The Sherman Silver Purchase Act of 1890

Key Takeaways

• The Sherman Silver Purchase Act of 1890 required the U.S. Treasury to buy 4.5 million ounces of silver each month, aiming to support silver prices and appease miners.
• Although intended as a compromise between gold and silver supporters, it drained U.S. gold reserves and helped trigger the Panic of 1893.
• The Act’s repeal and subsequent Gold Standard Act of 1900 ended the bimetallism debate, firmly placing the U.S. on the gold standard.

There have been many contentious issues throughout the history of the United States. Entire presidential elections have hinged on the questions of slavery, civil rights, and the economy.

So, it may come as a bit of a surprise that another issue at this apex level of debate was bimetallism. The conflict between supporters of the gold standard and supporters of the silver standard raged fiercely for the final three decades of the 1800s.

Several pieces of legislation reflected this ongoing debate. One of the most important was the Sherman Silver Purchase Act of 1890, which—after it was all said and done—paved the way to the end of the debate.

This article explores this important law in detail. We’ll cover what it said, its immediate effects, and its legacy over monetary policy in the United States.

The Bimetallism Debate

The United States has issued currency since 1792. However, for the first 80 years of the country’s history, the American dollar was readily interchangeable with statute-defined amounts of gold and silver as legal tender.

Americans could take gold or silver bullion to the Treasury and have it stamped into legitimate coinage for their own use. However, the discovery of the Comstock Lode in 1859—the silver counterpart to the California Gold Rush—caused a tremendous influx of silver ore and bullion to hit the American market.

As is often the case when supply spikes, the price of silver fell, dragging down the value of the dollar. So, the government passed the Coinage Act of 1873 to end the practice of accepting silver for conversion into new currency. It ended the minting of standard silver dollars, effectively demonetizing silver as a standard of value, though smaller silver coins remained legal tender for limited amounts.

For the wealthy class, the change was largely immaterial, as they dealt primarily in gold and had little use for silver. However, for the working class, debtors, and the large number of silver miners in the country, the policy shift was a disaster. It so angered these groups that the new coinage act became known as the “Crime of ’73.”

The country soon divided itself into two camps. The “gold bugs” wanted dollars to be backed only by gold, and the “silverites” wanted both gold and silver to remain legal tender in the United States.

To be clear, this debate was not just a semantic difference. Because the two sides largely served as proxies for the upper and working classes, the prevailing group stood to gain tremendous political power and control over the direction of the country.

Despite their underdog status, the silverites maintained significant influence in the country and could not be dismissed by the gold bugs. So, lawmakers introduced numerous pieces of legislation between 1873 and 1900. Not all of them passed, but two big ones did—and pushed the debate to its conclusion.

The first of these laws was the Bland–Allison Act of 1878, which compelled the Treasury to purchase between $2 million and $4 million of silver bullion from western silver miners. It also reinstated the policy of minting silver dollars and issuing them as legal tender nationwide.

The Bland–Allison Act of 1878 paved the way for the Sherman Silver Purchase Act of 1890. However, the newer law introduced a key difference that would have lasting repercussions, pushing the country into a different era of currency entirely.

What the Sherman Silver Purchase Act Did

Congress passed the Bland–Allison Act (and overrode a presidential veto, no less) in part to bolster the declining usage and price of silver. Unfortunately, it did not arrest the decline in silver’s value because miners were still increasing the ready supply of ore.

Therefore, the Sherman Silver Purchase Act sought to increase the amount of silver that the U.S. Treasury would purchase each month. Indeed, it mandated that the government would now buy 4.5 million ounces of silver every 30 days.

Ironically, its namesake senator, John Sherman of Ohio, did not really support the bill at all. Sherman was not its author, but rather a key committee chair who brought the different parties together to move the bill along to a vote.

Despite his feelings (and a reportedly guarded opinion he reportedly expressed to President Harrison about it), the bill did pass both chambers of Congress. President Benjamin Harrison signed the Sherman Silver Purchase Act into law on July 14, 1890.

This law was not a full return to “free silver” coinage, as that would’ve been too decisive a victory for the silverites. It was intended to be a compromise between a bimetallic system and an outright gold standard.

