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August 8, 1893 : The Repeal of the Silver Act

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From the Archives : Originally published August 08th, 2011
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Category : History of Gold

 

 

 

 

President Cleveland
Message on the Repeal of the Sherman Silver Purchase Act
(August 8, 1893)




The existence of an alarming and extraordinary business situation, involving the welfare and prosperity of all our people, has constrained me to call together in extra session the people's representatives in Congress, to the end that through a wise and patriotic exercise of the legislative duty, with which they solely are charged, present evils may be mitigated and dangers threatening the future may be averted.


Our unfortunate financial plight is not the result of untoward events nor of conditions related to our natural resources, nor is it traceable to any of the afflictions which frequently check national growth and prosperity. With plenteous crops, with abundant promise of remunerative production and manufacture, with unusual invitation to safe investment, and with satisfactory assurance to business enterprise, suddenly financial distrust and fear have sprung up on every side. . . . Values supposed to be fixed are fast becoming conjectural, and loss and failure have invaded every branch of business.


I believe these things are principally chargeable to Congressional legislation touching the purchase and coinage of silver by the General Government.


This legislation is embodied in a statute passed on the 14th day of July, 1890, which was the culmination of much agitation on the subject involved, and which may be considered a truce, after a long struggle, between the advocates of free silver coinage and those intending to be more conservative. .


This law provides that in payment for the 4,500,000 ounces of silver bullion which the Secretary of the Treasury is commanded to purchase monthly there shall be issued Treasury notes redeemable on demand in gold or silver coin, at the discretion of the Secretary of the Treasury, and that said notes may be reissued. It is, however, declared in the act to be


"the established policy of the United States to maintain the two metals on a parity with each other upon the present legal ratio or such ratio as may be provided by law."


This declaration so controls the action of the Secretary of the Treasury as to prevent his exercising the discretion nominally vested in him if by such action the parity between gold and silver may be disturbed. Manifestly a refusal by the Secretary to pay these Treasury notes in gold if demanded would necessarily result in their discredit and depreciation as obligations payable only in silver, and would destroy the parity between the two metals by establishing a discrimination in favor of gold.


The policy necessarily adopted of paying these notes in gold has not spared the gold reserve of $100,000,000 long ago set aside by the Government for the redemption of other notes, for this fund has already been subjected to the payment of new obligations amounting to about $150,000,000 on account of silver purchases, and has as a consequence for the first time since its creation been encroached upon.


We have thus made the depletion of our gold easy and have tempted other and more appreciative nations to add it to their stock. .


Unless Government bonds are to be constantly issued and sold to replenish our exhausted gold, only to be again exhausted, it is apparent that the operation of the silver-purchase law now in force leads in the direction of the entire substitution of silver for the gold in the Government Treasury, and that this must be followed by the payment of all Government obligations in depreciated silver.


At this stage gold and silver must part company and the Government must fail in its established policy to maintain the two metals on a parity with each other. Given over to the exclusive use of a currency greatly depreciated according to the standard of the commercial world, we could no longer claim a place among nations of the first class, nor could our Government claim a performance of its obligation, so far as such an obligation has been imposed upon it, to provide for the use of the people the best and safest money.


If, as many of its friends claim, silver ought to occupy a larger place in our currency and the currency of the world through general international cooperation and agreement, it is obvious that the United States will not be in a position to gain a hearing in favor of such an arrangement so long as we are willing to continue our attempt to accomplish the result single-handed. . .


The people of the United States are entitled to a sound and stable currency and to money recognized as such on every exchange and in every market of the world. Their Government has no right to injure them by financial experiments opposed to the policy and practice of other civilized states, nor is it justified in permitting an exaggerated and unreasonable reliance on our national strength and ability to jeopardize the soundness of the people's money.


