Federal law of the United States
The Coinage Act of 1965, Pub. L. , 79 Stat. 254, enacted , eliminated silver from the circulating United States dime (ten-cent piece) and quarter dollar coins. It also reduced the silver content of the half dollar from 90 percent to 40 percent; silver in the half dollar was subsequently eliminated by a 1970 law.
There had been coin shortages beginning in 1959, and the United States Bureau of the Mint expanded production to try to meet demand. The early 1960s was a time of increased use of silver both in the coinage and in industry, putting pressure on the price of silver, which was capped at just over $1.29 per ounce by government sales at that price. The silver in a dollar's worth of quarters would be worth more as bullion than as money if the price of the metal rose past $1.38 per ounce, and there was widespread hoarding of silver coins. Demand for the Kennedy half dollar as a collectable drove it from circulation after its debut in 1964. The Bureau of the Mint increased production, helping reduce the coin shortages by May 1965, but government stocks of silver were being rapidly reduced, and threatened to run out by 1968. After extensive study by the Treasury Department, President Lyndon B. Johnson in June 1965 recommended that Congress pass legislation to allow for silverless dimes and quarters, and debased silver half dollars. Although there was some opposition, mainly from legislators representing Western mining states, the bill progressed rapidly through Congress, and was enacted with Johnson's signature on July 23, 1965.
The new coins began to enter circulation in late 1965, and alleviated the shortages. They passed side by side with their silver counterparts for a time, but the precious metal coins were hoarded beginning in 1967 as the Treasury ended its efforts to keep silver prices low. The act also banned the production of silver dollars until at least 1970.
Background.
The Coinage Act of 1792 established the Mint of the United States, and made both gold and silver legal tender. This meant that anyone could present bullion at the Philadelphia Mint and receive it back, struck into coins. The 1792 act authorized six silver coins, in value from five cents to a dollar, and prescribed their weights and fineness. Making a dollar equal to given quantities of both gold and silver made the currency vulnerable to variations in the price of precious metals, and U.S. coins flowed overseas for melting until adjustments were made to their size and weight in 1834 and again with the Coinage Act of 1853, when the amount of bullion in the silver coins worth less than a dollar was reduced. The fact that the dime (ten-cent piece), quarter dollar, and other smaller silver coins contained less silver in proportion to the dollar helped keep them in circulation.
With the Coinage Act of 1873, the dollar was no longer equivalent to a set amount of silver, a statutory change made so that as the price of silver dropped with increased U.S. production, mining companies could not present their bullion at the mints and receive it back, struck into silver dollars worth more as money than they were as metal. By the post-World War II era, the Bureau of the Mint was striking the three remaining precious metal coins, the dime, quarter and half dollar in 90 percent silver—the dollar had not been coined since 1935 and circulated little outside some Western states like Nevada and Montana. The metal in a silver dollar was worth more as bullion than as money above $1.2929 per troy ounce; the smaller coins would be attractive for the melting pot above $1.38 per ounce.
Beginning in 1934, the price of silver in the United States was effectively set by the government as it would support that price through purchases and sales of the metal; in 1934 it was $0.45 per troy ounce. In 1958, with the return of lend-lease bullion, the Treasury's stock of silver reached 2.1 billion troy ounces; it began to offer the metal at $0.91 per ounce to the public, despite the warnings of the Conference of Western Governors that there was not enough silver to make these sales and maintain coinage operations.
Worldwide consumption of silver more than doubled between 1958 and 1965, but production increased by only about 15 percent. Industrial uses for silver included photographic film, batteries, and electronic components. At the same time, the Mint's production of silver coin increased as it attempted to meet demand; it used 111.5 million troy ounces of silver in coinage in 1963, up from just over 38 million in 1958. In spite of the increased demand, silver prices were checked by the fact that the Treasury would redeem silver certificates: paper money exchangeable for silver dollars (or the bullion equivalent, 0.7734 troy ounces), thus placing a ceiling of $1.29 per ounce on the market. Without government as the supplier of last resort, silver would rise in price, likely making it profitable to melt not only silver dollars, but the subsidiary silver coins as well. In 1963, the gap between production and consumption by the non-communist world amounted to 209 million ounces. Just lower than world production (210 million ounces), this gap was filled by the sale of Treasury silver at $1.29 per ounce. Even a rise in the price of silver likely would not have led to a major jump in production, as silver was for the most part obtained as a by-product in the mining of other metals, such as copper and lead.
The Bureau of the Mint in 1955 ended coinage operations at the San Francisco Mint, deeming it cheaper to supply the West Coast with coins from Denver. The Denver Mint (opened in 1906) had been modernized twice, in contrast to the aging Philadelphia Mint, constructed in 1901 and with much of its coinage equipment dating from then. Plans for a replacement facility had been scuttled multiple times by political infighting, as a new mint was sought not only by different cities, but by various neighborhoods of the city of Philadelphia.
Coin shortage.
