The History of Bimetallism in the United States
Part I, Chapter V
The Gold Discoveries and the Act of 1853
§ 1. The discoveries of gold in Russia, Australia, and California, by which the gold product reached its highest amount soon after 1851, form an epoch in the monetary history of every modern state with a specie circulation. They have been the most important events in the later history of the precious metals, and their effect upon the relative values of gold and silver has been serious and prolonged. It is not too much to say that almost all the bimetallic discussions of recent years would not have arisen had this unexpected and astonishing stream of gold from the mines of both the Old and the New World never been poured upon the market. From it date almost all our modern problems relating to gold and silver, and, as we shall later see, we can not discuss the silver question of to-day without reference to this extraordinary production of gold.
The figures of annual production, which are elsewhere*53 given, show the extent of the addition which was made to the world's supply already in existence. From an average annual production in 1840-1850 of about $38,000,000, the gold supply increased to a figure beyond $150,000,000 after 1850. The effect of this increase was unquestionably to lower the value of gold; in other words, to diminish its purchasing power over commodities of general consumption.*54 It was one of those unexpected events which no human sagacity could have foreseen; and, as it seriously affected the value of one of the two metals in our double standard, it threw a new obstacle in the way of its successful progress. There being a fall in the value of gold this time, instead of a fall in the value of silver as before, the necessity arose of a new adjustment of the legal ratio for our gold and silver coins in order to keep both metals in circulation. That is, if bimetallism was to be continued, the experience of the United States required a constant readjustment of the Mint ratio to the market ratio, because of constant changes in the relative values due to natural, and so to unforeseen, causes. After an experience of sixty years, did the United States propose to continue a nominal double standard after its constant failure to keep both metals in circulation? We shall confine ourselves to this question in the present chapter, and to the legislation in which the decision on this matter was contained.
The extraordinary change in the annual production of gold is made clear by noticing in Chart IX the rise of the space covered by yellow after 1850, and comparing this with the extent of the space covered by the same color in earlier periods.*55
Of the general and more important effects ensuing from the increased gold production I shall speak in a later chapter,*56 in connection with its influence on the value of silver.
§ 2. When the value of gold fell under the regular flow of a new and extraordinary supply, as might have been expected, Gresham's law began to work more actively than ever. It hias been seen already that the Mint ratio of 1:16 began in 1834 the movement which was slowly substituting gold for silver. The fall in the value of gold now aggravated this tendency into a serious evil. The divergence between the legal and the market ratios clearly revealed by 1849, at the latest, a long-standing error in regard to the subsidiary coinage. In 1804 an ounce of gold bought about 15.7 ounces of silver in the bullion market (but 16 ounces in the form of coin). In the period we are now considering, however, since gold had fallen in value, one ounce of gold could buy 15.7 ounces no longer, but a less number, which in 1853 was about 15.1 ounces. It will be seen at once that this widened the difference between the Mint ratio of 1:16 and the market ratio, and so offered a greater profit to the watchful money-brokers. Being able to make legal payment of a debt either in silver or gold, a man having 1,600 ounces of silver could tale only 1,540 of them to the bullion market, and there buy 100 ounces of gold, which would by law be a legal acquittal of his debt. He would thus gain 60 ounces by paying his debt in gold rather than in silver. When the ratio was 1:15.7, he would have gained only 30 ounces. So that the fall in the value of gold acted to increase the speed with which gold drove out silver.
