UCLA

This dissertation studies how the economic uncertainty created by the Free Silver movement in the United States during the 1880s and 1890s affected the U.S. economy. Particular attention is paid to the importance of several financial frictions including debt default, costly bankruptcy, and intermediated credit in transmitting this uncertainty. It consists of three chapters. In Chapter One, “Is Devaluation Risk Contractionary? Evidence from U.S. Silver Coinage Agitation, 1878-1900,” I identify the real effects of devaluation risk on interest rates and output by studying changes in silver coinage policy in the U.S. between 1878 and 1900. “Silver agitation” heightened fears that the U.S would abandon the gold standard and depreciate the dollar relative to gold. Using a high- frequency event study of corporate credit spreads, I show that silver news altered corporate credit spreads by 30-50 basis points per event day. To obtain my results, I build a series of silver coinage policy news shocks at the daily level and hand-collect daily corporate bond yield data that I separate by credit risk using newly-collected earnings and balance sheet data. Finally, I exploit these daily credit spread changes as shocks to estimate monthly impulse response functions for the dollar-gold interest differential and industrial production. A 25-basis point increase in the speculative-safe spread due to an increased likelihood of future silver coinage raised the dollar-gold interest spread 80 percent relative to its mean and lowered industrial production by 3.19 percent at a trough of 12 months.

In Chapter Two, “Was the Election of 1896 a Turning Point for the U.S. Economy? Estimat- ing the Effects of Political Uncertainty on Railroad Outcomes,” I examine how firm-level activity responded to the resolution of political uncertainty in the context of the 1896 election in the U.S. This election is widely viewed as the ultimate defeat of the Free Silver movement. I use new hand-collected operations and balance sheet data for the railroad sector, one of the most important industries at the time, to examine the role of the 1896 election for the U.S. economy. I identify firm-level effects of the 1896 election by exploiting changes in corporate bond yields on days with news about the election as a source of cross-sectional variation. I find that railways with greater de- creases in bond yields during the election saw greater income growth in the year after the election. I find no evidence that firms with large yield changes during the election invested more afterwards. I also present suggestive evidence about the importance of bank credit in explaining the income results and for why railroads with large yield changes did not invest more.

Finally, Chapter Three, “Monetary Regime Uncertainty and the News: Evidence from U.S. Silver Coinage Reporting, 1878-1897,” studies the how the media covered the debate between Free Silver supporters and gold standard advocates using a newly-constructed panel of monthly counts of articles related to silver coinage in leading U.S. newspapers. I document several novel findings. First, as uncertainty about monetary policy increased, newspapers printed more articles using bi- ased phrases regarding the monetary standard (gold or silver). Newspapers that targeted a rural, agrarian audience responded to higher uncertainty by increasing their usage of pro-silver phrases more relative to newspapers focused on an urban audience based in financial centers. Instead, these urban newspapers published more articles with pro-gold phrases. Lastly, regardless of the position of the newspaper on the coinage issue, biased phrases emerged during election campaigns rather than in descriptions of legislation.