WEBVTT NOTE 12. The Jacksonians and the Coinage Legislation of 1834 1 00:00:00.000 --> 00:00:05.000 The Jacksonians and the Coinage Legislation of 1834 2 00:00:05.000 --> 00:00:24.000 We have seen that the Coinage Act of 1792 established a bimetallic system in which the dollar was defined as equaling both 371.25 grains of pure silver and 24.75 grains of pure gold, a fixed weight ratio of 15 grains of silver to 1 grain of gold. 3 00:00:24.000 --> 00:00:30.400 But bi-metalism founded on Gresham's Law. After 1805, the world market value of silver fell to 4 00:00:30.400 --> 00:00:38.000 approximately 15.75 to 1, so that the U.S. fixed mint ratio greatly undervalued gold and overvalued 5 00:00:38.000 --> 00:00:44.000 silver. As a result, gold flowed out of the country and silver flowed in, so that after 1810, 6 00:00:44.000 --> 00:00:49.920 only silver coin, largely overvalued Spanish American fractional silver coin, circulated 7 00:00:49.920 --> 00:00:52.140 within the United States. 8 00:00:52.140 --> 00:00:57.400 The rest of the currency was inflated bank paper in various stages of depreciation. 9 00:00:57.400 --> 00:01:02.200 The Jacksonians, as we have seen, were determined to eliminate inflationary paper money and 10 00:01:02.200 --> 00:01:09.120 substitute a hard money consisting of specie, or, at the most, of paper 100% backed by gold 11 00:01:09.120 --> 00:01:10.540 or silver. 12 00:01:10.540 --> 00:01:14.680 On the federal level, this meant abolishing the Bank of the United States and establishing 13 00:01:14.680 --> 00:01:16.460 the independent treasury. 14 00:01:16.460 --> 00:01:21.380 The rest of the fight would have to be conducted during the 1840s and later at the state level 15 00:01:21.380 --> 00:01:23.260 where the banks were chartered. 16 00:01:23.260 --> 00:01:27.820 But one thing the federal government could do was readjust the specie coinage. 17 00:01:27.820 --> 00:01:32.140 In particular, the Jacksonians were anxious to eliminate small denomination banknotes 18 00:01:32.140 --> 00:01:37.060 – $20 and under – and substitute gold and silver coins for them. 19 00:01:37.060 --> 00:01:41.500 They reasoned that the average American largely used these coins and they were the ones billed 20 00:01:41.500 --> 00:01:43.820 by inflationary paper money. 21 00:01:43.820 --> 00:01:48.620 For a standard to be really gold and silver, it was vital that gold or silver coins circulate 22 00:01:48.620 --> 00:01:52.580 and be used as a medium of exchange by the average American. 23 00:01:52.580 --> 00:01:57.740 To accomplish this goal, the Jacksonians set about to establish a comprehensive program. 24 00:01:57.740 --> 00:02:03.700 As a vital step, one of the Coinage Acts of 1834 readjusted the old mint ratio of 15 25 00:02:03.700 --> 00:02:08.260 to 1 that had undervalued gold and driven it out of circulation. 26 00:02:08.260 --> 00:02:14.220 The Coinage Act devalued the definition of the gold dollar from the original 24.75 grains 27 00:02:14.220 --> 00:02:20.100 to 23.2 grains, a debasement of gold by 6.26%. 28 00:02:20.100 --> 00:02:26.640 The silver dollar was left at the old weight of 371.25 grains, so that the mint ratio between 29 00:02:26.640 --> 00:02:33.380 silver and gold was now fixed at a ratio of 16 to 1, replacing the old 15 to 1. 30 00:02:33.380 --> 00:02:39.240 It was unfortunate that the Jacksonians did not appreciate silver to 396 grains instead 31 00:02:39.240 --> 00:02:44.240 of debasing gold for this set of precedent for debasement that was to plague America 32 00:02:44.240 --> 00:02:47.100 in 1933 and after. 