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Coinage Acts

Coinage Acts

Lawrence H. Officer

The Coinage Act of 1873 (P.L. 42-131, 17 Stat. 424) comprehensively revised and rewrote the existing laws regarding mint and coinage issues. The important sections of the act of 1873 concerned gold and silver coinage, the basis of the monetary standard of the United States at the time. The act has a legislative history that dates to the Coinage Act of 1792, and it led eventually to the enactment of the Gold Standard Act of 1900.

LEGISLATIVE HISTORY OF GOLD AND SILVER COINS

For a country to be considered to be on metallic standard, whether gold, silver, or bimetallicusing both gold and silverthe first principle is that its mint must issue coins. The Authority for Gold and Silver Coinage, 17921875 table details laws that authorized U.S. coins between 1792 and 1875. Two features are of note. First, the least valuable gold coin was worth one dollar, and the most valuable silver coin also was worth one dollar. As gold was (and still is) much more valuable per ounce than silver, a silver coin worth more than one dollar would have been too large for practical use, and a gold coin worth less than a dollar would have been too small. Second, the Act of 1873 eliminated three existing coins made of silver, of which the silver dollar was the most important, and created a "trade-dollar," a special silver dollar coin to be used in international trade.

Authority for Gold and Silver Coinage, 17921875
Authorizing Act Silver Coins Gold Coins
1792, P.L. 216, 1 Stat. 246 dollara, half-dollar, quarter dollar, dime, half dimea eagleb, half-eagle, quarter eagle
1849, P.L. 30109, 9 Stat. 397   gold dollarc,d, double-eaglee
1851, P.L. 3120, 9 Stat. 587 three centsa  
1853, P.L. 3279, 10 Stat. 160   three dollarsd
1873, P.L. 42131, 17 Stat. 424 trade-dollarf  
1875, P.L. 43143, 18 Stat. 478 twenty centsg  
aDiscontinued by Coinage Act of 1873.
bTen-dollar piece.
cRenamed one-dollar piece in Coinage Act of 1873.
dDiscontinued by Act of 1890 (P.L. 51945, 26 Stat. 485).
eTwenty-dollar piece.
fIntended for use only in international transactions. Discontinued by Act of 1887 (P.L. 49396, 24 Stat. 634).
gDiscontinued by Act of 1878 (P.L. 4579, 20 Stat. 47).

A second important consideration is that the coins issued must be accepted and satisfy the owner's monetary obligations, whatever the amount. The Legal-Tender Power of Gold and Silver Coin, 17921875 table shows that from 1792 to 1875, gold coins could satisfy unlimited financial obligation (had "unlimited legal-tender power"); whereas after 1853, silver coins other than a silver dollar could only satisfy obligations up to five dollars (possessed only "limited legal-tender power"). While The Coinage Act of 1873 essentially did not address this issue, a revised statute the next year also limited the standard silver dollar to a value of five dollars as legal tender.

Legal-Tender Power of Gold and Silver Coin, 17921875
  Silver Coins Gold Coins
Authorizing Act Coins Payments a Coins Payments a
1792, P.L. 216, 1 Stat. 246 all unlimitedb all unlimitedb
1834, P.L. 2395, 4 Stat. 699     all unlimitedb
1837, P.L. 243, 5 Stat. 136 all unlimited all unlimited
1849, P.L. 30109, 9 Stat. 397     double-eagle, gold dollar unlimited
1851, P.L. 3120, 9 Stat. 587 three cents 30 cents    
1853, P.L. 3279, 10 Stat. 160 half-dollar, quarter dollar, dime, half dime five dollars three dollars unlimited
1873, P.L. 42131, 17 Stat. 424 trade-dollarc, half-dollar, quarter-dollar, dime five dollars all unlimitedd
1874, P.L. 43333, 18 Stat. 113e allf five dollars all unlimitedd
1875, P.L. 43143, 18 Stat. 478 twenty cents five dollars    
aLimit, if any.
bCoins less that full weight at values proportional to their actual weights.
cLegal tender eliminated in 1876 (J.R. 44-17, 19 Stat. 215).
dCoins less than standard weight and limit of tolerance at valuation proportional to their actual weights.
eLeading to 1874, 43-3586, Rev. Stat. 708.
fIncluding dollar.

