Saving the Gold Standard

Politics and Public Service, The Second Cleveland Administration

Most Republicans and some eastern Democrats shared President Cleveland’s conservative economic views. The believed that individuals bore the responsibility for weathering economic downturns and the government had no role in that natural cycle.

An exception was made, however, for issues of overarching importance regarding the nation’s solvency. Cleveland took two steps to shore up trust in the monetary system:

1. Repeal of the Sherman Silver Purchase Act. Cleveland had concluded that the major cause of the Panic of 1893 was the drain on the gold reserves generated by the Sherman Silver Purchase Act of 1890. The president summoned Congress into special session in the spring of 1893. Republicans joined a segment of the Democratic Party to repeal the measure, but Cleveland was disappointed to conclude that the economic distress was not relieved. Western and Southern members of the president’s party were upset by his cooperation with their political opponents on an issue of vital importance in their districts.
2. Increasing the Gold Reserve. Cleveland took steps to prop up the gold reserve by instituting a series of four bond issues. Special arrangements were made with J.P. Morgan and American representatives of the Rothschilds in which these powerful financial interests were enabled to purchase the bonds at deep discounts, assuring them enormous profits.

   The strategy was successful; gold flooded back into the Treasury. The gold standard had been saved. Public confidence in the ability of the government to redeem its notes was restored.

   Like the repeal of the Sherman Silver Purchase Act, the Wall Street “deal” with Morgan angered the indebted farming interests and deepened the split in the Democratic Party.