This changed relation is to be found in the quotations of silver coins in gold prices. The amount of pure silver in a dollar, or two halves, four quarters, etc., was 371.25 grains; in a gold dollar, 23.2 grains. The act of 1834 had said that gold was 16 times as valuable as silver, and that 23.2 grains of gold should be equivalent to 371.25 grains of silver; but the market is unaffected by legal decrees, and values are not fixed by any legislature. The market values of the two metals in 1853 having then assumed a relation of about 1:15.4, a gold dollar*57 could buy 15.4 times 23.2 grains of silver in the market, or 357¼ grains. This amount was 14 grains less than the legal silver dollar. But if 357¼ grains was the market equivalent of a gold dollar, 371¼ grains would be worth more than a gold dollar in the market; that is, silver dollars were worth about 104 cents of a gold coin in 1853, and even rose to 105 cents in 1859.*58 Taking these figures, it will be seen in another way why it was unprofitable to use a silver coin as a medium of exchange. If a dollar of silver was worth 104 cents in gold coin, and since gold coin was a legal tender for all payments, no one would, on grounds of self-interest, choose to pay 104 cents when 100 cents would serve the same purpose. Consequently, only the cheaper metal was used, and that was gold, while silver was wholly banished from use as money, and in the United States became an article of merchandise only.
But this went further than ever before. It will be recalled that the subsidiary coinage of silver had since 1792 contained weights of pure silver proportional to the weight of the dollar piece; that is, two halves, four quarters, ten dimes, and twenty half-dimes, contained as much pure silver as a dollar piece, or 371¼ grains. Consequently, if a dollar piece of silver had become worth 104 cents in gold, two halves, four quarters, etc., would have become worth the same sum in gold; therefore the profit in exchanging gold for subsidiary silver was such that it was also driven from use. A half-eagle exchanged for ten half-dollars gave the same profit as when exchanged for five separate dollar pieces. In this way all the silver used for small "change," the subsidiary coinage, disappeared from circulation. Through the operation of Gresham's law even the coins needed for small retail transactions had been reached, and the business of the country became seriously embarrassed by the want of small coins.*59 "We have had but a single standard for the last three or four years," said Mr. Dunham*60 in behalf of the Committee of Ways and Means in 1850; "that has been and now is gold." In short, by 1850 the people of the United States found themselves with a single standard of gold, but without enough silver to serve for necessary exchanges in retail transactions. The balancing plank in this vacillating system had now tipped quite in the other direction, for before 1834 the silver end was up. Now it was the gold end. How soon would it be the silver end again, if we adhered to such a system?
This, then, was the situation produced by the gold discoveries in connection with the act of 1834, establishing the ratio of 1:16. It now remains for me to recount the remedy which Congress was again forced to apply to the situation as a corrective. As we shall see, the difficulties were met much more intelligently than ever before.
§ 3. The act of 1853 was a practical abandonment of the double standard in the United States. There was virtually no opposition to the bill, even though its real purpose was openly avowed in the clearest way in the House by Mr. Dunham,—who had the measure in charge and who showed an admirable knowledge of the questions involved:*61
"Another objection urged against this proposed change is that it gives us a standard of gold only.... What advantage is to be obtained by a standard of the two metals, which is not as well, if not much better, attained by a single standard, I am unable to perceive; while there are very great disadvantages resulting from it, as the experience of every nation which has attempted to maintain it has proved.... Indeed, it is utterly impossible that you should long at a time maintain a double standard.... Gentlemen talk about a double standard of gold and silver as a thing that exists, and that we propose to change. We have had but a single standard for the last three or four years. That has been, and now is, gold. We propose to let it remain so, and to adapt silver to it, to regulate it by it."
In answer to another plan, the same speaker*62 said:
"We would thereby still continue the double standard of gold and silver, a thing the committee desire to obviate. They desire to have the standard currency to consist of gold only, and that these silver coins shall be entirely subservient to it, and that they shall be used rather as tokens than as standard currency."
We have heard a great deal in later years about the surreptitious demonetization of silver in 1873. There was, however, vastly too much criticism wasted on the act of 1873; for the real demonetization of silver in the United States was accomplished in 1853. It was not the result of accident; it was a carefully considered plan, deliberately carried into legislation in 1853, twenty years before its nominal demonetization by the act of 1873. The act of 1853 tried and condemned the criminal; and, after twenty years of waiting for a reprieve, the execution only took place in 1873. It was in 1853 that Congress, judging from our own past experience and that of other countries, came to the conclusion that a double standard was an impossibility for any length of time.
