The History of Bimetallism in the United States
Part I, Chapter II
The Silver Period, 1792-1834
§1. In the time before the adoption of the Constitution the circulating medium of the colonies was made up virtually of foreign coins. During the war of the Revolution the "Spanish milled dollar" was the unit of common account.*5 The paper money, it was at first expected, was to be redeemed in this medium. But as regards coins of a denomination other than the Spanish dollar, there were a variety of them in circulation. In keeping accounts, next in order of common usage to the dollar came the pound and shilling, which was the natural consequence of our English origin; but the shilling stamped by some of the colonies, although forming a considerable part of the money in circulation, varied widely in value.*6 Besides these kinds of money there were also English, French, Spanish, and Portuguese coins, which in 1776 were assigned*7 the following relative values:
From 1782 to 1786 the colonies began seriously to consider the difficulties arising from the variety of different coins in circulation, and their deleterious effects on business and methods of accounts, to the extent that they proposed a special American coinage with the dollar as the basis. In 1782 Robert Morris, Superintendent of Finance, made proposals*8 for the establishment of an American Mint, which were approved by the Congress of the Confederation. He faced the question at once, Of what metal should the dollar be made? He urged the use of silver alone,*9 for, he said, both gold and silver could not be used, because the ratio between the two metals was not constant.
Jefferson advocated the decimal denominations in the system of coins, and urged the dollar*10 as a unit. He adds in regard to the ratio:
"The proportion between the values of gold and silver is a mercantile problem altogether"; and further remarks: "Just principles will lead us to disregard legal proportions altogether, to inquire into the market price of gold in the several countries with which we shall principally be connected in commerce, and to take an average from them. Perhaps we might with safety lean to a proportion somewhat above par for gold, considering our neighborhood and commerce with the sources of the coins and the tendency which the high price of gold in Spain [16:1] has to draw thither all that of their mines, leaving silver principally for our and other markets. It is not impossible that 15 for 1 may be found an eligible proportion."
Morris had stated the ratio in America to be about 1:14½, at this time. The proposals of Morris and Jefferson were, however, not carried into effect.
In 1785 the strong desire for a metallic currency, coupled with the belief that silver could be most easily obtained, was evident in a "Report*11 of a Grand Committee of the Continental Congress":
"In France, 1 grain of pure gold is counted worth 15 grains of silver. In Spain, 16 grains of silver are exchanged for 1 of gold, and in England 15 1/5. In both of the kingdoms last mentioned gold is the prevailing money, because silver is undervalued. In France, silver prevails. Sundry advantages would arise to us from a system by which silver might become the prevailing money. This would operate as a bounty to draw it from our neighbors, by whom it is not sufficiently esteemed. Silver is not exported so easily as gold, and it is a more useful metal."
Congress again accepted the dollar as a unit, and other coins of decimal proportions to the dollar, but nothing was done.
April 8,1756, the Board of Treasury,*12 although they mention that the ratio then prevailing in America was 1:15.60, made three reports, showing the following adjustment of the coins:
The first report was followed, and the board ordered to draft an ordinance for the establishment of a Mint, which was accepted October 10, 1786. Nothing, however, was carried into effect before the adoption of the Constitution. The colonies remained, consequently, until 1792, with a circulating medium of foreign coins, composed almost entirely of silver, and subject to the regulations of the foreign governments which issued them.
§ 2. The establishment of a double standard*13 in the United States is due to Alexander Hamilton. His "Report*14 on the Establishment of a Mint" remains the best source of information as to the reasons for adopting the system which has continued, with a slight break, from that day to this. As was to be expected, the arguments urged at the present time in favor of bimetallism had not occurred to Hamilton. He did not enter into a general discussion of the effects of a double standard, such as we might expect from a modern bimetallist. In speaking of gold and silver, he was emphatic in stating his belief that if we must adopt one metal alone, that metal should be gold, and not silver (at variance, as we have seen, with the views of Robert Morris in 1782); because, said Hamilton,*15 gold was the metal least liable to variation. In fact, we find in his report thus early in our history an expression of that preference for gold over silver, whenever the former can be had, which has since then played no little part among the influences acting on the relative values of the two metals.
"As long as gold, either from its intrinsic superiority as a metal, from its rarity, or from the prejudices of mankind, retains so considerable a pre-eminence in value over silver as it has hitherto had, a natural consequence of this seems to be that its condition will be more stationary. The revolutions, therefore, which may take place in the comparative value of gold and silver will be changes in the state of the latter rather than in that of the former."
This prophecy of Hamilton's was fulfilled to the letter within a few years after the words were uttered.
