Bland-Allison Act (1878)

views updated May 17 2018

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.

Major Acts of Congress Officer, Lawrence H.

Bland-Allison Act

views updated Jun 27 2018

BLAND-ALLISON ACT

The Bland-Allison Act was a piece of legislation passed by the U.S. Congress in 1878, which required the U.S. Treasury to buy silver bullion and to mint $2 to $4 million worth of silver coin per month. The bill was introduced by Representative Richard Bland (1835–1899) of Missouri and was amended by Representative William Allison (1829–1908) of Iowa. Their constituents included many farmers who preferred the government to mint the coins. The U.S. economy went through a depression during the 1870s. While some clamored for the government to alleviate the situation by printing more greenbacks (paper currency issued to finance the Civil War), others advocated the coinage of silver. President Rutherford B. Hayes (1877–1881) vetoed the Bland-Allison Act. He feared that the re-monetarization of silver would cause inflation because U.S. currency had been based on the gold standard since 1874. But Congress was able to muster enough votes to overturn the veto and pass the bill into law. Under the act silver coins were minted on a standard of 16 ounces of silver per one ounce of gold.

In January 1879 the U.S. Treasury began paying gold for greenbacks; as a result the coinage of silver (which never exceeded $2 million per month) only had a mild inflationary effect. The Free Silver forces in the West advocated an unlimited coinage of silver versus the $2 to $4 million provided for in the legislation. On the other hand the gold standard forces called for an abandonment of silver coinage altogether. Both of them tried to replace the Bland-Allison Act. The Free Silver alliance won the day: In 1890 Congress repealed the Bland-Allison Act. It passed the Sherman Silver Purchase Act, doubling government purchase of silver to increase the money in circulation. The resumption of silver as a monetary standard had increased the activities of silver prospectors in the West. Mines began overproducing silver, causing prices to collapse. People in the United States responded by trading their silver dollars for gold dollars, draining federal reserves. In 1893 the Sherman Silver Purchase Act was repealed and the United States returned to the gold standard, which it retained until April 1933.

See also: Cross of Gold Speech, Free Silver, Gold Standard, Sherman Silver Purchase Act

Gale Encyclopedia of U.S. Economic History

Bland-Allison Act

views updated May 18 2018

BLAND-ALLISON ACT

BLAND-ALLISON ACT, the first of several U.S. government subsidies to silver producers in depression periods. The five-year depression following the panic of 1873 caused cheap-money advocates (led by Representative R. P. Bland of Missouri) to join with silver-producing interests in urging a return to Bimetallism, the use of both silver and gold as a monetary standard. The controversial mint reform act of 1873 eliminated the coinage of silver at a time when increased supplies from newly discovered Western mines were lowering prices. Silver advocates, decrying the so-called Crime of '73, demanded restoration of free coinage of silver at a ratio to gold of 16 to 1, approximately $1.29 an ounce.

Free coinage, as the symbol of justice for the poor, was seized upon by others determined to prevent resumption of specie payments (the redemption, in metallic coin, of U.S. paper money by banks or the Treasury) and desirous of plentiful inflationary currency. Bland's bill for free coinage, passed by the House on 5 November 1877, jeopardized Secretary of the Treasury John Sherman's plans for resuming specie payments. Sherman, through a Senate amendment sponsored by Senator W. B. Allison of Iowa, was able to substitute less inflationary limited purchases for free coinage. Silver producers accepted the arrangement as likely to restore silver to $1.29.

The law, passed 28 February 1878 over President Rutherford B. Hayes's veto, required government purchases, at market prices, of $2 million to $4 million worth of silver bullion monthly, and coinage into legal tender 16-to-1 dollars, exchangeable for $10 silver certificates. The president was directed to arrange an international bimetallic conference to meet within six months. These provisions signified victory for producers over inflationists.