(Note: This is the text of a speech given by Mackinac
Center President Lawrence W. Reed on Oct. 28, 2006 at the Durell Colloquium on
"The Role of Markets and Governments in Pursuing the Common Good" at Hillsdale
College. November marks the 113th anniversary of President Cleveland signing the
repeal of the Sherman Silver Purchase Act of 1890, which is referenced below.)
In their assessments of American
presidents, a preponderant share of historians and pundits generally give high
grades to the ones who expanded the federal establishment, raised taxes and
spending, created new bureaucracies for future generations of Americans to
contend with, or tortured the Constitution until it confessed to powers the
Founders never conceived for the national government. If he broke promises,
misled or even lied to his fellow citizens to achieve these things, an
"activist" president is likely to be forgiven and those sins excused as the eggs
that had to be broken to make an omelet.
Even the presidents whose
administrations were rocked by scandal and ineffectiveness are better known
today than those who simply and efficiently ran honest governments that sought
to limit the growth of centralized power.
Democrat Grover Cleveland,
America’s 22nd and 24th chief executive, is one of the least known and most
underappreciated of all 43. Historians and pundits usually rate him above
average because of his personal character, but they rarely quote him or hold him
up as a model president. They often dismiss his defense of the gold standard as
quaint or intransigent. Sometimes the most that is said of him is that he
weighed more than any president but Taft, sired a child out of wedlock, and was
the only man ever elected to nonconsecutive terms as president, in 1884 and
In my estimation, Cleveland
deserves much better. His stance on the most critical economic issue of his
second term — the integrity of the nation’s currency — should earn him lasting
status as a president wise enough to know what was right and courageous enough
to stick by it.
To best appreciate Cleveland and
his views on monetary affairs, or his views on any policy issue for that matter,
one must recognize a cornerstone of his character. Honesty was his only policy.
It was the prism through which he saw the world and conducted his public life.
He was known in his day as one of the most honest men in government, a trait
that catapulted him from mayor of Buffalo, New York, to president of the United
States in the space of four years, with a two-year term as governor of New York
in between. When Joseph Pulitzer of The New York World endorsed him for
the nation’s highest office in 1884, he declared four reasons to vote for him:
"1. He’s an honest man. 2. He’s an honest man. 3. He’s an honest man. 4. He’s an
He didn’t shmooze and slither
his way to political power through smoky backrooms; nor did he exercise power as
if he loved it for its own sake.
As the son of a stern
Presbyterian minister, Cleveland was raised to always say what he meant and mean
what he said. He did not lust for political office and never felt he had to cut
corners, equivocate, or flip-flop to get elected. He was so forthright and
plain-spoken that he makes Harry Truman seem indecisive. His Pulitzer
Prize-winning biographer Allan Nevins summed him up this way: "His honesty was
of the undeviating type which never compromised an inch; his courage was
immense, rugged, unconquerable; his independence was elemental and
self-assertive. . . . Under storms that would have bent any man of lesser
strength he ploughed straight forward, never flinching, always following the
path that his conscience approved to the end."
Cleveland was a no-nonsense man.
He saw attempts to secure special favors, privileges or subsidies from
government as fundamentally dishonest. He opposed high tariffs not because he
was a learned economist (he had no formal training in economics) but because he
saw them as cynical abuses of the political process by the politically
well-connected. In his view, taking from some and giving to others was not
something an honest man in or out of government would ever do. Because he didn’t
accept the notion that government and its purse should be up for grabs by the
mob, he vetoed more bills than all previous presidents combined.
Cleveland even broke with the old practice of
bloating the federal bureaucracy with political cronies. He maintained the
highest standards in choosing the people who served around him, making
appointments only when necessary and then, only of people whose character and
qualifications were beyond reproach. The White House during his tenure was
scandal-free, a model of propriety for the rest of the country. He had no
In so many ways, Cleveland was a political oddity even for the Victorian
times in which he served. Time and again he refused to do the politically
expedient. As another Cleveland biographer, Alyn Brodsky puts it, "Here, indeed,
was that rarest of political animals: one who believed his ultimate allegiance
was to the nation, not to the party."
