A common misunderstanding about a commodity standard is that the government fixes the price of the monetary commodity. Many people believe that under the gold standard, the government fixes the price of gold. For example, if an ounce of gold exchanges for $20, the government has fixed the price of gold at $20 per ounce. No one would sell gold bullion for less than $20 per ounce because he could take the bullion to the mint and get it minted into coins at $20 per ounce. Furthermore, no one would pay more than $20 per ounce for bullion because he can melt coins to obtain bullion.

Under the gold standard, the government does not fix the price of gold. It defines the monetary unit, such as the dollar, as a specific weight of gold. That is, the dollar is a specific weight of gold. For example, the dollar is defined as 1/20 of an ounce of gold or 24 grains of gold. The dollar is 24 grains of gold. It is a unit of weight like the pound. It is just limited to money. By declaring the dollar to be 24 grains of gold, the government has no more fixed price of gold than it has fixed the price of a pound by declaring it to be 7000 grains. The dollar is a unit of weight like the pound or gram. It is just limited to gold. The dollar is fixed in terms of gold; gold is not fixed in the terms of the dollar.

Another way of stating this point is in terms of the independent variable and the dependent variable. People who claim that the price of gold is fixed under the gold standard are claiming that an abstract unit of value, e.g., the dollar, is the independent variable. A concrete weight of gold is the dependent variable. Thus, an abstraction fixes the value of a concrete weight of gold.

Conversely, people who claim that under the gold standard the price of gold is not fixed claim that the value of gold is the independent variable. The monetary unit is the dependent variable as it is a fixed weight of gold. A concrete weight of gold fixes the value of the monetary unit.

“The metre is the length of the path travelled by light in vacuum during a time interval of 1?299 792 458 of a second.” If they are consistent, people who claim that the government fixes the price of gold instead of gold defining the value of the monetary unit, must argue that the government fixes the distant that light travels in a fraction of a second instead of defining that distance as the length of a metre. How absurd. The government defines the abstraction, the “metre,” in terms of the tangible distant that light travels in a fraction of a second. It does not define the tangible distant that light travels in a fraction of a second in terms of the abstraction. Likewise, with gold, government defines the abstract monetary unit in terms of a tangible weight of gold.

This discussion may seem to be an unimportant discourse about semantics. It is not. The distinction is highly important. Is gold to be fixed in dollars, i.e., gold is priced in dollars? That is, the government declares that the dollar is an abstraction, and it has arbitrarily fixed the price of gold. This notion leads quickly down the road to paper fiat money. On the other hand, is the dollar to be fixed in gold, i.e., the dollar is a unit of weight of gold? The government declares the dollar to be a tangible and defines it as a measurable amount of gold. This notion is the essence of the gold standard; the monetary unit is a weight of gold.

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• “Metre,” Wikipedia, http://en.wikipedia.org/wiki/Metre, July 10, 2010.

With the Bland-Allison Act, in 1878, Congress authorized minting silver dollars. The law ordered the Secretary of the Treasury to buy silver bullion and coin it; it did not open the mint to the free coinage of silver. Silver dollars were declared standard dollars and legal tender and were not redeemable in gold. Also, for the first time, this law authorized the Secretary of the Treasury to issue silver certificates. The value silver in the standard silver dollar fluctuated in terms of gold between $0.89 (1878) and $0.46 (1897-1899). This law managed to confuse the definition of the dollar. The Sherman Act replaced it.

Silver certificates were originally issued in denominations of $10 and above. Although banks could count silver certificates as parts of their “lawful money” reserves, banks did not like them because they were not legal-tender. However, people could use them to pay all dues owed to the U.S. government. In 1886, Congress authorized the issuance of silver certificates in $1.00, $2.00, and $5.00 denominations. To encourage the use of silver certificates, banks were stripped of their ability to issue bank notes of these small denominations. Also, the Secretary of the Treasury began retaining U.S. notes of small denominations. Silver certificates were redeemable in silver dollars on demand. Deposits of silver dollars fully backed them. Most of the silver dollars coined under the Bland-Allison Act were used to back silver certificates.[1]

Silver dollars issued under the Bland-Allison Act were the property of the United States. It could sell them to individuals, pay debts, or make purchases with them. The difference between the value of silver in the coin and the coins monetary value was an apparent profit to the U.S. government although in reality, it was an obligation. (This apparent profit was used to defeat Bland’s free coinage provision. Congress wanted the U.S. government, not individuals, to reap the profit — not seeing that this difference was really a debt for the government.)