33 00:02:47.100 --> 00:02:52.600 The new ratio of 16 to 1, however, now undervalued silver and overvalued gold since the world 34 00:02:52.600 --> 00:02:59.140 market ratio had been approximately 15.79 to 1 in the years before 1834. 35 00:02:59.140 --> 00:03:02.940 Until recently, historians have assumed that the Jacksonians deliberately tried to bring 36 00:03:02.940 --> 00:03:27.940 In 1833, for example, the world market ratio was as high as 15.93 to 1. 37 00:03:27.940 --> 00:03:32.580 Indeed, it turns out that for two decades the Jacksonians were right and that the slight 38 00:03:32.580 --> 00:03:39.260 1% premium of silver over gold was not enough to drive the former coins out of circulation. 39 00:03:39.260 --> 00:03:43.820 Both silver and gold were imported from then on, and silver and gold coins both circulated 40 00:03:43.820 --> 00:03:50.140 successfully side by side until the early 1850s. Lightweight Spanish fractional silver 41 00:03:50.140 --> 00:03:55.480 remained overvalued even at the mint ratio so it flourished in circulation, replacing 42 00:03:55.480 --> 00:04:01.140 depreciated small notes. Even American silver dollars were now retained in circulation since 43 00:04:01.140 --> 00:04:14.960 In order to stimulate the circulation of both gold and silver coins instead of paper notes, 44 00:04:14.960 --> 00:04:19.940 the Jacksonians also passed two companion coinage acts in 1834. 45 00:04:19.940 --> 00:04:25.240 The Jacksonians were not monetary nationalists, specie was specie, and they saw no reason 46 00:04:25.240 --> 00:04:30.020 that foreign gold or silver coins should not circulate with the same full privileges as 47 00:04:30.020 --> 00:04:49.220 A third plank in the Jacksonian coinage program was to establish branch U.S. mints so as to 48 00:04:49.220 --> 00:04:54.260 coin the gold found in newly discovered mines in Georgia and North Carolina. 49 00:04:54.260 --> 00:04:59.460 The Jackson administration finally succeeded in getting Congress to do so in 1835 when 50 00:04:59.460 --> 00:05:03.900 and its set up branch mints to coin gold in North Carolina and Georgia, and silver and 51 00:05:03.900 --> 00:05:05.700 gold at New Orleans. 52 00:05:05.700 --> 00:05:11.300 Finally, on the federal level, the Jacksonians sought to levy a tax on small banknotes and 53 00:05:11.300 --> 00:05:15.780 to prevent the federal government from keeping its deposits in state banks, issuing small 54 00:05:15.780 --> 00:05:19.860 notes or accepting small banknotes in taxes. 55 00:05:19.860 --> 00:05:24.240 They were not successful, but the independent treasury eliminated public deposit in state 56 00:05:24.240 --> 00:05:29.020 banks and the species circular, as we have seen, stopped the receipt of banknotes for 57 00:05:29.020 --> 00:05:35.660 Public Land Sales. From 1840 on, the hard money battle would be waged at the state level. 58 00:05:35.660 --> 00:05:40.240 In the early 1850s, Gresham's Law finally caught up with the bimetallist idol that the 59 00:05:40.240 --> 00:05:47.000 Jacksonians had forged in the 1830s, replacing the earlier de facto silver monomedalism. 60 00:05:47.000 --> 00:05:51.840 The sudden discovery of extensive gold mines in California, Russia and Australia greatly 61 00:05:51.840 --> 00:05:57.600 increased gold production, reaching a peak in the early 1850s. From the 1720s through 62 00:05:57.600 --> 00:06:04.060 Through the 1830s, annual world gold production averaged $12.8 million, never straying far 63 00:06:04.060 --> 00:06:05.680 from that norm. 64 00:06:05.680 --> 00:06:11.640 Then world gold production increased to an annual average of $38.2 million in the 1840s 65 00:06:11.640 --> 00:06:17.380 and spurted upward to a peak of $155 million in 1853. 