Sherman Silver Purchase Act Flashcards, test questions and answers

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What is Sherman Silver Purchase Act?

The Sherman Silver Purchase Act was a United States federal law passed by Congress in 1890. The act authorized the U.S. Treasury to purchase large amounts of silver and issue notes backed by that silver, providing an influx of money into the economy. This increase in money circulation had a stimulative effect on the economic growth of the late 19th century, but it also caused inflationary pressures that contributed to the Panic of 1893 which eventually resulted in its repeal in 1893. The main purpose of this act was to expand currency supply and help stabilize prices for American farmers who were suffering from depression-level deflation during this period due to overproduction and low demand for their crops. It was thought that increasing money supply would encourage more spending, thus helping boost domestic consumption and create jobs through increased production. The government bought up massive amounts of silver bullion to back these new notes with an intention to use them as an alternative form of currency alongside gold-backed paper dollars already common at the time. One major consequence resulting from this policy is that it created problems in maintaining a balance between currency values since now two different types were being used gold-backed coins and silver certificates (backed by both gold and silver). As demand for gold rose, people began hoarding it rather than trading it or using it as currency so much so that US Mints actually ran out. This ultimately led to further depreciation of the value of silver relative to gold until finally President Grover Cleveland repealed this legislation in 1893 citing concerns about its destabilizing effects on markets at home and abroad. Ultimately, while there were some short term benefits felt from implementing this act such as improved consumer confidence leading to higher levels domestic consumption, its long term legacy has been one marred with controversy as most economists agree that its enactment ultimately helped contribute towards inflationary pressures along with other factors like railroad speculation which all together culminated into what we know today as the panic.