May 5, 1893 became "Industrial Black Friday" as railroad and industrial stocks plummeted and several major companies went bankrupt. This sparked the Panic of 1893, and an average of 24 businesses a day failed in May alone. The panic began a four-year depression in which over 15,000 companies and 600 banks closed throughout the U.S. One of the most predominant causes of the panic and depression was the contentious debate over U.S. monetary policy.

Silver versus Gold

A primary cause of the panic was the coinage of silver alongside gold in the U.S. currency system. The Sherman Silver Purchase Act of 1890 required the government to buy and coin silver at a fixed ratio of 16 ounces to one ounce of gold. However the silver ratio should have been much higher due to excessive silver mining in the West.

As the silver supply increased, people began exchanging their silver for the more stable and valuable gold. This weakened the U.S. Treasury’s gold supply, and since gold was the basis of U.S. credit abroad, the national credit rating suffered. Consequently, business confidence was damaged and the U.S. currency system became devalued.