THE SILVER PANIC OF 1893

 

A well-circulated 1893-S (San Francisco Mint) Bland silver dollar. After the British closed their mints in India to the free coinage of silver on June 26, 1893, the intrinsic value of a silver dollar dipped to 52 cents. That was the lowest value to which silver had ever fallen.

Eric writes:

The Panic of 1893 should never have happened. It was completely avoidable. The panic was forced upon the American people by the free silver movement that began in 1876. Free silver is the ability to bring silver bullion to a US Mint and have it turned into unlimited coinage with no seigniorage charge. Among the supporters of free silver were silver mine owners, farmers who thought that an expanded money supply would raise the price of their crops and debtors who hoped it would enable them to pay off their debts more easily. For true believers, silver became a symbol of economic justice for masses of Americans. However, it was a colossal sham perpetrated upon the citizenry. The movement was insidious and delusional.

Two pieces of silver legislation—the Bland-Allison Act of 1878 and the Sherman Silver Purchase Act of 1890—obligated the US Treasury to purchase (from February 28, 1878 to June 1, 1893) 443,705,811 ounces of silver (equal to 15,212 tons) at a cost to taxpayers of $451,790,831. From 1878 to June of 1893—a period of only 15 years— 419,332,305 silver dollars and their paper equivalencies (silver certificates and Treasury notes) were forced into circulation. The Treasury also purchased 123,911,185 ounces (uncoined) of fine silver, which cost taxpayers an additional $114,299,757.

Readers may assume that the purchase of that much silver and the striking of hundreds of millions of silver dollars (as well as the printing of vast amounts of paper currency) must have been due to a great financial and economic need. It was not. Not one single silver dollar, silver certificate or Treasury note was ever needed—period. It was merely a scheme driven by the free silver movement. The existing greenbacks, national bank notes and gold certificates in circulation were sufficient to maintain the US economy.

In October of 1893, Charles S. Smith wrote in the North American Review: "In my judgement [the panic] is to be attributed to unwise legislation with respect to the silver question; it will be known in history as the ‘Silver Panic,' and will constitute a reproach and an accusation against the common sense, if not the common honesty, of our legislators who are responsible for our present monetary laws."

The production of silver in the western mines soared during the 1870s, reaching 17,789,000 ounces in 1871, surging up to 27,650,000 ounces in 1873 and rising even further to 29,650,000 ounces by 1876. As production ramped up, the price began to fall. From 1834 to 1873, the official US bimetallic silver-to-gold ratio was 16:1. The Coinage Act of 1873 demonetized silver, making silver coinage subsidiary and eliminating the standard silver dollar that contained 371.25 grains of silver. The United States was now on the gold standard.

In 1871, Germany demonetized silver and adopted the gold standard. The early 1870s saw the Latin Monetary Union (France, Belgium, Italy, Switzerland and Greece) with a bimetallic ratio of 15.5:1. By 1873, the decreasing value of silver had made it profitable to mint silver in exchange for gold in the Union at their standard. The fear of an influx of silver coinage led the Union, in a Paris meeting of January 1874, to suspend the free coinage of silver in their mints, and by 1878, with the price of silver continuing its downward fall, the Union permanently suspended the free coinage of silver. All other European nations also suspended free coinage of silver in their mints.

After 1873, the silver standard remained only in Mexico, the Orient (China, Hong Kong, the Straits Settlements and the French colonies in Southeast Asia) and British India. In the West, silver coinage on a bimetallic standard was passe. However, one nation—the United States—endeavored a renaissance of silver coinage in a big way.

 

To read the complete article (and issue), see:
https://www.moaf.org/publications-collections/financial-history-magazine/155

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