In the postwar era, occasional coin shortages had been known, often local and seasonal, and generally brief in duration. The shortage might affect one of the five denominations (cent, nickel, dime, quarter and half dollar) being minted for circulation. The Federal Reserve Banks ("the Fed"), responsible for obtaining coins from the Mint and distributing them on request to member banks, also performed the function of receiving from these banks coins they did not need, a process known as "flowback". Coins were returned from commercial banks to the Fed, were processed and cleaned, and were then sent to banks needing them. These recycled pieces represented the bulk of what the Fed shipped, and perhaps only a fifth were new coins.
The banks accustomed themselves to seasonal need for coins, as for quarters and half dollars in Michigan to pay cherry pickers the traditional 75-cent rate, and to local preferences; for example, half dollars were not popular in New York, two quarters being preferred instead. Beginning in late 1959, the Mint failed to provide enough coins to satisfy demand, and the Fed, through its district banks and branches, imposed rationing. By 1963, there was often rationing of all denominations, commercial banks (and their retail customers) receiving less than they needed. There were widespread shortages of some denominations during the 1962 holiday shopping season. Traditionally, the heavy demand for coinage late in the year resulted in a large amount of flowback in the winter, but in early 1963, few coins returned to the banks, or to the Fed. Officials suggested responsibility might lie with coin collectors and investors, as well as uncollected coins remaining in the nation's millions of vending machines. The Mint increased production to around-the-clock shifts at Philadelphia and Denver. A new Philadelphia Mint was authorized in 1963, though the hoped-for opening date of 1966 was soon pushed back to 1967 (it eventually opened in 1969).
The coin shortage did not ease during 1963. In spite of heavy production by the two mints, early 1964 saw but a trickle of flowback, alarming the Fed. Investigation showed that banks and their business customers were retaining coins, fearing shortages. Many of the silver ones were being taken out of circulation by people believing the price of that metal would rise.
The Treasury began removing silver certificates from circulation, replacing them with Federal Reserve Notes. This helped free up silver that did not have to be held as backing for the certificates, which the Treasury redeemed with silver bullion instead of dollar coins after March 1964, when it stopped paying out silver dollars. It had almost depleted a stock that had been at just under 273 million in 1954. There had been a run on the Treasury for them; citizens could obtain up to 50,000 in a day, and payment in silver certificates was not required. In much-photographed scenes at the Treasury Building in Washington, citizens had shown up with wheelbarrows, armed guards, and even armored cars to haul away the silver. The remaining silver dollars held in the Treasury (2,970,928 as of May 20, 1965) had high numismatic value; Congress in 1970 authorized their sale at a premium to collectors.
President Kennedy's assassination in November 1963 led to calls to honor him with a place on one of the circulating coins, and the Kennedy half dollar was authorized by Congress on December 30. When 26 million of the new coins were issued on March 24, 1964, they were immediately hoarded, both by investors and by those wanting a memento of Kennedy, and the situation did not ease as more coins were produced. One-third of the record-breaking 202.5 million ounces of silver used in coinage in 1964 thus became coins that did not circulate. Congress allowed the Mint to continue to strike 1964-dated pieces into 1965, hoping to make them not worth putting aside.
Congress in August 1964 passed an appropriation intended to be used for striking 45 million silver dollars. The Senate Majority Leader, Mike Mansfield, was from hard-money Montana and insisted on the Mint proceeding. The Mint struck over 300,000 of them, bearing the Peace dollar design and the date 1964, in May 1965 but due to a public outcry that the coins would only be hoarded, they were melted. The minting had been at the direction of President Lyndon Johnson; the subsequent flip-flop on the question left Nevada Senator Alan Bible, a prominent supporter of the mining industry, unimpressed with the administration's leadership on coin matters, feeling officials were leaving the mess for Congress to straighten out. He introduced legislation to outlaw hoarding, export, and melting of U.S. coins, but the bill went nowhere.
In the interim, the coin shortage continued, putting supermarkets, drugstores, and other large retail establishments under great pressure. Two chains in the Midwest commissioned their own paper scrip, but this was never issued as the Treasury warned it trespassed on the federal prerogative to coin money. Stores urged customers to break open piggy banks and bring in the contents. Coins obtained by newsboys, vending-machine operators, and churches on collection plates were ardently sought after by stores and banks. They had competition in this regard, as investors also wanted the coins, and withdrew them from circulation.
In addition to the circulated coinage, investors wanted the new 1964 pieces (especially the half dollar) and a lively market in rolls and large canvas bags of coins developed in the pages of "Coin World", with the advertisements examined at congressional hearings. Some banks were offered ample quantities of coin at a premium, or the exchange of bags of old coinage for the new; most refused, and bank employees who cooperated with would-be accumulators were fired. Numismatic writer David Lange pointed out that the collecting of recent coins in rolls peaked in 1964, and believed the coin collecting hobby's blame for the shortage unfair.
The Mint arranged to outsource part of the coin-making process, and pledged to flood the nation with coins by 1965. Despite an increased need for coins in an improving economy, merchants made it past the 1964 holiday season without severe shortages, though the half dollar had stopped circulating. Most Fed facilities reported sufficient supplies of cents and nickels, with some still short on dimes and quarters, and shortages of half dollars