The History of Bimetallism in the United States
Part I, Chapter VII
The Demonetization of Silver
§ 1. In 1873 we find a simple legal recognition of that which had been the immediate result of the act of 1853, and which had been an admitted fact in the history of our coinage during the preceding twenty years. In 1853 it had been agreed to accept the situation by which we had come to have gold for large payments, and to relegate silver to a limited service in the subsidiary coins. The act of 1873, however, dropped the dollar piece out of the list of silver coins. In discontinuing the coinage of the silver dollar, the act of 1873 thereby simply recognized a fact which had been obvious to everybody since 1849. It did not introduce anything new, or begin a new policy. Whatever is to be said about the demonetization of silver as a fact must center in the act of 1853. Silver was not driven out of circulation by the act of 1873, which omitted the dollar of 412½ grains, since it had not been in circulation for more than twenty-five years. In 1853 Congress advisedly continued in motion the machinery which kept the silver dollar out of circulation, and, as we have seen, avowed its intention to create a single gold standard. This, then, was the act which really excluded silver dollars from our currency. A vast deal of rhetoric has been wasted on the act of 1873, 3, but its importance is greatly overrated. A law which merely recognized existing conditions can not be compared with the law which had for its object to establish those conditions; and this states the relative force of the act of 1853 and that of 1873.
The act of February 12, 1873,*87 is known as the act which demonetized the silver dollar. Important consequences have been attached to it, and it has even been absurdly charged that the law was the cause*88 of the commercial crisis of September, 1873. As if a law which made no changes in the actual metallic standard in use, and which had been in use thus for more than twenty years, had produced a financial disaster in seven months! To any one who knows of the influence of credit and speculation, or who has followed the course of our foreign trade since the Civil War, such a theory is too absurd to receive more than passing mention. To the year 1873 there had been coined of 412½-grain dollars for purposes of circulation only $1,439,457, and these were coined before 1806.*89
But while the act of 1873 had little importance in changing existing conditions, it had an influence of a kind which at the present time can scarcely be overestimated. We are now,, in the course of our story, approaching the year 1876, in which occurred the phenomenal fall in the value of silver. Had the demonetization of the silver dollar not been accomplished in 1873 and 1874, we should have found ourselves in 1876 with a single silver standard, and the resumption of specie payments on January 1, 1879, would have been in silver, not in gold; and 15 per cent of all our contracts and existing obligations would have been repudiated. The act of 1873 was a piece of good fortune, which saved our financial credit and protected the honor of the State. It is a work of legislation for which we can not now be too thankful.
§ 2. It is, moreover, possible that the silver dollar was not "demonetized" in 1873, in spite of the prevailing impression to that effect. The legal-tender power of the silver dollar was not taken away by this measure. The coinage laws had not been revised since 1837, and in the act of 1873 occasion was taken to drop out the silver dollar from the list of coins which were thereafter to be issued from the Mint.*90
"Sec. 15. That the silver coins of the United States shall be a trade-dollar; a half-dollar, or fifty-cent piece; a quarter-dollar, or twenty-five-cent piece; a dime, or ten-cent piece; and the weight of the trade-dollar shall be 420 grains troy; the weight of the half-dollar shall be 12 grams (grammes) and one half of a gram (gramme); the quarter-dollar and the dime shall be, respectively, one half and one fifth of the weight of said half-dollar; and said coins shall be a legal tender at their nominal value for any amount not exceeding five dollars in any one payment.
"Sec. 17. That no coins, either of gold, silver, or minor coinage, shall hereafter be issued from the Mint other than those of the denominations, standards, and weights herein set forth."
It will be noticed that the dollar of 412½ grains is omitted from the list of silver coins which were in the future to be issued by the Mint, and of this list it is said that they shall be a legal tender to the amount of five dollars; but nothing is said which takes away the legal-tender quality of a coin already in existence, but of which no mention was made. Whatever silver dollars there were in existence were still a legal tender to any amount after the act was passed, although no more could be coined. The silver dollar, however, was demonetized; but not by the act of 1873. The revision of the Statutes of the United States, previously authorized, was adopted as the law of the land in June, 1874. In the Revised Statutes*91 the legal-tender power of all silver coins is thus limited:
Act of June, 1814: "§ 3586. The silver coins of the United States shall be a legal tender at their nominal value for any amount not exceeding five dollars in any one payment."