A third element of a coin standard is that there be "free coinage," meaning that any private party may bring gold or silver in large quantities to the mint to be coined, and receive the coin or money equivalent. The Freedom of Coinage, 17921873 table shows that free coinage for gold was always available from 1792 to 1873 (and in fact until the United States abandoned the gold standard in 1933). However, free coinage for silver coins less than a dollar ended in 1853, and the Act of 1873 ended free coinage of the standard silver dollar. It was never restored.

Freedom of Coinage, 17921873
Authorizing Act Silver Gold
1792, P.L. 216, 1 Stat. 246 all all
1837, P.L. 243, 5 Stat. 136 all all
1853, P.L. 3279, 10 Stat. 160 silver dollar only  
1873, P.L. 42131, 17 Stat. 424 trade-dollar only all

The "fine weight" of a coin is the amount of the pure metal (either gold or silver) that it contains. The "standard fineness" is the percentage of the coin's weight consisting of the pure metal, the remainder being essentially a worthless alloy. The "standard weight" is the total weight of the coin (pure metal plus alloy). The Legal Gold and Silver Value of Dollar, 17921873 table lists the legislated fine and standard weights of the gold and silver dollar from 1792 to 1873. The table also shows the legal gold/silver price ratio (number of ounces of silver compared to ounces of gold in a coin), the "mint ratio." Not shown is the fineness, which is 1485/1664 and 11/12 for gold and silver coins, respectively (Act of 1792), 116/129 for gold coin (Act of 1834), and 9/10 for gold and silver coins (Acts of 1837 and 1873).

Legal Gold and Silver Value of Dollar, 17921873
  Weight of Dollar (grainsa)  
  Silver Gold  
Authorizing Act Fine Standard Fine Standard Gold/Silver Price Ratiob
1792, P.L. 216, 1 Stat. 246 371.25 416 24.75c 27c 15.0000
1834, P.L. 2395, 4 Stat. 699     23.2c 25.8c 16.0022
1837, P.L. 243, 5 Stat. 136 371.25 412.5 23.22c 25.8c 15.9884
1873, P.L. 42131, 17 Stat. 424 378d 420d 23.22 25.8
aUnder the customary "avoirdupois" measurement system (16 ounces = 1 pound), 1 ounce = 437.5 grains.
bRatio of fine-silver to fine-gold content of dollar, when both gold and silver are unlimited legal tender.
cInferred as one-tenth weight of eagle ($10 gold piece).
dTrade-dollar, limited legal tender.

All of the coins worth less than one dollarcalled fractional coinswere made of silver. Fractional coins were much more important in the nineteenth century than today, because prices were so much lower. In fact, retail transactions were conducted largely with such coins. The Fine-Silver Content of Fractional Coin, 17921875 table summarizes the legislated fine-metal content of such coin compared to the standard silver dollar. Until the Act of 1853, the relative value (the fine-weight to total-weight ratio) of fractional silver coins (except for the three-cent coin) was the same as the silver dollar. The Act of 1853 reduced the ratio, thus overvaluing fractional coins relative to the dollar. The Act of 1873 slightly increased this ratio for fractional coins.

