U.S. TRADE DOLLARS 1873-1885
by R.W. Julian
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on silver, which appreciated in value; in those countries where silver and gold were both in circulation, silver was withdrawn from circulation by bullion dealers and hoarders.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 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 Nevada's 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 1859-1861 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 1849-1850, 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 introduced-the two-cent piece (1864), nickel three-cent piece (1865), and nickel five-cent piece (1866)-but these did not make up for the loss of the silver coinage.
Nevada silver production grew heavier by the year after 1860, but much of the metal went abroad to pay for war materiel 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 world's 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 neverending 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.