Silver Dollars & Trade Dollars of the United States - A Complete Encyclopedia

Economic Conditions
Because of general economic problems of the 1880s, caused in part by deflationary government policies but also by foreign economic troubles over which the United States had no control, there was rising agitation for increasing the amount of paper currency. The Greenback party, as well as populists in general, favored a controlled inflation in which small businessmen and farmers would benefit. Rural areas of the country were being hard hit by the economy and provided strong support for such candidates.

From 1885 to 1889 Grover Cleveland was president of the United States. He stood very strongly for a sound currency despite the economic troubles. He knew that tampering with the currency-or failing to take the proper steps to control inflation-would in the long run hurt the country more than shortsighted cures. However, Cleveland was defeated in the 1888 election by Benjamin Harrison, who was a populist at heart. Matters would soon change.

During 1889 the falling price of silver had reached the point that Silverites were again desperate for increased government subsidies, while populists wanted additional paper currency. There was again a marriage of convenience of the two groups. Senator John Sherman, Treasury secretary at the time of the Bland-Allison Act in 1878, introduced legislation requiring the Treasury to purchase at least 4.5 million ounces of silver per month and, for the first year, to coin a minimum of two million silver dollars per month.

The bill was passed by both houses of Congress and signed by President Harrison on July 14, 1890. The Sherman Silver Purchase Act was now law and mass purchases of silver became the order of the day. The recently-reopened Carson City Mint was utilized for some of this coinage, in order to take the pressure off the others. When the Sherman Act was repealed in 1893, Carson City was one of the early casualties.

Additional paper currency (Treasury notes of 1890, popularly called coin notes) was printed to pay for the silver purchased under the Sherman Act, but a considerable portion of this was used by the public to buy gold, which in turnwas used to purchase silver to sell to the government, which continued to reissue "coin notes" so that each $1 eventually withdrew many times its face value in gold. Some of the gold went overseas to buy additional silver to sell to the Treasury. It was a vicious circle, although the foreign purchases could not have been all that high. The real danger was one of appearance as foreign investors in American stocks and bonds became nervous over the inability of the United States government to control the currency problem at a time when silver continued to fall in value.

Foreign investors began to withdraw gold from the United States while at the same time an economic downturn produced a general outflow of gold from the country to pay for an excess of imports. By 1892-1893 the situation had become very serious. The government arranged with leading financiers to borrow enough gold to pay Treasury debts; the government could not be allowed to go bankrupt. Theelection of 1892 was fought out with all of this in the background. Grover Cleveland was elected to a second term, and the populist Harrison was out.

The massive outflow of gold and general loss of foreign confidence led to nearly 420 bank failures and heavy layoffs of workers. Violent strikes resulted in which the army was called in to prevent death and looting. It was an ominous situation, yet the Silverites and populists continued their alliance.

Sherman Act Repealed
In November 1893, against great odds and with his prestige on the line, President Cleveland forced the repeal of the Sherman Silver Purchase Act of 1890. The law itself was not the real cause of the problem, as was widely believed then and now, but rather was a flagrant symbol of monetary instability. Foreign and domestic investors saw that the United States government was putting its financial house in. order and confidence returned. By 1895 the economy had basically recovered.

In the repeal measure of November 1893 lip service was paid to the importance of silver (this enabled the government to gain a few key votes for repeal), but on the whole the Administration had no intention of favoring silver at the expense of gold. Minor silver coinage did increase beginning in 1891, but this was due to the government vaults finally paying out the last of the U.S. silver coins that had returned from abroad in 1877-1878.