Sherman Silver Purchase Act
Encyclopedia
The Sherman Silver Purchase Act was enacted on July 14, 1890 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 deflation caused by overproduction, 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. 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 not profitable to mine it. They hoped to enlist the government to artificially increase the demand for silver.
The act was enacted in tandem with the McKinley Tariff
of 1890. William 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) Note
s 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 stepped in to form a syndicate that saved the U.S. with a massive gold loan, for which he 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.
Law of the United States
The law of the United States consists of many levels of codified and uncodified forms of law, of which the most important is the United States Constitution, the foundation of the federal government of the United States...
. It was named after its author, Senator John Sherman
John Sherman (politician)
John Sherman, nicknamed "The Ohio Icicle" , was a U.S. Representative and U.S. Senator from Ohio during the Civil War and into the late nineteenth century. He served as both Secretary of the Treasury and Secretary of State and was the principal author of the Sherman Antitrust Act...
, an Ohio Republican, chairman of the Senate Finance Committee. While not authorizing the free and unlimited coinage of silver
Silver
Silver is a metallic chemical element with the chemical symbol Ag and atomic number 47. A soft, white, lustrous transition metal, it has the highest electrical conductivity of any element and the highest thermal conductivity of any metal...
that the Free Silver
Free Silver
Free Silver was an important United States political policy issue in the late 19th century and early 20th century. Its advocates were in favor of an inflationary monetary policy using the "free coinage of silver" as opposed to the less inflationary Gold Standard; its supporters were called...
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 deflation caused by overproduction, 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. 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 not profitable to mine it. They hoped to enlist the government to artificially increase the demand for silver.
The act was enacted in tandem with the McKinley Tariff
McKinley Tariff
The Tariff Act of 1890, commonly called the McKinley Tariff, was an act framed by Representative William McKinley that became law on October 1, 1890. The tariff raised the average duty on imports to almost fifty percent, an act designed to protect domestic industries from foreign competition...
of 1890. William McKinley
William McKinley
William McKinley, Jr. was the 25th President of the United States . He is best known for winning fiercely fought elections, while supporting the gold standard and high tariffs; he succeeded in forging a Republican coalition that for the most part dominated national politics until the 1930s...
, 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
Bland-Allison Act
The Bland–Allison Act was an 1878 act of Congress requiring the U.S. Treasury to buy a certain amount of silver and put it into circulation as silver dollars. Though the bill was vetoed by President Rutherford B...
of 1878, the U.S. government was now required to purchase an additional 4.5 million ounces
Troy ounce
The troy ounce is a unit of imperial measure. In the present day it is most commonly used to gauge the weight of precious metals. One troy ounce is nowadays defined as exactly 0.0311034768 kg = 31.1034768 g. There are approximately 32.1507466 troy oz in 1 kg...
of silver bullion every month. The law required the Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...
to buy the silver with a special issue of Treasury (Coin) Note
Treasury (Coin) Note
Fractional currency notes were issued by the United States Federal Government during and after the U.S. Civil War due to the hoarding and shortage of coins in gold, silver and copper in denominations of 3, 5, 10, 15, 25 and 50 cents. These notes were in use until 1876 and were redeemable by the...
s 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
Panic of 1893
The Panic of 1893 was a serious economic depression in the United States that began in 1893. Similar to the Panic of 1873, this panic was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures...
broke, President Grover Cleveland
Grover Cleveland
Stephen Grover Cleveland was the 22nd and 24th president of the United States. Cleveland is the only president to serve two non-consecutive terms and therefore is the only individual to be counted twice in the numbering of the presidents...
oversaw the repeal of the Act in 1893 to prevent the depletion of the country's gold reserves. Banker J. P. Morgan stepped in to form a syndicate that saved the U.S. with a massive gold loan, for which he 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.