Honesty was the source of Grover
Cleveland’s political convictions. It was dishonest, he felt, for the government
to spend more than it had and send its bills to future generations. So he always
worked to produce a balanced budget. He even felt it was dishonest for
government to run a large surplus — "ruthless extortion,"
he called it — because it was a sign that government had taken more from the
people than it needed.
It was dishonest, he believed,
for government to steal from people by inflating the currency. So he made sure
the dollar was "as good as gold." It was dishonest, he argued, for government to
pay silver miners twice what their metal was worth in the open market, so he
opposed the silverites of his day. It was dishonest, he said, for government to
think it could spend money better than the people who first earned it. So he cut
taxes. It was dishonest, he argued, to stifle competition and consumer choice by
restricting imports. So he fought to reduce tariffs. All of these positions, I
might add, represent ingredients needed to ensure fiscal integrity in
government. Indeed, he once asserted categorically that "Patriotism is no
substitute for a sound currency."
Many a politician was skewered by famed
commentator H. L. Mencken. He reserved his rare praise for a very few. One of
them was Grover Cleveland, about whom Mencken wrote an essay entitled, "A Good
Man in a Bad Trade." He was, by all accounts, as utterly uncorrupted and
incorruptible when he left office as he was when he first assumed it. "Public
office is a public trust" was an original Cleveland maxim.
Regarding Cleveland’s essential honesty, have I belabored the point? I don’t
believe so. It’s the trait that explains why and how he dealt with all policy
matters, including the focus of this paper — monetary policy. To put his actions
in context, it is necessary to first provide some background.
No crisis of the Cleveland presidencies exceeded the magnitude of the
financial panic that gripped the nation at the start of his second term in 1893,
and which presaged a depression that still lingered when he left office in March
1897. Charles Albert Collman observed that "Money trouble was the manifest
of the period. Indeed, a breakdown of the monetary system and national
bankruptcy were narrowly averted within weeks of Cleveland’s assumption of
office in March 1893.
In the October 1893 North American Review, Charles
S. Smith offered a cogent analysis with which I completely agree. He wrote, "I
deem it proper at the outset to state that the recent panic was not the result
of over-trading, undue speculation or the violation of business principles
throughout the country. In my judgment it is to be attributed to unwise
legislation with respect to the silver question; it will be known in history as
‘the Silver Panic,’ and will constitute a reproach and an accusation against the
common sense, if not the common honesty, of our legislators who are responsible
for our present monetary laws."
How could this be? Wasn’t this the era of laissez faire?
Wasn’t government a tiny, insignificant corner of American life, an innocent
bystander as capitalists and market forces directed the national economy? To be
sure, government was much smaller than it is today, but from the days of George
Washington, the federal government and to a lesser degree the state governments
have been involved in monetary affairs. Article I, Section 8 of the Constitution
granted Congress the power "to coin money, regulate the value thereof, and of
foreign coin, and fix the standard of weights and measures." In the century
preceding 1893, Congress experimented with two central banks, a national banking
system, laws regulating so-called "wildcat banks," paper money issues, legalized
suspension of specie payments, and fixed ratios of gold and silver.
Long before, gold and silver rose to prominence as the
predominant monies of the civilized world largely through a process of natural
selection in the marketplace of exchange. Both circulated as money, though gold
was (and remains) far more valuable. The market ratio between the metals was
roughly 15½ (15½ ounces of silver trading for 1 ounce of gold) in the early
years of the Republic. Gold was preferred for large transactions and silver for
small ones. The free market had established "parallel standards" of gold and
silver (a price of one reckoned in terms of the other), each freely fluctuating
within a narrow range in relation to market supplies and demands. But when
government decided it would officially fix the price of one in terms of the
other, and keep it there in spite of divergences with the real value of the
metals in the open marketplace, monetary disturbances arose.
Under the direction of Alexander Hamilton, the federal
government adopted an official policy of bimetallism and a fixed ratio of 15 to
1 in 1792. If the market ratio had been the same and had stayed the same for as
long as the fixed ratio was in effect, then the fixed ratio would have been
superfluous. But the market ratio, like all market prices, changed over time as
supply and demand conditions changed. As these changes occurred, the fixed
bimetallic ratio became obsolete and "Gresham’s Law" came into operation.
