It was not until 1834 that the legal ratio of silver and gold was changed in an endeavor to bring it into accord with the market ratio. It appears that private interest alone was strong enough to induce a Congress to act in the matter. As Raguet says: "We should possibly have for many years remained in that situation, had it not been for a fresh occurrence by which fancied private interest was brought to bear upon Congress. That occurrence was the discovery of gold in North Carolina and other Southern States. . . . This gradually increasing production of gold in the South engendered precisely the same spirit as the increased production of iron had done in the North. The owners of the gold mines cried out for legislative protection, as the owners of the iron mines had previously done, and laws were solicited to enable the former to get more for their gold, or rather for the rent of their land, than they could otherwise have obtained." The market ratio at the time was 15.6 to 1. These people for obvious reasons preferred a ratio of 16 to 1.

Politics also appears to have played its part in the passage of the measure. Congressman White, who had earlier presented an extensive report urging a ratio of 15.6 to 1, now championed 16 to 1, possibly because he believed in a single standard rather than in bimetallism and felt that gold would be the more desirable standard. The hot political fight over the question of rechartering the Second Bank of the United States necessitated a counter-monetary issue, and the antibank men seized upon gold currency as an effective battle cry. In the congressional debates there is ample evidence to show

1 Adapted from Hepburn, Contest for Sound Money, p. 33. Co., 1903.)

(The Macmillan

that Congress was aware that so great a change would inevitably drive silver out of circulation and give us in fact a single gold standard.

77. COINAGE AND EXPORTS AND IMPORTS OF PRECIOUS METALS, 1836-60*

78. THE ACT OF 1853 AND SUBSIDIARY SILVER

Until 1853 the weight of two half-dollars, four quarters, etc., was exactly equal to one dollar. In consequence, when gold came into circulation after 1834, not only the silver dollar, but subsidiary silver coins as well, were driven from circulation. Especially after the great fall in the value of gold following the discovery of the California gold mines in 1848 the country was greatly embarrassed for want of small change. The act of 1853, while not attempting to bring the silver dollar back into circulation by changing the ratio, essayed to remedy the situation so far as subsidiary silver coins were concerned. The act reduced the number of grains of pure silver in fractional coins from 371.25 to 345.6, or 6.91 per cent. Since the silver dollar was worth about 1.04 in gold, there no longer remained any profit in melting fractional silver pieces, or in withdrawing them from circulation.

I From Hepburn, Contest for Sound Money, p. 50. (The Macmillan Co., 1903.)

This reduction in weight of the fractional silver pieces, however, necessitated the adoption of a number of other provisions in order to prevent these subsidiary silver pieces from driving gold out of circulation and otherwise disarranging the currency. The principles adopted in this connection have come to be known as the laws of token money.

79. LAWS OF TOKEN OR SUBSIDIARY METALLIC MONEY' As now understood and practiced, a correct system of token money would conform to the following principles:

1. Such a reduction in weight and value below the standard unit as would prevent exportation and yet not place a premium on counterfeiting.

2. Coinage only on government account; that is, no free coinage. 3. Limited legal-tender power.

4. Protection against excessive quantity by direct redemption on presentation in proper amounts, which also maintains its face value.

As a matter of course, countries have not always had clear conceptions regarding this kind of money, so that the principles just enumerated have come forth only by a process of evolution out of experience. In the United States the first rule was not observed until 1853, when our subsidiary coins were reduced to 345.6 grains of pure silver for two halves, four quarters, or ten dimes. This reduction in weight by about 7 per cent kept the bullion value of the token coins below that of both the gold and silver dollars and they circulated freely. They were worth more as small change than as bullion.

As regards the second law, it is evident that if coins are issued at a value above the cost of the bullion in them, the issuer gains this profit, or seignorage. Hence the coinage should not be allowed to a private person but should be restricted to the state, to which the profits should accrue. This is all the more necessary if the duty is laid upon the state to redeem the coins upon demand.

The reason for the third law is obvious. The standard coins being ordinarily issued only in multiples of a unit, there must frequently be fractional sums represented in a debt; and the same considerations which demand that the kind of money to satisfy the major part of the debt shall be clearly defined in law also requires that some method of legally satisfying the fractional portions should be indicated.

