In 1890, congress passed the Sherman Silver Purchase Act. This act increased the amount of silver the government was required to purchase on a recurrent monthly basis to 4.5 million ounces. The intention of the act was to boost the economy and cause inflation, allowing individuals especially farmers to more quickly pay off their debts. Prior to this act, the country was in a period of deflation caused by overproduction. The act was also supported by mining companies who had extracted vast quantities of silver from western mines. The act was passed in tandem with the McKinley Tariff which raised the average duty on imports to almost 50 percent.
Then in 1893, the country went into a financial panic which started a run on gold in the U.S. Treasury. As the panic worsened, people rushed to withdraw their money from banks causing a bank run that rippled through the economy. The effects of the panic were very severe. 500 banks closed, 15,0000 businesses failed and many farms ceased operation. Unemployment in some areas reached as high as 43%. While we can now trace the panic to failed investments in
In Grover Cleveland's 1895 address to congress he spoke out against the populist wing of his party by backing the Gold standard and blaming congress for failing to cancel the outstanding Treasury notes issued under the Sherman Silver Purchase Act.
"While I have endeavored to make a plain statement of the disordered condition of our currency and the present dangers menacing our prosperity and to suggest a way which leads to a safer financial system, I have constantly had in mind the fact that many of my countrymen, whose sincerity I do not doubt, insist that the cure for the ills now threatening us may be found in the single and simple remedy of the free coinage of silver. They contend that our mints shall be at once thrown open to the free, unlimited, and independent coinage of both gold and silver dollars of full legal-tender quality, regardless of the action of any other government and in full view of the fact that the ratio between the metals which they suggest calls for 100 cents' worth of gold in the gold dollar at the present standard and only 50 cents in intrinsic worth of silver in the silver dollar."
"In the light of these experiences, which accord with the experiences of other nations, there is certainly no secure ground for the belief that an act of Congress could now bridge an inequality of 50 per cent between gold and silver at our present ratio, nor is there the least possibility that our country, which has less than one-seventh of the silver money in the world, could by its action alone raise not only our own but all silver to its lost ratio with gold. Our attempt to accomplish this by the free coinage of silver at a ratio differing widely from actual relative values would be the signal for the complete departure of gold from our circulation, the immediate and large contraction of our circulating medium, and a shrinkage in the real value and monetary efficiency of all other forms of currency as they settled to the level of silver monometallism. Everyone who receives a fixed salary and every worker for wages would find the dollar in his hand ruthlessly scaled down to the point of bitter disappointment, if not to pinching privation."
"I have ventured to express myself on this subject with earnestness and plainness of speech because I can not rid myself of the belief that there lurk in the proposition for the free coinage of silver, so strongly approved and so enthusiastically advocated by a multitude of my countrymen, a serious menace to our prosperity and an insidious temptation of our people to wander from the allegiance they owe to public and private integrity. It is because I do not distrust the good faith and sincerity of those who press this scheme that I have imperfectly but with zeal submitted my thoughts upon this momentous subject. I can not refrain from begging them to reexamine their views and beliefs in the light of patriotic reason and familiar experience and to weigh again and again the consequences of such legislation as their efforts have invited. Even the continued agitation of the subject adds greatly to the difficulties of a dangerous financial situation already forced upon us."
Many of Cleveland's followers in the democratic party broke away in 1896. They refused to support William Jennings Bryan as the Democratic nominee for president and his free silver. The Gold Democrats invited Cleveland to run as a third party candidate, but he declined.
References
Presidency.ucsb.edu. (2018). Grover Cleveland: Third Annual Message (second term). [online] Available at: http://www.presidency.ucsb.edu/ws/index.php?pid=29536 [Accessed 23 Feb. 2018].
En.wikipedia.org. (2018). Panic of 1893. [online] Available at: https://en.wikipedia.org/wiki/Panic_of_1893 [Accessed 23 Feb. 2018].
En.wikipedia.org. (2018). Sherman Silver Purchase Act. [online] Available at: https://en.wikipedia.org/wiki/Sherman_Silver_Purchase_Act [Accessed 23 Feb. 2018].
Projects.vassar.edu. (2018). 1896: The Gold Democrats. [online] Available at: http://projects.vassar.edu/1896/golddem.html [Accessed 23 Feb. 2018].
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