Silver coins issued under the Bland-Allison Act differed greatly from silver coins issued under free coinage. Under the Bland-Allison Act, the U.S. government had to buy the silver and coin it. Much (most) of this silver was bought with debt — bonds or U.S. notes. Thus, it was the property of the U.S. government and an obligation of the U.S. taxpayer, who had to pay the debt used to buy silver.

Under free coinage, the government incurred no expense unless it coined the silver gratis. Silver brought to the mint for coinage was private property. After the coining, it remained private property. The coins belonged to the person who brought the silver to the mint.

Moreover, the Bland-Allison Act placed a purchasing minimum limit of $2 million worth of silver per month and a maximum of $4 million per month. Under free coinage, no minimum or maximum limit was imposed.

Under the Bland-Allison Act, the U.S. government bought $308 million or 291 million ounces of silver bullion. This bullion it converted into $378 million in silver dollars. The $70 million difference was not a profit for the U.S. government. It was an obligation or debt. The U.S. government had an implied obligation to maintain the value of a silver dollar at par with the value of gold.[2] Thus, the difference between the value of silver in a silver dollar and the monetary value of a silver dollar was an implied debt of the U.S. government.

As introduced by Representative Bland, the bill opened the mint to the free coinage of silver. Thus, his bill, which the House past, restored silver as commodity money. When the bill arrived in the Senate, Senator Allison amended it. He replaced the provision for the free coinage of silver with the provision for the Secretary of the Treasury to buy silver bullion and coin it in silver dollars. Allison’s provisions converted the silver dollar into fiat money.

The silverites wanted free coinage of silver. They consisted primarily of four groups. They were the silver miners, debtors, true populists, and (for want of a better name) “academia,” who argued that silver had not declined in value but that gold had risen in value.

The silver miners wanted free coinage to increase demand for their product. They believed that free coinage of silver would drive the value of silver up such that 16 ounces of silver would have the value of one ounce of gold.

Debtors believed that free coinage would have expanded the money supply and cheapened the dollar. Whereas the silver miners thought that free coinage would raise the value of silver, the debtors thought that it would lower the value of gold.

As introduced by Bland, the Act would have benefitted both groups by returning the free coinage of silver. As finally adopted, the Act converted the silver dollar to fiat money and only benefitted the miners. It fell to benefit debtors because the silver dollar remained equivalent to a dollar in gold.

The true populists were not true silverites. They believed that governmental fiat gave money its value. The material of which it was made was irrelevant. If gold could provide an adequate supply, which they believed that it did not, gold was acceptable. Otherwise, they would add silver — thus, their opposition to repealing the silver purchasing provision of the Sherman Act (v.i.). If both failed, which they expected, the government should issue paper money, which is what they preferred. Populists supported the free coinage of silver primarily because they believed that it would show the country that gold and silver could not provide what they consider an adequate supply of money. “Thus the old-fashioned Populists apologized for free silver more than they advocated it, and they regretted to see less discerning students of the money question attach an importance to the doctrine quite out of proportion to the benefits that could possibly be obtained from it.”[3] Populists saw the silver question as a means to draw silverites from the Democratic and Republican parties into the Populist party.

The smallest group supporting the free coinage of silver was “academia.” This group argued that silver had not fallen in value. To the contrary, gold had risen in value. This group may not have been far from the truth as Table A-1 in the appendix shows. Between 1873 and 1878, gold was rising more than silver was falling. (Between 1873 and 1892, silver appears to have been more stable in purchasing power than gold, whose purchasing power increased significantly during this time.)

