Revision of the laws relating to the Mint of the United States
The Coinage Act of 1873 or Mint Act of 1873 was a general revision of laws relating to the Mint of the United States. By ending the right of holders of silver bullion to have it coined into standard silver dollars, while allowing holders of gold to continue to have their bullion made into money, the act created a gold standard by default. It also authorized a Trade dollar, with limited legal tender, intended for export, mainly to Asia, and abolished three small-denomination coins. The act led to controversial results and was denounced by critics as the "Crime of '73".
By 1869, the Mint Act of 1837, enacted before the California gold rush or the American Civil War affected the monetary system of the United States, was deemed outdated. Treasury Secretary George Boutwell had Deputy Comptroller of the Currency John Jay Knox draft a revised law, introduced into Congress by Ohio Senator John Sherman. Silver's market price then exceeded the value at which the Mint would purchase the metal, suppressing the demand for bullion to be struck into silver dollars. However, Knox and others correctly forecast that development of the Comstock Lode and other rich silver mines would lower silver's market price, making the option of having bullion struck into legal-tender coins attractive. Congress considered the bill for almost three years before passage. During its consideration, it was rarely publicly mentioned, but also was not concealed, that the bill would establish a gold standard by ending bimetallism. The bill became the Act of February 12, 1873, with the signature of President Ulysses S. Grant, and became effective on April 1 of that year.
In 1876, when silver's market price indeed dropped as forecast, producers brought silver bullion to the Mint only to learn that the Mint no longer was authorized to coin it. The matter became a major political controversy that lasted the remainder of the century, pitting those who valued the deflationary gold standard against those who believed free coinage of silver, an inflationary policy, to be necessary for economic prosperity. Despite contemporary accusations, scant evidence exists that the 1873 act had a corrupt motivation. The political dispute was settled when the gold standard was explicitly enacted into law in 1900. Beginning in March 1933, the United States rapidly abandoned the gold standard in favor of fiat currency for almost all purposes. The United States abandoned the dollar's final formal link to gold in 1971, leaving gold and silver as commodities.
Background.
The Mint Act of 1792 established the Mint of the United States. The Mint, in its first decades, only coined gold and silver in response to deposits of that metal by citizens, returning the bullion to the depositor in the form of coins. Either gold or silver could be presented for conversion into currency, as both metals were a legal tender, a dollar was equal to both a legally defined weight of silver, and another legally defined quantity of gold. Having a currency defined in terms of two different metals is called bimetallism. Such a system may experience instability as the price of gold and silver on the world market changes, and this took place in the first decades after 1792, as the relative values of gold and silver in Europe changed. At that time, gold or silver U.S. coins were rarely seen in the nation, as they were heavily exported because of such shifts—most pieces in circulation were foreign in origin.
In 1834, Congress made a dollar worth slightly less, thus lightening U.S. gold and silver coins (known collectively as specie), making them uneconomical to export, and they were seen more often in commerce within the U.S. With this greater circulation, Congress re-examined the existing statutes relating to the Mint, and found many provisions to be obsolete. It enacted the Mint Act of 1837, a thorough revision of the statutes relating to the Mint. New provisions included the establishment of a bullion fund, allowing depositors to be paid without waiting for their metal to go through the coining process. The ratio of value between equivalent weights of gold and silver was adjusted slightly, allowing coins of both metals to circulate within the U.S.
When silver prices rose relative to gold as a reaction to the California Gold Rush, silver coinage was worth more than face value, and rapidly flowed overseas for melting. Despite vocal opposition led by Tennessee Representative (and future president) Andrew Johnson, the precious metal content of smaller silver coins was reduced in 1853, allowing them to circulate. Until then, depositors of silver could choose to have their bullion struck into silver coins of any denomination of five cents or above; the Act of 1853 lightened the silver coins from the half dime to the half dollar and eliminated the right of the depositor to have silver struck into those denominations. Depositors could still choose to have silver struck into dollar coins, but since there was more than a dollar's worth of silver in a dollar coin, it was more profitable to sell the bullion to manufacturers and jewelers. So long as silver prices remained high, this effectively placed the United States on the gold standard.
Although the Mint rarely received deposits of silver for striking into coins after 1853, it purchased silver bullion using the new lightweight silver coins at above-market prices. This was illegal, as Congress had ordered that the new lightweight coins only be purchasable using gold, a provision intended to limit quantities sold to actual demand. As the silver pieces had a legal tender limit of $5, if excessive numbers were circulated, they might choke commerce. This in fact occurred, and merchants and bankers complained that the legal tender limit was causing them to have to sell accumulations at a discount to brokers.