This statement, it will be noticed, is a general one, and applies to any silver coins of the United States whatever, while the act of 1873 predicated a limited legal-tender power of only a specified list of silver coins. The legal enactment, therefore, which really took away the legal-tender quality of the silver dollar of 412½ grains, was passed June 22, 1874. The act of 1873 only discontinued its coinage; the provision of the Revised Statutes took away its debt-paying power for sums beyond five dollars.*92
The act of 1873 also made a change in the charge for seigniorage. Until 1853 the expense of changing bullion into coin was borne by the Government; but the act of 1853 inserted a charge of one half of one per cent. on all but subsidiary silver coins. No seigniorage, of course, was charged for subsidiary coins, because there was no "free coinage" of them by individuals. The act of 1873 now reduced the charge from one half to one fifth of one per cent.*93
§ 3. The act of 1873 has been the subject of a curious controversy. After the fall of silver in 1876, and the subsequent rise of bimetallic discussions, severe denunciations of the act of 1873 were heard. It was asserted that the demonetization of silver was secretly carried out without any knowledge of it by the general public, or even by financial experts. In the silver discussion of 1878 it was charged*94 that the silver dollar had been demonetized surreptitiously in 1870. The probable ground for this belief arose from the form of the bill, which, as we have seen, made a list of the silver coins, and from this list simply omitted the silver dollar without calling attention in the enactment itself to its discontinuance. An enactment, however, does not usually describe what has been omitted; its affirmations are positive. The discontinuance of the silver dollar, moreover, was not kept a secret during the time of more than two years when the bill was before Congress. Mr. W. D. Kelly, chairman of the Committee of Coinage, Weights, and Measures of the House, and reported the bill January 9, 1872, in the following words,*95 with the recommendation that it pass:
"It was referred to the Committee on Coinage, Weights, and Measures, and received as careful attention as I have ever known a committee to bestow on any measure.... The committee proceeded with great deliberation to go over the bill, not only section by section, but line by line and word by word." [This applied to the previous session.]
"I wish to ask the gentleman who has just spoken if he knows of any government in the world which makes its subsidiary coinage of full value. The silver coin of England is 10 per cent below the value of gold coin, and, acting under the advice of the experts of this country and of England and of France, Japan has made her silver coinage within the last year 12 per cent below the value of gold coin, and for this reason: It is impossible to retain the double standard. The values of gold and silver continually fluctuate. You can not determine this year what will be the relative values of gold and silver next year. They were 15 to 1 a short time ago; they are 16 to 1 now."
Far from having been accomplished surreptitiously, the discontinuance of the silver dollar was very well known through the attention given it by the Secretary of the Treasury in his reports for 1870, 1871, and 1872. The bill,*96 substantially as passed, was the work of John Jay Knox, and was transmitted by Secretary Boutwell to Senator Sherman, chairman of the Senate Finance Committee, April 25, 1870; the bill was sent out for criticism and suggestions to no less than thirty persons familiar with the Mint and with coinage operations; it was printed thirteen times by order of Congress; it was considered during five different sessions of the Senate and House; the debates on the bill in the Senate occupy 66, and in the House 78, columns of the "Congressional Globe," and it was not finally passed until February 12, 1873. The following table*97 will show the slow process by which the bill finally became a law:
Although it was in reality a codification of laws relating to all questions connected with details of the Mint, assay-offices, and coinage, the intention of the bill in regard to the omission of the silver dollar is unmistakable. In the original bill, as sent out by Mr. Knox for suggestions, a silver dollar of 384 standard grains was proposed, or one on the basis of the existing subsidiary coinage. In this provision there was not only no intention of retaining the dollar of 412½ grains (at the old ratio of 1:15:98), but it was intended to insert in its place one containing 25.65 grains less of pure silver. The discontinuance of the old silver dollar by the bill was mentioned by Mr. Knox in his report to the Secretary of the Treasury accompanying the bill*99 when laid before Congress. The experts, moreover, to whom the bill was sent for suggestion, noticed this change in our policy:
"The bill proposes the discontinuance of the silver dollar, and the report which accompanies the bill suggests the substitution, for the existing standard silver dollar, of a trade-coin of intrinsic value equivalent to the Mexican silver piaster or dollar.