Opponents of the Bland-Allison Act claimed that it would cause inflation, gold exports, panics, and revert the country to the silver standard. It did none of these. The Act came along at a time when the country was leaving a depression, and the demand for money was growing. Most of the silver dollars added to the money supply were offset by the quantity of national bank notes removed from the money supply. Contrary to what its promoters wanted, it did little to increase the money supply. Excess money as gold was removed and exported. If these silver dollars had not been minted, gold would have been imported to meet monetary demand.[4]

Most banks, especially the New York City banks, despised silver dollars and silver certificates and strove to prevent their circulation. Clearinghouses prohibited payment of balances in silver between its members. Congress retaliated by forbidding the renewal of the charter of any bank who was a member of such a clearinghouse. Thus, clearinghouses dropped their antisilver rules. However, banks informally continued to discriminate against silver.

Silver dollars were not popular with the public. Under the greenback standard, they had become accustom to paper money. They were not use to handling coins that weighed about 0.85 ounces.

About the silver dollar issued under the Bland-Allison Act, Johnson writes:

The Bland-Allison silver dollar was a monetary anomaly. Although called a standard silver dollar to propitiate the friends of silver, it was in no sense standard money; nor was it recognized as credit money, for no provision whatever was made for its redemption in gold. Its status was very much like that of the Indian rupee after 1898, — theoretically and legally fiat money, susceptible of depreciation if issued to excess; but practically credit money, the people having confidence that somehow it would be kept at par with gold. Inasmuch as the law made it legal tender, the people certainly had a right to expect that the government would keep it equal in value to gold. There was no direct promise to pay gold, but the implied obligation was tantamount to an explicit declaration. Two things were essential to the maintenance of its value: first, limitation of the supply; and second, confidence among the people in the purpose and ability of the government to prevent its depreciation. These two conditions were necessarily intertwined. Theoretically the supply of silver dollars might increase until all the country’s gold had been displaced, and no depreciation result, for there would be no increase in the supply of currency; but such an increase would have destroyed confidence in the ability of the government to redeem silver dollars, and so would have led to depreciation, the country thereby passing from a gold standard to a fiat standard.[5]

If silver had not fallen in value, most likely there would have been no Bland-Allison Act or Sherman Act. Inflationists had lost their battle to flood the economy with greenbacks. Now they sought to flood the economy with silver dollars. They did not care about silver coins per se. They only wanted cheap money to liquidate debt, and silver was now available to serve that purpose. To many silver coinage was a way to bring back governmentally issued notes.

The Bland-Allison Act conflicted with the Constitution. Under the Constitution, silver is money. Any private person could bring silver to the mint for coinage, and all silver brought for coinage was to be coined. The person bringing the silver for coinage retained ownership of the coins. This act failed to reinstate the free coinage of silver. Thus, the U.S. government acquired ownership of silver coins minted as it minted silver from its own account. This act took control of the quantity of silver money from the people and gave it to the Secretary of the Treasury.

Furthermore, the issue of silver certificates violated the Constitution. The Constitution grants the U.S. government no authority to act as a deposit bank or to issue paper money. By receiving and holding deposits of silver dollars and issuing silver certificates to the depositors, the U.S. government assumed the role of a deposit bank.

Although the silverites were displeased with the Bland-Allison Act because it did not allow free coinage of silver, it was the best that they could get. They continued to agitate for the free coinage of silver. The next important silver law, which also failed to satisfy their demand for free coinage, was the Sherman Act.

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Endnotes

1. Joseph French Johnson, Money and Currency: In Relation to Industry, Prices, and the Rate of Interest (Revised edition; Boston, Massachusetts: Ginn and Company, 1905), pp. 351-352.
2. Ibid., pp. 352-353.
3. John D. Hicks, The Populist Revolt: A History of the Farmers’ Alliance and the People’s Party (University of Nebraska Press, 1961), p. 318.
4. Horace White, Money and Banking (Boston, Massachusetts: Ginn & Company, 1896), p. 201.
5. Johnson, pp 348-349.

Copyright © 2010 by Thomas Coley Allen.