But in these words also we find the excuse for the adoption of a system of bimetallism which, after the expression of a preference for gold, might have seemed undesirable. If a farmer is seeking for one of two pieces of land, he will be obliged to select that which is within his means. The United States was in the same position as the farmer. There was a general scarcity of specie in the new country, and it was a difficult matter to perform the exchanges with ease. Not only was there no prejudice against silver, but it was the metal most in common use. The whole object of the Secretary was to secure a metallic medium in abundance; silver, being in use, must, of course, be retained, and gold brought in also, if possible. The double standard was preferred, therefore, because it afforded a moral certainty of the retention of silver and a possibility also of adding gold to the money of the land. It would not do, says Hamilton, to adopt a single silver standard, for that would act "to abridge the quantity of the circulating medium." It was hoped to utilize the existing quantity of silver, and yet keep the gold also. Although he preferred a single standard of gold, he must be content to take what he could get; and silver was most easily secured for the new currency. There is, he adds, an extraordinary supply of silver in the west Indies,*16 and this will render it easier for the United States to obtain a supply of that metal. He had little conception of the coming effect on his system of this "extraordinary supply" of silver from the South American mines. The scarcity of metallic money was the fact which influenced him in his recommendation of a double standard—a natural scarcity, too, for the country yet felt the effects of the havoc caused by the worthless continental paper which had driven specie out of use. Like the farmer of limited means, who preferred the better although more expensive land, but took the cheaper piece because it was within his reach, Hamilton naturally adopted the poor-country plan,*17 and, in order to secure a metallic currency, took measures to retain silver, the best he could get (with the hope of keeping gold also).
§ 3. Having, for these reasons, fully decided to adopt a double standard, the Secretary was obliged to face the chief difficulty in the problem—the selection of a legal ratio between gold and silver. Here was the rock on which, as we shall see hereafter, his system was inevitably bound to go to pieces.
In selecting a ratio between gold and silver in our coinage there is not a reasonable doubt but that, in spite of later charges, Hamilton fully intended to keep as closely as possible to the market ratio in the United States.
"There can hardly be a better rule in any country for the legal than the market proportion, if this can be supposed to have been produced by the free and steady course of commercial principles. The presumption in such case is, that each metal finds its true level, according to its intrinsic utility, in the general system of money operations."
Having decided to adopt the market ratio, he found an alternative between (1) the market ratio of "the commercial world" and (2) the market ratio solely of the United States. He frankly admitted his inability to discover the former. "To ascertain the first with precision would require better materials than are possessed, or than could be obtained, without an inconvenient delay."*18 Here he committed a grave financial error. No system of bimetallism has been able to exist for any length of time in a country trading with foreign states, if the Mint ratio was not in agreement with the market ratio of the chief commercial nations. Hamilton certainly did not then foresee this difficulty. On a matter of monetary principles he was wholly wrong. He should have made the inquiry in regard to the relative values current in "the commercial world" with great care; for, if he had no time to conduct such an investigation, it was certain that his bimetallic system would soon be disturbed. But, as we shall soon learn, he was led to that which was right in fact, although, on a matter of principles, he was wholly in error.
The object he set before him, then, was the ascertainment of the current ratio between gold and silver in the United States, irrespective of the relative values of the two metals in foreign lands. This, however, was no easy matter. Morris had stated the ratio to be 1:14¾, and Jefferson 1:14½; but Hamilton found that there was a customary ratio*19 between gold and silver coins in the United States of 1:15.6, although this ratio was not based on the weight of Spanish dollars coined at this time.*20 The weight of the Spanish dollars varied, in truth, within very wide limits, and yet had the same nominal value. As early as 1717 the assays of Sir Isaac Newton, at the English Mint, gave the following results:
The Spanish government issued its later coins of less weight than its older ones.*21 Then, also, worn coins contained less silver than fresh ones, so that for many reasons the dollar did not represent any definite weight of silver. In speaking of these coins, Hamilton remarks:
"That species of coin has never had any settled or standard value, according to weight or fineness, but has been permitted to circulate by tale, without regard to either, very much as a mere money of convenience, while gold has had a fixed price by weight, and with an eye to its fineness. This greater stability of value of the gold coins is an argument of force for regarding the money unit as having been hitherto virtually attached to gold rather than to silver.
"Twenty-four grains and six eighths of a grain of fine gold have corresponded with the nominal value of the [silver] dollar in the several States, without regard to the successive diminutions of its intrinsic worth.
