Grover Cleveland: Special Session Message to Congress on the Economic Crisis

Explanation and Analysis of the Document

Several elements in the Democratic Party opposed Cleveland's renomination for president in 1892, including protectionists who favored high tariffs and those who disagreed with the former president's opposition to the government's silver policy, a major issue of the era. However, Cleveland won his party's nomination on the first ballot at the convention in Chicago and defeated Harrison in the general election, with 46 percent of the popular vote and 277 electoral votes to Harrison's 43 percent and 145 electoral votes.

Soon after Cleveland was inaugurated, the country experienced a deep economic crisis, the Panic of 1893. The downturn started when a large number of railroads and banks failed. For instance, twelve banks in Denver failed in one day in July 1893, and by the end of the month, 377 businesses had failed and 435 mines had closed in Colorado, a state heavily dependent on silver mining. These closures left more than forty-five thousand Coloradans out of work. These failures were the result of a decline in the value of silver following the passage in 1890 of the Sherman Silver Purchase Act, which required the U.S. Treasury to buy large quantities of silver and use the metal on parity with gold in backing paper money. In 1890 the value of silver was just over $1 per ounce, but by 1893 it had declined to 62 cents per ounce. As the value of silver fell, mine owners across the nation cut workers, which led to labor unrest. Throughout the country other businesses also laid off employees, and unemployment grew dramatically, rising to 19 percent nationwide.

Cleveland responded by calling a special session of Congress in August 1893. The president had long criticized the Sherman Silver Purchase Act and believed that Congress needed to repeal it immediately in order for the United States to remain solvent. In one of the most important statements of his political career, Cleveland opened the session with a strident, yet detailed call for action. His message argues that the current financial crisis was not the result of a lack of natural resources or problems with the nation's manufacturing base. Instead, the president blames the depression on silver speculation that was driven by the Sherman Silver Purchase Act. Inflation and currency depreciation prevented banks and other financial firms from lending money, and this lack of credit further hurt business and the agricultural sector. According to the president, “Surviving corporations and individuals are content to keep in hand the money they are usually anxious to loan, and those engaged in legitimate business are surprised to find that the securities they offer for loans, though heretofore satisfactory, are no longer accepted.”

In explaining the damage inflicted on the economy by the Sherman Silver Purchase Act, Cleveland says that the requirement for gold and silver to be treated equally as strategic monetary reserves prevented the secretary of the treasury from taking action to stop the dramatic decline in the value of silver. The silver act committed the government to purchase 4.5 million ounces of silver per month—twice what the Treasury Department had previously acquired each month. As the government stocks of silver grew and there was a corresponding increase in the amount of money in circulation, silver's value declined. Meanwhile, the silver act's provision that paper currency could be redeemed in either gold or silver led to a steep reduction in the nation's gold reserves as individuals, corporations, and foreign governments demanded payment in gold rather than silver. The result, as Cleveland notes in his address, was that from 1890 to 1893 “gold coin and bullion in our Treasury decreased more than $132,000,000, while during the same period the silver coin and bullion in the Treasury increased more than $147,000,000.” By 1893 the nation's gold reserves had fallen below $100 million, leading many to believe that the government was on the verge of financial collapse.

Proponents of silver often credited the precious metal as more representative of the character of the United States than gold. They asserted that gold was too closely identified with the monarchies of Europe. Cleveland argues that gold remained the standard currency by which world trade was denominated. The president contends that the use of silver by the United States undermined its economic status among its trade partners. Cleveland closes his message to Congress by asserting that the Sherman Silver Purchase Act had produced three years of economic problems and must be repealed. He also pledged that he would call another special session to deal with tariff reform in September.

Despite widespread support for the repeal of the silver measure, Cleveland faced significant opposition from within his party. He had to work with Republicans to secure the repeal of the Sherman Silver Purchase Act. Even after the House passed a measure to rescind the act, debate continued in the Senate, which finally approved the House measure by a vote of forty-eight to thirty-seven, on October 30, 1893. The repeal saved the nation's currency and set the stage for a gradual economic recovery. Nonetheless, it devastated the economies of silver-producing states in the West, including Colorado and Nevada. State militias had to be deployed to quell labor unrest. Cleveland believed that the nation's economy would rebound by itself, but many wanted his administration to increase government spending on roads or other infrastructure as a means to create more jobs. In April 1894 Joseph A. Coxey led a group of unemployed, known as Coxey's Army, to Washington to protest the administration's inaction. They were arrested on the day they arrived outside the Capitol. In June, Cleveland dispatched federal troops to force an end to a strike against the Pullman Company after a federal court ordered the workers to return to their jobs. These actions undermined Cleveland's popularity with working-class Americans and labor groups.