Beginning of the Trade Dollar
The trade dollar has long been derided by collectors and scholars as a bad experiment and a coin dishonored by our own government. The attempt to solve the silver crisis was, in reality, an intelligent one and had the political authorities been able to give the coin more time, it would have certainly made the silver surplus much easier to handle.
We can trace the beginning of the trade dollar to the California gold discoveries of 1848. Subsequently, such large quantities of gold were mined and shipped from the United States that monetary systems around the world were upset because too much was being produced to be readily absorbed. (The Australian gold rush began in 1851 and also contributed significantly to the monetary problems caused by the gold surplus.) This in turn put pressure on silver, which appreciated in value; in those countries where silver and gold were both in circulation, silver was withdrawn from circulation by bullion dealers and hoarders.
Silver coin was nearly gone from the American marketplace by the early months of 1850, and the public was forced to make do with copper coins and small gold pieces as well as the usual private and state bank notes, scrip, and other paper currency (often accepted only at discounts). In March 1851 Congress authorized the coinage of a debased three-cent piece of silver, sometimes called the trime, whose intrinsic value was low enough that it would not be bought up to be melted by bullion dealers.
Coinage Legislation of 1853
In February 1853 Congress passed legislation reducing the weight of all silver coins (except the trime and dollar) which kept them in circulation and discouraged melting. Minor silver coins could then be paid out only for gold so that the marketplace itself would regulate the amount of silver struck. Mint Director James Snowden, however, illegally paid out the silver coins for silver bullion at artificially high prices, though at a profit to the government, leading to very large coinages through 1857.
For practical purposes the law of 1853 put the United States on the gold standard; silver, with the odd exception of the dollar, was now a subsidiary coinage metal. As long as the coinage of dollars remained only a theoretical possibility, the nation would stay on the gold standard, but any deviation from this had the potential of causing monetary upheaval.
The dollar was left alone in 1853 for reasons of prestige and politics. Those bringing silver bullion to the mints after March 1853 had the legal right to demand dollars in exchange, but this was rarely done in the 1850s because the intrinsic bullion value was more than a dollar; that is, more than $1 worth of silver had to be deposited for each silver dollar obtained. Discovery of great deposits of silver in Nevadas Comstock Lode in 1859 temporarily changed all of this, and bullion dealers brought quantities to the mints to be coined into dollars.
The Civil War and the Monetary System
Although the unstable monetary system of 18591861 was changed by the outbreak of the Civil War in April 1861, the whole silver question became a time bomb that would in due course create continuous serious political and economic problems. And it would do just that from the late 1860s until nearly the end of the century.
Not only was the problem averted in 1861, but the rules were abruptly changed when a nervous public in the North removed gold from circulation by the end of 1861 and silver by the second week of July 1862. The nation had returned to the status of 18491850, except that this time gold was not available either and the public had little except paper money and copper coins. Additional minor coins were in time introducedthe two-cent piece (1864), nickel three-cent piece (1865), and five-cent piece (nickel; 1866)but these did not make up for the loss of the silver coinage.
Nevada silver mining grew heavier by the year after 1860, but much of the metal went abroad to pay for war matériel and interest on loans floated in Europe. However, by the late 1860s the world market had become saturated with silver, and newly-mined U.S. metal started to become a surplus as the prices showed a slow, but perceptible, drop. Beginning in 1868 silver flowed into the Philadelphia Mint as bullion dealers discovered the old loophole in the 1853 law about deposits being convertible into silver dollars. By 1871 the coinage of dollars had passed more than a million pieces per year and remained at a strong level through the end of the Seated Liberty design in March 1873.
The Silver Situation in the 1870s
Net exports of silver prior to 1871 were greater than the amount of silver mined in this country, but in that year the situation turned. There was a $17 million loss of silver (exports vs. imports) in fiscal 1871, but the amount mined was worth $23 million. The imbalance was to get much worse over the next several decades and became one of the most important political questions that erupted during the last half of the nineteenth century.
In 1871, with the end of the Franco-Prussian war, Prussian Chancellor Otto von Bismarck created a unified German state and reorganized the currency. Bismarck established the gold standard, and huge amounts of silver were dumped on the international market, further driving down the price. These actions also had the secondary effect of making it difficult for American silver to be sold in Europe (London was the worlds leading silver trading center at the time).