Gresham’s Law holds that "bad money drives out good money"
when government fixes the ratio between the two circulating monies. "Bad
money" refers to the money which is artificially overvalued. Gresham’s Law began
working soon after Hamilton fixed the ratio at 15 to 1, as the market ratio
stood at, roughly, 15½ to 1. This meant that if one had an ounce of gold, one
could get 15½ ounces of silver on the bullion market, but only 15 ounces for it
at the government’s mint. Conversely, if one had 15 ounces of silver, one could
get an ounce of gold at the mint but less than an ounce on the market. So silver
flowed into the mint and was coined while gold disappeared, went into hiding, or
was shipped overseas. The country was thus put on a de facto silver standard,
even though it was the declared policy of the government to maintain both metals
In 1834 Congress adjusted the ratio to 16 to 1, but the
market ratio had not changed much. This time gold was over-valued and
silver under-valued. Gold flowed into the mint, silver disappeared from general
circulation, and the country found itself increasingly on a de facto gold
With the end of the Civil War and paper money inflation in
1865, and subsequent readjustment in the depression of 1873, the story of the
Panic of 1893 begins to unfold. It opens with the inflationist agitation of the
In 1875, the newly-formed National Greenback Party called
for currency inflation through the issuance of paper money tied, at best, only
minimally to the stock of specie. The proposal attracted widespread support in
the West and South where many farmers and debtors joined associations to lobby
for inflation, knowing that a reduction in the value of the currency unit would
alleviate the real burden of their obligations. Most also believed that such a
policy would "lubricate" the economy and thereby generate a more broadly-based
and lasting prosperity. An eloquent refutation of the idea that the printing
press can create economic wealth can be found in the words of Benjamin Bristow,
President Grant’s Secretary of the Treasury. In his annual message of 1874,
Bristow employed the same arguments that President Grover Cleveland would
advance a decade later:
The history of irredeemable paper currency
repeats itself whenever and wherever it is used. It increases present prices,
deludes the laborer with the idea that he is getting higher wages, and brings a
fictitious prosperity from which follow inflation of business and
credit and excess of enterprise in ever-increasing ratio, until it is discovered
that trade and commerce have become fatally diseased, when confidence is
destroyed, and then comes the shock to credit, followed by disaster
and depression, and a demand for relief by further issues…The universal use
of, and reliance on, such a currency tends to blunt the moral sense
and impair the natural self-dependence of the people, and trains them
to the belief that the Government must directly assist their individual fortunes
and business, help them in their personal affairs, and enable them to discharge
their debts by partial payment. This inconvertible paper currency begets the
delusion that the remedy for private pecuniary distress is in legislative
measures and makes the people unmindful of the fact that the true remedy is in
greater production and less spending, and that real prosperity comes
only from individual effort and thrift.
The greenback inflation of the Civil War era left Americans
suspicious of paper money expansion on behalf of any special interest group. In
1875, Congress passed the Specie Resumption Act, declaring it the policy of the
government to redeem the Civil War greenbacks at par in gold on Jan. 1, 1879. It
was regarded from this point on that in order to protect the redemption of the
greenbacks, the Treasury would be obliged to maintain a minimum of $100 million in
gold on reserve. The most that the inflationists secured was pledge that the
government would not cancel greenbacks once redeemed, but to reissue them so
that the total number outstanding would remain the same.
The attention of the inflationists was then directed at
silver, though Congress ratified the obvious by demonetizing it in 1873 that
the inflationists would later denounce as the "Crime of ’73." Robert F. Hoxie,
in the Journal of Political Economy in 1893, wrote that the inflationists
focused their demands on a silver inflation as a matter of expediency. "They had
no love for silver as such," revealed Hoxie, "but it was the cheapest and most
abundant substance for which they could gain support, its use would result in
more legal tender currency, and its metallic character would in a measure shield
the advocates from being stigmatized as inflationists."
