The United States, bimetallic coinage
Since the Spanish silver dollar was the major coin circulating in North America during the colonial and confederation periods,
it was generally agreed that the quote in dollar would be the basic currency unit of the new United States of America.
Article 1, Section 8 of the new constitution gave Congress the power, quote,
to coin money, regulate the value thereof, and a foreign coin.
The power was exclusive because the state governments were prohibited, in Article 1, Section 10, from coining money, emitting paper money, or making anything but gold and silver coin legal tender in payment of debts.
Evidently, the Founding Fathers were mindful of the bleak record of colonial and revolutionary paper issues and provincial juggling of the weights and denominations of coin.
In accordance with this power, Congress passed the Coinage Act of 1792 on the recommendation of
Secretary of Treasury Alexander Hamilton's Report on the Establishment of a Mint of the year before.
The Coinage Act established a bimetallic dollar standard for the United States.
The dollar was defined as both a weight of 371.25 grains of pure silver and or a weight of 24.75
The Basic Silver Coin was to be the silver dollar, and the basic gold coin, the ten dollar
The 15 to 1 fixed bimetallic ratio almost precisely corresponded to the market gold-silver ratio of the early 1790s, but of course the tragedy of any bimetallic standard is that the fixed mint ratio must always come a cropper against inevitably changing market ratios, and that Gresham's law will then come inexorably into effect.
Thus, Hamilton's expressed desire to keep both metals in circulation in order to increase
the supply of money was doomed to failure.
Unfortunately for the bimetallic gold, the 1780s saw the beginning of a steady decline
in the ratio of the market values of silver to gold, largely due to the massive increases
over the next three decades of silver production from the mines of Mexico.
The result was that the market ratio fell to 15.5 to 1 by the 1790s and after 1805 fell
to approximately 15.75 to 1.
The latter figure was enough of a gap between the market and mint ratios to set Gresham's
law into operation so that by 1810 gold coins began to disappear from the United States
and silver coins began to flood in.
The fixed government ratio now significantly overvalued silver and undervalued gold, so
So it paid people to bring in silver to exchange for gold, melt the gold coins into bullion
and ship it abroad.
From 1810 until 1834, only silver coin, domestic and foreign, circulated in the United States.
Originally, Congress provided in 1793 that all foreign coins circulating in the United
States be legal tender.
Indeed, foreign coins have been estimated to form 80% of American domestic species circulation
in 1800.
Most of the foreign coins were Spanish silver, and while the legal tender privilege was progressively
cancelled for various foreign coins by 1827, Spanish silver coins continued as legal tender
and to predominate in circulation.
Spanish dollars, however, soon began to be heavier in weight by 1-5% over their American
equivalents even though they circulated at face value here and so the American mint ratio
overvalued American more than Spanish dollars.
As a result, the Spanish silver dollars were re-exported, leaving American silver dollars
in circulation.
On the other hand, fractional Spanish silver coins, half-dollars, quarter-dollars, dimes
and half-dimes, were considerably overvalued in the US since they circulated at face value
and yet were far lighter weight.
Gresham's law again came into play and the result was that American silver fractional
To make matters still more complicated, American silver dollars, though lighter weight than
the Spanish, circulated equally by name in the West Indies. As a result, American silver
dollars were exported to the Caribbean. Thus, by the complex workings of Gresham's law,
the United States was left, especially after 1820, with no gold coins and only Spanish
Fractional Silver Coin in Circulation.