66 00:06:17.380 --> 00:06:23.780 World gold production then fell steadily from that peak to an annual average of $139.9 million 67 00:06:23.780 --> 00:06:30.780 in the 1850s and to $114.7 million from 1876 to 1890. 68 00:06:30.780 --> 00:06:34.620 It was not to surpass this peak until the 1890s. 69 00:06:34.620 --> 00:06:39.620 The consequence of the burst in gold production was, of course, a fall in the price of gold 70 00:06:39.620 --> 00:06:42.160 relative to silver in the world market. 71 00:06:42.160 --> 00:06:50.860 The silver-gold ratio declined from 15.97 in January 1849 to an average of 15.7 in 1850 72 00:06:50.860 --> 00:07:01.060 to 15.46 in 1851 and to an average of 15.32 to 1 in the 8 years from 1853 to 1860. 73 00:07:01.060 --> 00:07:05.720 As a result, the market premium of American silver dollars over gold quickly rose above 74 00:07:05.720 --> 00:07:11.300 the 1% margin, which was the estimated cost of shipping silver coins abroad. 75 00:07:11.300 --> 00:07:17.980 That premium, which had hovered around 1% since the mid-1830s, suddenly rose to 4.5% 76 00:07:17.980 --> 00:07:24.500 at the beginning of 1851, and after falling back to about 2% at the turn of 1852, bounced 77 00:07:24.500 --> 00:07:28.580 back up and remained at the 4-5% level. 78 00:07:28.580 --> 00:07:33.020 The result was a rapid disappearance of silver from the country, the heaviest and therefore 79 00:07:33.020 --> 00:07:36.020 most undervalued coins vanishing first. 80 00:07:36.020 --> 00:07:41.700 Spanish mill dollars, which contained 1% to 5% more silver than American dollars, commanded 81 00:07:41.700 --> 00:07:45.000 a premium of 7% and went first. 82 00:07:45.000 --> 00:08:02.280 The last coins left were the worn Spanish and Mexican fractions, which were depreciated by 10-15%. 83 00:08:02.280 --> 00:08:08.520 By the beginning of 1851, however, even these worn foreign silver coins had gone to a 1% 84 00:08:08.520 --> 00:08:11.120 premium and were beginning to go. 85 00:08:11.120 --> 00:08:15.600 It was clear that America was undergoing a severe small coin crisis. 86 00:08:15.600 --> 00:08:19.320 Gold coins were flowing into the country, but they were too valuable to be technically 87 00:08:19.320 --> 00:08:21.920 usable for small denomination coins. 88 00:08:21.920 --> 00:08:26.640 The Democratic Pierce administration saw with horror millions of dollars of unauthorized 89 00:08:26.640 --> 00:08:32.280 private small notes flood into circulation in early 1853, for the first time since the 90 00:08:32.280 --> 00:08:33.760 1830s. 91 00:08:33.760 --> 00:08:38.260 The Jacksonians were in grave danger of losing the fight for hard money coinage, at least 92 00:08:38.260 --> 00:08:47.340 The ultimate breakdown of bimetallism had never been clearer. 93 00:08:47.340 --> 00:08:53.260 If bimetallism is not in the long run viable, this leaves two free-market, hard-money alternatives. 94 00:08:53.260 --> 00:08:59.080 A. Silver monometallism with the dollar defined as a weight of silver only and gold circulating 95 00:08:59.080 --> 00:09:02.700 freely by weight at freely fluctuating market rates. 96 00:09:02.700 --> 00:09:07.920 Number B, gold monomedalism with the dollar defined only as a weight of gold, with silver 97 00:09:07.920 --> 00:09:09.820 circulating by weight. 98 00:09:09.820 --> 00:09:14.700 Each of these is an example of what has been called, quote, parallel standards or, quote, 99 00:09:14.700 --> 00:09:19.200 free-medalism, in which two or more metal coins are allowed to fluctuate freely within 100 00:09:19.200 --> 00:09:22.960 the same area and exchange at free market prices. 