Adapted from Report of the Monetary Commission of the Indianapolis Convention (1898), pp. 113-16.

Consequently the token coins are made legal tender for this purpose. On the other hand, a payment of a debt in large amounts of overvalued coins, these being of small denominations and hence heavy and cumbrous in large sums, would be a serious inconvenience. If, therefore, the legal-tender quality conferred on token coins were unlimited, the power might be abused by a captious debtor, who might insist on making some large payments in these coins for the purpose of annoying the creditor. Minor and subsidiary coins have usually been made a legal tender, therefore, only to limited amounts. In 1853 subsidiary silver coins, which hitherto had had full legal-tender power, were made payable for debts only in sums not exceeding five dollars. In 1879 this limit was raised to ten dollars.

A person obliged to make remittances abroad might have been paid here in overvalued token coins, which, not being worth in foreign countries more than the bullion they contained, would be short payment and could not be used abroad. Unless he could exchange token coins for full-valued standard coins which would be equally good abroad as well as at home, he would find business decidedly venturesome. Consequently the necessity for the fourth law becomes at once apparent. Indeed, redemption is a fundamental necessity for a system of token coins. Inasmuch as no government can ever foretell the amount which the community will absorb, it must be ready freely to provide token coins in exchange for standard coins whenever needed; and to prevent an excess from clogging the tills of merchants it must be equally ready to pay out standard coins in exchange for token coins whenever the latter are sent in to the Treasury. Thus free exchange of token coins for gold and of gold for token coins is the only proper method by which an excess in quantity is automatically prevented. If wanted, they are obtainable; if redundant, they are inevitably withdrawn. Without a method of redemption, direct or indirect, token or debased coins would certainly go to a discount if issued to excess, because, not being received equally with standard coins, a discrimination against them would manifest itself. Not having in themselves a value equal to their face value, they must borrow the deficiency only from the process by which they can be exchanged at par with full-valued coins.

In addition to the removal of excessive issues from the circulation, redemption of token coins performs an important function in the distribution and redistribution of such coins as are needed. Without redemption, nickels, for example, would accumulate in large amounts

on the hands of street-car companies; for it would be inconvenient or impossible for those companies to find people who might want small change, and it would be difficult for them to get rid of large accumulations at full value. But the system of redemption offers the means whereby those who have too much can dispose of their surplus and those who have not enough can get more. The Treasury thus acts as

a distributor of the supply of token coins.

Lastly, the community will need only a limited amount of token coins for small change. What this sum will be can be determined only by experience. No one can foretell how many dimes or quarters will be needed in the daily transactions in which money is necessarily used. There must, therefore, be freedom in issuing all that is wanted. Safety is to be found in a prompt redemption of those which the public do not need. In small denominations a very large number of pieces may be required, but the total value may be inconsiderable; for larger denominations of no greater number of pieces the total sum may be quite important. The inconvenience of not having money for large and small change is so great that if the government did not provide it in a form that will circulate (as before 1853 and again in July, 1862) some substitutes are necessarily provided by merchants. The demand for token coins is, therefore, up to a certain limit, strong and steady, and if the issues are within this limit there will be no net redemptions. The coins presented by one individual or class will be withdrawn by others for use in the channels where they are wanted.

80. THE ACT OF 1853 AND THE STANDARD QUESTION1 BY AUGUST RODEN

No provision was made in the act of 1853 to secure the circulation of a silver dollar. There was no need of one. In 1849, when it had so rapidly disappeared, its place had been supplied by the coinage of a gold dollar, and by 1853 over 10,000,000 had been coined, which, together with the great number of $5 and $2.50 gold pieces previously in circulation, provided a plentiful currency for transactions in which coins of this size were needed, while the use of bank notes of $1 and $2 was common. The 371.25 grains of pure silver in the standard silver dollar, being worth more as bullion than as money, it was apparent that this law would take away the full legal-tender quality of all silver in circulation, leaving gold as the sole standard.

Adapted from "The Dollar of Our Daddies," Sound Currency, IV (1897), No. 13, pp. 5-14.