Introduction

Many people claim that sliver was demonetized in 1873 when Congress enacted the Coinage Act of 1873. This claim is not true. Congress did not demonetize silver. It ended the silver standard and took the first step in demonetizing the dollar.

Silver continued to be used as money until 1970. Silver was used as money in subsidiary coins (dimes, quarters, and halves) under the greenback standard between 1873 and 1879. It was used as subsidiary coins under the gold standard between 1879 and 1933. Under the federal-reserve-dollar standard, it was used between 1933 and 1964 for dimes and quarters and until 1970 for halves. In 1986 Congress again authorized silver as money when it ordered the mint to coin one-ounce silver eagles, which have a legal tender value of one dollar.

Between 1878 and 1900, silver was used as money in its own right in the form of the silver dollar. However, unlike the silver dollar before 1873, which was commodity money, the silver dollar between 1878 and 1900 was fiat money. Congress and the Secretary of the Treasury decided how many silver dollars to issue. Moreover, the value of silver in a silver dollar was less than its monetary value.

Under the silver commodity monetary standard, the people decide directly how many silver dollars are needed by the quantity of silver that they bring to the mint for coinage. Furthermore, the value of silver in the coin equals its monetary value. If the value of silver in coins rises above the coin’s monetary value, coins are melted until the coin’s monetary value equals the value of the silver that it contains. Conversely, if the value of silver in coins drops below the monetary value of the coin, people will bring silver to the mint for coinage until the two values are brought back into equilibrium.

Those who claim that Congress demonetized silver in 1873 agree with Plato, the German economist George Knapp, and the American Monetary Institute: Money is a legal fiction. Money is whatever the law declares to be money. It is an abstraction that has no value beyond what the law gives it. The material of which it is made is irrelevant and is whatever the government arbitrarily chooses for its own benefit. All this may be true for fiat money, which the government’s military might protects and forces on the people. It is definitely not true of genuine commodity money.

This notion that governmental decree gives money its value was illustrated during the debate on the Bland-Allison bill. Some Congressmen believed that Congress could by edict raise the value of silver. If Congress decreed that 371.25 grains of fine silver had the value of 23.22 grains of fine gold, the market value of silver would rise such that 16 ounces of silver would have the value of one ounce of gold. Senator Allison’s comment illustrates this ignorance or arrogance: “Legislation gives value to the precious metals, and the commercial value simply records the condition of Legislation with reference to the precious metals.”[1] Congress’ failed attempts to decree the value of 16 ounces of silver to equal one ounce of gold should be enough to convince anyone that the government cannot regulate the value of money by edict or otherwise. Unfortunately, it has not.

Those who claim that the law gives money its value believe that the U.S. government can issue an irredeemable aluminum disk with “Congress and the President of the United States decree that this coin is equal to and identical with one ounce of gold” stamped on it automatically has the value of one ounce of gold. A person can go to a gold bullion dealer and buy one ounce of gold with this aluminum coin. They actually believe that the bullion dealer would accept the aluminum coin in exchange for one ounce of gold without the government forcing him to accept it under the penalty of law. (If a governmental decree really does give money its value, then no force should be necessary for it to circulate at the decreed value. If force has to be used, then the government’s threat of death and not its proclamation makes the coin acceptable at the decreed value.)

Silver was not demonetized in 1873. The Coinage Act of 1873 was the first step toward demonetizing the dollar. In 1933, the second step occurred with the end of the gold-coin standard. The final step took place in 1971 when the gold exchange standard ended.

Constitutionally speaking, the United States is still on the silver standard though they statutorily abandoned that standard in 1873. The “dollar” as used in the Constitution means the weight of silver in the Spanish milled dollar. Without amendment of the Constitution, any other definition of the dollar is unconstitutional.

With this introduction, we will now investigate the use of silver as money between 1873 and 1900. Four major laws affecting silver as money were enacted between 1873 and 1900. They were the Coinage Act of 1873, the Bland-Allison Act in 1878, the Sherman Act or the Silver Purchasing Act of 1890, and the Gold Standard Act of 1900.

