Chart X. Chart showing the Changes in the Relative Values of Gold and Silver from 1501 to 1880. From 1501 to 1680 a space is allotted to each 20 years; from 1681 to 1871, to each 10 years; from 1876 to 1880, to each year.
II. The change in the relative values of gold and silver finally forced the United States to change their mint ratio in 1834. Two courses were open to us: (1) either to increase the quantity of silver in the dollar until the dollar of silver was intrinsically worth the gold in the gold dollar; or (2) debase the gold dollar-piece until it was reduced in value proportionate to the depreciation of silver since 1792. The latter expedient, without any seeming regard to the effect on contracts and the integrity of our monetary standard, was adopted: 6.589 per cent was taken out of the gold dollar, leaving it containing 23.22 grains of pure gold; and as the silver dollar remained unchanged (371-¼ grains) the mint ratio established was 1 to 15.988, or, as commonly stated, 1 to 16. Did this correspond with the market ratio then existing? No. Having seen the former steady fall in silver, and believing that it would continue, Congress hoped to anticipate any further fall by making the mint ratio of gold to silver a little larger than the market ratio. This was done by establishing the mint ratio of 1 to 15.988, while the market ratio in 1834 was 1 to 15.73. Here, [pg 320] again, appeared the difficulty arising from the attempt to balance a ratio on a movable fulcrum. It will be seen that the act of 1834 set at work forces for another change in the coinage—forces of a similar kind, but working in exactly the opposite direction to those previous to 1834. A dollar of gold coin would now exchange for more grains of silver at the mint (15.98) than it would in the form of bullion in the market (15.73). Therefore it would be more profitable to put gold into coin than exchange it as bullion. Gold was sent to the mint, while silver began to be withdrawn from circulation, silver now being more valuable as bullion than as coin. By 1840 a silver dollar was worth 102 cents in gold.[238] This movement, which was displacing silver with gold, received a surprising and unexpected impetus by the gold discoveries of California and Australia in 1849, before mentioned, and made gold less valuable relatively to silver, by lowering the value of gold. Here, again, was another natural cause, independent of legislation, and not to be foreseen, altering the value of one of the precious metals, and in exactly the opposite direction from that in the previous period, when silver was lowered by the increase from the Mexican mines. In 1853 a silver dollar was worth 104 cents in gold (i.e., of a gold dollar containing 23.22 grains); but, some years before, all silver dollars had disappeared from use, and only gold was in circulation. For a large part of this period we had in reality a single standard of gold, the other metal not being able to stay in the currency.
III. After our previous experience, the impossibility of retaining both metals in the coinage together, on equal terms, now came to be generally recognized, and was accepted by Congress in the legislation of 1853. This act made no further changes intended to adapt the mint to the market ratios, but remained satisfied with the gold circulation. But hitherto no regard had been paid to the principles on which a subsidiary coinage is based, as explained by Mr. Mill in the last section ([§ 2]). The act of 1853, while acquiescing in the single gold standard, had for its purpose the readjustment of the subsidiary coins, which, together with silver dollar-pieces, had all gone out of circulation. Before this, two halves, four quarters, or ten dimes contained the same quantity of pure silver as the dollar-piece (371-¼ grains); therefore, when it became profitable to withdraw the dollar-pieces and substitute gold, it gave exactly the same profit to withdraw two halves or four quarters in silver. For this reason all the subsidiary silver had gone out of circulation, and there was no “small change” in the country. The legislation of 1853 rectified this error: (1) [pg 321] by reducing the quantity of pure silver in a dollar's worth of subsidiary coin to 345.6 grains. By making so much less an amount of silver equal to a dollar of small coins, it was more valuable in that shape than as bullion, and there was no reason for melting it, or withdrawing it (since even if gold and silver changed considerably in their relative values, 345.6 grains of silver could not easily rise sufficiently to become equal in value to a gold dollar, when 371-¼ grains were worth only 104 cents of the gold dollar); (2) this over-valuation of silver in subsidiary coin would cause a great flow of silver to the mint, since silver would be more valuable in subsidiary coin than as bullion; but this was prevented by the provision (section 4 of the act of 1853) that the amount or the small coinage should be limited according to the discretion of the Secretary of the Treasury; and, (3) in order that the overvalued small coinage might not be used for purposes other than for effecting change, its legal-tender power was restricted to payments not exceeding five dollars. This system, a single gold standard for large, and silver for small, payments, continued without question, and with great convenience, until the days of the war, when paper money (1862-1879) drove out (by its cheapness, again) both gold and silver. Paper was far cheaper than the cheapest of the two metals.
Relative values of gold and silver, by months, in 1876.
