Panic of 1896

The Panic of 1896 was an acute economic depression in the United States that was less serious than other panics of the era precipitated by a drop in silver reserves and market concerns on the effects it would have on the gold standard. Deflation of commodities prices drove the to new lows in a trend that began to reverse only after the 1896 election of William McKinley. The failure of the National Bank of Illinois in Chicago is remembered as one of the motivating factors in the sensational Adolph Luetgert murder case. During the panic, call money would reach 125 percent, the highest level since the Civil War.

The Panic of 1896 had roots in the Panic of 1893, and is seen as a continuation of that economic depression. The drop in American gold reserves worsened the effects of the Panic of 1893, and the Panic of 1896 was given its own distinction. The Coinage Act of 1873 demonetized the use of silver in America, and the Resumption Act of 1875 further established the gold standard. This period of deflation was met with some resistance, as the agrarian Populist Party formed to protest the adoption of the gold standard, and reinstate the bimetallic standard, due to farmers’ inability to repay debts at lower prices, and silver miners loss of market share. Farmers also wanted to adopt the bimetallic standard because they could sell their crops at higher prices. The Sherman Silver Purchase of 1890 allowed limited use of silver in the American economy, but did not allow unlimited coinage as supporters of the “Free Silver” movement wanted. The Silver Purchase did not work as most of the backers has intended, as a large portion of the buyers redeemed their coins with gold, causing the already pressured American gold reserves to deplete. The American gold reserves dropped to just $60 million in January 1895, which, combined with the subsequent J. P. Morgan bond episode, in which Morgan, in cooperation with the European Rothschilds, sold gold directly to the U. S. treasury, caused the public’s worry for the gold standard to increase.

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