The inflationists became "silverites" and their rallying
cry was "Free Silver at 16 to 1." Their influence was sufficient to secure
passage of the Bland-Allison Act in February, 1878 — the first of the acts
putting the government in the business of purchasing quantities of silver for
coinage. The Act provided for the purchase by the Treasury of not less than two,
nor more than four, million dollars’ worth of silver bullion per month, to be
coined into dollars each containing 371¼ grains of pure silver (which coincided
with the lawful ratio of 16 to 1, since the gold dollar still contained 23.22
grains of pure gold). These dollars were to be legal tender at their nominal
value for all debts and dues, public and private. Paper silver certificates were
to be issued upon deposit of the bulky silver dollars in the Treasury.
The free silver forces were dissatisfied with Bland-Allison
because it did not go far enough — it did not provide for the free and unlimited
government purchase and coinage of silver at 16 to 1. The only silver to be
coined would be the two to four million dollars’ worth that the government
purchased each month and while the law was in effect, successive Treasury
Secretaries rarely bought more than the minimum amount.
Silver producers reaped huge dividends from the law. The
market price of silver had begun a long-term decline in the 1870s. Securing a
government pledge to buy silver at a higher price than could be obtained in the
free market was an obviously lucrative arrangement. As the market ratio of
silver to gold steadily rose above 16 to 1, the profit potential for silver
producers and other holders of silver became enormous.
Bland-Allison was passed over the veto of President
Rutherford B. Hayes. The president noted that minting silver coins at the ratio
of sixteen ounces of silver to one ounce of gold would drive the yellow metal
out of circulation. The decline of the market price of silver had raised the
market ratio at the time of passage of the act to nearly 18¼ to 1. If the
mint offered to pay one ounce of gold for just sixteen ounces of silver, then
only silver would be minted and the country would be on the road back to a de
facto silver standard. In Hayes’s belief, "A currency worth less than it
purports to be worth will in the end defraud not only creditors, but all who are
engaged in legitimate business, and none more surely than those who are
dependent on their daily labor for their daily bread."
In an article in the June 1978 issue of The
Freeman, this author observed: "When money . . . [governed by the] market,
its supply is restricted by its scarcity and costs of production. Its value is
thus preserved. The declining price of silver on the free market would have
erased the profitability of many mines and hence would have prevented a drastic
increase in silver currency. But when the government stepped in and bought large
quantities of silver bullion for coinage, and paid more for it in gold than was
offered in the market, it forced the quantity of the white metal in circulation
to exceed its true demand."
It also gradually drained the Treasury of its gold reserve, threatening the
required minimal reserve of $100 million.
The silverites achieved their political zenith with the
Sherman Silver Purchase Act of 1890, which replaced the Bland-Allison Act. The
Sherman Act, passed under President Benjamin Harrison, who served a single term
between the two Cleveland terms, forced the Treasury to buy 4.5 million ounces
of silver per month, or roughly twice the amount the Treasury had been
purchasing under the previous law. Payment was to be made in a new legal tender
paper currency, the "Treasury Notes of 1890," redeemable in either gold or
silver at the discretion of the Treasury. The 4.5 million ounces of silver
mandated by the law represented almost the entire output of American silver
mines. This continuing subsidy to silver producers force-fed the American
economy with substantial additions to the paper and silver money supply and
jeopardized obligations that called for payment of debts in gold.
Cleveland, of course, inherited Bland-Allison when he
served as president the first time and then Sherman in his second term. He had
warned as a candidate in 1884 that silver subsidies and effusions of paper were
harmful and inflationary. In a message to Congress in December 1885, nearly
eight years before the silver laws yielded a massive panic and depression, he
gave fair warning:
Those who do not fear any disastrous
consequences arising from the continued compulsory coinage of silver as now
directed by law, and who suppose that the addition to the currency of the
country intended as its result will be a public benefit, are reminded that
history demonstrates that the point is easily reached in the attempt to float at
the same time two sorts of money of different excellence when the better will
cease to be in general circulation. The hoarding of gold which has already taken
place indicates that we shall not escape the usual experience in such cases.
The pro-silver, anti-gold policy of the Bland-Allison and
Sherman Acts was at war with the drift of monetary developments worldwide.
Germany, immediately after the Franco-Prussian War in the early 1870s, had
withdrawn her silver from circulation and adopted a single gold standard.
