National Archives Foundation
Silver miners in the Comstock Lode, Nevada. In essence, the Bland-Allison Act( 1878) and the Sherman Silver Purchase Act( 1890) created a taxpayer-sponsored boondoggle of over $ 565 million to the silver industry.
European investors had noticed that while the US gold supply was rapidly and seriously contracting, its gold obligations, via the compulsory purchase of silver bullion in the amount of 4,500,000 ounces monthly, and the issuance of Treasury notes, exchangeable in gold, were just as briskly increasing. This resulted in distrust of the United States to continue making its gold payments. Carnegie wrote,“ People abroad … decided that it was safest to withdraw all their money from our country … and quietly began to drain our country of its gold, leaving us the silver, of which we seemed so fond.”
From 1888 to May 1893, when the panic struck, $ 328,247,884 worth of gold had been exported, while during the same period gold imports totaled only $ 114,683,035. That was a net loss of $ 213,564,849. Writing in July of 1893, Edward O. Leech, the former mint director, reported that gold coin and gold certificates in circulation decreased during the previous year by
$ 56,790.953. However, silver dollars, silver certificates and Treasury notes increased at the same time by $ 41,218,502. The market price of silver continued to drop. It had fallen from 96 cents an ounce on April 1, 1890 to 82 cents an ounce on March 23, 1893, while the intrinsic value of the silver dollar dipped from 741/2 cents to 631/2 cents.
The panic intensified when the British closed their Indian mints to the free coinage of silver on June 26, 1893. They did this because the value of silver money in India had depreciated over time by more than one-third. A few hours after the British published the new gold values of silver rupees— at 16 d. replacing the original value of 24 d.— silver dropped 23 % in value, which made the intrinsic value of a silver dollar only 52 cents. That was the lowest value to which silver had ever fallen.
Carnegie explained that most business was not conducted by an exchange of currency notes or even gold and silver. This was the“ small change” that accounted for no more than one-twentieth of all business transactions. All large transactions were made upon credit— pieces of paper— and payable on time. The seller must know what type of money he will be paid and the buyer what type of money his is to pay. In September 1893, Carnegie wrote,“ Will it be in gold, worth 100 cents on the dollar anywhere in the world, or will it be in silver, worth only 52 cents per dollar?”
The industrialist mentioned that the Act of 1890 stated its policy was to keep all Treasury notes payable in gold. But the question to the man of finance was how could the government“ pay in gold all the notes it has issued, and is still issuing, when it is losing its gold so fast, and every month increasing its notes? The Government has today less than 100 millions of dollars in gold, and is already pledged to pay in gold notes to the amount of more than eight hundred and fifty millions of dollars.”
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