Fine-Silver Content of Fractional Coin, 17921875
Authorizing Act Coins Divergence from Silver Dollar
1792, P.L. 216, 1 Stat. 246 all zero
1837, P.L. 243, 5 Stat. 136 all zero
1851, P.L. 3120, 9 Stat. 587 three cents 16.67 percent
1853, P.L. 3279, 10 Stat. 160 all except three cents 6.91 percent
1853, P.L. 3296, 10 Stat. 181 three cents 6.91 percent
1873, P.L. 42131, 17 Stat. 424 all except twenty cents 6.47 percent
1875, P.L. 43143, 18 Stat. 478 twenty cents 6.47 percent

EFFECTS OF COINAGE LEGISLATION

Legally, the Coinage Acts of 1792 and 1837 placed the United States on a bimetallic (gold and silver) standard, and all other amendments until 1853 were consistent with this standard. However, a bimetallic standard is inherently unstable, because the mint ratio (the ratio of value of gold to value of silver in coins set by legislation) can differ from the world market ratio (the ratio of the market value of gold to the market value of silver). Private parties melted down the undervalued coins, and sold the metal on the free marketrealizing a profit they coined the "overvalued" metal at the mint and used it for domestic money. In the early 1790s the mint ratio of 15:1 (gold being worth fifteen times more per ounce than silver) was close to the market ratio; but the market ratio increased (gold becoming even more valuable relative to silver) so that by the turn of the ninteenth century, with gold undervalued at the mint, gold-coin was melted down and ceased to circulate, while silver (overvalued at the mint) was coined and circulated domestically: the United States was on an effective silver standard.

The Coinage Act of 1834 increased the mint ratio sufficiently so that the relationship between legal and market ratio was reversed. Overvalued gold drove out silver coins; but the situation did not become that bad for fractional silver coin (because of the expense in collecting and processing a given dollar value of such coins, compared to the silver dollar) until Australian and Californian gold discoveries greatly increased world gold production in the late-1840s, reducing the market ratio and enhancing the legal overvaluation of gold. It then became profitable even to ship fractional coin abroad, and retail trade suffered.

The impact of the gold dollar, authorized in the Coinage Act of 1849, was minimal, because its small size made the coin unpopular and its denomination was too high to complete most retail trades. More effective was the three-cent silver piece authorized by the Postage Act of 1851. This was the first U.S. subsidiary silver coin, meaning that its legal (denominational) value was higher than its intrinsic (metallic) value. Such overvaluation protected silver coins from being melted into bullion and/or exported, even in the face of a favorable (low) market gold/silver price ratio. The Secretary of the Treasury enhanced the overvaluation of the coin by interpreting the act as if it included essentially free coinage: the mint allowed private parties freely to exchange any U.S. gold or silver coin for the new piece (in lots of 100 coins worth $3.00). Though a temporary success, the coin was too small in size (the smallest coin ever to circulate in the United States) and too low a denomination to solve the "small-change" shortage.

The Coinage Act of 1853 provided the solution by making subsidiary all fractional silver from the half-dime to the half-dollar. Though free coinage was expressly forbidden, the act authorized the mint to purchase bullion to produce the coins and to exchange them (in lots of $100) for gold coin. The three-dollar gold coin, authorized in the same act, was an odd denomination, never popular, and only a small number were ever issued.

The Coinage Act of 1873, in eliminating the free coinage of silver, added to the upward pressure on the price of gold emanating from other countries adopting the gold standard and a smaller increase of gold output. Nobel Laureate Milton Friedman believes that deflation and financial panics resulted from the adoption of the act, and that legal bimetallism, involving an alternating effective gold or silver standard, would have provided greater economic stability in subsequent decades.

RATIONALES FOR COINAGE LEGISLATION

A mint ratio of 16:1 (gold to silver) in the Coinage Act of 1834 was suddenly, at the end of the legislative process, included in the bill as a substitute for the original ratio of 15.625 (one much closer to the market rate). Several reasons for this shift have been offered: (1) to bring about an effective gold standard, desired by eastern businesses and commercial interests; (2) to enhance profits from gold production, thereby assisting gold-mining companies in southern states; (3) to help destroy the Second Bank of the United States, by substituting gold coin for its notes, in response to pressure from President Andrew Jackson and his allies.