Coinage Act of 1873

With the Coinage Act of 1873, which has often been referred to as the “Crime of 1873,” Congress ended the free coinage of silver, which ended the silver standard. It changed the definition of the dollar, the unit of value, to 25.8 grains of standard gold or 23.22 grains of pure gold. Thus, Congress statutorily changed the definition of the dollar from its constitutional meaning of the average weight of silver in the Spanish milled dollar, which Congress found to be 371.25 grains of fine silver. Furthermore, the mint ceased coining silver dollars. (As the Act did not specifically authorize the coinage of silver dollars, it prohibited their coinage.) This action ended the bimetallic silver-gold system and placed the United States on a monometallic gold standard. (Many contend that the United States were on the fiat greenback-dollar standard between 1862 and 1879. So in 1873 the country was not on a gold or silver standard or a bimetallic gold-silver system. The country did not return to a specie standard until 1879 when U.S. notes, greenbacks, became redeemable in gold.) Moreover, this act confused monetary matters by retaining all monetary laws previously enacted even if they conflicted with the act. Gnazzo argues that because of this retention clause, the Coinage Act of 1873 did not demonetize silver. The United States were technically (statutorily) on the silver standard and practically (in usage) on the gold standard.[2]

Laughlin supports Gnazzo’s claim. Laughlin writes:

It is, moreover, possible that the silver dollar was not “demonetized” in 1873, in spite of the prevailing impression to that effect. The legal-tender power of the silver dollar was not taken away by this measure. The coinage laws had not been revised since 1837, and in the act of 1873 occasion was taken to drop out the silver dollar from the list of coins which were thereafter to be issued from the Mint.[3]

Under the Act, silver dollars minted before 1873 were full legal tender in unlimited amounts. The Act merely prohibited the minting of additional silver dollars. (In the Revised Statutes of 1874, all existing silver coins, including silver dollars, were limited to $5.00 as legal tender.[4] Thus, this law limited the legal tender power of existing silver dollars. It did not affect other silver coins as the Coinage Act of 1873 already restricted their legal tender power.)

John J. Knox, Comptroller of the Currency, originally drafted and sent the bill along with his report to Congress in 1870. His report noted that the proposed bill eliminated the silver dollar. He recommended replacing the silver dollar as the standard unit of account with the gold dollar.

Most Congressmen and the public consider the bill as merely a minor revision or recodification of the existing coinage laws. They did not view it as making any significant changes. For many years, the silver dollar had not been in general circulation and for most years only a small number (less than 200,000) were minted. When Congress enacted the Coinage Act of 1873, the metal in the silver dollar was worth slightly more than a dollar in gold.

At that time the fiat greenback (U.S. note) functioned as the monetary standard. Except on the West Coast, gold was not being used as money. Silver was used only in subsidiary coins. As the bill did not address the greenback, most people gave the bill little thought.

Although Congress gave the bill some debate, it had little interest in it. Both houses passed the bill with almost no opposition. Except the silver dollar, the bill limited the legal-tender value of silver coins to $5.00. It did not authorize the coinage of silver dollars. However, it did authorize the free coinage of trade dollars. A trade dollar contained 420 grains of standard silver and had a legal-tender limit of $5.00. It was intended to be used for trade with the Far East.

Because of a rise in the value of U.S. notes and a decline in the value of silver, trade dollars began circulating domestically. Thus, the silver standard was reestablishing itself. In 1876, Congress stripped the trade dollars of its legal tender status. Apparently, the money interest did not want any competition from silver. Congress ended the minting trade dollars in 1878 although a few were minted between 1879 and 1885.

Opponents of the Act asserted that the bankers and others who owned U.S. government bonds wanted to eliminate bimetallism and the silver standard to drive up the value of gold. Thus, the money that they received in payment of interest and for their bonds at maturity would have greater value.

Moreover, they claimed that the elimination of the silver standard reduced the money supply and caused prices to fall. Thus, an injustice had been imposed on farmers, whose crops had lost half their value.

