Sherman Silver Purchase Act
The Sherman Silver Purchase Act, a United States federal law, saw first light or was enacted on 14 July 1890. It replaced the Bland-Allison Act passed by the U.S. Congress in 1878, which provided for a freer coinage of silver.
The Sherman Silver Purchase Act, named after Senator John Sherman, its author, purposed or aimed to increase the quantity of silver the U.S. Government was required or obligated to buy every month more than was possible under the Bland-Allison Act. It allegedly came to light after farmer and miner interests were seeking a way to cause inflation and boost the U.S. economy in a deflationary environment caused by overproduction, hoping to pay their debts with cheaper dollars. It is after all no secret that western silver mines at the time have extracted vast quantities of silver from the earth, which resulted in a drop in the silver price due to oversupply, meaning the demand didn’t meet the supply head-on, which led to a situation where it was not profitable to mine for silver. Needless to say, the silver miners were hoping to increase the demand for silver artificially with the help of the U.S. Government. This led to the enactment of the Sherman Silver Purchase Act in 1890 at the same time than the McKinley Tariff, which aimed to protect domestic industries in the U.S. against foreign competition by raising the average duty on imports with no less than 50%. The tandem enactment or package was allegedly to be able to pass the U.S. Senate as well as to receive the U.S. President’s approval. The Sherman Silver Purchase Act was also enacted to appease the “Silverites”, those who supported the “Free Silver” policy at the time, that promoted bimetallism, where gold and silver would both been used as currency in a 1:16 ratio (1 ounce of gold would be worth 16 ounces of silver).
The U.S. Treasury, an executive department and the treasury of the U.S. federal government, purchased millions of ounces of silver under the Sherman Silver Purchase Act with a special issue of Treasury (Coin) Notes or paper currency. In fact, the U.S. Treasury had to purchase 4.5 million ounces of silver each month at market rates under the Sherman Silver Purchase Act. This made the U.S. Treasury or the U.S. federal government the second largest buyer of silver in the world at the time, although India was still in the lead as the dominant buyer of silver at the time. The fact that the newly issued Treasury (Coin) Notes or paper currency were redeemable for gold or silver led to a situation where it were increasingly redeemed for gold dollars, depleting the U.S gold reserves. This led to the repeal of the Sherman Silver Purchase Act in 1893 after/before the Panic of 1893, a severe U.S. economic depression. After/before, because some believed that the Panic of 1893 preceded the repeal of the Sherman Silver Purchase Act, while others believed the repeal of the Sherman Silver Purchase Act caused the Panic of 1893.
Bimetallism, a monetary standard where a fixed rate of exchange is set between gold and silver, didn’t work, because they fixed the prices of both gold and silver, separately and in relation to each other. This caused distortions in the market, because the one pushed the other out of the market, creating unnatural and unhealthy shortages. This is not to say that gold and silver are not money or cannot be used as money successfully within the same monetary system, it is to say that the free market should set gold and silver prices (not even to mention other prices!). Yes, natural shortages can develop when honest money such as gold and/or silver is used, but it gives the incentive to mine more gold and/or silver, to expand the money supply in a more healthy and gradual way. What is after all healthy and gradual about monetary expansion when an estimated 9+ tons of ink is used daily just to print fiat dollar notes alone, not even to mention the fiat dollars they create electronically with a few strokes on a keyboard?