Gold triumphed in 1850s silver shortage
Older collectors will well remember the problems of the mid 1960s when coins were in short supply and silver coins were being sold for a profit to bullion dealers.
Older collectors will well remember the problems of the mid 1960s when coins were in short supply and silver coins were being sold for a profit to bullion dealers. Within a reasonably short time the problem was under control with the great amounts of “sandwich” coins being struck by the mints.
There was a similar crisis in the mid 19th century, but that one took time to solve. It all began, oddly enough, with the discovery of gold in California in early 1848. Within a matter of months great quantities of the yellow metal were finding their way into the monetary systems of several countries, but especially the United States.
One would think that this outpouring of gold would be beneficial to the country, but instead it was a mixed blessing. Prices began to rise but wages, as always, did not go up as quickly as necessary. The major problem, however, was that the fresh supplies of gold upset the delicate balance between gold and silver in the American monetary system.
The basic mint law, passed in 1792, established a bimetallic system of coinage, where the two metals – gold and silver – were both used in the marketplace. Because of shifting international values of the two metals, bimetallism did not work well in the United States until 1834, when a new law established a ratio of about 16 to 1, which meant that an ounce of gold was worth 16 ounces of silver for purposes of coinage.
During 1835 and 1836 Mint officials reviewed how well the 1834 law was working and found that Congress had slightly overvalued gold, meaning the silver might leave the country if the imbalance was not corrected. In January 1837 the ratio was again changed, but this time only by a small amount.
This revision in 1837 worked very well until faced with the sudden avalanche of gold entering the market in the latter part of 1848. It was not long before the relative scarcity of silver meant that the price of silver began to rise slowly in terms of gold.
The problem with silver gained momentum throughout 1849 and 1850. Bullion dealers were able to buy an increasing amount of American silver coins for shipment to Europe, where there had been problems for some years in obtaining enough silver for coinage. As the U.S. silver was systematically removed from daily use, this increasingly left only the badly worn Spanish and Mexican silver coins for the marketplace.
As was usual in such matters, the public found substitutes for the short run in dealing with the disappearance of the silver coins. Cent pieces, for example, were bundled up in lots of 10, 25, or 50 pieces to pass as dimes, quarters, or half dollars.
Beginning in 1849 gold dollars were also coined, but this denomination was not all that helpful except for larger purchases, most items being priced at only a few cents. This might have meant that housewives and others who needed food as well as other necessities simply waited a bit longer than usual so that their purchases could be paid for with a gold dollar and cent pieces.
Both the Treasury and Congress were well aware of the serious problems facing the country with the missing silver coins but little was done as various political entities argued among themselves on the best avenue to take. For some obscure reason the question of coinage reform became entangled with a possible change in the postal rates.
As is true even today, the cost of a letter was a political problem in 1850. Prior to 1847 letters were normally mailed for free but the recipients, if they chose to accept the letter, had to pay the postage, an odd system but one in effect in other countries as well. Beginning in 1847 the government prepared postage stamps, the 5-cent rate carrying a single sheet of paper up to 300 miles and the 10-cent rate beyond that distance. Envelopes were not normally used, the sheet of paper being folded so that a space was left for the address.
The 1847 introduction of stamps did not really solve the postal difficulties as the use of stamps was not made compulsory. Most letters were still mailed for free, the recipients deciding whether to pay the postage. There were also post offices that used a rubber stamp to indicate the postage had been paid; all in all it was not a good system but it was a good start towards one.
Five cents was a fair amount of money in 1850 and there was strong pressure to reduce postal rates so that widely separated families could keep in touch for less money. By the middle of 1850 Congress had more or less decided to reduce the rate and the choice was now between two cents and three cents (for up to 300 miles) and double that for longer distances.
At the same time the Treasury entered the fray by attaching a 3-cent coin to the various postal proposals. In one case a congressman suggested reducing the basic rate to two cents and included a 2- cent silver coin in his proposal; considering how tiny the silver 3-cent pieces of 1851 were, one can hardly imagine a coin two-thirds that size.
In the meantime, the coinage of cents at the Mint saw a radical increase. In 1851, for example, nearly 10 million copper cents were made, which compares with just over 4 million in 1848. Clearly these coins were being used in lieu of silver coins, much to everyone’s annoyance, however, as a larger number of coins (say 50 pieces) was usually counted out if a stranger was involved in the transaction.
In early March 1851, as Congress was ending the session, a bill was passed authorizing the new postal rates and a small silver coin of three cents to facilitate those rates. Well, that was the official rationale for the new coin but everyone knew that the 3-cent pieces, or “Trimes” as they are sometimes called today, were really intended to be a stopgap measure in a partial solution of the ongoing silver coin shortage.
In order that the new silver coin not be bought up and exported, it was debased from the regular fineness (.900) used for U.S. silver. The trime was struck with a fineness of only .750 and was intrinsically worth less than three cents. It required several weeks before the Mint could begin production and even in all of 1851 only 5.5 million pieces were struck at Philadelphia plus just over 700,000 at New Orleans, the only time the latter mint struck this new denomination. Although the new silver coins went immediately into daily use it was not until the summer of 1852 that they began to have any more than a marginal effect in lessening the coin shortage.