Even if the free coinage of silver had remained, prices still would have fallen between 1873 and 1893 although probably not as much. In each year following 1873 until 1894, the purchasing power of silver was greater than it was in 1873 (see Table A-1 in the appendix [Editor’s note: This table has not been reproduced.]). The repeal of the purchasing clause of the Sherman Act (v.i.) and India’s ending the free coinage of silver in 1893 probably account for the significant drop in the value of silver after 1893.[5]

An important factor to the decline in prices during this era was the great increases in productivity caused by technological advances. Increasing productivity may have been more important than changes in the monetary system.

The Act’s opponents blamed the panics and depressions between 1878 and 1896 on a lack of money caused by abandoning the free coinage of silver. In American Business Cycles 1865-1897, Rendigs Fels argues that things other than money supply contributed to these panics and depressions. Excessive credit expansion and unwise capital investments are two of them. Other causes of depressions are a lack of investment opportunities, too much inventory, and natural cycles (e.g., Kondratieff, Juglar, and Kitchen).

Some claim that this Act was passed in secret. Several Congressmen who voted for this law claimed that they did not know for what they voted; they were deceived. Even President Grant, who signed it into law, claimed that he did not know what he was signing.

As for the secret enactment, Congress discussed the bill for three years. The proceedings were published in the Congressional Globe. The bill was printed 13 times. Congress discussed the omission of the silver dollar. Also, debated was replacing the silver standard with the gold standard,[6] that is ending the free coinage of silver and changing the definition of the dollar from 371.25 grains of fine silver to 23.22 grains of fine gold or from 412.5 grains of standard silver to 25.8 grains of standard gold.

Nevertheless, deception and parliamentary maneuvering appeared to have been used to get the bill enacted. Its supporters presented it as a minor bill that just recodified and cleaned up the monetary laws. It did not make any real change in the monetary system. It was presented in a way that a new silver dollar would be minted with reduced weight. The impression was given that the weight was to be reduced so that it would circulate. The real purpose of reducing the weight was to make it a subsidiary coin. (Later versions of the bill omitted the silver dollar altogether.) Parliamentary maneuvering was used to prevent the bill to be voted on from being read.

Although the Coinage Act of 1873 was not enacted secretly, deception was used in its passage. Apparently, a group of powerful men expected the price of silver to fall because European countries were beginning to move from the silver standard to the gold standard or to abandon bimetallism in favor of the monometallic gold standard. They also saw the supply of silver increasing from the newly discovered silver in the West. Senator Sherman, an ardent foe of silver, was their point man in the Senate. He was instrumental in getting this bill through Congress before the gold price of silver fell. Without the Coinage Act of 1873, the United States would have reverted to silver money.

About this law, Rothbard, who favors the monometallic gold standard that it brought about, writes:

It should be recognized that the silverites had a case. The demonetization of silver was a “crime” in the sense that it was done shiftily, deceptively, by men who knew that they wanted to demonetize silver before it was too late and have silver replace gold. The case for gold over silver was a strong one, particularly in an era of rapidly falling value of silver, but it should have been made openly and honestly. The furtive method of demonetizing silver, the “crime against silver,” was in part responsible for the vehemence of the silver agitation for the remainder of the century.[7]

Except the silver miners, most of the silverites were originally greenbackers. They favored low quality depreciating money. Originally, the inflation movement was urban. Only later in the 1890s did the agriculturalists join it.

When greenbacks were obviously going to be redeemed in gold at par (one dollar in greenbacks is redeemed in one dollar of gold), they turned to silver. By the mid 1870s, silver had fallen in value in terms of gold. The market ratio had fallen to around 18 to 1 (18 ounces of silver had the value of 1 ounce of gold). If free coinage of silver were allowed at the legal ratio of 16 to 1, silver coins would have driven gold coins out of circulation. More important, the dollar would have less purchasing power. This depreciation was for the benefit of debtors. It allowed debtors to pay their debts with cheap money.

An argument that the proponents of the Coinage Act of 1873 used was that the silver dollar had not circulated since 1853 when the market value of silver in a silver dollar became worth more than a dollar. Perhaps only a few silver dollars did circulate between 1853 and 1873, but a large quantity, 5,413,249 silver dollars, was coined. Many of these coins still exist today.