It is thought that the gold coin's unwieldy fineness (116/129) resulted from this hurried amendment procedure. Combined with the fineness of silver coins (1485/1664) prescribed in the 1792 Coinage Act, the legislated proportion of alloy in coin was inconvenient for the mint to produce. The Act of 1837 provided a fineness of 9/10, thus correcting an arithmetic difficultyan unusual reason for any legislation.

The one-dollar gold piece authorized by the Coinage Act of 1849 was an attempt to provide a substitute for vanishing fractional silver coins. The three-cent silver piece authorized by the Postage Act of 1851 was intended simply to make it convenient to purchase the three-cent postage stamp legislated by that act (replacing the five-cent rate). Unintentionally, the coin helped fulfill the need for a fractional coinage.

The rationale for the Coinage Act of 1853 is controversial. One interpretation is that the purpose of the act was simply to render a proper subsidiary coinage, which it indeed accomplished; and also formal bimetallism was preserved. Another view is that the reduction of fractional silver to subsidiary status with restricted legal-tender power was a move toward adoption of the gold standard. That the standard silver dollar was left unaffected by the act mitigates against the latter interpretation, although it is also possible that the silver dollar was unmentioned because it was virtually unknown (none had been coined from 1806 to 1835, and few thereafter issued compared to the half-dollar).

Because the Coinage Act of 1873 discontinued coinage of the silver dollar, it is viewed by many as the formal end of bimetallism in the United States. An alternative interpretation is that omission of the silver dollar merely modified the coinage law to reflect the reality that the coin had not been in circulation for many years. Indeed, historians have described the silver dollar as a coin unknown to most Americans at the time.

Subsequent to the 1873 act, bimetallism supporters (and silver producers, who found they could no longer have their bullion coined) argued that the act was the "Crime of 1873"the result of a conspiracy against silver and bimetallism. Modern scholars believe that accusation to be absurd; but scholars generally agree that proponents of the bill feared that an effective silver standard would result from continuing free silver coinage in the face of an imminent decline in the market price of silver (increase in the market gold/silver price ratio). Some think that most members of Congress were ignorant of the intricacies and implications of the 1873 act; but it has been pointed out that this was probably true for all the coinage laws and all complex legislation.

The Act of 1873 left undisturbed the full legal-tender power of existing silver dollars. The general revision of all statutes adopted in 1874 implicitly included the silver dollar in the restricted legal tender of "all" silver coins (see the Legal-Tender Power of Gold and Silver Coin, 17921875 table). It was this 1874 revision that accomplished the true demonetization of silver and thereby placed the country on a legal gold standard. Whether the revision respected the intent of Congress manifested in the Act of 1873 depends on whether the omission of silver-dollar coinage in the act was deliberate or intentional.

See also: Bland-Allison Act; Coinage Act of 1792; Gold Standard Act of 1900

BIBLIOGRAPHY

Carothers, Neil. Fractional Money. New York: John Wiley, 1930.

Friedman, Milton. "The Crime of 1873." Journal of Political Economy 98, no. 6 (1990): 11591194.

Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867-1960. Princeton, NJ: Princeton University Press, 1963.

Laughlin, J. Laurence. The History of Bimetallism in the United States. New York: D. Appleton, 1900.

Officer, Lawrence H. Between the Dollar-Sterling Gold Points. Cambridge, MA: Cambridge University Press, 1996.

Weinstein, Allen. "Was There a 'Crime of 1873'? The Case of the Demonetized Dollar." Journal of American History 54, no. 2 (1967): 307-326.

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Coinage Act of 1792

Coinage Act of 1792

Lawrence H. Officer

The Coinage Act of 1792 (P.L. 216, 1 Stat. 246) was Congress's first use of its constitutional power regarding coinage and money. Congress faced four major problems. First, there was no common system of monetary accounting in the new nation. Each state, as a colony, had created its own unit of account, based on the British system of pounds, shillings, and pence, that it continued to usedoubly unacceptable to the newly constituted nation.