Economic Effects and Challenges

However, lurking within the details of the Sherman Silver Purchase Act were two elements that would bear tremendous consequences for the American economy.

The first of these details is the key change in terms of what the Treasury had to buy each month. The Bland–Allison Act required the purchase of $2–$4 million worth of silver bullion each month. The Sherman Silver Purchase Act required the purchase of 4.5 million ounces of silver each month—cost notwithstanding.

The second detail was the fact that these purchases could be made using Treasury notes. At the time, these notes were legal tender and could technically be redeemed in either gold or silver at the Treasury’s discretion. In practice, the Treasury redeemed them in gold to maintain public confidence—quickly draining the nation’s gold reserves.

To this day, part of the reason confidence in the U.S. dollar remains is our gold reserves. Even though the U.S. is no longer on the gold standard, the underlying wealth possessed in Fort Knox and other depositories lends credibility to the solvency of American currency.

The run on gold that the Sherman Silver Purchase Act provoked led to the opposite situation. The Panic of 1893 was the worst economic depression the country had ever experienced.

Unemployment likely peaked near 18%, the highest in U.S. history up to that point and rivaled only by the Great Depression decades later.

To recap, this Act was meant as a stabilizing compromise between the two warring factions in the country. Instead, it created massive levels of uncertainty and helped trigger a severe economic downturn.

Senator Sherman likely regretted that his name was associated with this law. However, were he alive today, he could console himself with the fact that his Sherman Antitrust Act, passed only 12 days prior, remains the foundation of U.S. antitrust policy to this day.

The Repeal of the Act

The economic situation, provoked by the Sherman Silver Purchase Act of 1890, became untenable in short order. The economic panic of 1893 provoked an extraordinary action from the executive branch of government.

President Grover Cleveland—who won reelection as the first President to serve nonconsecutive terms, largely due to growing concerns over the economy—called Congress into an emergency session to repeal the Sherman Silver Purchase Act. Cleveland sought to preserve the nation’s remaining gold reserves and restore confidence in the gold standard.

The repeal was immediate and decisive. However, it did not restore the silver-buying situation created by the Bland–Allison Act. Remember—the Sherman Silver Purchase Act had replaced Bland–Allison, and its repeal meant that no silver-friendly policy remained in place.

So, the repeal was not warmly received in all corners of the country. Unfortunately for Cleveland, some of the angriest silverites were members of his own party, the Democrats.

In fact, silver supporters seized control of the Democratic Party and made it clear that they intended to challenge the sitting President. They found their candidate in a young Nebraska congressman.

William Jennings Bryan was a lawyer and orator whose agrarian ties ran quite deep. He distinguished himself during the Democratic National Convention with his famous “Cross of Gold” speech, in which he refused to allow himself to be “crucified” by the gold standard. The speech galvanized support behind him and helped him become the Democratic nominee for President in 1896.

Unfortunately for Bryan and the silver movement, the Republican candidate was William McKinley, who soundly defeated Bryan by nearly 100 electoral votes. McKinley’s victory ushered in an era of Republican dominance that lasted for decades.

With no remaining legal impediments, the McKinley-led gold bugs pushed for the full legalization and codification of the gold standard in the United States. They finally succeeded when McKinley signed the Gold Standard Act of 1900.

Legacy and Historical Significance

The Sherman Silver Purchase Act’s legacy is that of a cautionary tale for policymakers and students of history. Its intended effect was to bolster the flagging silver industry and serve as a compromise for the silverites arguing for bimetallism.

Instead, it sounded the death knell for silver as a viable metal for legal tender in the United States. Silver’s price instability—the hidden factor driving the events of the final three decades of the 1800s—was laid bare by the Act and emboldened those who maintained that gold was the proper anchor for the American dollar.

Without the Sherman Silver Purchase Act, there is no Gold Standard Act of 1900. By extension, one could argue it set in motion the chain of events that led to FDR’s 1933 gold confiscation, the end of the gold standard, and ultimately the pure fiat currency system that began in 1971 and continues to this day.