dollars in existence varied considerably, Spain having degraded or changed the standard at different times. He therefore recommended a dollar containing 371.25 grains of pure silver, as best expressing the actual average value of the coin in use.

2. That the decimal system was of demonstrated superiority over the duodecimal of Great Britain.

3. That inasmuch as the undervaluation of either metal would cause its exportation, thus shifting the standard to the other, which might result injuriously, and since it was very desirable to have coins of both metals in actual use, the ratio should conform as nearly as possible to the commercial ratio, rather than follow any specific European precedent. He therefore recommended the ratio of 15 to 1.

4. That the silver dollar was the equivalent of 24.75 grains of gold, and therefore a gold dollar containing that quantity of metal be also provided for, in order that there might be a unit coin in each metal. 5. That the fineness of the coins should be eleven-twelfths or 9163, corresponding with the British standard of fineness for gold; the alloys being for gold coins, silver and copper; for silver coins, copper only.

6. That no mint charge should be imposed upon the bullion brought for coinage, the cost thereof being properly a general charge rather than one to be imposed upon specific individuals, and to impose a charge might influence prices in international relations, being in effect a reduction of the standard of the coin, as compared with the bullion.

7. That foreign coins should be permitted to circulate for one year, that thereafter certain foreign pieces might be tolerated for another year or two; anticipating that the mint would be prepared to provide all the coin needed, he concluded that after three years the use of foreign coins should be prohibited.

On April 2, 1792, these recommendations, with two exceptions, were enacted into law. Congress refused to provide for a gold dollar, and altered the fineness of the silver coins by substituting a fraction resulting in .89243 fine. In all other particulars the law was practically an enactment of Hamilton's own language into statute.

74. EFFECTS OF THE CHANGING RATIO—1792-1834 The operation of Gresham's law must be comparatively slow in a new and sparsely settled country possessing but a scanty supply of the precious metals. It appears, however, that by 1810 at the latest

gold coin was being driven out of circulation; while by 1818 there was scarcely any gold to be seen. During the war from 1812 to 1815 and until the resumption of specie payments in 1818 the process of gold expulsion was greatly accelerated by the heavy issues of depreciated bank currency. In 1818 it was officially recognized that Hamilton's ratio of 15 to 1 differed so widely from the current market ratio between gold and silver that if a double standard were in fact to be maintained a new legal ratio must be established. In November of that year a committee was appointed by the House, with Lowndes as chairman, for the purpose of investigating the currency.

The Lowndes Report on the history of the currency and the state of the coinage, made early in 1819, was a comprehensive and able study. The report recommended a new ratio of 15.6 to 1. The death of Lowndes in 1822 and the consequent loss of his advocacy of a change, coupled with the conservatism of Congress, resulted in a postponement of action for nearly twenty years. Indeed, it was not until a combination of special interests having something to gain by a change in the ratio came to the support of the advocates of a new ratio that Congress could be induced to pass a law on the subject.

During this period an interesting example of the operation of Gresham's law was observed. There were many Spanish silver dollars in circulation in the United States, which were full legal tender. To quote Professor Scott, "Since they contained more silver than the corresponding coins of the United States, they were hoarded by bankers and money-changers or sent to the mint for recoinage, and, since both coins passed at their face value among the people generally, a profitable trade was carried on by sending our silver dollars to the West Indies and transporting hither the heavier Spanish coins. On this account the coinage of silver dollars was suspended in 1805, but the traffic still continued to be carried on with our smaller coins. The result was that only worn and clipped foreign silver coins were in actual circulation, and there was a great dearth of the kind of money needed for ordinary transactions."

....

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

Adapted from Hepburn, Contest for Sound Money, p. 33. (The Macmillan Co., 1903.)

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, 1836-601

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 1849 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.

'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 MONEY1 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.