The Sherman Silver Purchase Act was enacted on July 14, 1890[1] as a United States federal law. The Sherman Silver Purchase Act did not authorize the free and unlimited coinage of silver that the Free Silver supporters wanted. However, it increased the amount of silver the government was required to purchase on a recurrent monthly basis to 4.5 million ounces.[2] The Sherman Silver Purchase Act had been passed in response to the growing complaints of farmers' and miners' interests. Farmers had immense debts that could not be paid off due to deflation caused by overproduction, and they urged the government to pass the Sherman Silver Purchase Act in order to boost the economy and cause inflation, allowing them to pay their debts with cheaper dollars.[3] Mining companies, meanwhile, had extracted vast quantities of silver from western mines; the resulting oversupply drove down the price of their product, often to below the point at which the silver could be profitably extracted. They hoped to enlist the government to artificially increase the demand for silver.
Originally, the bill was simply known as the Silver Purchase Act of 1890. Only after the bill was signed into law, did the bill become the "Sherman Silver Purchase Act."[4] Senator John Sherman, an Ohio Republican and chairman of the Senate Finance Committee was not the author of the bill, but once both houses of Congress had passed the Act and the Act had been sent to a Senate/House conference committee to iron out differences between the Senate and House versions of the Act, Senator John Sherman was instrumental in getting the conference committee to reach agreement on a final draft of the Act.[5] Nonetheless, once agreement on final version was reached in the conference committee, Sherman found that he disagreed with many sections of the Act.[6] So tepid was Sherman's support of the Act that, when asked his opinion of the Act by President Benjamin Harrison, Sherman ventured only that the bill was "safe" and would cause no harm if the President signed the Act.[7]
The act was enacted in tandem with the McKinley Tariff of 1890. William McKinley, an Ohio Republican and chairman of the House Ways and Means Committee worked with John Sherman, the senior Republican Senator from Ohio, to create a package that could both pass the Senate and receive the President's approval.
Under the Act, the federal government purchased millions of ounces of silver, with issues of paper currency; it became the second-largest buyer in the world, after the British Crown in India. In addition to the $2 million to $4 million that had been required by the Bland-Allison Act of 1878, the U.S. government was now required to purchase an additional 4.5 million ounces of silver bullion every month.[8] The law required the Treasury to buy the silver with a special issue of Treasury (Coin) Notes that could be redeemed for either silver or gold. That plan backfired, as people (mostly investors) turned in the new coin notes for gold dollars, thus depleting the government's gold reserves. After the Panic of 1893 broke, President Grover Cleveland oversaw the repeal of the Act in 1893 to prevent the depletion of the country's gold reserves. Banker J. P. Morgan stepped in to form a syndicate that saved the U.S. with a massive gold loan, for which he received a commission. Nevertheless, Morgan succeeded in saving the nation from bankruptcy. While the repeal of the Act is sometimes blamed for the Panic, the Panic was already well underway.[3]