It can not be said, however, that this conclusion was reached wholly through unselfish reasons. The underlying prejudice in favor of gold, if gold can be had, which we are sure to find deeply seated in the desires of our business community whenever occasion gives it an opportunity for display, was here manifesting itself. The country found itself with a single metal in circulation. Had that metal been silver, we should have had to chronicle again the grumbling dissertations on the disappearance of gold which characterized the period preceding 1834. But in 1853 the single standard was gold. This was a situation which no one rebelled against. Indeed, no one seemed to regard it as anything else than good fortune (except so far as the subsidiary coins had disappeared). It was very much as if a ranchman, starting with one hundred good cattle and one hundred inferior ones, had found, when branding-time came, that, by virtue of exchange with his neighbors, the two hundred cattle assigned to him were, in his judgment, all good ones, and none inferior. From a selfish point of view, he had no reason to complain. It would have been a very different story had the two hundred cattle all been inferior.
In the debates it was proposed*63 that, as the cause of the change in the relative values of gold and silver was the increased product of gold, the proper remedy should be to increase the quantity of gold in the gold coins. This was exactly the kind of treatment which should have been adopted in regard to silver in 1834, and it seems quite reasonable that this should have been the only true and just policy in 1853. Certainly it was, if it was intended to bring the Mint ratio into accord with the market ratio, and try again the experiment of a double standard. But this was exactly what Congress chose to abandon. There was no discussion as to how a readjustment of the ratio between the two metals might be reached, for it was already decided that only one metal was to be retained. This decision, consequently, carried us to a point where a ratio between the two metals was not of the slightest concern. And so it remained. The United States had no thought about the ratios between gold and silver thereafter until the extraordinary fall in the value of silver in 1876. The policy of the United States in retaining gold, once that it was in circulation, was only doing a little earlier what France did in later years. When the cheapened gold, after 1850, had filled the channels of circulation in France, and had driven out silver, France made no objections; but when a subsequent change in silver tended to drive out the gold, France quietly held on to her gold. The United States, as well as France, again showed the unconscious preference for gold of which Hamilton spoke in 1792.
§ 4. In the provisions of the act*64 of 1853 nothing whatever was said as to the silver dollar-piece. It had entirely disappeared from circulation years before, and acquiescence in its absence was everywhere found. No attempt whatever was thereafter made to change the legal ratio, in order that both metals might again be brought into concurrent circulation. Having enough gold, the country did not care for silver. At the existing and only nominal Mint ratio of 1:16, the silver dollar could not circulate, and no attempt was made in the act to bring it into circulation. It is, therefore, to be kept distinctly in mind that in 1853 the actual use of silver as an unlimited legal tender equally with gold was decisively abandoned. Under any conditions then existing a double standard was publicly admitted to be hopeless. The main animus of the act, therefore, is to be found in what is not included in it, that is, in the omission to insert any provision which would bring the silver dollar again into circulation.
As the act stands on the statute-books, it is practically nothing more than a regulation of the subsidiary silver coinage,*65 and its study is but a lesson in the proper principles which should regulate that part of a metallic currency. Hitherto 100 cents of fractional silver coin had contained 371¼ grains of pure silver; and, as has been seen, whenever anything happened to drive out the silver dollar-piece, the subsidiary coins disappeared equally with the dollar. The recognition of this fact led to the adoption of the first correct rule for such money. The act reduced the number of grains of pure silver in 100 cents from 371.25 to 345.6 (the standard weight being changed from 412½ to 384 grains), equivalent to a reduction of 6.91 per cent from the former basis. This was more than the difference between the value of the gold dollar and the silver dollar (which was worth about 104 cents in gold). In short, it was intended*66 to reduce silver to the position of a subsidiary metal. The reason for the reduction of weight, so that 100 cents of the small coins should be worth even less than the value of the gold dollar, is substantiated by the experience of many countries. It protects the subsidiary coin from disturbance, even if changes in the relative values of gold and silver drive out one or the other metal which is coined in larger pieces. There were only 345.6 grains of pure silver in 100 cents of this coin; a dollar of gold (23.2 grains) would buy 357¼ grains of silver bullion (at a market ratio of 1:15.4). If a person should melt the new silver coins (345.6), he would fall considerably short of having enough (357¼) to buy a gold dollar; and, there being no profit, there would be no motive in melting the silver, or withdrawing them from circulation. The first step, therefore, was gained by lowering their weight so that the market value of the pure silver in the subsidiary coins was worth less than the gold dollar.*67 The silver was given a face value in that form greater than as bullion, and there could be no reason to withdraw them from use.