"But if the [silver] dollar should, notwithstanding, be supposed to have the best title to being considered as the present unit in the coins, it would remain to determine what kind of dollar ought to be understood."*22
It seemed, therefore, to be definitely understood that 24¾ grains of fine gold stood as the recognized equivalent of a silver dollar; and with this starting-point Hamilton, having already selected the ratio of 1:15 between the coins, would be led a priori to determine that the silver dollar ought to contain 15 × 24¾ grains of fine silver, or 371¼ grains. And, in all probability, this was the process by which he arrived at his conclusion. He announced that the later issues of dollars from the Spanish mint had contained 374 grains of fine silver, and the latest issues only 368 grains, which implied a current market ratio in the United States (if these dollars exchanged for 24¾ grains of fine gold) of from 1:15.11 to 1:14.87, or a mean ratio of about 1:15. Of this ratio Hamilton says it is "somewhat more than the actual or market proportion, which is not quite 1:15." But, throughout his inquiry, no one can doubt but that he was honestly seeking for a ratio as near as possible to that existing in the markets of the United States. He certainly can not be charged with an intention of underrating gold.
In later years, however, Hamilton was vehemently attacked by Benton*23 (during the controversy on the second United States Bank) because of an alleged intention to favor silver in preference to gold by his ratio, in order to drive out gold and encourage the use of paper substitutes for the less portable and heavier metal, silver. There seem to be no just grounds for this reflection on Hamilton's purposes. Benton, in his day, saw gold disappearing; but the cause of it was as unknown to him as it was to Hamilton, although it was in operation in 1791, when bimetallism was adopted. To learn what this cause was, it will be suitable first to give a statement from sources now accessible to us of the actual ratios of gold to silver during this time, when a coinage system was being established.
The relative values between gold and silver, computed by Dr. Soetbeer from absolutely credible sources in the official quotations twice a week of the prices of silver at Hamburg, are the most reliable. About 1780, Hamburg was a much more important silver market than was London, although in later years the English city has easily taken the lead of all other markets. Another table of ratios was compiled in 1829 by John White, cashier of the United States Bank, covering the years from 1760 to 1829. It is unquestionably full of errors, and quite untrustworthy, but has been quoted by various American writers and officials as if it were trustworthy. For this reason, in the discussion of the years from 1780 to 1800, both tables*24 will be quoted, and the reader can make his own comparisons:
The movement of silver relatively to gold, as shown by these tables, may be best seen in Chart I. A downward tendency in the value of silver relatively to gold, beginning soon after 1780, is the marked characteristic of this period. The horizontal line drawn across the chart indicates the place of the ratio of 15:1 proposed by Hamilton, and it can be seen by comparison with this line whether the market ratios corresponded with 1:15. The line based on the Hamburg quotations shows that the market ratios remained at about the line of 1:15 in the years from 1790 to 1793, the very time during which our system was established; but it will be noticed at once that, after 1793, silver began a steady fall relatively to gold, and never thereafter in this period did it return to the ratio of 1:15. It was a very short time, indeed, that the ratio of "the commercial world" remained near Hamilton's choice. Of this gradual tendency of silver to change its value relatively to gold Hamilton, of course, did not know. Had he known of it, he must have foreseen the subsequent action of Gresham's law (by which the cheaper metal drives out the dearer), and the establishment of a single silver standard, instead of the single gold standard which he preferred. Without knowing it, he was dealing with a metal even then shifting in value; and, without intending it, he established a ratio which could accord with the market rate for only a very inconsiderable time. Hamilton's attempt was like that of a man who should try to build a house on the banks of the great glaciers in the Alps, which slowly but constantly move onward within their mountain channels, and who should yet expect to maintain fixed and unchanged relations in his house with the surface of the moving ice.
§ 4. Having supplied ourselves with a knowledge of the actual condition of things on which Hamilton was erecting his bimetallic system, we can now look closer into the plan which was adopted by Congress and put into operation in 1792. His report*26 draws the following conclusions, on which the act was based:
"That the unit in the coins of the United States ought to correspond with 24 grains and ¾ of a grain of pure gold, and with 371 grains and ¼ of a grain of pure silver, each answering to a dollar in the money of account. The former is exactly agreeable to the present value of gold, and the latter is within a small fraction of the mean of the two last emissions of dollars—the only ones which are now found in common circulation, and of which the newest is in the greatest abundance. The alloy in each case to be one twelfth of the total weight, which will make the unit 27 grains of standard*27 gold and 405 grains of standard silver."*28
In carrying out this plan in the act of April 2, 1792, Congress*29 deviated slightly from the recommendations. The alloy in the silver dollar was not made one twelfth, but about one ninth, by fixing the standard weight at 416 grains. The original silver dollar, therefore, weighed 416 grains (not 412½, and contained 371¼ grains of pure silver. No gold dollar pieces were authorized; but the eagle, or ten-dollar piece, was made the basis of our gold coins. The eagle was to contain 270 grains of standard coin and 247.5 grains of pure gold; so that one gold dollar would have weighed 27 grains, and contained 24.75 grains of pure gold. Fifteen times 24.75 grains gives 371¼ grains, the weight of pure metal in the silver dollar, making the ratio between the pure metals in our coins 1:15; as intended by Hamilton. The ratio, of course, is never estimated on the standard weights in the coins.
