XLI METALLIC CURRENCY Definition of "Currency." The term currency includes all money, whether metallic or paper, which circulates at its face value. Mexican silver dollars are money, but they are not currency in the United States, for they do not circulate here unless at a discount. The currency of the United States consists at present of gold coin, certificates representing gold, silver dollars, certificates representing silver, subsidiary silver-coins of bronze and nickel, United States notes (greenbacks), and national bank notes. It will be the purpose of this chapter to give an account of that portion of our currency which consists of metal or certificates representing metal. Coinage before 1873. We have seen that the experience of the Americans with paper money previous to the formation of the Constitution had been very unsatisfactory, and that after the adoption of that instrument a State was no longer permitted to issue paper money. The new Government was strongly inclined to a metallic currency, and in 1792, when establishing a mint, enacted a coinage law providing: "That it shall be lawful for any person or persons to bring to the said mint gold or silver bullion in order to their being coined . . . free of expense to the person or persons by whom the same shall have been brought. And as soon as the said bullion shall have been coined the person or persons by whom the same shall have been delivered, shall upon demand receive in lieu thereof coins of the same species of bullion which shall have been so delivered, weight for weight, of pure gold or silver therein contained. "That all gold and silver coins which shall have been struck (stamped) and issued from said mint shall be a lawful tender in all payments whatsoever."1 The relation which was to exist between the value of gold and that of silver was stated in these words: "Every fifteen pounds weight of pure silver shall be equal value in all payments with one pound of pure gold." The law of 1792 thus provided for free coinage of gold and silver at the ratio of fifteen to one. A dollar of gold contained 24.75 grains of pure metal, and a dollar of silver 371.25 (15 X 24.75) grains. The mint continued to coin the precious metals at the ratio of fifteen to one until the year 1834, when it was found that fifteen pounds of silver was not worth one pound of gold. About this time one pound of gold in foreign markets was worth nearly sixteen pounds of silver. The holders of gold, therefore, were not willing to pay it out in the United States, where it was worth but fifteen pounds of silver, just as farmers would not be willing to exchange a bushel of wheat for seventy-five cents in the home market when they could get eighty cents elsewhere. As a result of the overvaluation of silver (or the undervaluation of gold) there came into operation a monetary principle which is known as "Gresham's Law," and which is usually stated as follows: "Bad money tends to drive out good money, but good money cannot drive out bad." This law does not mean that either silver or gold is of itself either good or bad. It means that people will pay their debts and purchase articles with the cheapest money available, and that they will either hoard or send abroad the dearer money. Under the law in force before 1834 silver was driving gold from circulation, because everybody who could do so was holding back his gold and paying his debts and making his purchases in silver. 1 1 Statutes at Large, p. 246. In order to bring gold back into circulation, Congress in 1834 reduced the weight of the gold dollar to 23.22 grains of pure metal, allowing the silver dollar to remain 371.25 grains. The ratio thus established was (nearly) sixteen to one-a ratio at which the two metals have ever since been coined. Under this law the free coinage of both metals continued as before. It was soon found that the new ratio of sixteen to one overvalued gold, and "Gresham's Law" again came into operation. This time, since gold was the cheaper money, silver was driven from circulation. In 1850 a silver dollar was worth $1.02 in gold, and after the discovery of gold in California the relative value of silver was still higher. As a consequence, between 1837 and 1873 but little silver, except in the form of subsidiary coins (see below), was coined. Coinage since 1873. In 1873-an important date in our monetary history-Congress discontinued the free coinage of silver,1 and established as the unit of value the gold dollar of the weight of 23.22 grains of fine gold with one tenth of alloy to prevent abrasion. In the same year Germany withdrew large quantities of silver from circulation, and in the following year several other European countries began to restrict the coinage of silver. About this time immense deposits of silver were discovered in Nevada, and cheaper methods of extracting the metal from the ore were invented. The production of silver increased, and the demand for it at mints decreased. The result was that in the years following 1873 there was a marked decline in the value of silver as compared with gold. The unpopularity of the demonetization of silver (i.e., the refusal of the government to coin the metal into 1 The act which discontinued the coinage of the regular silver dollar provided for the coinage of a "trade dollar' of 420 grains of silver. This coin was intended for circulation in China. It was legal tender to the amount of five dollars until 1876, when Congress took away its legal tender character altogether and in 1878 ceased to coin it. It has entirely disappeared from circulation. money) caused Congress in 1878 to pass the "Bland-Allison Act," which provided "that the government should buy not less than two million dollars' worth, and not more than four million dollars' worth of silver bullion each month, and coin it into silver dollars, these to be full legal tender." Under this act a great deal of silver was coined, but there was not unlimited free coinage as there had been prior to 1873. The law of 1878 continued in force for twelve years, and under its workings $378,166,793 in silver was coined. Of this sum $57,000,000 entered circulation as metallic silver dollars. The remainder was deposited in the vaults of the treasury and silver certificates (representative money) were issued against it. In 1890 the "Bland-Allison Act" was repealed and the law known as the "Sherman Act" was passed. This law provided that the Secretary of the Treasury should purchase at its market value 4,500,000 ounces of silver each month and pay for the same with treasury notes. Under this law 168,000,000 ounces of silver were bought, 36,000,000 silver dollars coined and $156,000,000 of treasury notes issued. These treasury notes of 1890 were legal tender and could be presented by the holder to the Secretary of the Treasury and be redeemed either in silver or gold at the discretion of that officer. In 1893 the government of India demonetized silver, an act which lowered its price all over the world. In the same year the gold reserve-a sum of $100,000,000 which the government kept on hand to redeem the treasury notes and the greenbacks (p. 322) with-began to diminish day by day. These and other discouraging facts produced the impression that the Secretary of the Treasury would not long be able to redeem the treasury notes and greenbacks in gold, and the holders of these kinds of currency, becoming alarmed, presented them in large sums for redemption, always demanding gold. The treasury faithfully redeemed in gold, but the fear that the reserve would be exhausted and that silver, a dollar of which was worth only sixty-seven cents, would be the only money available for redemption purposes, led to a panic in the financial world, and this led to the repeal of the purchasing clause of the "Sherman Act," and thus the issue of treasury notes ceased. Since 1893 coinage has been on a gold basis. No silver bullion has been purchased at the mints since that date, although a considerable portion of that which was bought under the Sherman Act has been coined as Congress has from time to time directed. Under a law of 1900 gold was made the standard unit of value and no provision was made for the coinage of silver 1 other than that which was already in stock. Silver dollars and silver certificates, however, are still legal tender, and it is the declared policy of the government to keep them on a parity with gold, that is to say, when silver certificates are presented to the treasury for redemption it is the policy of the government to redeem them in gold at their face value, and if silver dollars are presented for exchange they will be exchanged for gold, dollar for dollar. The coinage of gold is free. Subsidiary Coinage. The account of the coinage which has been given has referred to coins of a denomination of one dollar and upwards. Silver coins of a denomination of less than a dollar have been issued ever since the establishment of the mint. These are known as subsidiary coins or fractional currency, and consist of the familiar halfdollar, quarter-dollar and dime. These are legal tender to the amount of ten dollars. In the half-dollar there are 173.61 grains of pure metal, and proportional weights in the quarter-dollar and dime. Below the subsidiary silver are the minor coins of base metal, the five, three and one cent piece, which are legal tender to the amount of twentyfive cents. 1 The government still purchases silver for subsidiary coinage |