Before the first coinage act in the United States, citizens of the U.S. exchanged goods and services through the barter system. At this time, no coins were available except for various foreign coins such as the widely traded and trusted Spanish real dollars. With the signage of the Constitution, and with a newly formed nation that allowed Congress to coin money, the first coinage act was proposed and passed Congress under the Presidency of George Washington.
This article will cover a brief history of coins and events that surrounded changes made beginning in 1792 and spanning the centuries since then.
- The Coinage Act of 1792 (also known as the Mint Act) established the United States Mint to oversee the production of coins minted using gold, silver, or copper.
- The Coinage Act of 1834 increased the silver-to-gold ratio to approximately 16:1.
- The Coinage Act of 1873 (also called the "Crime of 1873" by silver miners) demonetized silver, effectively causing a slump in silver demand and prices.
- The Coinage Act of 1965 eliminated silver from quarters and dimes.
The Beginning of U.S. Coinage
The first coinage act was passed on April 2, 1792, and established the United States Mint to oversee all mint operations and manage the mint's first employees, which included an engraver, an assayer, and a chief coiner. All employees by law had to post a $10,000 bond to be considered for these positions. The first coins in the United States were minted using either gold, silver, or copper, with engravings of words and inscriptions of liberty. The first coins minted were the:
- $10 gold eagle with 270 grains (17.5g) of pure gold
- $5 gold half eagle with 135 grains (8.75g) of pure gold
- $2.50 quarter eagle with 67 and 4/8 grains (4.37g) of standard gold
- $1 dollar with 416 grains (27g) of standard silver
- Half dollar with 208 grains (13.5g) of standard silver
- Quarter dollar with 104 grains (6.74g) of standard silver
- Dimes, spelled "dismes" until the 1800s, had 41 and 3/5 grains (2.7g) of silver
- Half dimes with 20 and 4/5 grains (1.35g) of standard silver
- One cent with 11 pennyweights (17.1g) of copper
- Half cent with 5 and 1/2 pennyweights (8.55g) of copper
The silver-to-gold ratio was 15:1. So one troy ounce of gold would buy 15 ounces of silver.
While considered arcane by some investors, the silver-to-gold ratio represents a metric that helps traders uncover unique profit strategies.
The 19th Century
Dollars were minted in the tradition of the Spanish 8 reales. English speakers referred to the Spanish 8 reales as the Spanish milled dollar. The word "milled" referred to the fact that coin blanks called planchets were "milled" on a milling machine to stay consistent with weights and sizes and prevent counterfeiting. The advanced milling process allowed these Spanish coins to be used in many countries worldwide.
The Coinage Act of 1834
The official U.S. government price of gold remained consistent at $19.75 per troy ounce from 1792 until it was raised to $20.67 in 1834. In 1934, the price was raised to $35. In 1972, the price was increased to $38 and in 1973 it went up to $42.22.
Congress reconciled the new value of gold with the passage of the Coinage Act of 1834 under the presidency of Andrew Jackson. A new regulation of weight and value of gold was adopted to bring the value of gold in sync with the marketplace and its relative value to silver. The act revised the ratio of gold to the dollar to the equivalent of $20.67 per ounce of gold, increasing the value of gold and increasing the ratio of silver-to-gold to about 16:1.
The Coinage Act of 1873
The Coinage Act of 1873 was also called the "Crime of 1873" by western silver miners. The act demonetized silver, effectively ending a silver boom that had enriched western states' economies. Silver was dropped for the gold standard that would later be adopted by governments around the world.
A powerful force called the Free Silver Movement was established that would be instrumental in the passage of the 1878 Bland Allison Act. This act allowed the Treasury Department to purchase $2 to $4 million a month of domestic silver to be coined into silver dollars for circulation. This act passed Congress after overriding the veto of President Rutherford B. Hayes.
The Sherman Silver Purchase Act passed in 1890 replaced the previous law and saw an increased purchase of 4.5 million ounces of silver bullion a month. President Cleveland later repealed this act in 1893 because the U.S. Treasury's gold reserves were being depleted by investors selling silver in exchange for gold.
Southern ministers encouraged Treasury Secretary Salmon P. Chase in 1861 to inscribe "In God We Trust" on coins. Congress approved and first used the phrase on the two-cent coin in 1864. The inscription was expanded to gold and silver coins with the passage of the 1865 Act. By 1873, all coins were approved with "In God We Trust" without further congressional approval.
The 20th Century and Beyond
Under President Johnson, the 1965 Coinage Act was passed that eliminated silver from certain coins due to a silver and coin shortage. Silver quarters and dimes saw complete elimination of silver content and half dollars' silver content was reduced to 40% from 90%. Silver was replaced with alloys of copper, zinc, manganese, and nickel. To prevent hoarding, a freeze date was also passed. All newly minted coins had a 1964 date for a period of time. Mint marks were also eliminated for five years. Mint marks are the letter on the coin that indicates which mint produced the coin. This served to remove any features that helped identify the newer coins and to prevent their removal from circulation.
The Presidential $1 Coin Act of 2005 authorized the Secretary of the Treasury to design and issue $1 commemorative coins for each of the past U.S. Presidents and their spouses. Prior commemorative $1 coins would continue—such as the Sacagawea $1—but consist of no less than 1/3 the total of all $1 coins.
The Bottom Line
American coinage has come a long way since the barter system, and though it seems like it's been figured out, there will doubtless be more change to come. For many investors, an interest in coinage leads to an interest in currencies and currency trading. In fact, the marketplace for trading currencies—called the foreign exchange or forex market—is one of the largest, most liquid markets in the world with trillions of dollars changing hands each day.