InflationWhy did the 1890s American Farmers want

it?

What is inflation?The Definition of inflation is very simple:

It’s a general rise in prices

You have probably heard someone say something like, “Back in my day gas only cost .89 cents a gallon.”

Prices of most items have increased over time. That’s all inflation is.

What causes inflation?Although there can be several causes, the main cause is:

Too much money in circulation.

When there is more money in circulation, things cost more.

So if inflation makes products cost more, why did farmers want there to be more inflation?

• If the prices of farm products increase then farmers would make more money when they sold their crops

Wouldn’t the farmers have to pay more to buy things?

Sure.

But think about it.How much did farmers buy in the 1890s? -- most made their own clothes -- they grew their own food -- they built their own houses When farmers did purchase items, they borrowed money to buy plows, horses, and seeds for planting crops.

And people who borrow money benefit from inflation?

How?

When a person borrows money, they must pay back the money plus interest.For example: Borrow $500 at 2% interest then you pay back $510If inflation increases to 5% then any new loans would be charged an interest rate of 7% (2%+5% to counteract the effect of inflation)

The person who borrowed money at 2% gets to pay back their loans with money that has less value

How did farmers in the Western US suggest creating inflation?

By having the US money supply be backed by silver from the silver mines of the west

Having US money backed by silver and gold would mean the money supply would be larger which would cause inflation

Having inflation would mean higher crop prices for farmers and cheaper loan paybacks for farmers

So why wasn’t silver added to the US money supply during the 1890s?

Bankers and businessmen in the Eastern cities protested, stating that inflation would hurt them economically (they were right)

People living in the cities also protested saying they would have to pay higher prices for food, rent and other services if there was inflation and their wages would not increase to match the rise in prices (they were also right in the short run)

So what happened to the farmers?

They continued to suffer from:

1) Being charged high prices to ship their crops by the railroads

(despite the efforts of the Grange and the ICC)2) Having huge debts that were difficult to repay

3) A huge economic recession (a Depression really) in 1893 that made them even worse off