Panic of 1890

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Credit expansion spread throughout the world in the form of loans directed mainly to South America. Shipbuilding and heavy industry developed rapidly. The crisis of 1890–1892 arose in 1890, and the depression lasted until 1896. The usual bankruptcies of railroad companies, collapse of the stock market, crisis in the iron and steel industries, and unemployment made a violent appearance, as is typical in all depression years following a crisis.[1]

The fateful decade of the 1890s saw the return of the agitation for free silver, which had lain dormant for a decade. The Republican Party intensified its longtime flirtation with inflation by passing the Sherman Silver Purchase Act of 1890, which roughly doubled the Treasury purchase requirement of silver. The Treasury was now mandated to buy 4.5 million ounces of silver per month. Furthermore, payment was to be made in a new issue of redeemable greenback currency, Treasury notes of 1890, which were to be a full legal tender, redeemable in either gold or silver at the discretion of the Treasury. Not only was this an increased commitment to silver, it was a significant step on the road to bimetallism which—at the depreciated market rates—would mean inflationary silver monometallism. In the same year, the Republicans passed the high McKinley Tariff Act of 1890, which reaffirmed their commitment to high tariffs and soft money.

Another unsettling inflationary move made in the same year was that the New York Subtreasury altered its longstanding practice of settling its clearinghouse balances in gold coin. Instead, in August 1890, it began using the old greenbacks and the new Treasury notes of 1890. As a result, these paper currencies largely replaced gold paid in customs receipts in New York.[2]


  1. Jesús Huerta de Soto. "Money, Bank Credit, and Economic Cycles", Second English edition 2009, p.486. Referenced 2011-01-15.
  2. Murray N. Rothbard. "A History of Money and Banking in the United States: The Colonial Era to World War II" (pdf), The War of 1812 and its Aftermath, p.167. Referenced 2011-01-15.