Another argument that the proponents used (after the fact), was that without the Coinage Act of 1873, the United States would have been on the silver standard by the time redemption of the greenback began in 1879. This is true. According to Laughlin, “15 percent of all our contracts and existing obligations would have been repudiated.”[8] This is questionable. Laughlin seems to be using the gold value (price) of silver to derive his number. However, excluding contracts requiring payment in gold, most of these debts were made with the greenback and not gold. Many were made at a time when a greenback dollar was worth less than 90 cents in gold.[9] Thus, he greatly overstates the repudiation.

The opponents of the Act used the opposite argument to support their opposition. Debtors paid loans, many of which had not been made in gold, in gold that had more value when the loan was paid than when the loan was made. (Between 1862 and 1875 when the Resumption Act was enacted, the gold price of greenbacks averaged between 49 and 90 cents. Thus, using Laughlin’s reasoning creditors received a 13 percent bonus above what was due.)

If Congress had not ended the free coinage of silver in 1873, the country would have been on the silver standard in 1879. Greenbacks would then have been redeemable in silver instead of gold. Instead of rising in value toward gold after the greenback would obviously be redeemable in specie, it would have approached the value of silver.

Following Laughlin’s reasoning, almost no repudiation of debt would have occurred if the country were on the silver standard. From 1874 to 1877, the greenback was closer in value to silver than to gold.

In 1873, the gold price of the greenback was 88 cents as compared to the gold price of the silver dollar of $1.01. In 1874, the greenback was 90 cents, and the silver dollar was 99 cents. When the Resumption Act passed in 1875, the greenback stood at 87 cents and the silver dollar at 96 cents. For 1876, 1877, and 1878, the respective prices were 90 cents, 95 cents, and 99 cents for the greenback and 90 cents, 93 cents and 89 cents for silver. The noticeable disparity between the greenback and the silver dollar in 1878 results from the greenback becoming redeemable in gold at par on January 1, 1879. If the country were returning to the silver standard instead of the gold standard in 1879, the gold price of the greenback would have been at or below 93 cents in 1877 and 89 cents in 1878.

When Congress ceased the free coinage of silver, it defied the Constitution. The Constitution perceived the dollar to be the same as the Spanish milled dollar. The dollar contained the weight of silver of the average Spanish milled dollar.

Abandoning the silver standard with a bimetallic gold-silver system for a monometallic gold standard made the concentration and centralization of metallic money into the hands of the government and banks easier. This goal was fully achieved when President Franklin Roosevelt stole the people’s gold in 1933.

With the depression following the Panic of 1873, debtors began clamoring for a cheap dollar. Congress refused to increase the supply of greenbacks. Silver miners discovered that they could no longer get their silver coined, which was a major market for their product. Silver miners, debtors, greenbackers, and populists united in agitating for the free coinage of silver. Out of this agitation came the Bland-Allison Act.

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Endnotes

1. J. Laurence Laughlin, The History of Bimetallism in the United States (New York, New York: D. Appleton and Company, 1886), p. 197.
2. Douglas V. Gnazzo, “Gold & Silver: The Story Behind the Story,” July 2006, http://www.gold-eagle.com/editorials_05/gnasso070206pv.html, July 3, 2006.
3. Laughlin, p. 93.
4. Ibid., p. 94.
5. Joseph French Johnson, Money and Currency: In Relation to Industry, Prices, and the Rate of Interest (Revised edition; Boston, Massachusetts: Ginn and Company, 1905), p. 252.
6. Horace White, Money and Banking (Boston, Massachusetts: Ginn & Company, 1896), pp. 213-218.
7. Murray N. Rothbard, A History of Money and Banking in the United States: The Colonial Era to World War II (Auburn, Alabama: Ludwig von Mises Institute, 2005), p. 158.
8. Laughlin, p. 93.
9. Thomas Allen, “Analysis of Charles Norburn’s Monetary Reforms as Presented in Honest Money” (Franklinton, North Carolina: TC Allen Company, 2009), pp. 6-7. Johnson, p. 279.

Copyright © 2010 by Thomas Coley Allen.