraced unilateral free trade, but not when it did not, as shown with their embrace of lowering the purchasing power of money by increasing the supply of it, as well, perhaps to a lesser extent, their embrace of a progressive income tax to fund the federal government once the tariffs were eliminated? Excusing the latter, as America would eventually suffer under the twin barbarisms of both protectionism and income taxation during the 20th and 21st centuries, let us examine the former. So, unlike modern leftists, who deny that increasing the supply of money leads to an increase in prices and denounce the subsequent price increases as just being the result of “price-gouging”, these 19th century leftists at least understood what their policy proposal would have done: increased the prices of their crops (and everything else) so that they could pay off their debts. They were unabashedly attempting to live at the expense of everybody else who was not indebted for their own benefit. Metaphorically, they sought to block out the sun to help the candlemakers.

So, one must ask, how did they expect free trade to make their purchases cheaper? Presumably, they planned to import foreign goods that would have cost more domestically due to the very high tariffs Americans had to endure at this time. They thus wanted price deflation for what they purchased, but not for what others were purchasing from them. But this sort of begs the question of what if the countries where they would be importing from were also full of indebted producers who also wanted to replace a gold-backed currency with a silver-backed one with the force of the state behind them? It would have led to higher prices for them, after all, and perhaps would have helped them get out of debt too. The result would be, even under unilateral free trade, high prices for imported goods for American farmers. They would have thus run into the very same problem that they were enduring under protectionism, high prices, with a much larger supply of money to boot. Perhaps, it was hoped that foreign countries would not catch on to the miracle of free coinage of silver. That producers would not have to increase their prices as a result of the increase in food prices. Indeed, for a while, the scheme probably could have worked. Their standard of living could have been marginally improved. (True, the increase in the money supply would have lowered interest rates and gave way to another economic downturn due to malinvestment, as with the Panic of 1893, but that’s another story.)

It may not be fair to blame the individual farmers. This was an age of snake oil salesmen, after all. America was facing much the same problem that India is facing today: agriculture was getting much more efficient and there was a surplus of small indebted farmers who could not compete with the burgeoning agribusiness industry and they were understandably hesitant to sell off their land and move to the cities for employment opportunities. In this climate, it was sort of inevitable that a figure like William Jennings Bryan would come in and promise utopia. That’s what politics is all about. The tragic thing is that Bryan himself seemed to know the folly of this plan, as he was an avid free trader who quoted Bastiat in an 1892 speech in Congress, so he surely knew that pitting indebted farmers against industrial workers who would be hurt by inflation was very clearly an example of metaphorically supporting the glaziers through breaking windows at the expense of the unseen economic benefits that would have occurred had the window owner not had to pay for the glaziers’ services. It is a shame that Bryan did not make free trade the center of the 1896 election campaign. The savings that farmers would have benefited from by using foreign imports could have helped them pay down their debts and would have helped industrial workers too, as their purchasing power would have also been increased. Instead, America got its first taste of pitting one giant voting bloc (farmers) against another (industrial worker). It was sadly to be far from the last of such a campaign.