"If the existing standard silver dollar is to be discontinued and a trade-coin of different weight substituted, I would suggest the desirableness of conforming to the Spanish-Mexican silver pillared piaster of 1704.... The coins most in demand for Oriental commerce were for many years the pillared Spanish-Mexican piasters; and such was their popularity that they continued to be preferred long after their intrinsic value had been considerably reduced by wear in use. The restoration, as a trade-coin, of a silver dollar approximating to the old standard—to wit, one containing 25 grammes of pure silver—is a subject which would seem to demand favorable consideration."*100
"The silver dollar, half-dime, and three-cent piece are dispensed with by this amendment. Gold becomes the standard money, of which the gold dollar is the unit. Silver is subsidiary."*101
"Sec. 11 reduces the weight of the silver dollar from 412½ to 384 grains. I can see no good reason for the proposed reduction in the weight of this coin. It would be better, in my opinion, to discontinue its issue altogether. The gold dollar is really the legal unit of and measure of value."*102
"I see that it is proposed to demonetize the silver dollar."*103
All this testimony is important because it affords corroborative proof to show beyond cavil that, in 1873, bimetallism was considered an impossibility for the United States. The contrast between the state of mind in 1873 and after the remarkable fall of silver in 1876 is, therefore, very striking, and demands some special explanation in later chapters.
When the bill came before Congress for discussion there was no opposition whatever to the omission of the silver dollar of 412½ grains from the list of authorized coins. The Senate occupied its time chiefly on questions of seigniorage*104 and abrasion,*105 and the House on a question of the salaries of the officials.*106 The chief debate was in the House, when the bill was in charge of Mr. Hooper (Massachusetts), on April 9, 1872. He explained the bill to the House section by section,*107 during the course of which he said:
"It declares the gold dollar of 25 and eight tenths grains of standard gold to be the unit of value, gold practically having been in this country for many years the standard or measure of value, as it is legally in Great Britain and most of the European countries. The silver dollar, which by law is now the legally declared unit of value, does not bear a correct relative proportion to the gold dollar. Being worth intrinsically about one dollar and three cents in gold, it can not circulate concurrently with the gold coins.... The committee, after careful consideration, concluded that twenty-five and eight tenths grains of standard gold constituting the gold dollar should be declared the money unit or metallic representative of the dollar of account.
"Sec. 16 re-enacts the provisions of the existing laws defining the silver coins and their weights, respectively, except in relation to the silver dollar, which is reduced in weight from 412½ grains to 384 grains, thus making it a subsidiary coin in harmony with the silver coins of less denominations, to secure its concurrent circulation with then. The silver dollar of 412½ grains, by reason of its bullion or intrinsic value being greater than its nominal value, long since ceased to be a coin of circulation, and is melted by manufacturers of silverware. It does not circulate now in commercial transactions with any country, and the convenience of these manufacturers in this respect can better be met by supplying small stamped bars of the same standard, avoiding the useless expense of coining the dollar for that purpose."
To this position no objection was taken except that, as we had no gold or silver then in circulation, it was profitless to legislate on such questions.*108 The opposition to the bill concerned itself with seigniorage, abrasion, or salaries, and the apparently self-evident policy of omitting the silver dollar was so generally accepted that it was used by Mr. Kelly (Pennsylvania) as a means to silence other objections:
"All experience has shown that you must have one standard coin which shall be a legal tender for all others, and then you may promote your domestic convenience by having a subsidiary coinage of silver, which shall circulate in all parts of your country as legal tender for a limited amount and be redeemable at its face value by your Government. But, sir, I again call the attention of the House to the fact that the gentlemen who oppose this bill insist upon maintaining a silver dollar worth three and a half cents more than the gold dollar, and worth seven cents more than two half-dollars, and that, so long as these provisions remain, you can not keep silver coin in the country."*109
What the animus of Congress was in respect of the question of bimetallism is perfectly clear, and was as well epitomized as in any other words by the following remarks:
"Aside from the three-dollar gold piece... the only change in the present law is in more clearly specifying the gold dollar as the unit of value.... Gold is practically the standard of value among all civilized nations, and the time has come in this country when the gold dollar should be distinctly declared to be the coin representative of the money unit."*110
In the act of 1792 our "unit" had been declared (Sec. 9) to be a silver dollar; in the act of 1873, on the other hand, it was enacted (Sec. 14): "That the gold coins of the United States shall be a one-dollar piece, which, at the standard weight of twenty-five and eight tenths grains, shall be the unit of value," etc.