This matter rises above the plane of party politics. It vitally concerns every business and calling and enters every household in the land. There is one important aspect of the subject which especially should never be overlooked. At times like the present, when the evils of unsound finance threaten us, the speculator may anticipate a harvest gathered from the misfortune of others, the capitalist may protect himself by hoarding or may even find profit in the fluctuations of values; but the wage earner-the first to be injured by a depreciated currency and the last to receive the benefit of its correction-is practically defenseless. He relies for work upon the ventures of confident and contented capital. This failing him, his condition is without alleviation, for he can neither prey on the misfortunes of others nor hoard his labor. .


It is of the utmost importance that such relief as Congress can afford in the existing situation be afforded at once. The maxim "He gives twice who gives quickly" is directly applicable. It may be true that the embarrassments from which the business of the country is suffering arise as much from evils apprehended as from those actually existing. We may hope, too, that calm counsels will prevail, and that neither the capitalists nor the wage earners will give way to unreasoning panic and sacrifice their property or their interests under the influence of exaggerated fears. Nevertheless, every day's delay in removing one of the plain and principal causes of the present state of things enlarges the mischief already done and increases the responsibility of the Government for its existence. Whatever else the people have a right to expect from Congress, they may certainly demand that legislation condemned by the ordeal of three years' disastrous experience shall be removed from the statute books as soon as their representatives can legitimately deal with it.


It was my purpose to summon Congress in special session early in the coming September, that we might enter promptly upon the work of tariff reform, which the true interests of the country clearly demand, which so large a majority of the people, as shown by their stiffrages, desire and expect, and to the accomplishment of which every effort of the present Administration is pledged. But while tariff reform has lost nothing of its immediate and permanent importance and must in the near future engage the attention of Congress, it has seemed to me that the financial condition of the country should at once and before all other subjects be considered by your honorable body.


I earnestly recommend the prompt repeal of the provisions of the act passed July 14, 1890, authorizing the purchase of silver bullion, and that other legislative action may put beyond all doubt or mistake the intention and the ability of the Government to fulfill its pecuniary obligations in money universally recognized by all civilized countries.



 

 



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This speech amply demonstrates what i have pointed out many times before: gold and silver make for very poor money precisely because unlike paper, with virtually no intrinsic value, they fluctuate in value, sometimes quite radically. Those who ignore history, or at best gloss over it, by advocating for a return to a gold standard, would have us repeat the mistakes from the past. Shame on them.
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By ignoring current history and glossing over todays problems you would have us repeat the same mistakes that are being made now?

Shame on you.
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What you're saying is Vox, that this natural gravitation towards gold as money as demonstrated by the human race for thousands of years is in fact wrong... they were all making a terrible mistake... virtually the entire human race, for hundreds of generations were actually poor misguided souls who didn't know what was good for them.

Without having lived a single life you would put your knowledge and experience up against that of the collective, historical human race and without hesitation determine yourself the better. The arrogance of it.

The right thing to do of course was hand over all control of wealth to an elite few by giving them authority to "make" and regulate money, then place all our faith and trust in them to do the right thing.... eureka! Why didn't anybody think of that before?

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"I'm just a soul whose intentions are good.....please don't let me be misunderstood."--Eric Burdon
_______________________________________________________________________________________________________________

It is rather amusing that you would have confused my 3 simple lines for arrogance. Merriam-Webster defines it as, "an attitude of superiority manifested in an overbearing manner or in presumptuous claims or assumptions." Grover's speech highlighted a very real problem that has cropped up from time to time with commodity based currencies. i synthesised that into a single sentence and added another, warning of what happens when mistakes are repeated. If that be arrogance, then i am guilty. Perhaps if i had prefaced my remark (as everyone else here does) with words to the effect that "i am almost certainly wrong, but...." you would not have thought me arrogant. However, as my comment relied not upon presumptuous claims or assumptions, but inescapable fact and logic, i thought i could get by without the disclaimer.

Your response would seem to rely exclusively upon presumptuous claims and assumptions; not hard facts and logic. Your claim "this natural gravitation towards gold as money as demonstrated by the human race for thousands of years," is extremely presumptuous on several levels. Not only does it give credence to the rather absurd notion that people are somehow imbued with an irresistible drive to have gold and only gold represent money, it ignores the fact that silver has a longer history of representing money, as does grain. Copper and bronze coins have served as money for longer as well. And if you still really want to go with that silly longevity argument of yours, i could counter that as mankind did without any form of money whatsoever for hundreds of thousands of years, we should not ignore the countless generations of their accumulated wisdom and just get rid of the damn stuff altogether. But in reality, the length of time a belief is held neither adds nor subtracts from its objective truth.

