Monetary Policy Timeline
1837 Congress establishes a relationship between silver and gold at a ratio of 16:1 (16 oz. Of silver was equivalent to 1 oz. of Gold)
1860s: little silver was mined, price of silver goes up, resulting in silver miners decision to stop selling silver to the government because they can get more for it by selling it on the open market.
1873:
Coinage Act of 1873 demonetizes silver, ( as a result of explanation above) making gold the sole standard for the nation’s currency. Silver is no longer a form of currency, just a commodity to be bought and sold like any other.
Panic of 1873: panic and depression causes a fall in the value of silver, revives the interest in monetization of silver. Pressure on the govt. for such comes from two sources:
Silver Miners: Ironically, at about the same time silver was demonetized, new silver discoveries were made in the West. A glut of silver on the market resulted in falling prices. Miners started to push for re-monetization of silver - Bimetallism (use of both metals, silver and gold, as currency). They accused the government of foul play in the Coinage Act of 1873 “Crime of ‘73”.
Farmers: Wanted more currency in circulation (silver and paper) to drive up farm prices. For some background: during the Civil War Congress had enacted tariffs to protect American-made goods and to raise revenue for the war. Southerners and Westerners objected to the tariffs because of increased prices. Other nations began to issue retaliatory tariffs, particularly on American farm products. This resulted in a glut of farm products staying in the US and flooding the American market, thus lowering prices. Farmers began to see protection and growth of industry at the expense of farmers.
1875 Specie Resumption Act Conservative forces in the Republican party prevail and pass the law which provides for redemption of greenbacks in Gold.
1878 Bland Allison Act restored silver as currency, and pledged the government to purchase a minimum amount of silver from silver mines each month. Currency, nevertheless, was still backed by gold alone. True Bimetallism would have allowed redemption of currency in either gold or silver, and set a ration between the two (e.g., 16:1)
The early 1880s, sees a return to prosperity
1887, hard times hit again, prompting renewed interest in coinage of silver at 16:1 ratio
1890 Compromise is reached: Sherman Silver Purchase Act obligated the government to purchase newly all of the mines’ silver each month; but, this would be at market rates, not the predetermined 16:1 ratio
1893: Panic and depression again. Conservative leaders blamed the Sherman Silver Purchase Act for the nation’s ills. Farmers blamed the Eastern financial interests. Democrats are largely controlled by the Free Silver forces.
Silver played a prominent role in the Presidential elections of 1892, 1896 and 1900.
1900 The Gold Standard Act is passed, which established gold as the standard for all US currency. This would remain in place as the economy remains strong.