Sherman Silver Purchase Act

views updated May 18 2018

SHERMAN SILVER PURCHASE ACT

The free coinage of silver became a political debate in the United States following the Panic of 1873. The period of economic hardship between 1873 and 1878 motivated the demand for cheaper paper money. The market price of silver dropped sharply after 1873 because it was used less often in American and European currency, and it was becoming more expensive to mine.

Although there were still "Greenbackers" around who associated the Civil War paper money with the dynamic northern economy during the Civil War, most of those in favor of inflation did not support the trend toward paper-money and turned instead to silver, believing its free coinage would be as adequate as greenback cash. Silver miners obviously also supported silver coinage. This demand resulted in the 1878 passage of the Bland-Allison Act, which required the government to buy at least $2 million worth of silver bullion each month at market price to coin as legal tender silver dollars. While the act was a law, however, the country's presidential leaders weakened its effect by purchasing only the minimum amount of bullion. The Bland-Allison Act was never able to stop the decline of silver prices or to increase the circulation of money.

The nation's regional preferences for money lead to a clear divide in the country. In the eastern United States, businesses preferred the gold standard and opposed inflated money. In the West and South, however, indebted farmers needed inflation to boost the prices of their products, while owners of the silver mines prevalent in the western territories wanted free silver coinage to stimulate their own financial interests.

By 1890 the political influence of silver advocates in the West had grown so strong that on July 14, the Sherman Silver Purchase Act was passed as a compromise to appease all interests. Named after Ohio Senator John Sherman, it replaced the Bland-Allison Act as a measure to provide a greater government purchase of silver. The Sherman Silver Purchase Act required the U.S. treasury to more than double its monthly purchase of silver to 4.5 million ounces. The direct effect of the Sherman Act was a threat to the U.S. Treasury's gold reserves and a $156 million increase in the amount of paper money in circulation.

Ultimately, the Sherman Act did little to please anyone. Western farmers and silver miners remained dissatisfied with government compromise measures and felt threatened by the 1892 presidential election of Grover Cleveland (1893–1897), another supporter of the gold standard.

The U.S. Treasury's depleted gold reserves led to the Panic of 1893. To restrain public fear of the abandonment of the gold standard, President Cleveland called a special session of Congress, and the Sherman Silver Purchase Act was repealed in the autumn of that year.

See also: William Jennings Bryan, Cross of Gold Speech, Currency, Free Silver, Gold Standard, Gold Resumption Act, Greenbacks

Sherman Silver Purchase Act

views updated May 23 2018

SHERMAN SILVER PURCHASE ACT

SHERMAN SILVER PURCHASE ACT. In the late nineteenth century, years of falling prices and economic contraction gave rise to a strongly prosilver wing of the Democratic Party. These "silver Democrats" advocated the notion that the free coinage of silver would combat deflation and promote economic expansion, particularly for hard-pressed farmers in the South and West, a core constituency of the Democratic Party. Although some western Republicans also advocated the free coinage of silver, most Republicans staunchly supported the gold standard as the basis of the national currency. In 1890 prosilver Democrats began negotiations with protariff Republicans to reach a compromise. The Democrats pledged to support the McKinley tariff bill in return for Republican support of a bill for the free coinage of silver. The White House, however, constituted a major obstacle to the compromise. Although the silver advocates had a majority in the Senate powerful enough to force the House into line, they feared that President Benjamin Harrison, a gold standard Republican, would veto a free coinage bill, even if it were attached as a rider to a tariff bill that he otherwise favored. As a practical solution to this dilemma the "silver" senators determined to adopt not a free coinage measure but the nearest possible approach to it. A compromise bill, the Sherman Silver Purchase Act, named for Senator John Sherman of Ohio, became law on 14 July 1890. The act provided for the issuance of legal tender notes sufficient in amount to pay for 4.5 million ounces of silver bullion each month at the prevailing market price. Then, enough silver dollars were to be coined from the bullion purchased to redeem all the outstanding U.S. Treasury notes issued in this manner. The notes were made full legal tender and were redeemable on demand either in gold or silver coin at the discretion of the secretary of the Treasury.

The passage of the Sherman Act failed to achieve its objectives. Although it increased the circulation of redeemable paper currency in the form of treasury notes by $156 million, it simultaneously accentuated the drain on the government's gold reserves by requiring that the treasury notes be redeemed in gold as long as the treasury had gold in its possession. A financial crisis in Argentina led to the failure of the British banking house of Baring Brothers and Company, which in turn eventually forced an exportation of gold from the United States to Great Britain. This exodus, coupled with an extraordinarily tight money market, created a situation bordering on panic in the latter part of 1890.

The marked growth of U.S. indebtedness to foreign nations and the reduction in custom receipts brought about by the McKinley Tariff compounded the crisis. The cumulative effect of the foregoing factors culminated in the panic of 1893, which was characterized by a fear of the abandonment of the gold standard because of the depletion of the government's gold reserve. The panic was checked in the autumn of 1893 by the repeal of the Sherman Act.