Let us get serious. The question is: What would make for the best representation of money? It is a timely question in that we are facing the demise of most, perhaps all, of our current representations and so a sober discussion should be undertaken so as that we can be prepared for what will follow. If we can agree that no nation has willingly abandoned their form of money because it was working well, then we must conclude that all attempts at coming up with the ideal form of money have either already failed or are in the process of doing so. On this point one would have a better chance of arguing that some of the currently existing currencies are not facing collapse than countries gave up on using gold because it was working well for them. This conclusion inexorably leads us to admit that be it based on gold, silver, salt, sea shells, grain, slave girls, heifers, paper or whatever else that has been attempted, currencies have always failed. That fact has stood the test of time and there is no escaping it.

Before the question can be answered, we must agree that for the best possible representation of money, it would be desirable if it served as a good store of value. If we cannot agree upon that, then we will arrive at different answers. As i view that as a desirable quality, i see paper being the best possible choice.

Before getting to that, let us take a brief look at why currencies have failed in the past. Doing so will help us to avoid mistakes made in the past.
The reasons for failure can be broken down into 2 categories. By far the larger of the 2 has been the mismanagement of monetary matters by government. The other has been the supply dynamics of commodity based currencies. That is to say, regardless of what was used as money, government always found a way to debase its value and even when government was not busy doing that, with commodity based currencies, supply dynamics ruined the net worth of those whose wealth was held in gold or silver.

So then, in designing what will best serve our needs in representing our mental construct, we can begin by stating what is not wanted. We do not want to have something that can be abused by those entrusted with the wise stewardship of maintaining its value and we do not want something whose value is subject to large fluctuations owing to supply dynamics. To satisfy the first requirement will pose the largest obstacle in that politicians despise honest money. Nevertheless, a law that cannot be amended or repealed must be enacted that spells out in an apodictic fashion that our money must maintain its purchasing power relative to a basket of non-luxury goods (food, shelter, clothing and energy). With that in place, paper would work best in that having negligible intrinsic value to begin with and being a renewable resource and so not subject to supply shortages, we need never be concerned about the money in our pocket losing its value owing to the supply dynamics of the actual physical representation.

Paper money has a further advantage over commodity based currencies. Being both a renewable resource and recyclable, we need not be concerned that some new industry will spring up that would require so much paper that its value would be greater when used for that purpose than as money. Gold and silver are both currently used in industrial applications, which of necessity, alter the supply dynamics over time. If used to represent money, it would lead to the mint competing with the solar panel industry for the finite supply of new silver. The only way around this problem, if we desire our money maintain its purchasing power, would be to stamp each coin with an absurdly large number such that no industry could more profitably make use of the metal. But that only causes another problem, that of divisibility. For small purchases we would have to weigh out picograms of gold or go to a shop where change could be made. It may sound absurd, but we must remember in designing this ideal money that metals have competing uses and there is a finite supply of them, making their value subject to fluctuations that are never to the advantage of both borrowers and savers simultaneously. Paper, wonderful paper, presents no such problem. The discovery of vast new forests could not depreciate the value of our money and being recyclable, we would never face a day when we could not print a bill with a large enough number on it to make its value greater than the cost of the raw material itself; meaning that we will never see the purchasing power of paper money in our pockets suddenly appreciate because a new use for paper makes it more valuable in that role than as money.
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What i found rather amusing is that everyone who bothered to rate Grover's words gave him 5 stars, yet my 3 lines received a bunch of down arrows when i was not really saying anything other than what Grover had. How is it that everyone loved his words, but had a very different reaction to mine? Did you all think that he was saying that gold and silver make great money, or was he speaking about how the supply dynamics --and nothing else-- of silver had caused untold problems for the nation? It seems to me that he was very clear and it further seems that your responses to him and me show what might be thought of as signs of schizophrenic behaviour. Not that i'm saying that any of you are full blown schizophrenics, but if you gave the article 5 stars and me a down arrow, you just might want to get yourself checked out anyway; you know, just to be on the safe side.
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"Not that i'm saying that any of you are full blown schizophrenics, but if you gave the article 5 stars and me a down arrow, you just might want to get yourself checked out anyway; you know, just to be on the safe side. "