Far from there being any fear of their disappearance, the next question was, how to prevent silver from flowing to the Mint and seeking the form in which it would be more highly rated than as bullion. In fact, if the weight of the subsidiary coinage were too far reduced, it would offer a premium to counterfeiters, even if as much silver were used in the false, as in the United States, coin. But the second principle to be observed prevented too great a quantity of silver from flowing to the Mint. This was the withdrawal of "free coinage" of subsidiary currency, and a limitation of the supply by leaving its amount to the discretion of the Secretary of the Treasury.*68 The limitation of the supply to the amount actually needed for the use of the public would keep subsidiary coins current at their face value; because of the necessity of having such pieces for small transactions. Of course, the complete theory demands that the Government should redeem them at their tale value, in order to prevent redundancy; but this was not carried out in the act of 1853. These coins could be purchased*69 only from the Mint, and naturally, with gold, at their face value; they would, therefore, get into circulation at first only at par. Consequently, no more would get out than those who offered a full gold value for them believed were needed, or no more than they could pass at their face value. In the original bill, as proposed by Mr. Dunham's committee, it was intended to make these coins receivable for debts due to the Government of the United States. This, of course, was a partial means of redemption; but it was not*70 then adopted by Congress. In practice, however, such a provision has not proved necessary in order to keep the coins at par. Almost the only serious opposition to the bill was made by Andrew Johnson, of Tennessee, who seemed to be unable to grasp the foregoing principle:*71
"Congress can not regulate the value of the coin.... If we can, then, by law, reduce the present standard seven per cent, and make the value of the reduced standard equal to the other, I ask the House and the country if the philosopher's stone has not been discovered?... The commercial world will take the coins for what they are intrinsically worth, and not for what the legal stamp represents them to be worth."*72
The third principle applicable to a system of subsidiary coinage, and which was followed in the act of 1853, was that which limited its legal-tender power to a small sum. The difference between the intrinsic and face value, if there were free coinage, would enable a large payment to be made in a very inconvenient form by means of large sums of small coins. This, however, could be avoided by such a provision as was included in this act, which limited the amount of subsidiary coins to be offered in payment of debts to a sum not exceeding five dollars.*73 But this difficulty was also checked by the absence of free coinage. Even in this case, however, the limitation of legal-tender power would prevent a possible annoyance in business transactions.
The bill, which originated in the Senate, passed the House without any practical alteration. A motion to lay the bill on the table was twice lost, by votes of 54 to 109, and of 65 to 111. It was passed in the House with 94 ayes, the noes not counted.*74
Notes for this chapter
See Appendix I.
See Jevons, "A Serious Fall in the Value of Gold ascertained" (1863).
Chart IX is taken from Dr. Soetbeer's "Edelmetall-Production," 1879.
See chap. viii.
Gold dollar pieces were first coined in 1849. See laws of the United States in Appendix III.
For a table of the value of a silver dollar in gold coin from 1834 to 1876, showing that it had always been above the value of a gold dollar since 1834, see Appendix V.
"There is, then, a constant stimulant to gather up every silver coin and send it to market as bullion to be exchanged for gold, and the result is the country is almost devoid of small change for the ordinary small business transactions, and what we have is of a depreciated character. This does not injure your Wall Street brokers, who deal by thousands. They are making a profit by it; but it is a serious injury to the laboring millions of the country who deal in small sums."—C. L. Dunham, "Congressional Globe," Appendix, 2d session, 32d Congress, p. 190, February 1, 1853.