§ 4. The act of 1873 authorized the coinage of a piece known as the trade-dollar, whose subsequent history proved a mystery to many people, and which afforded to speculators an opportunity for profit. Its existence was not due to the demand for ordinary coins at home, and had a different origin.
It is a well-known fact that Oriental nations have a peculiar power of absorbing*111 silver in great quantities. To such an extent is this true that merchants in the China trade require silver as the best means of purchasing goods from that country. Naturally enough, of the various coins of a certain general kind, the coin which contained the most pure silver, and which also passed at the same tale value, was preferred by Eastern nations. The Spanish silver dollar was the coin originally used in this Oriental trade, but later gave place to the Mexican dollar. And within recent years, until 1873, because it was in highest favor with the Chinese, the Mexican dollar was systematically bought and sold by the banks in the United States to supply merchants who had payments to male in the East. The reason for this is to be seen by comparing the quantities*112 of pure silver in the various coins circulating in Chinese ports (with the trade-dollar also included):
By this table it may be seen that a coin like the trade-dollar, which contained more pure silver than the Mexican dollar, might supersede it in the favor of the Chinese, and thereby afford a new market for the silver of the United States—which, as early as 1873, began to feel the effects of an increasing production. It was therefore proposed by Dr. Linderman,*113 later Director of the Mint, to the Treasury, that the Mint should coin silver bullion into the form which should meet this Eastern demand and better serve the wants of our merchants. The plan was proposed to Congress by the Secretary of the Treasury, and was incorporated into the revision of the Mint laws which formed the main object of the act of 1873. As was seen in the preceding section of this chapter, it was first proposed to coin a silver dollar of only 384 grains standard coin; but the Senate struck out this provision, and, to serve the wishes of those who proposed a new market for silver, the trade-dollar of 420 grains was authorized instead. It was not intended to issue a silver dollar which should circulate in the United States, but merely to lend the authority of the Government stamp to silver bullion in order to aid in finding a market for silver in the East, and at the same time to relieve merchants from paying the high premium exacted for the Mexican dollars, sometimes amounting to from 11 to 22 per cent.*114
This object was very successfully carried out, and the trade-dollar, authorized by the act of 1873, was extensively shipped to China, where it was generally received in the southern ports.*115 Inasmuch as a dollar of 371¼ grains bore a premium in gold until 1874, a trade-dollar containing 378 grains of pure silver would be worth still more in gold than the other dollar, and there could be no reason for its circulation in the United States.
The trade-dollar was in reality an ingot, shaped like a dollar piece, but with different devices than those on the dollar of 412½ grains; it weighed 420 grains standard weight (that is, 900 fine), and, consequently, contained 378 grains of pure silver. The cost of manufacturing the coin at the various mints was charged upon the owner of the bullion presented for coinage; so that the expense of melting, refining, assaying the silver, and the expense of making the dollar,*116 was borne entirely by the owners of bullion, and not by the United States.
As was said, the trade-dollar was not intended to circulate in the United States. Not having been considered a legal coin, it was not intended to give it any legal-tender quality whatever. It will be remembered, however, that the act of 1873 presented a list of coins to which was given a legal-tender power in sums not exceeding five dollars. By inadvertence, and without any intent, the trade-dollar was included in this list, and became possessed of a legal-tender power equally with subsidiary coins to the limit of five dollars. When this was discovered, the error was corrected by an act of July 22, 1876, which took away any legal-tender quality from the trade-dollar.*117 Of its subsequent history and the closing of its career I shall speak in another chapter.
