In 1888, Benjamin Harrison lost the popular vote, but won the electoral college. Harrison managed to garner the urban vote which overwhelmed President Cleveland. Once in office, Harrison supported economic policies which weakened the economy. Administration support for higher tariffs and inflationary policies, combined with a bubble economy, helped lead to a depression in 1893.
By Harrison's inauguration, railroad expansion drove the economy. In a situation similar to the nineties tech bubble or the real estate bubble of the early aughts, the railroads over expanded based on questionable financing. When this railroad bubble burst, the economy collapsed. However, the economy did not need to fall into a depression. Like the Panic of 2008, government policy pushed the weakened economy over the edge.
Before the Great Depression, the Republican Party supported high tariffs while the Democrats supported lower tariffs. Once Harrison assumed office, the Republicans worked to raise tariff rates. Future President William McKinley sponsored an increase to nearly 50%. In 1890, Harrison signed the so-called McKinley Tariff into law.
Along with the tariff, the Republicans also passed the Sherman Silver Purchasing Act. The act required the government to purchase an allotment of silver each month in exchange for paper notes that could be redeemed for gold or silver. The act represented a compromise between those that wanted free and unlimited silver coinage and their opponents. Harrison hoped the Sherman act would settle the issue.
The Republicans rightfully felt good about passing their agenda. However, the agenda helped lead to an economic collapse. The tariff led to inflation and failed to help protect American farmers or industry from foreign competition. In fact, agricultural prices continued to drop while farm equipment prices skyrocketed. Additionally, imports dropped which led to a decrease in tariff payments to the treasury.
While the McKinley tariff failed, the Sherman Silver Purchasing Act led to speculation. The act required the government to purchase silver in exchange for notes that could be redeemed for gold or silver. The speculators sold their silver and received the notes. Then, most exchanged the notes for gold. The speculation depleted the nation's gold reserves. Eventually, the act was repealed before the nation's gold supply evaporated.
Benjamin Harrison left office before the Panic of 1893. He lost the election to former President Cleveland. Unfortunately for Cleveland, the public saddled him with the blame. However, the Harrison economic policies helped cause the collapse. The increased tariff decreased government receipts while the Sherman Silver Purchasing Act depleted the gold supply. Once the railroad bubble burst, the economy collapsed like a house of cards.
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