The mere fact that the silver dollar-piece had not circulated since even long before 1853 led the authorities to drop out the provisions for the coinage of silver dollars and in 1873 remove it from the list of legal coins (at the ratio of 1 to 15.98, [pg 322] the obsolete ratio fixed as far back as 1834). This is what is known as the “demonetization” of silver. It had no effect on the circulation of silver dollars, since none were in use, and had not been for more than twenty-five years. There had been no desire up to this time to use silver, since it was more expensive than gold; indeed, it is somewhat humiliating to our sense of national honor to reflect that it was not until silver fell so surprisingly in value (in 1876) that the agitation for its use in the coinage arose. When a silver dollar was worth 104 cents, no one wanted it as a means of liquidating debts; when it came to be worth 86 cents, it was capable of serving debtors even better than the then appreciating greenbacks. Thus, while from 1853 (and even before) we had legally two standards, of both gold and silver, but really only one, that of gold, from 1873 to 1878 we had both legally and really only one standard, that of gold.
It might be here added, that I have spoken of the silver dollar as containing 371-¼ grains of pure silver. Of course, alloy is mixed with the pure silver, sufficient, in 1792, to make the original dollar weigh 416 grains in all, its “standard” weight. In 1837 the amount of alloy was changed from 1/12 to 1/10 of the standard weight, which (as the 371-¼ grains of pure silver were unchanged) gave the total weight of the dollar as 412-½ grains, whence the familiar name assigned to this piece. In 1873, moreover, the mint was permitted to put its stamp and devices—to what was not money at all, but a “coined ingot”—on 378 grains of pure silver (420 grains, standard), known as the “trade-dollar.” It was intended by this means to make United States silver more serviceable in the Asiatic trade. Oriental nations care almost exclusively for silver in payments. The Mexican silver dollar contained 377-¼ grains of pure silver; the Japanese yen, 374-4/10; and the United States dollar, 371-¼. By making the “trade-dollar” slightly heavier than any coin used in the Eastern world, it would give our silver a new market; and the United States Government was simply asked to certify to the fineness and weight by coining it, provided the owners of silver paid the expenses of coinage. Inadvertently the trade-dollar was included in the list of coins in the act of 1873 which were legal tender for payments of five dollars, but, when this was discovered, it was repealed in 1876. So that the trade-dollar was not a legal coin, in any sense (although it contained more silver than the 412-½-grains dollar). They ceased to be coined in 1878, to which time there had been made $35,959,360.
IV. In February, 1878, an indiscreet and unreasonable movement induced Congress to authorize the recoinage of the silver dollar-piece at the obsolete ratio of 1834 (1 to 15.98), while the [pg 323] market ratio was 1 to 17.87. So extraordinary a reversal of all sound principles and such blindness to our previous experience could be explained only by a desire to force this country to use a silver coinage only, and had its origin with the owners of silver-mines, aided by the desires of debtors for a cheap unit in which to absolve themselves from their indebtedness. There was no pretense of setting up a double standard about it; for it was evident to the most ignorant that so great a disproportion between the mint and market ratios must inevitably lead to the disappearance of gold entirely. This would happen, if owners could bring their silver freely, in any amounts, to the mint for coinage (“Free Coinage”), and so exchange silver against gold coin for the purpose of withdrawing gold, since gold would exchange for less as coin than as bullion. This immediate result was prevented by a provision in the law, which prevented the “free coinage” of silver, and required the Government itself to buy silver and coin at least $2,000,000 in silver each month. This retarded, but will not ultimately prevent, the change from the present gold to a single silver standard. At the rate of $24,000,000 a year, it is only a question of time when the Treasury will be obliged to pay out, for its regular disbursements on the public debt, silver in such amounts as will drive gold out of circulation. In February, 1884, it was feared that this was already at hand, and was practically reached in the August following. Unless a repeal of the law is reached very soon, the uncomfortable spectacle will be seen of a gradual disarrangement of prices, and consequently of trade, arising from a change of the standard.
In order that the alternate movements of silver and gold to the mint for coinage may be seen, there is appended a statement of the coinage[239] during the above periods, which well shows the effects of Gresham's law.
| Ratio in the mint and in the market. | Period. | Gold coinage. | Silver dollars coined. |
| 1:15 (silver lower in market) | 1792-1834 | $11,825,890 | $36,275,077 |
| 1:15.98 (gold lower in market) | 1834-1853 | 224,965,730 | 42,936,294 |
| 1:15.98 (gold lower in market) | 1853-1873 | 544,864,921 | 5,538,948 |
| Single gold standard. | 1873-1878 | 166,253,816 | ........ |
| 1:15.98 (silver lower, but no free coinage) | 1878-1883 | 354,019,865 | 147,255,899 |