The glut was replaced with a shortage when most federal coins were hoarded amid the economic chaos of the Civil War. Slowest to vanish was the base-metal cent, which only had value because government said it did, and at that time, confidence in government was shaken. Eventually, it too vanished from circulation and commanded a premium for change. A variety of makeshifts replaced the vanished coins, such as fractional currency and merchant's tokens. Beginning in 1864, Congress began to authorize base metal coins that would not be hoarded. It reduced the weight of the cent, causing it to be made of bronze, and also required a two-cent piece of the same metal. The following year saw the initiation of the three-cent nickel and in 1866, the five-cent nickel (today simply known as the nickel) began production. The two-cent piece, initially popular, saw declining mintages as the public preferred the smaller, more convenient nickel coins.
Greenbacks, which were backed by neither silver nor gold but by the credit of the United States, and which were necessitated by vast wartime expenditures, had helped to finance the war. In the late 1860s, politicians disagreed about how quickly to have the government resume paying out gold and silver in payment of its obligations. Treasury Secretary Hugh McCulloch felt the best way to return to that practice was to withdraw the greenbacks as quickly as possible, and he did so until stopped by Congress, which felt his contractionist stand was hurting the economy. More and more silver was being mined in the Far West. Falls in the price of the metal made the option of depositing silver at the Mint in exchange for coin more attractive, and mintages of the silver dollar rose considerably in the late 1860s and into the 1870s. The silver dollar was fully legal tender, and some officials worried that the increased deposits would cause silver to drive gold from circulation as predicted by Gresham's law, endangering the gold standard.
As it had been two decades since much silver was regularly deposited for striking into coins, the fact that the United States had been on a bimetallic standard since 1792 was often forgotten. The gold standard was seen as the only possible choice, and many people assumed that the United States was on that standard, which had been adopted by strong nations like the United Kingdom (1816) and the German Empire (1871).
Inception.
Losses of nearly $250,000 at the San Francisco Mint had concerned the Treasury, and, in 1866, McCullough sent John Jay Knox, a Treasury employee, on a special investigatory mission. Knox found that informalities in transferring bullion between various officers of that mint had led to inconsistent sets of accounts, but due to the lack of receipts kept, it was not possible to pinpoint who was to blame. In 1869, Knox, by then Deputy Comptroller of the Currency, was sent by McCullough's successor George Boutwell to investigate other Mint facilities, discovering severe irregularities and large government losses at the New York Assay Office. Knox again discovered a dearth of proper accounting procedures, and that officials there had trouble finding a copy of the Mint's regulations.
In 1867, an international monetary conference was held in Paris to discuss how to have gold coins of various countries struck to a common standard. Slight adjustments to the British gold sovereign and to the five-dollar gold piece (or half eagle) would make each equal to 25 francs, and it was proposed that the British and Americans make those changes while France began striking a 25-franc piece. None of this ever came to fruition, but in January 1868, Ohio Senator John Sherman introduced legislation to place the United States formally on the gold standard, to eliminate silver as a legal tender, and to implement the recommendations of the conference.
Knox, in his 1866 report, had recommended a thorough revision of the laws pertaining to the Mint, and in January 1870, Secretary Boutwell instructed him to prepare a draft. In this, Knox had the assistance of former Mint Director Henry Linderman, who then held a roving commission for the Treasury Department; Linderman would in 1873 become the first director of the Bureau of the Mint.
Knox completed a draft bill, intended to repeal many antiquated legal provisions, and to rewrite others. He proposed to eliminate the standard silver dollar (he proposed a lightweight silver dollar that would have a low legal tender limit), move the office of the Director of the Mint from Philadelphia to Washington, eliminate the Mint's charge to strike gold bullion (then 0.5 percent), and abolish the office of Treasurer at the mints and assay offices, transferring its functions to the superintendent. In drafting the bill, Knox consulted with a number of former Mint officers besides Linderman, such as former directors James Ross Snowden and Robert M. Patterson, as well as former Philadelphia Mint Chief Coiner Franklin Peale. Mint Director James Pollard submitted the bill to Congress on April 25, 1870.
Consideration and passage.
Sherman introduced the bill on April 28, 1870, and it was referred to the Senate Finance Committee, of which he was chairman. He did not seek its passage in that session of Congress, as lawmakers were busy with other financial legislation. The bill attracted next to no newspaper attention throughout the period of almost three years it was under consideration, though monetary experts and others watched its progress closely. On January 9, 1871, Sherman brought the bill to the Senate floor for debate. That it abolished the silver dollar, and thus bimetallism, was not discussed, as senators focused on the omission of the coinage charge (the fee for the Mint's services in converting bullion to money). This was of importance to the Senate—especially members from the Far West—because it affected what mining companies and refiners (an important economic interest) could get for their product. Sherman offered an amendment to retain the coinage charge, but it was attacked by Western senators as an unjust tax on miners and refiners of gold, and the amendment was defeated, 26–23. On January 10, the bill passed the Senate, 36–14, with Sherman voting against his own bill. It was then sent to the House of Representatives and referred to the Committee on Coinage, Weights, and Measures from which it was briefly brought forth on February 25 by Pennsylvania's William D. Kelley, the chairman, before being recommitted to committee. The bill was not considered by the House during the remainder of the 41st Congress, which expired on March 3, 1871, and the Senate-passed bill died