In 1893, the Cleveland administration's repeal of the Sherman Silver Purchase Act A. caused the value of currency to contract. B. brought immediate relief to people suffering under the 1893 depression. C. empowered conservative Democrats. D. had no long-term possibility of reviving the depressed economy.

A. caused the value of currency to contract.

To understand why the repeal of the Sherman Silver Purchase Act caused the value of currency to contract, we need to look at the economic context of the time. The Sherman Silver Purchase Act of 1890 was a United States federal law that required the U.S. government to purchase nearly double the usual amount of silver bullion every month. The government would pay for the silver with Treasury Notes that could be redeemed for either silver or gold.

The idea behind the act was to support the price of silver and introduce more currency into circulation, which would then help inflate the economy (making it easier to pay off debts). People who owned silver mines and farmers with large debts typically favored the increase of money supply and thus supported the purchase of silver under the Sherman Act.

However, the act inadvertently led to a decrease of gold reserves in the U.S. Treasury, as many people started exchanging their Treasury Notes for gold, not silver. It began to threaten the government’s gold reserves and thus the foundation of the gold standard (where currency was backed by gold).

As a result, in 1893, President Grover Cleveland called a special session of Congress to repeal the Sherman Silver Purchase Act to prevent the depletion of gold reserves, which was contributing to the Panic of 1893, a serious economic depression. When the act was repealed, the policy of buying silver ended, and as a result, the U.S. stopped injecting additional silver currency into the economy. This led to contraction, meaning that there was less money in circulation, and consequently, the value of currency increased (deflation).

Extra: Understanding currency contraction and deflation can be somewhat complex, so let's break it down for a school student. Imagine you have a limited number of toys in the playground to play with. If suddenly some of those toys are taken away, each remaining toy becomes more valuable to the children because there are fewer to go around. Similarly, in an economy, money is like the toys. When there is less money available to spend (currency contraction), each dollar becomes more valuable because there are fewer dollars in circulation. This is called deflation.

In contrast, if more money is put into the economy, you could think of it as adding more toys to the playground. Now, because there are more toys available, each one might be considered less valuable or special. In the same way, when more money is available, the value of each dollar can decrease because there are more dollars chasing the same amount of goods and services. This is known as inflation.

The repeal of the Sherman Silver Purchase Act is an example of when the government purposely contracted the money supply to maintain the gold standard and stabilize the economy. While this was seen as necessary to preserve the nation’s gold reserves and financial stability, in the short term, it also likely made the economic depression of 1893 worse by causing deflation. This deflation made it harder for people with debts to pay them off because their dollars were more valuable, but they likely weren't earning any more of them. It is important for students to understand the delicate balance governments must maintain in managing the money supply to foster a healthy economy.