Keep in mind that the reason this was such a big deal is because the holder of the silver bullion could no longer have their metal struck into legal tender dollar coins. This limit came from the Specie Payment Resumption act of 1875, but technically the greenbacks could still be redeemed for silver. The other way this act demonetized silver was silver was no longer considered legal tender for a debt above $5. This transferred the United States from a bimetallism system (gold and silver) over to the gold standard (only gold). Essentially, silver was no longer considered money in the United States because it no longer had a tie to the dollar itself. Remember how the founding fathers defined the dollar in terms of grains of silver? The Coinage Act of 1873 redefined the dollar to be in terms of grains of gold. This is supported by historian Allen Weinstein as he stated, “Silver’s demonetization, according to the traditional account, came as an unplanned if fortunate by-product of a complex and largely technical revision of the mint laws in the coinage act of 1873.” What did the Crime of 1873 actually do? If the act was a contributing fact to the financial panics, those were most likely just unintended consequences.
#COINAGE ACT 1873 SERIES#
It is argued that taking away silver’s status of money was one of the leading causes of the series of financial panics that ensued after this act and also the reason the act itself was later deemed the “Crime of 1873”. The coinage charge is the fee for the Mint’s services in converting the actual metal into money. The demonetization of silver was not discussed originally because senators were focused on the omission of the coinage charge that affected what miners and refiners would get for their metal. It is argued on whether or not this was done out of malice or just not really paying attention. Since the demonetization of silver part of the bill wasn’t a major discussion point, the public wasn’t too aware of it either. Mint, they could no longer have their metal stuck into bullion. This drastic increase in supply would induce a decrease in the price of silver, and if the increase was too large, it was argued that the bimetallism system the United States was using could be endangered.Īfter the passage of the bill, the silver price dropped just like Knox predicted, but when producers took their stock to the U. At the time, John Jay Knox, the fourth comptroller of the currency, foresaw an increase in the production of silver due to silver-rich areas out west. This also caused little silver to be presented to the Mint (where the government makes the physical coins).
The hoarding of the metals caused their prices to increase, classic supply and demand, high demand because people wanted it to hoard, and low supply because no one wanted to sell theirs back into the market. Due to this, people were hoarding gold and silver as typically happens in and after a crisis period. Grant, but there are entire books written about this and we will hit the highlights in later posts.Īs you can imagine, right after the civil war, public confidence in the United States government was rather low. Now, there is a lot of history between here and the era right after the civil war when the Coinage Act of 1873 was signed by President Ulysses S. This was how the dollar pretty much started.
Without this, people would search for arbitrage plays on the metals themselves. In order to maintain control of the money supply the government would change this gold to silver ratio. The original definition of the US dollar given by the founding fathers was in grains of silver, and the value of gold was then 15 times that of silver. As we will get into in the next paragraphs, the Coinage Act of 1873’s demonetization of silver was one of the original cracks in Silver’s sword (The sword of silver is broken in the cartoon). This is referring to the Gold Standard Act of 1900 which officially placed the United States on the Gold Standard. In the above cartoon, you can see “Sound Money Law of 1900”.
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