Amid today’s economic turmoil, it can be cathartic to examine the past rather than to fret over our 401(k) balances. The disruption known as The Panic of 1893 was the largest U.S. economic downturn in our history until the Great Depression. Park City’s lifeblood — silver — was a driving factor.
Starting in February 1893 and lasting several years, the panic saw bank failures, railroad and other bankruptcies, massive unemployment, a single-day decline in the Dow Jones Industrial Average of 24 percent, and a draining of U.S. Treasury gold reserves.
Multiple factors caused the panic, including bumper crop farm output driving down prices, railroad overbuilding, tariffs and overseas crises prompting foreign investors to trade U.S. stock holdings for U.S. gold. Utah and Park City were not immune to these impacts.
Historians also point to federal monetary legislation as contributing factors. In the 1850s, the cost of silver bullion was rising beyond the face value of the minted coins, and the U.S. Mint had been reducing the amount of silver contained in the coins minted from bullion.
The Coinage Act of 1873, promoted by “sound money” advocates of gold-based policies, in effect demonetized silver. The act prohibited the minting of silver dollars and the use of silver currency in transactions greater than $5. Silver money advocates called this legislation The Crime of 1873. At this time, the cost of 16 ounces of silver was about the same as of one ounce of gold.
Later in the 1870s, the Free Silver movement grew in power, promoting unlimited government minting of silver coinage. (“Free” meant to liberate vs. the coinage being without cost.)
This movement aligned Western silver mining interests and their legislators with agricultural interests, which wanted to grow the money supply, spur some inflation, and lower borrowing costs for farmers.
The resulting Bland-Allison Act of 1878 remonetized silver by requiring the Treasury to purchase a minimum of $2 million in silver bullion a month and to mint silver dollar coins from that bullion at a legislated 16-to-1 weight ratio.
The market ratio of silver and gold values at the time was 18 to 1, setting the stage for future market turbulence due to silver’s overvaluation.
President Rutherford Hayes struck down the bill, but Congress overrode the veto, and in 1878 the U.S. Mint issued the Morgan Silver Dollar (after coin designer George Morgan).
A period of economic growth followed, then late in the 1880s, the Free Silver movement once again gained steam and passed the Sherman Silver Act of 1890. The act required the Treasury to purchase 4.5 million ounces of silver per month, about a 50 percent increase in dollar value from the amounts purchased under Bland-Allison.
The bullion was paid for in bank notes that could be redeemed for gold, and silver was still coined at the legislated weight ratio of 16 to 1 despite the current market ratio having risen to 30 to 1. This overvaluation of silver prompted further hoarding of gold at home and abroad.
In 1892, Congress considered lifting all limits on the Treasury’s purchase of silver. Though the bill did not pass, it alarmed financial markets.
Cumulatively these acts illustrated Gresham’s Law, which states, “Bad money drives good money out of circulation.”
The Treasury’s gold reserves dropped from $320 million in 1888 to $189 million in 1893, showing a lack of investor confidence in the U.S. economy. Before the Panic of 1893 subsided, reserves dropped to $125 million in 1895. The government’s exertions to prop up the price of silver came to naught.
In August 1893, President Grover Cleveland, a “sound money” man, worked with Congress to repeal the Sherman Silver Act with the goal of rebuilding confidence in the economy. It did not benefit Cleveland politically, as he lost the party nomination in 1896 to Free Silver advocate William Jennings Bryan, but Cleveland’s move started the road to recovery.
An upcoming part two article will describe the impacts of the Panic of 1893 in Utah and Park City. The short version: With low silver prices and tightened credit, mines and mills shut down or reduced their outputs, and other businesses experienced a range of difficulties.
Michael O’Malley is a museum volunteer researcher and author of “Attitude at Altitude: The People’s Guide to Park City and Summit County.”