Nothing arrogant or presumptuous there. No superiority complex manifesting itself in that remark. It always makes me wonder how poor Vox can stand to live with 7 billion people who are utterly stupid and not worth even spitting upon.

"Before the question can be answered, we must agree that for the best possible representation of money,"

What Vox means here is that we all must agree with his point of view. He has many times used the same phrase and each time it comes down to his opinion being the superior one. No arrogance there.
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Vox I kind of agree with you on paper. Gold mining is a very ugly business, it uses nasty chemicals and trashes landscapes. I'm not a fan of it and I hate to think how much worse the situation would get if gold were officially money again. I'm not a die-hard gold or silver fan. What I do like about these metals is their broad and undying acceptance as a most liquid asset.

I acknowledge and accept your case that there are practical and real problems with a gold standard and using gold as money. Nobody is saying gold and silver are perfect money. What I am saying is that they are *better* money than what we have now.

You're saying that commodity-based currencies are doomed to failure due to the very real possibility of supply/demand dynamics. I say that paper money fails due to human miss-management and greed. Somebody once said "Power corrupts and absolute power corrupts absolutely". I would put it to you that the absolute power that comes with the ability to create money has *always* corrupted. It is simply impossible for human beings to be trusted in this regard. I believe this to be a greater certainty than the supply/demand issues that a commodity-based currency might endure from time to time.

It is also a matter of scale. While gold and silver may fluctuate in value to a degree, paper money that has lost all confidence quickly loses *all* its value. At no time in history was any man left holding a gold coin that was considered worthless. I have trillions of old Zimbabwe dollars in a drawer as a reminder that paper can easily become worthless in a very short time. The US dollar has lost 95% of its purchasing power in just a few generations - and this is our flagship paper currency which the world (for the most part) still has confidence in.

It is highly unlikely that humanity will ever discover or implement a "perfect money" so there is no point attacking any system on the basis that it cannot be perfect. We are human and we live in a human world. Money is a human concept and will likely be subject to the uncertainties and changeability that go with being human. As always our job is to do the best we can with the tools we have.

I didn't give the article any rating nor did I down-arrow you Vox. I like to learn things and the best way to do that is to listen without prejudice.

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Thanks for your response. Let me deal with a few of the points that you raised: "You're saying that commodity-based currencies are doomed to failure due to the very real possibility of supply/demand dynamics. I say that paper money fails due to human miss-management and greed." You are almost completely correct. Commodity based currencies are also subject to massive fluctuations in value due to government mismanagement. We need only think of FDR revaluing gold, making it 66% more expensive overnight. But history is chock-a-block full of other such examples. Regardless of what is used as money, government has always managed to find a way to destroy its value and that is every bit as much true for gold as it is for paper. That is why the need for a law along the lines i have suggested is a necessary prerequisite if our next attempt at a monetary system is also not to wind up on the scrap heap of history. Without it, regardless of what we choose to represent the new currency, it too will fail.

You also made the claim that "At no time in history was any man left holding a gold coin that was considered worthless." i regret to tell you that your assertion is false. With the collapse of the Western Roman Empire, Europe entered into what we call the Dark Ages. There would not be so much as a single coin minted for 600 years. Money ceased to exist. There was no use for a gold coin and so you could not use one to buy anything. You might be able to trade it for something you needed if you could find anyone willing to take it, but those were hard-scrabble times and so finding someone who would accept it in trade when you could not eat it, wear it or drink it would not have been easy. After all, decorative items were not in high demand.....Japan experienced a similar 600 year period during which the concept of money was lost and no coin would be minted throughout that period. A bag full of gold coins, if one had one, would not get you a cup of tea in that no one had any use for the coins. And that is as it should be, for coins have no real secondary use if not being used as money. So, contrary to your claim, history does tell us that the value of gold collapsed to the point that they held no more value than the Zim dollars you have and perhaps less, for there would have been far fewer folks back then who collected worthless objects for their curiosity value.