101 00:09:22.960 --> 00:09:27.800 As we have seen, colonial America was an example of such parallel standards, since foreign 102 00:09:27.800 --> 00:09:33.000 Modern gold and silver coins circulated freely and at fluctuated market prices. 103 00:09:33.000 --> 00:09:37.660 The United States could have taken this opportunity of monetary crisis to go on either version 104 00:09:37.660 --> 00:09:39.120 of a parallel standard. 105 00:09:39.120 --> 00:09:43.080 Apparently, however, few thought of doing so. 106 00:09:43.080 --> 00:09:47.280 Another viable though inferior solution to the problem of bimetallism was to establish 107 00:09:47.280 --> 00:09:52.720 a mono-metallic system, either de facto or du jour, with the other metal circulating 108 00:09:52.720 --> 00:09:58.600 in the form of lightweight and therefore overvalued or token coinage. 109 00:09:58.600 --> 00:10:02.960 Silver monomedalism was immediately unfeasible since it was rapidly flowing out of the country 110 00:10:02.960 --> 00:10:07.620 and because gold, being far more valuable than silver, could not technically function 111 00:10:07.620 --> 00:10:11.060 easily as a lightweight subsidiary coin. 112 00:10:11.060 --> 00:10:15.980 The only feasible solution then, within a monometallic framework, was to make gold the 113 00:10:15.980 --> 00:10:21.380 basic standard and let highly overvalued, essentially token, silver coins function as 114 00:10:21.380 --> 00:10:25.620 The Subsidiary Small Coinage Certainly, if a parallel standard was not 115 00:10:25.620 --> 00:10:29.860 to be adopted, the latter solution would be far better than allowing depreciated paper 116 00:10:29.860 --> 00:10:32.740 notes to function as small currency. 117 00:10:32.740 --> 00:10:39.220 Under pressure of the crisis, Congress decided, in February 1853, to keep the de jure bimetallic 118 00:10:39.220 --> 00:10:45.500 standard, but to adopt a de facto gold monometallic standard, with fractional silver coins circulating 119 00:10:45.500 --> 00:10:52.240 as a deliberately overvalued subsidiary coinage, legal tender up to a maximum of only $5. 120 00:10:52.240 --> 00:10:58.340 The fractional silver coins were debased by 6.91%. With silver commanding about 4% market 121 00:10:58.340 --> 00:11:04.300 premium over gold, this meant that fractional silver was debased 3% below gold. At that 122 00:11:04.300 --> 00:11:09.160 depreciated rate, fractional silver was not overvalued in relation to gold and remained 123 00:11:09.160 --> 00:11:14.380 in circulation. By April, the new subsidiary quarter dollars proved to be popular and 124 00:11:14.380 --> 00:11:20.380 By early 1854, the problem of the shortage of small coins in America was over. 125 00:11:20.380 --> 00:11:25.620 In rejecting proposals either to go over completely to du jour gold monomedalism or to keep the 126 00:11:25.620 --> 00:11:31.280 existing bimetallic system, Congress was choosing a gold standard temporarily, but keeping its 127 00:11:31.280 --> 00:11:32.600 options open. 128 00:11:32.600 --> 00:11:37.860 The fact that it continued the old full-bodied solar dollar, the quote, dollar of our fathers, 129 00:11:37.860 --> 00:11:42.740 demonstrates that an eventual return to de facto bimetalism was by no means being ruled 130 00:11:42.740 --> 00:11:43.740 out. 131 00:11:43.740 --> 00:11:49.220 Fiat Gresham's law could not then maintain the American silver dollar in circulation. 132 00:11:49.220 --> 00:11:55.300 In 1857, an important part of the Jacksonian coinage program was repealed as Congress, 133 00:11:55.300 --> 00:12:01.540 in an exercise of monetary nationalism, eliminated all legal tender power of foreign coins.