The subsidiary silver coins, or those of denominations below one dollar, were established of a weight and fineness corresponding to that of the dollar piece. That is, two halves, four quarters, ten dimes, or twenty half-dimes, contained as many grains (371¼) of pure silver as did the one-dollar piece. Therefore, as we shall see later, whenever anything happened to affect the circulation of the dollar piece, it equally affected the subsidiary coinage. This, as is now well known, was an error, and subsequently resulted in the disappearance of all coins used for "small change."
It was also enacted (Sec. 14) that "it shall be lawful for any person or persons to bring to the said Mint gold and silver bullion, in order to their being coined." These words contain the important privilege known as "Free Coinage," by which is meant the right of any private person to have bullion coined at the legal rates. If the Government reserves to itself this right, there would not be free coinage. This is a matter of importance, because through it alone can Gresham's law have an immediate effect. If there is a profit in sending one of two legal metals to the Mint, and in withdrawing the other, with the result of displacing one of the metals in circulation with another, it is necessary, of course, that access to the Mint should be free to any one who sees this chance of profit.
Free coinage, however, is to be distinguished from the absence in the act of any charge for "seigniorage," as expressed in the words: "And that the bullion so brought shall be there assayed and coined as speedily as may be after the receipt thereof, and that free of expense to the person or persons by whom the same shall have been brought." Seigniorage is a charge exacted from persons for coining their bullion into coins at the Mint; but no such charge was exacted in this act of 1792.
The legal-tender power was granted to both gold and silver coins, and subsidiary coinage as well, to an unlimited extent, in these words (Sec. 16): "All the gold and silver coins, which shall have been struck at, and issued from, the said Mint shall be a lawful tender in all payments whatsoever, according to the respective values hereinbefore declared, and those of less than full weight at values proportional to their respective weights." As regards the subsidiary coins this was an error, from the point of view of all later experience. That subsidiary coins should be an unlimited tender to any amount, however, when of equal value with the dollar piece, could not create much annoyance.
Such was the bimetallic system established, soon after the foundation of our Government, in 1792. There probably never was a better example of the double standard, one more simple, or one for whose successful trial the conditions could have been more favorable. There was no prejudice among the people against the use of either gold or silver. The relative values of the two metals had been fairly steady for a long time in the past. At the start everything seemed fair. The real difficulty which the future disclosed was one inherent in a system based upon the concurrent use of two metals, each of which is affected by causes independent of the other. The difficulty was certainly not, as some would have us believe, in the selection of a wrong ratio. Knowing, as we now do, that the ratio between gold and silver began to change, as if for a long-continued alteration of their relations, at the very time when Hamilton was setting up a double standard, and learning, as we have, that he declined, from lack of time, to ascertain the market ratio for "the commercial world," we are prepared to find that, as he was wrong in theory, he was also wrong in the ratio he selected with so narrow a view. This, however, is not true. It happened that the ratio he adopted, on the sole ground that it was near to the current relation*30 in the United States, was also, by a piece of good fortune, as near as could be expected to the ratio of "the commercial world." By reference to the Hamburg tables it will be seen that European prices during the four years from 1790 to 1793 (inclusive) gave a market ratio of almost exactly 1:15. Indeed, if Hamilton had taken the European market into account, it is difficult to understand what other ratio he could properly have adopted.*31 As a matter of fact, his legal ratio corresponded with the market ratio when his plan went into operation. As a matter of Hamilton's own monetary skill, it was surely but a hand-to-mouth policy; for a ratio different from that of the commercial world would have been wholly unjustified by correct monetary rules.
§ 5. We must now accompany the new coinage system in the course of its experience during the first period of its history. The young and promising offspring of Hamilton started well, but soon began to limp, and then to walk on only one leg. We must therefore investigate the cause of this trouble. In calling attention to Chart I it was noticed that the relative values of gold and silver began to change soon after 1780; that relatively to gold the value of silver fell (or, not to prejudge the case, the value of gold rose relatively to silver) until in the last five years of the century the ratio remained in the vicinity of 1:15.5. By continuing the table of figures from 1800 to 1833, the period represented by the chart, it will be possible to see the extent and direction of further changes in this season of trial for the new system. As already observed, the market value, according to Hamburg prices of silver, never rose after 1793 to the ratio of 1:15 (indicated by the horizontal line), within this period which extends to 1833 (although it came nearest to it in 1814 and 1817). After 1820 there was a lower level in the relative value of silver to gold, indicating a more or less permanent change in the relations of the two metals, at a rate between 1:15½ and 1:16. The decline after 1793 was steady, broken by a rally in 1803-1805, and followed by a fall below 1:16 in 1813. These are the simple facts, taken from the most trustworthy sources, concerning the relative values of gold and silver in the first period after Hamilton established his system in 1782. Thus was fulfilled his prophecy: "The revolution, therefore, which may take place in the comparative value of gold and silver will be changes in the state of the latter rather than in that of the former."
