President Ulysses S. Grant had his hands full in 1873 when the economic fiasco in Europe spread to the United States. The first US event was the collapse of Jay Cooke and Company, the country's preeminent investment banking firm. Cooke was the major backer of the Northern Pacific Railroad. The company handled most of the US war-time loans by selling bonds to people who never bought securities.
The demise of Cooke touched off a series of events in the US that could be coined "The Perfect Storm of 1873." The New York Stock Exchange was nervous and closed for ten days. Banks failed and foreclosures were common, plus lending came to a halt. The basic problems were overproduction, deflation and a declining market. European investors who were deeply submerged in their own depression started calling in American loans. The unemployed moved from state to state in order to find jobs and bread lines began to appear in several cities.
The United States was in a state of shock and disbelief. Some of the people who were ruined cried, others swore, and others went about trying to borrow money from family and friends in order to survive. President Grant had few choices, but he did act. The Grant Administration demonized silver, which had been on a 16 to 1 ratio with gold since 1837. Sixteen ounces of silver were worth one ounce of gold until Grant made gold the sole standard of the nation's currency. Silver became legislated to commodity status with a value that was to be set by demand and supply.
When the Fourth Coinage Act was enacted, new silver mines in the West started producing more silver than ever before. The miners no longer had a captive buyer in the government so the term "the crime of 1873" was the new name for the troublesome Coinage Act. A new party, called the National Greenback Party emerged in 1876. Its sole purpose was to fight the Specie Resumption Act of 1875, which stated that greenbacks could be redeemed for gold starting January 1, 1879, plus paper coins would be removed from circulation and silver coins would replace them.
The miners and farmers hurt by Grant's coin act joined the Greenback movement, but the party didn't have enough clout to get things done. The farmers and miners did win a partial battle in 1878 when they pressured Washington into passing the Bland-Allison Act. That act restored silver as legal tender and the government pledged to purchase a specific amount of silver each month, but government notes were still only backed by gold not silver. Hard times hit the country again in 1887, and the miners and farmers started a campaign to bring back the 16 to 1 ratio between gold and silver.
Another compromise was reached in the form of the Sherman Silver Purchase Act of 1890. The Sherman Act helped the miners, who proclaimed to need a big customer like the government, and it helped the farmers that continued to suffer from debt and falling prices. The Sherman Act instructed the Treasury to buy 4.5 million ounces of silver each month, and the Treasury would also issue notes that were redeemable in gold and silver. That guaranteed silver purchase equaled the total output of all the silver mines at that time.
Increasing the supply of silver drove the price down so the miners cut expenses by cutting wages. Violence erupted and labor unrest spread. The growing disparity between gold and silver actually depleted the gold reserves, and that created the panic of 1893. Congress repealed the Sherman Act in 1893 to stop the panic and to increase the gold reserves. Once again, government interference has caused disastrous unintended results. The government should have left silver alone, but the New York banking crowd was determined to demonetize silver. Despite the outcry and the Sherman Silver Purchase Act, the banks eventually had their way. Silver has never been again been treated as money within the US.