In our story we have now reached another unexpected and unforeseen incident, the extraordinary fall in the value of silver in 1876 and later years. To this event I shall devote the following chapters in Part II, treating of the Indian demand, the demonetization of silver by Germany, the action of France and the Latin Union, and the causes of the fall in the value of silver in 1876. Thus prepared, we can then intelligently study the history of bimetallism in the United States subsequent to that date.
Notes for this chapter
See Appendix III.
"Report of the United States Silver Commission," 1877, vol. i, p. 125.
Upton, "Money in Politics," p. 201. [N.B. The text callout for this footnote is missing. The callout placement after "coined before 1806" is a guess and may be incorrect.—Econlib Ed.]
See act of 1873 in Appendix III, Sec. 15 and 17.
See Appendix III.
Cf. Upton, "Money in Politics," p. 207. This matter was quite thoroughly discussed in January, 1878, in the debates in the Senate. See, for example, the "Globe," p. 262, vol. vii, Part I, 2d session, 45th Congress.
The charge for seigniorage, however, was repealed by the Resumption Act in 1875; so that, like England, the United States now makes no charge for manufacturing its coin.
The following examples, out of many, may be cited: Senator Hereford (West Virginia) charged the fraudulent passage of the act of 1873, on May 27, 1872, on the House, because Mr. Hooper, in charge of the bill, reported a substitute, and moved to suspend the rules and pass the substitute; and because Mr. Hooper said, in answer to an inquiry concerning coins of small denomination: "This bill makes no change in the existing law in that regard. It does not require the recoinage of the small coins." The charge is made that the substitute was not read before it was passed.—"Globe," vol. vii, Part I, 2d session, 45th Congress, p. 205.
Mr. Bright (Tennessee) said in the House: "It was passed by fraud in the House, never having been printed in advance, being a substitute for the printed bill; never having been read at the Clerk's desk, the reading having been dispensed with by an impression that the bill made no material alteration in the coinage laws; it was passed without discussion, debate being cut off by operation of the previous question. It was passed, to my certain information, under such circumstances that the fraud escaped the attention of some of the most watchful as well as the ablest statesmen in Congress at the time. It was passed near the closing days of the session, when, in the bustle and precipitate rush of business, it was most favorable for the concealment of fraud.... Ay, sir, it was a fraud that smells to heaven. It was a fraud that will stink in the nose of posterity, and for which some persons must give account in the day of retribution."—"Globe," vol. vii, Part I, 2d session, 45th Congress, p. 584.
"Congressional Globe," Part I, 2d session, 42d Congress, p. 322.
It is to be remembered, however, that the bill dealt with many more matters, and those of a technical nature, than the omission of the silver dollar in itself. The originator of the bill, Mr. Knox, thus explains in his report (p. 2) how it was prepared: "The method adopted in the preparation of the bill was first to arrange in as concise a form as possible the laws now in existence upon these subjects [Mint, assay-offices, and coinage], with such additional sections and suggestions as seemed valuable. Having accomplished this, the bill, as thus prepared, was printed upon paper with wide margin, and in this form transmitted to the different mints and assay-offices, to the First Comptroller, the Treasurer, the Solicitor, the First Auditor, and to such other gentlemen as are known to be intelligent upon metallurgical and numismatical subjects, with the request that the printed bill should be returned, with such notes and suggestions as experience and education should dictate. In this way the views of more than thirty gentlemen who are conversant with the manipulation of metals, the manufacture of coinage, the execution of the present laws relative thereto, the method of keeping accounts and of making returns to the department, have been obtained, with but little expense to the department and little inconvenience to correspondents. Having received these suggestions, the present bill has been framed, and is believed to comprise within the compass of eight or ten pages of the Revised Statutes every important provision contained in more than sixty different exactments upon the Mint, assay-offices, and coinage of the United States, which are the result of nearly eighty years of legislation upon these subjects." Mr. Knox's report accompanied the bill to Congress, and gives a clear idea of its full character, with comparative tables of the existing and proposed coinage.—"Letter of the Secretary of the Treasury to the Chairman of the Committee on Finance, communicating a report of John Jay Knox, in relation to a revision of the laws pertaining to the Mint and coinage of the United States," May 2, 1870; "Sen. Misc. Doc. No. 132" 2d session, 41st Congress.
A brief history of the passage of the bill can be found in the "Report of Comptroller of the Currency," 1876, p. 170.