Without stopping now to consider the cause of this change in the relations of gold and silver, it will be best to explain the effects of this change—no matter what its cause—upon the coinage of the United States. The situation now resembles that of a man who, having balanced a lever on a fulcrum, and then, after leaving lengthened one arm and shortened the other, should expect the lever to balance on the fulcrum in the same manner as before. We now have an illustration of Gresham's law—that when two metals are both legal tender, the cheaper one will drive the dearer out of circulation. This can not operate, however, unless there is "free coinage," and unless there is such a divergence between the mint and the market ratios of gold and silver as will secure to the money-brokers a profit by exchanging one kind of coins for the other. But, as we have already seen, "free coinage" existed, and a profitable difference*32 between the mint and the market ratios in the United States appeared about as early as 1810.
The operation of Gresham's law is in reality a very simple matter. If farmers found that in the same village eggs were purchased at a higher price in one of two shops than in the other, it would not be long before they all carried their baskets to the first shop. Likewise, in regard to gold or silver, the possessor of either metal has two places where he can dispose of it—the United States Mint, and the bullion market; he can either have it coined and receive in new coins the legal equivalent for it, or sell it as a commodity at a given price per ounce. If he finds that silver in the form of United States coins buys more gold than he could purchase with the same amount of silver in the bullion market, he sends his silver to the Mint rather than to the bullion market. By reference to Chart I, it will be seen that the market value of silver relatively to gold had fallen to 1:16, while at the Mint the ratio was 1:15. That is, in the market it required sixteen ounces of silver to buy one ounce of gold bullion; but at the Mint the Government received fifteen ounces of silver, and coined it into silver coins which were legally equivalent to one ounce of gold. The possessor of silver thus found an inducement of one ounce of silver to sell his silver to the Mint for coins, rather than in the market for bullion. But as yet the possessor of silver had only got silver coins from the Mint. How was he to realize his gain? Will people give the more valuable gold for his less valuable silver coins? To some minds there is a difficulty in understanding how a cheaper dollar is actually exchanged for a dearer dollar. This also is simple. The mass of people do not follow the market values of gold and silver bullion, nor calculate arithmetically when a profit can be made by buying up this or that coin. The general public know little about such things, and if they did, a little arithmetic would deter them. These matters are relegated by common consent to the money-brokers, a class of men who, above all others, know the value of a small fraction and the gain to be derived from it. Ordinary persons hand out gold or silver, when they are in concurrent circulation, under the supposition that the intrinsic value of gold is just equal to the intrinsic value of silver in the coins, according to the legal ratio expressed in the coins. If, under such conditions, silver falls as above described, the money-broker will continue to present silver bullion at the Mint, and the silver coins he receives he can exchange for gold coins as long as gold coins remain in common circulation—that is, as long as gold coins are not withdrawn by every one from circulation. Having now received an ounce of gold in coin for his fifteen ounces of silver coin, he can at once sell the gold as bullion (most probably melting it, or selling it to exporters) for sixteen ounces of silver bullion. He retains one ounce of silver as profit, and with the remaining fifteen ounces of silver goes to the Mint for more silver coins, exchanges these for more gold coins, sells the gold as bullion again for silver, and continues this round until gold coins have disappeared from circulation. When every one begins to find out that a gold eagle will buy more of silver bullion than it will of silver dollars in current exchanges, then the gold eagle will be converted into bullion and cease to pass from hand to hand as coin. The existence of a profit in selling gold coins as bullion, and presenting silver to be coined at the Mint, is due to the divergence of the market from the legal ratio, and no power*33 of the Government can prevent one metal from going out of circulation. Like the farmers with their eggs, under the operation of Gresham's law silver will be taken where it is of the most value (the United States Mint), and gold will be sold*34 where it brings a greater value than as coin (the bullion market).