Some of the new U.S. silver did go to Asia, principally China and India, but the amounts were not all that great, and most such shipments were in ingot form, often prepared by the Philadelphia Mint. The bulk of American trade with China was carried on with Spanish and Mexican dollars. Those of the United States were used but little. The United States trade dollar created in 1873 was an attempt to export our silver to the Far East in the form of coin.
By the middle of 1868 it was clear to an increasing number of people that there was a coming crisis in the monetary system even though gold and silver were not yet back in daily use. The major difficulty in returning precious metals to the marketplace was that there was a differential in value between paper, gold, and silver. For silver to return would have cost the taxpayers untold millions of dollars. The only real alternative was for the government to force the value of paper currency up until it met silver and then gold.
Even though it was known that monetary troubles over silver were just over the horizon, the government was more concerned with the practical matter of getting silver and gold back into circulation. Too many voters were irate at the never-ending flood of paper money, particularly the flimsy Fractional Currency notes which were engulfing the country. Thus it was that the government met the coming silver crisis almost by accident.
There were several thefts and embezzlements at the San Francisco Mint in the late 1860s, not promptly noticed due primarily to poor accounting procedures and incompetent management in certain departments. Treasury Secretary George Boutwell had long been irritated by the lax handling of business at San Francisco, but in 1868 the coiner at that mint had an exceptionally large gold loss in his accounts, and Boutwell ordered a formal investigation of all mints and assay offices.
Boutwell appointed John Jay Knox (a numismatist), deputy comptroller of the currency, as special investigator. Knox was horrified to discover that business was conducted in an inept manner at several of the institutions under scrutiny. At the New York Assay Office, for example, the officers had great difficulty in finding a copy of the regulations under which they were to operate. San Francisco turned out to be worse. On the other hand, Philadelphia, under Mint Director James Pollock, was tightly run and a model for the others to follow. Boutwell was less than pleased about the situation, but he ordered Knox to leave no stone unturned in rooting out incompetence and malfeasance.
During his extended stay in San Francisco, Knox took the opportunity to discuss monetary policy with a number of leading bankers, bullion dealers, and mercantile interests. In California the situation was somewhat different because gold and silver had stayed in daily use throughout the war and afterwards as well.
The Commercial Dollar
One of the people in San Francisco with whom Knox held long discussions was Louis A. Garnett. The latter explained to Knox about the coming silver problem and suggested that a "commercial dollar," as it was first called, was the answer. Garnett believed that if a sufficient number of them could be exported to China and India, the expected troubles would not materialize. It was well known, for example, that hoarding was endemic to India, and if Indians could be induced to hoard American silver, so much the better.
Louis Anicharsis Garnett, who "was more responsible for the idea of the United States trade dollar than any other man," was a son of Robert S., a congressman from Virginia. Graduating from the Military Institute of Lexington in 1842, he later studied and practiced law through 1850, when President Zachary Taylor appointed him to a post at the San Francisco Custom House. In the early 1850s Louis A. Garnett was among those who helped establish the San Francisco Mint (opened in 1854). At one time he served as treasurer, later melter and refiner, there.
In 1860 he was an incorporator of the Ophir Mine. In the early 1860s Garnett went to Europe, where he studied finance, banking, and economics. In 1870 he was named to the positions of president, manager, and board member of the San Francisco Assaying and Refining Works, which at the time was depositing about two-thirds of the gold received for coining at the San Francisco Mint. In 1876 he retired from active business management to devote his time to studying financial and currency matters. In 1898 he represented California at the Monetary Commission conference held in Indianapolis. He died three years later, at the age of 79.
In 1870 in his meetings with Knox, Garnett emphasized that the proposed commercial dollar should have no real relationship to the regular currency and the name dollar would be for legal purposes only. In effect the American government would be exporting round ingots of silver which were in the form of coins rather than the traditional shapes.
