On February 16, 1878, the Bland-Allison Act, which provided for a return to the minting of silver coins, became U.S. law. Today, the value of American money is secured only by public faith in the stability of the government, but during the 19th Century, money was backed by actual deposits of silver and gold.
That is, money was silver and gold. But that did not mean that all was right with the monetary system.
Five years earlier, when Congress had stopped buying silver and minting silver coins — following the lead of European nations — a financial panic ensued. Reasons for the suspension lay in the fact that the exchange value of silver and gold had retained an old, out-moded fixed ratio that favored silver producers. Had the United States Treasury let the two standards freely float, making a distinction between silver dollars and gold dollars, none of the political strife over bimetallism would have occurred.
As it was, with silver over-valued, the silver coins increasingly “drove” gold out of circulation, as well as out of the Treasury and into private hands.
In 1893, in the midst of another financial panic, this time as a result of depletion of gold reserves in the U.S. Treasury, President Grover Cleveland called a special session of Congress to repeal the bimetallic standard. He was successful, though agrarian inflationists took over the Democratic Party and offered up, for the next election, William Jennings “Cross of Gold” Bryan as a counter to Cleveland’s old-fashioned fiscal conservative/social liberalism.
1 reply on “Silver Coinage”
In the struggle between supporters of a gold standard and bimetallists, both sides were wrong.
The US Constitution used the term “dollar” without defining it because it was understood to refer to coins containing a particular weight of silver.
Gold coins, like coins of copper or of bronze, were originally subsidiary. Fixing the weight and composition of a subsidiary coinage is a gross mistake, and has caused problems through-out much of history.
During the Civil War, use of inflationary paper and a suspension of convertability of paper to silver or to gold drove both metals from circulation. In 1873, anticipating a resumption of convertability but noting that the stock of silver had grown and was growing very greatly, the term “dollar” was legally redefined to be in terms of gold, based on the weight of the previously subsidiary gold dollar coins. Part of the intention was to have greater price stability, but thus debtors who had agreed to pay in terms of a weight of silver saw their debts changed by law to become considerably greater! It was as if, in the face of a bumper crop of corn, farmers who had agreed to deliver corn were told that they must instead deliver wheat!
Moreover, allowing the Federal government to redefine “dollar” and thus to change obligations set a precedent which led ultimately to our present monetary order. The gold standard didn’t represent the Good Old Days of Sound Money; its adoption was the Beginning of the End.
Of course, what one should really seek is transition to allowing the market not merely to decide the value of money, but to decide what things are used as money.