In the preceding explanation of Gresham's law I have described the process which began to make itself felt as early as about 1810. The date itself is of importance, because some writers have explained the operation of Gresham's law and the disappearance of gold by causes*35 which can be admitted as the true ones only if the date were as late as 1819, the year when the English Resumption Act was passed. There are, however, indisputable proofs that the change in the relations of the two metals was apparent long before 1819, and, consequently, long before the English demand could have been felt. Mr. Lowndes introduced the question of the disappearance of gold from the currency by a resolution*36 in the lower house of Congress as early as November 27, 1818. Benton*37 distinctly sets an earlier date by stating that "it was not until the lapse of near twenty years after the adoption of the erroneous standard of 1792 that the circulation of that metal [gold], both foreign and domestic, became completely and totally extinguished in the United States." This would fix the time at about 1812. This is corroborated by Crawford,*38 Secretary of the Treasury, who asserts that a change in the relative values had taken place many years before 1820. When we recall that such a process as the substitution of one metal by another must be comparatively slow, especially in a new and sparsely settled country, the causes must have been at work some time before, if we read in a report to Congress in 1821: "On inquiry, they find that gold coins, both foreign and of the United States, have, in a great measure, disappeared."*39 It seems, therefore, to be clear that gold began to disappear as early as 1810, if not before, and that little of it was in circulation by 1818.*40 Indeed, since 1793 there existed in the relative values of gold and silver a strong reason why gold should not circulate in the United States, and why Mr. Lowndes should have said*41 in 1819: "It can scarcely be considered as having formed a material part of our money circulation for the last twenty-six years. In fact, the situation has been thus distinctly described:*42
"Our national gold coins were seldom if ever used as currency. Silver, which, by the act of 1792, rated quite as high as its commercial value, was the only national coin much used by our citizens. On our Northwestern and Southern frontiers, and in some Atlantic cities, foreigners occasionally scattered foreign gold coins. But these did not form any considerable portion of the circulating medium, except perhaps at the Southwest. As they were valued by weight, their circulation was highly inconvenient and often the subject of imposition. Their value was constantly fluctuating, according to the rates of exchange on Europe, where they were a legal tender in payment of balances due from us."
In fact, the result of careful inquiry reveals to us that gold coins were seldom seen during the largest part of this period from 1792 to 1834. Even when bank-paper was used, the reserves of the banks were generally in silver, not in gold.*43 Whatever the cause of the change in the relative values, certain it is that gold disappeared, and that the United States had but a single silver currency as early as 1817, and probably earlier.
These conclusions are fortified by the returns of gold and silver coinage at the United States Mint. In the exposition of Gresham's law it was explained that the metal which had fallen in value would be presented at the Mint to be coined, while the dearer metal would go into the melting-pot, or be exported. Inasmuch as silver had fallen in value relatively to gold, it was to be expected that, to some extent, even in a new community where specie was scarce, silver would be brought to the Mint in preference to gold. And this is what we find to be the fact. After 1805 the coinage of silver distinctly increased, without an increase of gold coinage, while soon after the war of 1812 the coinage of gold almost entirely ceased, but the issue of silver coins steadily multiplied during the remainder of this period. This can be most easily seen in Chart II. The length of the dark lines away from the perpendicular line shows the value of gold coined (estimated in dollars) each year,*44 while the open lines, extending in an opposite direction, show the same for silver.*45 So distinct a change in the relative amounts of gold and silver coinage since 1805 is in itself cumulative proof that there was such a variation of the market from the Mint ratio as to send silver to the Mint for coinage in preference to gold as early as 1806. And this, too, although American dollar pieces ceased to be sent out from the Mint after 1805, and were not coined from that time to 1836. The mass of silver coins issued were in the form of half-dollars, which contained proportionally the same weight of silver as the dollar piece.
In summing up, we find that, in fact, the ratio of 1:15 was in accordance with the market ratio at the time of the establishment of the Mint in 1792, but that Hamilton was attempting to set up the new system on the slope of a declining value of silver relatively to gold; and that this downward movement was unknown to the statesmen of that day. The divergence of the market from the Mint ratio brought Gresham's law into operation as early as the period from 1805 to 1810, and before 1820 it had virtually driven gold out of use as a medium of exchange.
Notes for this chapter
Cf. J. K Upton's "Money in Politics," chap. iii.
The Spanish dollar equaled 5 shillings in Georgia; 8 shillings in North Carolina and New York (12½ cents); 6 shillings in Virginia, Connecticut, New Hampshire, Massachusetts, and Rhode Island (16 2/3 cents); 7 shillings 6 pence in Maryland, Delaware, Pennsylvania, and New Jersey; 32 shillings 6 pence in South Carolina. This accounts for the present reckoning of 12½ cents to a "shilling" in New York, Ohio, etc., and of 16 2/3 cents in New England and Virginia ("nine pence" still being used as the equivalent of 12½ cents). The persistence, to the present day, of the units of account of a century ago, although the coins representing them have long passed out of existence, is one of the striking facts in monetary history.
"Report of 1878," p. 422. It is to be kept in mind, however, that the Spanish dollar with which this comparison was made varied in weight.
"Report of the International Monetary Conference of 1878," pp. 425-435. In referring to this authority I shall hereafter call it the "Report of 1878."
"Report of 1878," pp. 430, 431.
Ibid., pp. 437-443. "The unit or dollar is a known coin, and the most familiar of all to the mind of the people. It is already adopted from South to North, has identified our currency, and therefore happily offers itself as a unit already introduced."