Ibid., p. 190. Mr. Skelton (New Jersey) remarked: "Gold is the only standard of value by which all property is now measured; it is virtually the only currency of the country."—"Congressional Globe," vol. xxvi, 2d session, 32d Congress, p. 629. "The expense of coining a given value of silver into the smaller coins is much greater than into the large, and when coined the great demand for them gives them a higher currency value than that assigned by law. As a proof of this, the demand for silver for exportation has not operated as yet upon these smaller coins; that is to say, the dime and half-dime (the quarter, too, has been partially exempted), while it has swept the silver dollar and half-dollar from the country."—Hunter, Chairman Fin. Com. of Sen., "Report No. 104," 1st session, 32d Congress, p. 11.
"Congressional Globe," Appendix, 2d session, 32d Congress, p. 190.
"Congressional Globe," Appendix, 2d session, 32d Congress, p. 190.
By Mr. Jones (Tennessee).
For the act, see Appendix III.
"The main object of the bill is to supply small silver change, half-dollars, quarter-dollars, dimes, and half-dimes.... The bill does not propose to change the value of the gold currency; it does not propose to disturb the standard of value now in existence throughout the country. Gold is the only standard of value by which all property is now measured; it is virtually the only currency of the country."—Skelton (New Jersey), "Congressional Globe," vol. xxvi, p. 629.
"We propose, so far as these coins are concerned, to make the silver subservient to the gold coin of the country.... We mean to make the gold the standard coin, and to make these new silver coins applicable and convenient, not for large but for small transactions."—Dunliam, ibid., p. 190. The only silver coins in circulation were three-cent pieces and Spanish coins ("fips," 12½-cent pieces, and quarters): 100 cents of the former contained only 83 1/3, cents of intrinsic value; and the latter were so abraded that they contained intrinsically from 6 per cent to 20 per cent of silver below their nominal or face value.
I can now speak of the gold dollar, since the Mint began to coin it in 1849.
"Sec. 5. That no deposits for coinage into the half-dollar [etc.] shall hereafter be received, other than those made by the Treasurer of the Mint, as herein authorized, and upon account of the United States."
Strangely enough, this law was evaded in actual practice. "All other governments pay the expense of minting by the difference between the intrinsic value of subsidiary coins and the value at which they circulate, and at which the government redeems them. And such was the law in this country until, by a ruling of Mr. Guthrie when he was Secretary of the Treasury, the Mint was ordered to receive silver from private individuals and coin it."—Mr. Kelley, "Congressional Globe," Part III, 2d session, 41st Congress, p. 2311. In 1870, John Jay Knox, in his Report accompanying the bill which became the act of 1873, said: "The practice at the Mint for many years [written 1870] has been to purchase all silver bullion offered at about $1.22½ per ounce, which is above the market price, paying therefor in silver coin.... The effect of the Mint practice has been to put in circulation silver coins, without regard to the amount required for purposes of 'change,' creating a discount upon silver coin."—"Sen. Misc. Doc., No. 132," 2d session, 41st Congress, p. 10.
June 9, 1879, however, an act was passed (see Appendix III) redeeming subsidiary silver coins in sums of twenty dollars.
He was afterward President of the United States.
"Congressional Globe," vol. xxvi, 2d session, 32d Congress, p. 476. He did not believe, moreover, that the great production of gold had lowered its value: "I assume here, and I defy successful refutation of it, that the quantity of gold may be increased upon that of silver without changing the relative commercial value of the metals."—Ibid., p. 490. He also said: "So far as coin is concerned, the changing of our standard of gold and silver has no more effect upon the gold and silver coinage of the United States than a change in the standard of weights and measures would have upon the price of our cotton or wheat."—Ibid., p. 491.
June 9, 1879, the amount to which silver coins in denominations below one dollar are a legal tender was raised to ten dollars.
"Congressional Globe," ibid., pp. 629, 630.
Part I, Chapter VI
End of Notes
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