The Death of the Silver Standard and the Rise of Gold

Until 1873, the country’s monetary system was legally bimetallic. That is, the U. S. mint was obligated to coin any gold or silver presented to it. But bimetallism did not exist in practice because the price of silver was much higher in the open market than at the mint. Mineowners, therefore, sold their output to bullion dealers rather than the mint. Realizing this, Congress discontinued minting of the standard silver dollar in 1873.

The United States was on a de facto gold standard at this point. Silver was not seen in circulation and transactions throughout the country were settled either with bank notes, checks, or gold money. The silver in the United States either went overseas in payment of imports, trade for gold, or into private hoards. What silver that did exist in commerce was traded at its market price.

Congress brought a gold standard to the United States, in 1873, effectively abandoning bimetallism. While Congress kept the “official” price of silver below its market price, there was no incentive for anyone to give their silver to the government. However, just as Congress was passing this new gold standard law, large new deposits of silver were being discovered. As the supply of silver rose, its market price fell. By 1874 (just one year later), the “official” price Congress had set for silver was higher than the market price!

Silver miners and inflationists began talking about the “Crime of 73” and demanded an immediate restoration of bimetallism. Farmers and other debtors that would have benefitted from an expanded money supply joined in the crusade for a return to the free coinage of silver. It is clear that when the “official” price of silver set by Congress was too low, no one cared. However, once the “official” price of silver was too high, arguments were raised that Congress should honor the higher price.

This back and forth between “official” and market prices and gold and silver would continue until the end of the century. Whether Congress, the inflationists, the gold or silver backers, they all refused to acknowledge the unnecessary interference and disruption they were causing the United States economy. Rather than letting the market decide money prices or allow supply and demand to determine whether gold or silver would be the best choice, they all felt that laws, “official” prices, and bimetallism would be the best answer, depending on the circumstances.

The sudden increase in the supply of silver spelled the eventual doom for the silver standard and bimetallism. Despite the protests of the silver miners and the “easy” money crowd, they were creating the conditions for their own failure. As silver prices continued to fall below the “official” price, Congress realized the folly of its actions. The voters turned on the silver crowd, and by the end of the century, the silver standard was all but dead, not only in the United States, but all over the world.

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