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Gold Triumphed in 1850s Silver Shortage
By R.W. Julian 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. |