Sherman, Bayard, Scott, and Hooper, Houghton, McNeely.
"The coinage of the silver dollar piece... is discontinued in the proposed bill. It is by law the dollar unit, and, assuming the value of gold to be fifteen and a half times that of silver, being about the mean ratio for the past six years, is worth in gold a premium of about 3 per cent (its value being $1.0312), and intrinsically more than 7 per cent premium in other silver coins, its value thus being $1.0742. The present laws consequently authorize both a gold-dollar unit and a silver-dollar unit, differing from each other in intrinsic value. The present gold dollar piece is made the dollar unit in the proposed bill, and the silver dollar piece is discontinued. If, however, such a coin is authorized, it should be issued only as a commercial dollar, not as a standard unit of account, and of the exact value of the Mexican dollar, which is the favorite for circulation in China and Japan and other Oriental countries"—"Sen. Mis. Doc. No. 132," 2d session, 41st Congress, p. 11.
E. B. Elliott (now Government Actuary), "Letter of the Secretary of the Treasury to the Speaker of the House of Representatives, communicating a report of John Jay Knox, Deputy Comptroller of the Currency, giving the correspondence of the department relative to the revision of the Mint and coinage laws of the United States, H. R. Exec. Doc. No. 307," 2d session, 41st Congress, June 29, 1870, p. 70.
Robert Patterson, ibid., p. 19.
Dr. Linderman, late Director of the Mint, ibid., p. 30.
J. R. Snowdon, formerly Director of the Mint, ibid., p. 38.
January 9, 1871.
January 17, 1873.
January 9, 1872.
"Congressional Globe," Part III, 2d session, 42d Congress, pp. 2305, 2306.
"This bill provides for the making of changes in the legal-tender coin of the country, and for substituting as legal tender coin of only one metal instead, as heretofore, of two. I think myself this would be a wise provision, and that legal-tender coins, except subsidiary coin, should be of gold alone; but why should we legislate on this now, when we are not using either of those metals as a circulating medium? "—Mr. Potter, ibid., p. 2310.
"Congressional Globe," Part III, 2d session, 42d Congress, p. 2316.
Mr. Stoughton (Michigan), ibid., p. 2308.
See chap. ix, "India and the East."
Linderman, "Money and Legal Tender," p. 54.
Linderman, "Money and Legal Tender," pp. 47-59.
"I don't know what we should do with the bulk of silver if it was not disposed of in some such way. I am very well aware that before the coinage of the trade-dollar the rate of exchange with China, owing to the scarcity of Mexican dollars, had caused them to change 7 per cent here within a week.
Q. Always commanding at that time a premium? A. Yes, sir. There was an extra duty on them from Mexico which gave them a premium at once; and an additional premium was created by the demand for them for shipment to China. I have paid 22 per cent premium for Mexican coin for shipment to China, and for many years the range was from 11 to 16 per cent."—Testimony of General La Grange before the United States Treasury Commission, "Report of Director of Mint," 1877, p. 52.
Q. Which do you like best to ship, trade-dollars or Mexican dollars? A. At present trade-dollars are better, because we get about 2 per cent more premium on them in China."—Fung Chung, ibid., p. 53.
"Trade-dollars are current by count at Singapore, Penang, Bangkok, and Saigon; they are current by weight at Swatow, Amoy, Foochow, and Canton. In Hong-Kong they are not a legal tender, and the banks will only take them from each other by special arrangement; but the Chinese take them freely in Hong-Kong when they want coin of any description, which is very seldom, as they prefer bank-notes, and only take coin from the banks when they require to export it from the colony. In the south of China, the Straits, and Cochin China the trade-dollar is well known and passes without comment along with the clean Mexican dollars, but in Shanghai and the northern ports it is unknown, and it is not likely to be current for a length of time."—"Report of the Hong-Kong and Shanghai Banking Corporation, and the Oriental Bank," January 30 and 31, 1871, in "Report of Director of Mint," 1878, p. 10.
This was one and a quarter per cent at the Philadelphia Mint, and one and a half at the San Francisco Mint, on the tale value.
See Appendix III, act of July 22, 1876, Sec, 2.
Part II, Chapter VIII
End of Notes
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