The Sherman Silver Purchase Act was enacted on July 14, 1890 as a United States federal law. It was named after its author, Senator John Sherman, an Ohio Republican, chairman of the Senate Finance Committee. While not authorizing the free and unlimited coinage of silver that the Free Silver supporters wanted, it increased the amount of silver the government was required to purchase every month. The Sherman Silver Purchase Act had been passed in response to the growing complaints of farmers and mining 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. 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 where it was profitable to mine it. They hoped to enlist the government to artificially increase demand for, and thus the price of, silver.
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 government of 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. 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. The reduction of receipts of specie in payment of the tariff, from the curtailment of imports under the McKinley Tariff, compounded the problem. 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.
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