France, Belgium, Switzerland, Italy, and Greece followed by restricting then
eliminating silver coinage altogether. Scandinavian countries embraced a gold
standard by 1875. In that year, the government of Holland closed its mints to
the silver. A year later, the Russian government suspended the coinage of silver
except for use in the Chinese trade. Austria-Hungary ceased to coin silver for
individuals in 1879, except for a special trade coin. This rapid worldwide
movement from silver to gold prompted the United States Treasury Department in
1879 to note that "since the monetary disturbance of 1873-78 not a mint of
Europe has been open to the coinage of silver for individuals."
Yet the United States government, at a time when the value of silver was falling
dramatically and when the nation’s trading partners were abandoning silver,
stepped in to promote silver against gold at the unrealistic ratio of 16 to 1!
Silver’s depreciation in the marketplace was dramatic.
Consider the annual average market value of the 371¼ grain silver dollar. In
1878, the bullion value of that much silver was about 89 cents; by 1890 it
dropped to 81 cents; by 1893, it was worth 60 cents; and by 1895 it plummeted to
a mere 50 cents. A climate of uncertainty permeated American finance, especially
after the Sherman Act in 1890. Prominent economist J. Laurence Laughlin wrote
at the time, "No one could know that contracts entered into when a dollar stood
for 100 cents in gold might not be paid off in silver which stood for 50 cents
on a dollar. That was the predicament in which every investor found himself who
had an obligation payable only in ‘coin’ and not in gold."
In an article entitled "Thou Shalt Not Steal," Isaac L.
Rice penned an eloquent repudiation of the government’s silver coinage policy.
His argument evoked the same moral perspective from which Grover Cleveland
argued in making his case to the Congress for repeal of silver legislation:
Of the various classes of crime that come under
the category of theft none is more odious and despicable than the use
of false weights and measures. Stamping a coin containing 371¼ grains of silver
as of the weight of one hundred cents, while in truth it is of the weight of
fifty-three cents, is a falsification of weights morally not distinguishable
from stamping any other kind of weight as of two pounds which in truth is only
of one pound. Only the methods by which raud is to be made are different. The
thievish individual depends upon secret deceit, the qualities of the sneak
thief; the Government on coercion, the qualities of the highwayman.
First the Bland-Allison Act and then the Sherman Act caused
a drain of gold from the Treasury and an inflow of silver. The Treasury’s
declared policy of redeeming greenbacks and other government obligations in gold
was immediately threatened. To make matters worse, the disappearance of gold
from circulation and from the reserves of the nation’s banks threatened the
sanctity of all contracts made in gold. Professor Laughlin observed that no
producer "could feel so entirely sure of the standard of payments that he could,
without fear or hesitation, make his estimates a few years ahead."
The confidence of foreigners in the American economy was
also undermined. European investors expected devaluation of the dollar at the
least, with complete financial collapse predicted by some. Capital flowed out of
the country as overseas investors sold American securities. Even Americans began
exporting funds for investment in Canada, Europe, and some of the Latin American
countries, all of which seemed stronger than the United States.
In 1910 the National Monetary Commission requested O. M. W.
Sprague to report on the nation’s finances since the Civil War. In his
authoritative report, History of Crises Under the National Banking System,
Sprague found that from January 1891 to June 1893, "there was an increase of $68
million in the estimated amount of money in circulation." The effect on bank
credit was typical of any "easy money" policy: "During 1892 the low rates for
loans were a clear indication that the banks would have been glad to lend more
than the demand of borrowers made possible." The classic symptoms of currency
inflation were evident, a situation which Sprague argued was unsustainable. He
felt that "a situation which demands increasing credits to prevent collapse is
certain to arrive at that state in any case, and delay can hardly be expected to
The American economy, drugged by the easy money policy of
the Sherman Act, turned up at first. Unemployment, which had been about 5 per
cent in 1890 and 1891, fell to 3.7 percent in 1892. Crop failures in Europe
coupled with exceptional harvest here in the United States boosted agriculture.
President Benjamin Harrison announced, "There has never been a time in our
history when work was so abundant, or when wages were as high."
Harrison’s boast was naïve and myopic. The boom was
destined to be short-lived. The twin evils of inflation and uncertainty as to
the fixity of the monetary standard were laying the foundation for a major blow
to the nation’s commerce.
Late in January 1893, consumer prices began to recede.
