Bland-Allison Act (1878)

Lawrence H. Officer

After the Coinage Act of 1873 discontinued coinage of the U.S. silver dollar, the world market price of silver fell drastically. Demand decreased as the United States demonetization of silver (ceasing to use it as a monetary standard) combined with a shift in European countries from a silver to a gold standard (establishing gold as the standard for the basic unit of currency). Supply increased as large silver deposits were discovered in the American West, but silver-mining companies suffered with no orders coming from U.S. mints. The Coinage Act also hurt debtors, especially farmers. Prices in general were falling, and output (of agricultural and other products) was increasing at a faster rate than gold production. Farmers and other debtors in the South and West combined to advocate "free silver," meaning unlimited coinage of the standard U.S. silver dollar specified in the Coinage Act of 1837, with unlimited power as legal tender.

Some congressmen and senators supported the use of free silver, partly because of regional concerns, and partly because they believed that free silver would result in inflation and/or bimetallism (the use of both gold and silver sa monetary standards). The "silverites" saw both outcomes as desirable. Business and financial interests (especially in the Northeast), and their supporters in Congress, opposed the use of free silver. These "monometallists" believed in preservation of the gold standard and wanted a conservative monetary regime.

A VICTORY FOR SILVERITES

The Bland-Allison Act of 1878 (P.L. 45-20, 20 Stat. 25) was the first victory of the silverites, although the act was a compromise. Congressman Richard P. Bland included free coinage in his bill, but the provision was removed by Senator William B. Allison. The bill restored the standard silver dollar's full legal-tender quality. Instead of free coinage, the secretary of the treasury was directed to purchase silver bullion (the metal in its uncoined state) at the market price, in the amount of 2 to 4 million dollars monthly, and to coin the bullion into standard silver dollars. The low price of silver meant that the silver dollar became, in effect, a subsidiary coin: its face-value was greater than its metallic value. This decidedly was not a characteristic of minted gold coins.

UNWANTED CONSEQUENCES AND FURTHER LEGISLATION

The outcome of the act was unsatisfactory to everyone. The Treasury Department, never in favor of the legislation, purchased silver in minimum amounts. Thus the increase in the money supply consisting of silver coinage was limited. Silver-mining companies received a market for their product, but the price of silver continued to fall. To meet the legal dollar minimum, the Treasury had to buy an increasing volume of bullion, which meant a higher expense for coining and storage. The pressure on Congress for new legislation was universal. The outcome was the Sherman Silver Purchase Act of 1890, which directed the Treasury to purchase silver bullion in the physical amount of 4.5 million ounces monthly and to pay for it with legal-tender Treasury notes, a new kind of paper money. Now a fixed maximum weight of bullion would be purchased. Ironically, Senator John Sherman, who gave the act its name, voted for the bill only to avoid free coinage.

The price of silver continued to decline, even though the act increased Treasury purchases. An acute lack of confidence in U.S. maintenance of the gold standard followed, both at home and abroad. The cause of this lack of confidence was not monetary inflation directly. Rather, it was distrust in the gold value of the dollar, partly because of "silver agitation" in Congress, as bills for free coinage continued to be presented. A financial panic occurred in 1893, and many blamed the Sherman Act. President Grover Cleveland convened a special session of Congress and demanded that the act be repealed. The silver-purchase and note-issuance provisions of the Sherman Act were in fact repealed in 1893, although the legal-tender status of silver coin and Treasury notes remained.

The silver-induced monetary inflation of the Bland-Allison and Sherman Acts came to an end. Yet the threat to the U.S. gold standard increased, especially because of continuing silver agitation in Congress. The defeat of William Jennings Bryan, a prominent Democratic silverite, in the presidential election of 1896 finally put an end to silver as a political issue, along with the threat this issue posed to the gold standard.

See also: BANK OF THE UNITED STATES; COINAGE ACT OF 1792; COINAGE ACTS; FEDERAL RESERVE ACT; GOLD STANDARD ACT OF 1900.

BIBLIOGRAPHY

Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867–1960. Princeton, NJ: Princeton University Press, 1963.

Nugent, Walter T. K. Money and American Society, 1865–1880. New York: Free Press, 1968.

Nussbaum, Arthur. A History of the Dollar. New York: Columbia University Press, 1957.

Watson, David K. History of American Coinage. New York: G. P. Putnam, 1899.