Second, the medium of exchange (money used in transactions) was the Spanish dollar, a silver coin. The difference between the unit of account and medium of exchange was tremendously inconvenient. Third, a variety of other coinsboth gold and silvercirculated. So the monetary relationship of gold to silver needed to be established. Fourth, these coins were all foreign: A domestically-produced coinage would be a hallmark of independence.

The provisions of the Coinage Act were based on a report prepared by Alexander Hamilton, secretary of the treasury. Hamilton suggested coinage that implicitly adopted a decimal system of account: the dollar, "tenth part" of the dollar, and "hundredth part" of the dollar. The Coinage Act provided that "the money of account of the United States shall be expressed in dollars or units, dismes or tenths, cents or hundredths, and milles or thousandths." Concretely, "all accounts in the public offices and all proceedings in the courts of the United States shall be kept and had in conformity to this regulation." Thus a decimal monetary system was createdthe first in history for any country! The private sector followed the official shift to a decimal system of accounting within a decade.

Hamilton advocated a bimetallic standard, using both gold and silver coins. He observed that merchants valued the Spanish dollar at 24.75 grains of pure gold (a grain is 1/437.5th of the customary ounce), and he measured the average amount of silver in the Spanish dollar as approximately 371.25 grains. Following common practice in other countries, he suggested fineness of 11/12th for the coins, meaning alloy of 1/12th. The gross weight of the gold dollar would be 27 grains, and the silver dollar 405 grains. Hamilton recommended minting a $10 gold piece, called the "eagle" in the Coinage Act. The act also authorized coinage of half-eagles and quartereagles, as well as silver half-dollars and quarter-dollars. Hamilton's plan involved coinage of a gold dollarwisely rejected by Congress, as this coin would have been very small.

The most ill-advised deviation of Congress from Hamilton's report was to legislate a gross weight of 416 grains for the silver dollar, implying a fineness of 1485/1664th (slightly less than 11/12th). The cumbersome fineness arose because the amount of pure silver in the Spanish dollar had been reduced below its legal standard of 11/12th, but the U.S. dollar was to be based on that coin. Hamilton's solution was a smaller coin; Congress opted for a lower fineness. The clumsy fineness led to technical problems at the mint and required correction in subsequent legislation.

The ratio of pure silver to pure gold (by weight) in the dollar was 15 to 1, recommended by Hamilton because this legal gold/silver price ratio was consistent with the relative market valuation of the two metals at the time.

Although the bimetallic standard worked initially, it lost effectiveness when the market ratio differed from the legal ratio. Later legislation addressed this problem.

Consistent with bimetallism, Congress authorized "free coinage" of both gold and silver, meaning that anyone could bring either gold or silver bullion to the mint to be coined.

Much later, free coinage of silver became a troublesome political issue. Also, all gold and silver coins were made full legal tender, meaning they had to be accepted in payment of a monetary obligation in any amount. The problem with this provision was that fractional coins (below a dollar) could all be lost should bimetallism be thwarted by a changed market ratio. Further Congressional action was needed to remedy this problem.

Finally, while the Coinage Act of 1792 established a U.S. mint, only foreign coins were circulating in the country. Hamilton recommended that foreign coins be permitted to circulate for just a three-year period. However, a number of subsequent Congressional acts continued the legal-tender status of foreign coins long beyond Hamilton's suggested period. Only with the Act of 1857 was the legal tender of foreign coins finally terminated.

See also: Bank of the United States; Bland-Allison Act; Coinage Acts; Federal Reserve Act of 1913; Gold Standard Act of 1900.

BIBLIOGRAPHY

Carothers, Neil. Fractional Money. New York: John Wiley, 1930.

Nussbaum, Arthur. Money in the Law: National and International. Brooklyn, NY: Foundation Press, 1950.

Nussbaum, Arthur. A History of the Dollar. New York: Columbia University Press, 1957.

Officer, Lawrence H. Between the Dollar-Sterling Gold Points. Cambridge, MA: Cambridge University Press, 1996.

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