Sherman Silver Purchase Act

Definition

The Sherman Silver Purchase Act, enacted in 1890, was a U.S. federal law that mandated the government to purchase silver and issue currency backed by that silver. The act aimed to increase the money supply and stimulate the economy, responding to the economic struggles of the time, particularly as it led to inflation and concerns over deflation.

5 Must Know Facts For Your Next Test

1. The Sherman Silver Purchase Act increased the amount of silver the U.S. government was required to buy from 2 million ounces to 4.5 million ounces per month.
2. It was a response to the demands of silver miners and farmers who believed that increasing the money supply would help alleviate debt burdens.
3. Despite its intention to stabilize the economy, the act contributed to economic instability and was one of the factors leading to the Panic of 1893.
4. The law was repealed in 1893 as part of efforts to address the financial crisis, reflecting a shift in policy back toward a gold standard.
5. The act highlighted the intense political struggle between supporters of silver (often from rural areas) and those advocating for the gold standard (largely from urban areas).

Review Questions

• What were the primary objectives of the Sherman Silver Purchase Act, and how did it attempt to address economic issues in the late 19th century?
  • The Sherman Silver Purchase Act aimed to increase the money supply by mandating government purchases of silver, intending to stimulate the economy and counteract deflationary pressures. It sought to provide financial relief to debt-ridden farmers and miners who believed that a more expansive money supply would lead to higher prices for their goods. By promoting bimetallism, it was hoped that this act would ultimately stabilize prices and encourage economic growth during a challenging period.
• Discuss how the Sherman Silver Purchase Act contributed to the economic turmoil leading up to the Panic of 1893.
  • While the Sherman Silver Purchase Act was designed to create economic stability through increased silver purchases, it actually exacerbated existing financial issues. As more silver was purchased, confidence in the U.S. currency declined, leading investors to withdraw their investments in railroads and banks. The resulting instability created a financial panic in 1893 marked by bank failures, business closures, and mass unemployment, showcasing how well-intentioned legislation can sometimes have unintended negative consequences.
• Evaluate the long-term impacts of the Sherman Silver Purchase Act on U.S. monetary policy and its reflection of societal divisions during that era.
  • The Sherman Silver Purchase Act had lasting effects on U.S. monetary policy, intensifying debates over bimetallism versus the gold standard. Its repeal during the Panic of 1893 marked a significant shift back toward gold-based currency, reflecting societal divisions between rural interests seeking inflationary policies and urban elites favoring a stable currency linked to gold. This conflict continued into the early 20th century, influencing future monetary policies and contributing to political realignments as various factions sought to influence national economic direction.

Related terms

Bimetallism: A monetary system that uses both gold and silver as a basis for currency, allowing for more flexibility in money supply and prices.

Panic of 1893: A severe economic depression triggered by overbuilding and speculation in railroads, leading to bank failures and widespread unemployment.

Gold Standard: A monetary system where a country's currency or paper money has a value directly linked to gold, limiting the amount of currency in circulation based on gold reserves.