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.

Bibliography

Brands, H. W. The Reckless Decade: America in the 1890s. New York: St. Martin's Press, 1995.

Glad, Paul W. McKinley, Bryan, and the People. Philadelphia: Lippincott, 1964.

Hollingsworth, J. Rogers. The Whirligig of Politics: The Democracy of Cleveland and Bryan. Chicago: University of Chicago Press, 1963.

Palmer, Bruce. "Man over Money": The Southern Populist Critique of American Capitalism. Chapel Hill: University of North Carolina Press, 1980.

The Sherman Silver Purchase Act was enacted in July 14, 1890^[1] as a United States federal law. It was named after its author, Senator John Sherman, an Ohio Republican, chairman of the Senate Finance Committee. While not authorizing the free and unlimited coinage of silver that the Free Silver supporters wanted, it increased the amount of silver the government was required to purchase every month. The Sherman Silver Purchase Act had been passed in response to the growing complaints of farmers and mining interests. Farmers had immense debts that could not be paid off due to a series of droughts, and they urged the government to pass the Sherman Silver Purchase Act in order to boost the economy and cause inflation, allowing them to pay their debts with cheaper dollars.^[2] Mining companies, meanwhile, had extracted vast quantities of silver from western mines; the resulting oversupply drove down the price of their product, often to below the point where it was profitable to mine it. They hoped to enlist the government to artificially increase demand for, and thus the price of, silver.

The act was enacted in tandem with the McKinley Tariff of 1890. McKinley, an Ohio Republican and chairman of the House Ways and Means Committee worked with John Sherman, the senior Republican Senator from Ohio, to create a package that could both pass the Senate and receive the President's approval.

Under the Act, the federal government purchased millions of ounces of silver, with issues of paper currency; it became the second-largest buyer in the world, after the government of India. In addition to the $2 million to $4 million that had been required by the Bland-Allison Act of 1878, the U.S. government was now required to purchase an additional 4.5 million ounces of silver bullion every month. The law required the Treasury to buy the silver with a special issue of Treasury (Coin) Notes that could be redeemed for either silver or gold. That plan backfired, as people (mostly investors) turned in the new coin notes for gold dollars, thus depleting the government's gold reserves. The reduction of receipts of specie in payment of the tariff, from the curtailment of imports under the McKinley Tariff, compounded the problem. After the Panic of 1893 broke, President Grover Cleveland oversaw the repeal of the Act in 1893 to prevent the depletion of the country's gold reserves. Banker J. P. Morgan heroically stepped in to form a syndicate that saved the U.S. with a massive gold loan, for which he naturally received a commission. Nevertheless, Morgan succeeded in saving the nation from bankruptcy. While the repeal of the Act is sometimes blamed for the Panic, the Panic was already well underway.^[3]

External links

• President Cleveland Message on the Repeal of the Sherman Silver Purchase Act

References

1. ^ Charles Ramsdell Lingley, Since the Civil War, fist edition: New York, The Century Co., 1920, ix-635 p., LCCN 21-574. Re-issued: Plain Label Books, unknown date, under a new title: The United States Since the Civil War, 310 p. See: page 173 (Google Books).
2. ^ Answers.com, Sherman Silver Purchase Act; accessed 2009.04.08.
3. ^ Answers.com, Sherman Silver Purchase Act; accessed 2009.04.08.

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