"Report of 1878," pp. 445-449.
Samuel Osgood and Walter Livingston. See "Report of 1878," pp. 449-453.
For the first instance of a double standard in this country see the experiment of the colony of Massachusetts in 1762. Cf. Upton, "Money in Politics," p. 21.
Dated May 5, 1791. It is given in full in "Report of 1878," pp. 404-484.
"Gold may, perhaps, in certain senses, be said to have a greater stability than silver; as, being of superior value, less liberties have been taken with it in the regulations of different countries. Its standard has remained more uniform, and it has, in other respects, undergone fewer changes; as, being not so much an article of merchandise, owing to the use made of silver in the trade with the East Indies and China, it is less liable to be influenced by circumstances of commercial demand. And if, reasoning by analogy, it could be affirmed that there is a physical probability of greater proportional increase in the quantity of silver than in that of gold, it would afford an additional reason for calculating on greater steadiness in the value of the latter."
"But our situation in regard to the west India Islands, into some of which there is a large influx of silver directly from the mines of South America, occasions an extraordinary supply of that metal, and consequently [since our trade with the west Indies was important] a greater proportion of it in our circulation than might have been expected from its relative value."
In the Report of the Committee to Congress in 1785 (see p. 12) the same idea was uppermost. They saw that the French ratio of 1:15 attracted silver to France from England and Spain, where silver had a less value (viz, 1:15.2 in England and 1:16 in Spain); consequently it was urged that a ratio like the French, or even 1:14.75, would be likely to draw silver to the United States from England and Spain, and thereby increase the chances of gaining enough of this metal to satisfy our needs. Jefferson also, in 1782, seeing that France lost gold, but England and Spain lost silver, thought it well to adopt a ratio of 1:15, because, as our commerce was chiefly with Spain, we should receive silver readily from Spain, where the ratio was unfavorable to silver [1:16].
Mr. Upton, it seems to me, is in error when he says ("Money in Politics," p. 39): "He admitted that if the ratio between the metals should not prove to be the commercial one, there was hope of retaining only the overvalued metal in circulation. He asserted his belief, however, that 1:15 would prove to be the commercial ratio."
Hamilton explains the prevalence of this ratio by the fact that it arose from a custom existing in years before of comparing gold coins with earlier issues of Spanish Seville pieces (386¾ grains of pure silver), which contained more pure silver than the Spanish dollars current in 1791. The Board of Treasury also ("Report of 1878," p. 449) gave 1:15.6 as the ratio in common use in 1786.
In 1782, Robert Morris reported that the best assays to his knowledge made the dollar in general circulation to contain about 373 grains of pure silver. In 1785, a committee reported, and Congress adopted, a plan for a dollar of 362 grains, but it was not carried out. The Board of Treasury, in 1786, proposed a dollar of 375.64 grains. See "Report of 1878," pp. 431, 447, 449.
Gallatin, in a letter to Mr. Ingham, Secretary of the Treasury (December 31, 1829), says: "The present rate (1:15) was the result of information clearly incorrect respecting the then relative value of gold and silver in Europe, which was represented as being at the rate of less than 15 to 1, when it was in fact from 15.5 to 15.8 to 1" ("Report of 1878," p. 591). But Hamilton did not attempt to adjust his ratio according to the ratio prevalent in Europe.
"Report of l878," p. 456.
Ibid., p. 484. Cf. also Horton's note, p. 460.
These tables are collected and given in full in Appendix II, together with Cashier White's figures, and critical notes on some of the ratios. All the evidence we have goes to confirm the Hamburg quotations as generally reliable, and to show White's figures to be almost utterly worthless.
See, for critical note on these years, Appendix II.
See "Report of 1878," p. 478.
"Standard" is the term applied to the pure metal mixed with the alloy. The actual weight of a finished coin, of course, contains a certain weight of fine or pure metal, plus the alloy. England, Spain, Portugal, and France then put an alloy of one twelfth of the total, or standard, weight into their gold coins. (See "Report of 1878," p. 466.) The origin of this fraction is in the use of carats. Twenty-four carats fine is a standard of pure gold, and these countries adopted as the standard of fineness in their gold coins twenty-two carats, or 22/24, or 11/12. Reduced to the decimal system, 11/12 is 916.66 thousandths fine.
Although Hamilton recommended the same alloy for silver as for gold coins, for some reason Congress did not carry out the suggestion. Instead of adding alloy to 371½ grains of pure silver, so as to make the standard weight 405 grains (which would have been one twelfth alloy), Congress fixed the standard weight of the silver dollar at 416 grains, thus establishing a fraction a little more than one ninth of alloy (or, in the decimal system, 892.43 thousandths fine). The same was true of the subsidiary silver coins, or denominations below one dollar.
