SILVER LEGISLATION refers to U.S. statutes regulating silver coinage and/or affecting the interests of silver miners as a class. Both types of legislation have loomed large in American history.
It was the intention of the founders of the nation to establish a genuine bimetallism: that is, a monetary system in which both gold and silver were legal tender. It has been generally accepted by historians that this policy was based on the theory—offered by Alexander Hamilton, the first secretary of the treasury, in his Mint Report—that under bimetallism there is a more plentiful supply of money. Another reason for bimetallism was the fact that the principle of subsidiary silver coinage (that is, the use of silver alloys for coins of smaller denomination than the currency unit) was unknown to science or to history, and bimetallism was a necessity if small units of silver were to be coined.
The bimetallic system was a failure. Revision of the legal ratio between the values of gold and silver in 1834 and 1837 created an adequate gold coinage but drove out the limited silver coinage in circulation, since the free-market value of silver was higher than its monetary value. From 1834 on, American silver coins as standard money ceased to play a part in the life of the nation. The establishment by Congress of subsidiary silver coinage in 1853 confirmed this situation legally. But the 1853 statute accidentally left the silver dollar as a standard coin, although the market value of silver continued to make its coinage impossible. In a revision of the statutes in 1873, the un-known piece was dropped.
In 1873 the world market ratio of silver to gold fell below sixteen to one for the first time in history. This decline coincided with the opening of rich silver mines in the West, with the post–Civil War deflation, and with a deep depression that sorely afflicted the country. The consequence was a political movement, promoted by the silver interests and embraced by agrarian and pro-inflation elements, for the restoration of bimetallism. Eventually there developed in the Senate, and more tentatively in the House, a nonpartisan "silver bloc," led by members from the sparsely populated western states in which mine owners gained great political influence.
In the 1870s, 1890s, and 1930s, the efforts of this pressure group, reinforced by the popular clamor for inflation, almost achieved bimetallism and succeeded in extracting from Congress legislation giving a cash subsidy of some sort to the producers of silver. For example, the Bland-Allison Act of 1878 (passed over President Rutherford B. Hayes's veto) required the U.S. Treasury to buy $2 million to $4 million worth of silver a month. The Sherman Silver Purchase Act of 1890 (signed by President Benjamin Harrison but repealed at the insistence of President Grover Cleveland in 1893) mandated treasury purchases of 4.5 million ounces of silver a month, an amount roughly equivalent to the total estimated U.S. production in 1890.
The Silver Purchase Act of 1934 followed an unprecedented decline in the price of silver during the Great Depression that began in 1929. A flood of proposals for subsidies to silver miners was urged on Congress. The futile 1933 World Economic Conference at London enacted, under pressure from U.S. participants, an agreement for stabilizing silver prices, under cover of which, by presidential proclamation, the United States paid from 64.64 cents to 77 cents per ounce for domestic silver, which had a market value of 45 cents. Unable to achieve bimetallism at sixteen to one (the market ratio was seventy to one), the silver interests finally forced the passage of the Silver Purchase Act. It provided for the nationalization of domestic stocks of silver and for the purchase of silver by the treasury until the price should reach $1.2929 per ounce or the value of the amount held should equal one-third of the value of the government's gold holdings. The immediate effect of the legislation was a speculative rise in the market price of silver to 81 cents an ounce, which destroyed the currency systems of China and Mexico.
In 1939 the president's powers to debase the gold standard and buy silver were renewed, and Congress was allowed to set the price for domestic silver. It was pegged initially at 71 cents an ounce, 36 cents above the market price. In World War II, a shortage of silver developed, and the price rose rapidly. Under the leadership of Senator Patrick McCarran of Nevada, measures were blocked that would have provided government silver for defense production, for industrial use in nonwar industries, and for use by U.S. allies. Finally, in 1943, the Green Act provided that U.S. industries might buy silver from the treasury at the price originally paid for it, and large amounts of silver, all of which were returned, were lent to U.S. allies.
In the 1960s, when strong industrial demand for silver created another worldwide shortage, the metal was nearly eliminated from the U.S. monetary system. The Silver Purchase Act was repealed in 1963. Two years later, under the Coinage Act of 1965, silver was eliminated from two subsidiary coins (the quarter and dime), and its content in the half-dollar was reduced from 90 percent to 40 percent. By another act of Congress, U.S. Treasury certificates could no longer be redeemed in silver after 28 June 1968, and in 1970 the Bank Holding Company Act withdrew silver from the dollar and replaced it with copper and nickel. These later changes passed without the controversy that had accompanied previous silver legislation, suggesting a national acceptance of government fiat coins that, in the late nineteenth century, seemed impossible.
Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867–1960. Princeton, N.J.: Princeton University Press, 1963.
Schwartz, Anna Jacobson. Money in Historical Perspective. Chicago: University of Chicago Press, 1987.
Wilson, Thomas F. The Power "To Coin" Money: The Exercise of Monetary Powers by the Congress. Armonk, N.Y.: M. E. Sharp, 1992.