Letter from Harvey N. Gardiner
Colorado History – January 2000 – Colorado Central Magazine
Editors:
In your December issue, the interesting article “Tomichi Lives On” repeats an historical inaccuracy that has been so often repeated that it is now accepted as truth. The historical inaccuracy is that the repeal of the Sherman Silver Purchase Act caused the silver crash of 1893.
For two decades preceding 1893, the price of silver had gradually trended downward. Blame lay with the prodigious success of mining, which between 1850 and 1875 increased the world’s production of gold and silver extraordinarily. Increased stocks of gold encouraged nations to substitute gold in place of silver in their currencies. Several European nations had done this by 1873, when the United States stopped coinage of silver dollars in what is called the “Crime of 1873.” Following this, the United States used silver only for fractional coinage.
Nations displacing silver currency with gold currency caused large amounts of silver to be thrown upon the international market. The ever-increasing output of silver mines, Colorado being one of the contributors, only added to the surplus. Some of the downward pressure on the price of silver was relieved by India and other Asian countries whose currencies continued to be based on silver. They absorbed the excess silver for a number of years.
Domestically, this complex struggle between gold and silver pitted the West against the East in the United States. Western silver mining states demanded “free coinage” of silver at the ratio of 16 ounces of silver to one ounce of gold. Eastern interests felt that heavy government purchases of silver would replace the gold dollar with a depreciated silver dollar or, even worse, with another issue of greenbacks (paper money) as had been done during the Civil War.
On two occasions, the Bland-Allison Act of 1878, which restored the silver dollar as legal tender, and in the Sherman Act of 1890, Congress authorized the purchase of silver for coinage into silver dollars at the United States mints. But the production of silver still exceeded the needs of the United States mints, the needs of the international market, and the needs of private business.
The United States did mint millions of silver dollars, but in the early 1890s banks began hoarding their gold by paying receipts owed to the government in silver. Government, in the course of its financial activities, paid for purchases in gold. As millions of silver dollars sat in storage at the mints, the gold reserves of the United States Treasury were slowly being replaced by silver. The possibility that the United States might suspend gold payments caused great concern in certain quarters.
ln 22 years, 1871-1893, the price of silver had slowly eroded 37 percent from $1.32 per ounce to .83 per ounce in June 1893. Business in Western silver mining states began retrenching amid feelings of financial apprehension. When India announced in June 1893 that it would cease the coinage of silver, the international silver market started tumbling. In four days’ time the New York price quote for silver fell 25 percent from .83 to .62 per ounce.
The crash of silver floored the silver mining industry. Silver mining halted everywhere in Colorado as mines and smelters ceased activity until a recovery in the price of silver would permit profitable operations. At the mines men just quit, walked away, and left everything as it stood. When the financial panic broke full fury in July 1893, twelve Denver banks closed their doors within three days. Businesses failed and thousands of workers and miners were out of work.
My point in this description is that in July 1893 the Sherman Act still required the United States Treasury to purchase each month 4,500,000 ounces of silver at the market price. But, when the price of silver fell so low that no mine could produce it at a profit, this subsidy of silver mining was useless. It was not until the end of October 1893 that Congress actually repealed the Sherman Act.
The historical inaccuracy about the repeal of the Sherman Silver Purchase Act causing the silver crash of l893 has been repeated over and over. I suppose that the reason for this is explained by the fact that my brief explanation of what happened took eight paragraphs.
Harvey N. Gardiner
Boulder