Price declines across the board foreshadowed a general cyclical contraction.
"General business activity," according to Charles Hoffman, "suffered a severe
check that was recognized at once in the business journals. The stock market
gave ominous signs of falling prices before any sharp drop took place."
Banks became apprehensive over the Treasury’s loss of gold (as well as their
own) and began to contract credit. Loans declined almost 10 per cent from
February to the beginning of May. One observer in the February, 1893 issue of
Forum spoke of "a dangerous state of uneasiness in financial circles," and
warned that "Fear is an element in monetary conditions which may be as serious
in its effects as reason."
The following three paragraphs are drawn from my previously-cited June 1978
A dramatic event took
place on February 20. The Philadelphia and Reading Railroad, a chronic invalid
which nonetheless had paid its usual bond dividend the month before, collapsed
into bankruptcy. "When the end came," wrote Rendigs Fels, "it had floating debt
of $18.5 million compared to cash and bills receivable of little more than
$100,000." The failure of the Philadelphia Reading, a firm supported by
powerful Wall Street financial houses, caused many businessmen to question the
conditions of other railroads and the financial institutions behind them.
Harrison left town and Cleveland assumed office on March 4, 1893, the Treasury’s
gold reserve stood at the historic low of $100,982,410 — an eyelash above the
$100 million minimum deemed necessary for protecting the redemption of
greenbacks. Merchants increasingly refused to accept silver in violation of the
law and ugly threats of strikes echoed in the nation’s factories.
On April 22 the
Treasury’s gold reserve fell below the $100 million minimum for the first time
since the resumption of specie payments in 1879. Bankers and investors realized
that the Treasury could not indefinitely continue drawing upon the remaining
gold reserve to redeem the Treasury notes of 1890 in the attempt to maintain
their value. Banks had to break their easy money habits and began calling in
their loans at a frantic pace. More and more investors began to fear that before
securities could be sold and realized upon, depreciated silver would take the
place of gold as the standard of payments.
The Panic of 1893 got underway in earnest when the
Treasury’s minimum gold reserve of $100 million was breached in late April, in
spite of heroic efforts by the Cleveland administration to staunch the outflow
of gold and shore up those reserves. On May 4, when a stock market favorite,
National Cordage Trust, fell into receivership, factories throughout America
closed their gates and went quickly into bankruptcy at a feverish pace.
Unemployment rocketed to 9.6 percent before year-end, nearly three times the
rate for 1892. In 1894, an estimated 16.7 percent of industrial wage earners
were out of work. In July 1893, The Commercial and Financial Chronicle
laid bare the problem:
The country is struggling with disturbed credit
and the general derangement of commercial and financial affairs which a forced
and over-valued currency has developed. . . . Nothing but corrective legislation
which shall remove the disturbing law, can afford any measure of
With the economy in severe depression, the necessity for
eliminating the silver legislation which precipitated the tragedy became
increasingly apparent. Enter President Grover Cleveland. He demanded a special
session of Congress to repeal the Sherman Silver Purchase Act of 1890. "The
present perilous condition," he asserted, "is largely the result of a financial
policy which the Executive branch of the government finds embodied in unwise
laws which must be executed until repealed by Congress."
Moreover, the president made plain, the absence of monetary
order was most hurtful to ordinary workers. In an Aug. 8 message to Congress, he
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 fluctuation 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 up on
the ventures of confident and contented capital.
The ensuing debate in the Congress was a contest that
pitted the forces of sound, honest money led by Cleveland against the advocates
of inflation. When even the Democratic Speaker of the House told Cleveland he
would have to vote against repeal or lose his next election, Cleveland shamed
him into a change of mind by staring him in the face and thundering that the
Speaker’s continuance in office was not worth one second of damage to the cause
of a sound currency. The repeal bill passed the House on Aug. 28. Cleveland’s
forceful leadership prompted the Senate to do the same later in the fall, on
which occasion The New York Times declared, "The Treasury is released
this day from the necessity of purchasing a commodity it does not require, out
of a money chest already depleted, and at the risk of dangerous encroachment
upon the gold reserve." The Times gave its highest praise to Cleveland
because he and his administration "stood like a rock for unconditional repeal."
