The Silver Question

Efforts to induce inflation into the American economy, the panacea of debtors, had been present from earliest times. Some of this enthusiasm was devoted to paper money schemes, such as the land bank ideas of colonial times and the greenback agitation of the post-Civil War era. Others hoped to lessen debtors' burdens by enacting programs dealing with the nation's coinage. In 1837, Congress established a relationship between silver and gold at the ratio of 16 to 1 (meaning that 16 ounces of silver were to be equal in value to one ounce of gold). During the war years of the 1860s, little silver was mined and the open market price rose sharply. Miners stopped selling their silver to the government and instead found buyers from the ranks of jewelers and other users of the product. In 1873, reacting to market realities, the Grant administration demonetized silver, leaving gold as the sole standard of the nation's currency. Silver became simply another commodity whose value would be set by supply and demand. There was little reaction to this move initially and certainly no outrage. However, following the Panic of 1873, a severe depression descended upon the country, reviving interest in the monetization of silver. Pressure was exerted from two sources.

The silver miners. Ironically, at about the same time that silver was demonetized, new silver discoveries were made in the West. As the newly mined silver hit the market in ever larger quantities, the price declined. Mine operators remembered the advantage of having a ready market through government purchase and began to refer to demonetization as the "Crime of '73." The mining interests were still a small force, but they found that they could increase their clout by allying with the farmers.
The farmers. Traditionally farmers were often mired in debt, depending upon banks for the funds to purchase seed and equipment in the spring and hoping for a successful harvest to pay off their debt in the fall. The 1870s saw declining farm prices that worsened the farmers' already precarious position. They eagerly latched on to the National Greenback Party and later came to support various silver remedies.

Conservative forces representing the interests of many eastern bankers and businessmen were successful in gaining passage of the Specie Resumption Act (1875), a measure that provided for the redemption of the greenbacks in gold. The miners and farmers pressured Washington and won a partial victory in the Bland-Allison Act (1878), which restored silver as legal tender and pledged the government to purchase a minimum amount of the metal each month. Nevertheless, the government notes were still backed by gold alone. True bimetallism would have allowed redemption in either metal and established a set ratio of value between the two. The early 1880s saw the return of farm prosperity and the resulting decline of interest in the silver coinage issue. However, hard time hit again in 1887, prompting renewed demands from farmers and miners to reinstitute the coinage of silver at the old 16:1 ratio. Again a compromise was reached, this time in the form of the Sherman Silver Purchase Act (1890). This measure obligated the government to purchase the mines' nearly entire output each month, but these purchases were to be at market rates, not at the predetermined ratio favored by the farmers and miners. New western states had recently joined the Union and were responsible for this limited victory. Panic and depression struck the country again in 1893. Conservative leaders pointed to the Sherman Silver Purchase Act as the root of the nation's ills, but the farmers blamed eastern economic interests. Indeed, the country had split over the silver issue. The Democratic Party, despite the prominence of Grover Cleveland, was largely in the hands of the free silver forces. The Republicans called for strict adherence to gold alone. Public opinion, especially in the rural areas, was heavily impacted by the publication of a paperback book entitled Coin's Financial School (1894), which advanced the silver issue in everyday terms. Silver played a prominent, if ill-fated role in the presidential elections in 1892, 1896 and 1900. By 1900, Republican forces were firmly in control and advanced the passage of the Gold Standard Act, which established gold as the sole standard for all U.S. currency. The silver movement ultimately failed for the following reasons:

It was presented to a national audience in several presidential elections and failed to sway a sufficient number of voters
Worldwide gold discoveries increased its supply, relieving gold currency shortages
The depression of the 1890s ended and general prosperity returned.