Not only was the fineness of .750 something new for American silver coinage, but the design was a strong departure from past practice. No longer was an eagle to be found on one side, but instead Chief Engraver James B. Longacre had prepared a coin with the American shield on the obverse while the reverse featured the Roman numeral III within the letter “C” for cents.
Despite the increased use of the trime by the public, the demand for .900 fine U.S. silver did not lessen and every avenue was explored by the bullion dealers in an effort to increase their profits. In December 1852, for example, the value of quarter and half dollars at New York was 3.5 percent over face, a amount sufficient to make a good profit when large sums were involved. The premium on silver dollars was slightly higher while that on dimes and half dimes was a bit lower.
It is of interest to note that at this same time, December 1852, the premium on Spanish dollars at New York was 7 percent. This was not entirely due to the silver content, however, as such coins were in strong demand for the China trade, where the old Spanish pieces were favored over the newer Mexican dollars.
Heavy trime coinage persisted throughout 1852 (19 million pieces) and for several weeks into 1853, when another 11 million dropped from the presses. Even with the heavier coinages, however, it was soon clear that more drastic measures had to be undertaken by Congress and the Administration of President Millard Fillmore.
Mint and Treasury officials had repeatedly noted that the British had shown the way, as early as 1816, to solve our coin shortage. In that year Parliament had enacted legislation which made silver a subsidiary coinage. Gold was now the only full-valued coinage in England and those who wanted silver from the London Mint had to pay for it in gold, thus regulating the amount of such coinage to reach the marketplace.
In February 1853 Congress finally realized that the British had it right and passed a law similar in nature. The weights of the minor silver coins were reduced by roughly 6 percent, the fineness remaining the same. As the premium on U.S. silver coins rarely exceeded 4 percent, the margin was tight but proved the correct choice. At the same time the silver trime was brought into line, both in value and fineness, with the other silver coins.
Using some rather strange logic, however, Congress did not alter the silver dollar, the weight and fineness remaining unchanged. This meant that the British system had not been implemented fully but the point was perhaps irrelevant as the silver dollar had ceased to circulate in this country and would not do so again until after 1873. Depositors still had the right to bring silver bullion to the mints for dollars but few people did so; on the other hand the law required, as in Britain, that minor silver could be paid out only for gold.
Treasury Secretary James Guthrie was concerned that the public might have difficulty distinguishing between the old and new silver coins and instructed Mint Director George Eckert to come up with a way to do so. Eckert consulted his fellow officers and decided that arrows at the date would be the best, though for 1853 rays were also put on the reverses of the half and quarter dollars. (Minor silver coins were struck on the old standard until the end of March 1853 and these did not carry arrows.)
Although arrows at the date were probably sufficient to show the public which kind of coin they now had, the rays on the reverse were a nice touch and meant to emphasize the point. Perhaps the rays were also intended as a political gesture to show that the new Administration of President Franklin Pierce had done its part to bring coinage back to the marketplace.
By the end of 1853, with very heavy silver coinages at both Philadelphia and New Orleans, the coin shortage was very nearly over. The parent mint had produced during that year more than 50 million minor silver coins, all of which went into circulation and stayed there. Bullion dealers continued to buy up the pre-1853 silver coins but the massive influx of new coinage meant that withdrawal of the older pieces did not affect the marketplace.
Arrows remained on the minor silver coins through 1855, just in time for San Francisco to strike quarter and half dollars with the special marks. The 1855-S quarter dollar is only moderately scarce but the half dollar is another matter and it brings relatively strong prices.
As noted above, the February 1853 law and resulting heavy coinages had essentially solved the coin shortage within a year. The Philadelphia Mint, however, under the leadership of a new director – James Ross Snowden, proceeded to strike more silver coins than were needed by the public.
Snowden felt that the 1853 law had unduly slighted a great national institution (the Philadelphia Mint) by stipulating that minor silver could be paid out only for gold coins. His solution was to ignore the law and pay out silver coins for silver bullion. Making sure that the government did not lose any money, Snowden simply raised the buying price for silver and gave the seller the option of taking minor silver coins in exchange. The result was a flood of such coinage.
In due course banks and businesses began to complain about the glut of silver and these complaints eventually forced Treasury Secretary Howell Cobb to act. In 1858 he ordered Director Snowden to obey the law and the result was a dramatic lowering of minor silver coinage totals.
The heavy coinages of 1853 through 1858 were not all that bad, however, Modern collectors certainly owe Snowden a debt of gratitude for these heavier mintages as otherwise such coins would be much more difficult and expensive to obtain.
In the space of a few short years the nation had gone from a severe coin shortage to a situation where there were too many silver coins in daily use. The 1858 order from the Treasury put matters back in perspective, however, and – until the Civil War erupted a few years later – the monetary system of this country remained on an even keel.
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