In closing let me state in very clear terms that i am not championing the current paper money regime. It has proven a disaster just as every other attempt at having something represent currency has proven a disaster worthy of its place in the hall of shame. My point is that with all things being equal, paper is superior to gold or silver simply because, unlike those things, it is not subject to wild fluctuations in value. Even with the sort of law i have suggested, a monetary system based on precious metals will eventually fail because of market dynamics. But one based on virtually worthless paper would be immune to such forces. And that makes paper the superior choice for what will follow.
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Hmmm... no coins for 600 years? Historians generally agree that the dark ages was the period between the end of the roman empire (5th C) until the beginning of feudalism in Europe (9th C) so that's 400 years, not 600.

http://www.numsoc.net/darkages.html

This article sites many examples of existing coinages at the time and gives us a window of no more than 190 years where coinage was not minted. Gold coins were used by Britain for trade with Europe during the dark ages, though they may not have minted them.

Other stuff I find shows me there was a lot of trade and gold coining going on with China, the Visigoths, Byzantine empire and so on during this time. Just because much of Europe was in turmoil doesn't mean that gold lost its value in a historical sense. The man holding the gold coin need only board a ship to realise the value of what he holds. Patchy trade continued although much diminished in size and infrastructure - as one would expect within a devastated population. This entire situation would have been imminently and catastrophically deflationary.... so quite understandable that no new coinage was needed or created during that time.

If somebody took away all government, burnt down your town and left you and your family with the plague I would hope that money and gold become much less important.... you may even forget to go to the bank and check your account balance! At least for a while until things were back to normal. Of course some things will always be more important than money.

Lets acknowledge the dark ages as being a real and lasting crisis for Europeans. If they abandoned money to any great degree it was in favour of more pressing urgencies - like basic survival. Much as one would expect if an asteroid hit the Earth today. Life would change for a while, but as soon as people were able to produce more than they consumed then trade - and with it money - would reappear to fill the void.

If you can find a way to preserve wealth through a major "asteroid" event like the dark ages then you're doing better than most... and yet gold managed this feat. It had value before the event, it had value during the event (admittedly with much reduced demand and throughput) and it had value after the event when productivity and trade returned. If anything the example of the dark-ages supports my case as much as it may invalidate it. For a massive, multi-century financial reset like this to occur and gold to survive it... well its a testament to its strength rather an example of its weakness.
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Thanks for your thoughtful response. i will not quibble with some of the claims raised, such as trade going on with China before Marco Polo or whether the Dark Ages ended with the rise of feudalism or at the dawn of the Age of Enlightenment. The salient points to our discussion are that there was a period (190 years) at the start of the Dark Ages when money was not used and from the article referenced, a period at the end of the that age when the notion of money vanished. Those periods in human history clearly show that contrary to your initial claim that there has never been a time when a gold coin lost all of its purchasing power, such times did actually exist and they lasted considerably longer than the span of a man's life.
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Fair enough. I wasn't claiming that Europe was trading with China before Marco Polo. I was saying that the withdrawal of the Roman empire from much of Europe didn't affect other parts of the world. When we look at the use of money in history we could probably find similar events elsewhere. For example when the Mongols invaded China not only did they massacre the people but I think their gold currency was replaced with a silver one. Certainly another period when a man might need to travel far afield before his gold coin can be traded.

So perhaps my original statement needs to be amended to include some clause about devastating events. Fair call.
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Latest comment posted for this article
Fair enough. I wasn't claiming that Europe was trading with China before Marco Polo. I was saying that the withdrawal of the Roman empire from much of Europe didn't affect other parts of the world. When we look at the use of money in history we could pro  Read more
dom1971 - 8/13/2013 at 3:08 AM GMT
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