The president’s "enlightened conscience" and "iron firmness" had carried the
An indispensable pre-condition to recovery was accomplished
with the repeal of the Sherman Silver Purchase Act, though the road wasn’t quick
and easy. Labor strife combined with continued agitation for renewed silver
subsidies and paper money issues deterred foreign and domestic investors for
four more years.
In the midst of depression, renewed financial crisis
gripped the country in early 1895 when drains on the Treasury’s gold reserve
threatened the government’s financial solvency once again. As many in Congress
called for resumption of paper and silver inflation, Cleveland worked out a
controversial deal with Wall Street bankers to shore up the government’s gold
reserves. As in the earlier crisis of 1893, Cleveland believed that honesty was
the best policy; any attempts to default on obligations to pay and to pay in
gold were to be uncompromisingly resisted. He never flinched, in spite of the
demagogues who tried to paint him as a tool of greedy bankers.
Cleveland won the economic argument for sound money, though
his own party deserted him on the issue. Not until 1897 did depression give way
to prosperity, after silverite Democrat William Jennings Bryan was defeated by
gold standard Republican William McKinley the previous year. The Gold Standard
Act of 1900 essentially solidified a stable gold standard and before he died in
1908, Cleveland achieved a remarkable degree of popular appreciation for his
staunch defense of sound money.
Grover Cleveland’s name ought to be not merely
associated with sound currency; it should be synonymous with it. He
understood the concept from the beginning, stared down the forces of opposition,
and never wavered in his determination. For him, sound currency was more than a
policy. It was a commitment to honesty. At a time when America required strong
leadership for a strong currency, it got it in the person of Grover Cleveland.
Lawrence W. Reed is president of
the Mackinac Center, a research and educational institute headquartered in
Midland, Mich. Permission to reprint in whole or in part is hereby granted,
provided that the author and the Center are properly cited.
Allan Nevins, Grover Cleveland: A Study in Courage (New York:
Dodd, Mead & Company, 1948), pp. 4.
Alyn Brodsky, Grover Cleveland: A Study in Character (New York:
St. Martin’s Press, 2000), p. 4.
Second Annual Message, December 1886.
Charles Albert Collman, Our Mysterious Panics, 1830-1930 (New
York: Greenwood Press, 1968), p. 88.
Charles S. Smith, "The Business Outlook," North American Review,
October 1893, p. 386.
James A. Barnes, John G. Carlisle, Financial Statesman (New York:
Dodd, Mead & Company, 1931; reprint ed., Gloucester, Mass.: Peter Smith,
1967), pp. 32-33.
Robert F. Hoxie, "The Silver Debate of 1890," Journal of Political
Economy (1892-93): p. 561.
Herman E. Kroos, ed., Documentary History of Banking and Currency in
the United States, vol. 2 (New York: Chelsea House Publishers,
1969), pp. 1921-1922.
Lawrence W. Reed, "The Silver Panic," The Freeman (June 1978), p.
First Annual Message, December 1885.
Kroos, p. 1934.
J. Laurence Laughlin, The History of Bimetallism in the United States,
4th ed. (New York: D. Appleton and Co., 1900), p. 274.
Isaac L. Rice, "Thou Shalt Not Steal," Forum 22 (September
1896-February 1897): p. 1.
Laughlin, p. 269.
O. M. W. Sprague, History of Crises Under the National Banking System
(Washington, D.C.: Government Printing Office, 1910; reprinted., New
York: Augustus M. Kelley, 1968), p. 158.
Robert Sobel, Panic on Wall Street: A History of America’s Financial
Disasters (New York: Macmillan Co., 1968), p. 243.
Charles Hoffman, The Depression of the Nineties: An Economic History,
Contributions in Economics and Economic History, no. 2 (Westport, Conn.:
Greenwood Press, 1970), p. 107.
Geo. Fred Williams, "Imminent Danger From the Silver Purchase Act,"
Forum 14 (September 1892-February 1893): p. 789.
Reed, p. 374.
Hoffman, p. 229.
"Congress to Meet August 7," New York Times, 1 July 1893, p. 1.
Special Session Message, August 8, 1893.
"Need Buy No More Silver," New York Times, 2 November 1893, p. 1.