For the provisions of the act at length, see Appendix III.
Jefferson approved of Hamilton's choice of 1:15. Cf. "Report of 1878," p. 486.
Even if we take the untrustworthy figures of white, we find that the ratio was below 1:15, and had been since 1786. Therefore it can not be charged by Benton that Hamilton favored silver by the ratio of 1:15, since this ratio gave gold an exchange value in the coins greater than that in the market (so far as White's table goes).
Mr. Baring, the banker, testified: "A very slight difference of one tenth or one fourth per cent would determine the use of one metal or another."—Quoted by C. P. White, p. 43 of "H. R. Report No. 278," vol. ii, 1833-1834, 1st session, 23d Congress. In speaking again of this report I shall describe it as "Report No. 278, 1833-1834."
A vivid illustration of this fact is given in Macaulay's "History of England," chap. xxi. About 1691, new coins were issued of full weight to take the place of the worn and clipped coins which caused so much wrangling in every bargain; but the old coins and the new were equally received by the state for government dues. There was, therefore, a premium on clipping the new coins, if the old and clipped coins were an equally good tender for taxes. The new coins disappeared as fast as they came from the Mint. Men and women were hanged in numbers for this kind of money-making, but the trouble went on as before, until the proper remedy was applied in 1695 by ceasing to receive the worn and clipped coins for more than their value by weight.
"The most extreme instance which has ever occurred was the case of the Japanese currency. At the time of the treaty of 1858, between Great Britain, the United States, and Japan, which partially opened up the last country to European trades, a very curious system of currency existed in Japan. The most valuable Japanese coin was the kobang, consisting of a thin oval disk of gold about two inches long and one inch and a quarter wide, weighing two hundred grains, and ornamented in a very primitive manner. It was passing current in the towns of Japan for four silver itzebus, but was worth in English money about 18s. 5d., whereas the silver itzebu was equal only to about 1s. 4d. Thus the Japanese were estimating their gold money at only about one third of its value, as estimated according to the relative values of the metals in other parts of the world. The earliest European traders enjoyed a rare opportunity for making profit. By buying up the kobangs at the native rating they trebled their money, until the natives, perceiving what was being done, withdrew from circulation the remainder of the gold."—Jevons, "Money and Mechanism of Exchange," p. 84.
See infra, chap. iii, § 5.
On which a report was made January, 26, 1819. 3 Finance, p. 398.
"Thirty Years' View," vol. I, chap. cv. Speech on the revival of the gold currency.
"It is believed that gold, when compared with silver, has been for many years appreciating in value."—In a "Report on the Currency," February 24, 1820. Cf. "Report of 1878," p. 519. "In the autumn of the year 1820 [November 25] an article, written by me, was published in your gazette ['National Gazette'] explaining the cause of the disappearance of gold from the United States."—Condy Raguet, "Currency and Banking," p. 207.
And they add: "There is a continual and steady drain of that metal from this country." See "Report of 1878," p. 554.
"It is a notorious fact that there is at this moment a traffic carried on between the United States and Canada more destructive to our national interest than an evasion of the embargo, or even partially supplying the enemy with provisions, as its effects are so much more extensive. We mean the taking from this country an immense quantity of GOLD to Canada, and receiving therefor British Government bills. It is well known that thousands of pounds sterling are daily offered on the exchange; and such is the demand at this moment for gold that it will bring upward of 4 per cent advance for the purpose of the above-mentioned traffic."—From the "Boston Patriot," in "Niles' Register," vi, p. 46, 1814.
3 "Finance," p. 399. Mr. Ingham (Secretary of the Treasury, in a report to the Senate, May 4, 1830), in discussing this, says that, although Lowndes attributed the fact to an error in the selection of a ratio by Hamilton, "it does not appear from the market price in the United States, during the whole of that time [1792-1819], that gold was more valuable for exportation than silver. On the contrary, it will be observed, by reference to Table B [White's untrustworthy table], that in England, prior to 1810, the ratio of gold to silver had for fifty years averaged at less than 1 to 14.75, and at no period of ten years as high as 1 to 15." He then admits "the fact that it [gold] did not then [prior to 1819] circulate." Cf. "Report of 1878," p. 576, for the context.
"H. R. Report," p. 5, No. 513, 24th Congress, 1st session, March 26, 1836.
C. P. White says, in 1832: "For the last fifteen years our currency has been exclusively banknotes (except for small change), subject to redemption, on demand, with silver."—"Report No. 278," p. 24, 1833-1834.
The exceptional gold coinage in 1820 was due to special importations of gold by the Bank of the United States, in order to bring about specie payments.
See Table of Annual Coinage at the United States Mint, Appendix IV.
Part I, Chapter III
End of Notes
Return to top