While in San Francisco, Knox also met with Henry Richard Linderman, who had been director of the Mint during 18671869 (and who would later serve again in the post) and was now a special agent of the Treasury Department. The two men discussed the concept of the commercial dollar to the point that Linderman, a man who never let ethics get in the way of his personal progress, later claimed credit for it. While he did not really originate the idea, Linderman was instrumental in keeping the concept alive until the law authorizing the trade dollar was enacted in February 1873.
The Knox Report
Knox returned to Washington in early 1870 to write his report for the Treasury and also to draft a coinage bill for the consideration of the White House. President Grant was in favor of any reform that would put hard currency back into the hands of the people, and Knox saw no impediments arising from that quarter.
In April 1870 Knoxs report was duly submitted to Treasury Secretary Boutwell along with the draft legislation. The draft included a proviso (Section 11) that specified a silver dollar weighing 384 grains, 900/1000 fine. The dollar would thereby become what was called a Standard dollar, which meant that its gross weight was in conformity with the half dollar and smaller silver coins. The special character of the silver dollar as established in 1853 would therefore be abolished and the gold standard made de jure instead de facto.
Boutwell agreed in principle with both the report and the draft bill, but suggested that copies of the latter be sent to a number of present and past Mint officials as well as others with expertise in this field. The suggestion was carried out, and a diverse group of people read and commented on the proposed legislation.
The Standard Dollar Abolished
Mint officials, past and present, denounced the idea of a "standard dollar" and suggested instead that the silver dollar be abolished. They pointed out that it had not circulated within living memory and there was considerable doubt that it had ever seen daily commercial use, even in the 1790s. Because of this unanimous opposition, Knox deleted the standard dollar provision from his draft and Section 15 now listed the half dollar as the largest silver coin.
The words "standard dollar" sometimes meant something other than a 384-grain silver dollar. It had long been a pet project of Mint officials to strike silver coins whose weights would be lowered to the point that they would circulate at par with federal paper currency. This was in direct opposition to the Administration plan of raising the value of the paper to meet the silver and then the gold. In 1869 and again in 1870 and 1871 a series of "standard" silver pattern coins of reduced weights and diameters were coined at the Philadelphia Mint, from designs by Chief Engraver William Barber and motifs created earlier by James B. Longacre, who had died in 1869. Dollar coins bore the inscription STANDARD / 1 / DOLLAR. It was envisioned that if these lower-weight coins were made in quantity they could be put into circulation to retire millions of tattered Fractional Currency notes. Silver coins had not been seen in pocket change since July 1862, and Mint officials feared that new silver coins, if of full weight, would simply be hoarded.
Debased silver pattern coins were again struck during 1871, but this ended the program. Mint Director James Pollock, who had returned for a second term in 1869 after Linderman had resigned, saw the handwriting on the wall and gave the idea up for lost. The government and public simply would not accept anything less than a return to pre-war standards.
The 1873 Coinage Bill
Meanwhile, the House of Representatives was considering the Knox draft legislation which had been submitted in the summer of 1870. Virtually nothing was done until February 1872 when a House committee amended the bill to insert a provision for a commercial dollar of 420 grains, 900/1000 fine silver. Just three months later the whole House of Representatives voted to remove the offending section and replace it with a standard silver dollar weighing 384 grains. The Mint did not acknowledge this with relevant patterns, however.
On December 16, 1872, a Senate committee report amended the House version to insert a trade (commercial) dollar weighing 420 grains, the same as the February amendment prepared by the House committee. There was now a House version with a standard dollar (384 grains) and a Senate version with a trade dollar of 420 grains. The usual conference committee was appointed and it appears that the House Speaker picked those members favorable to the trade dollar concept because that is what came out of conference. The revised bill was passed by the Senate and House of Representatives and signed into law by the President on February 12, 1873. It was to take effect on the first of April.
In later years politicians called this legislation the Crime of 73 on the grounds that it had been rushed past a sleepy Congress with no debates and little consideration. It is true that formal debates were not all that many, but in committee there were spirited arguments and witnesses were certainly free to express their opinion. However, the "Silverites," as the silver forces came later to be known, did not realize in 1872 and 1873 just how fast the value of their metal would fall on the open market. On the other hand, the "Crime of 73" provided excellent political propaganda, even if it were not all that accurate. Then as now, politicians could count on the short memory of the public.