A quiet evening perusing the world wide web reveals a surplus of web sites attempting to discuss various monetary issues. Invariably, one of the more common topics is “constitutional” currency. This essay does not address the political side of those discussions, but provides several facts and clarifications. The objective is to show that a person can be easily misled while researching such topics. If anything, perusing the web reveals there is much confusion about “constitutional” currency.
Consider the following statement:
Fact: There was indeed a Coinage Act passed in 1792. You can a read a copy at this web site.
Fiction: The U.S. Coinage Act of 1792 specifically defined a dollar as “one twentieth of an ounce of gold (25.8 grains of 90 percent fine).”
Fiction: The U.S. Coinage Act of 1792 specifically defined a dollar
as “…a silver coin containing one ounce of silver (412.5 grains of 90
The Act of 1792 established a definition of a dollar. A dollar was defined as a coin containing 371.25 grains of silver and 416 total grains of metal (silver and alloy). The purity ratio was 1445:1664. Thus, a dollar was not a unit of value, but a unit of weight based upon a precious metal commodity.
The Act of 1792 established a coin called an Eagle. An Eagle was defined as containing 247.5 grains of gold and 270 grains total metal. The purity ratio was 11:12. By statute the Eagle was established with a market exchange value of 10 dollars.
The Act of 1834 redefined the Eagle to contain 232 grains of gold and 258 grains total metal, thereby establishing a new purity mixture ratio of 232:258. The Eagle maintained a market exchange value of 10 dollars.
The Act of 1837 changed the purity ratio of both silver and gold coin to 900:1000 (9/10 purity). The new ratio changed the total metal grains of a silver dollar coin to 412.5, but did not alter the original silver content of 371.25.
The Act of 1837 maintained the 1834 total metal content of the Eagle at 258 grains, thus with the new purity ratio established a gold content of 232.2 grains.
The Act of 1849 created a new gold dollar coin to contain 25.8 grains of total metal and maintained the purity ratio of 900:1000. The Act also created the Double Eagle or $20 gold piece.
The following numbers are useful when discussing precious metal coins:
Many people erroneously refer to the dollar as containing an ounce of silver.
A Troy ounce contains 480 grains (5,760 ÷ 12 = 480). Therefore, by definition a dollar cannot contain one ounce of silver, but approximately 0.7734 of an ounce (371.25 ÷ 480 = 0.7734).
Using the numbers for a standard silver dollar coin as mentioned in the Act of 1792 (standard silver is normal grade ore, not purified), the numbers would be 416 ÷ 480 = 0.8667, still short of an ounce.
In the Troy system of weights and measurement, “one-twentieth of an ounce” (.05 ounces) would contain 24 grains (480×1/20 = 24), not 25.8 grains. Although many people refer to gold as at one time being 1/20 of an ounce, that number is actually an approximation/average of the various coinage acts as Congress tried to regulate the exchange value of gold coin. More importantly for this discussion, notice that the Act of 1792 never used such terminology as “one twentieth of an ounce of gold.” (In fact, try searching the entire Act for the word ounce or ounces.)
As a side note, the Avoirdupois measurement system defines one pound as 16 ounces and contains 437.5 grains per ounce.
Section 9 of The Coinage Act of 1792 established the definition of a dollar as “three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.”
The Act established silver as the standard bearer of the definition of a dollar, not gold. Section 20 defined the dollar as the “money of account.” However, Section 9 of the Act established a gold coin called an Eagle, to have an exchange value of 10 dollars. If you read the Act you will notice that there was no gold dollar coin. Only Eagles, Half Eagles, and Quarter Eagles.
By establishing a gold coin for circulation, Congress was exercising its constitutional mandate to regulate the value of coins. Congress was not establishing two definitions of a dollar.
Section 11 introduced a gold exchange ratio of 15 to 1, according to weight. Therefore, under the Act of 1792, although a dollar was defined as 371.25 grains of silver, gold exchanged for a dollar at 24.75 grains of gold. Mathematically then, we can calculate that an Eagle ($10) contained 247.5 grains of gold (10 x 371.25 ÷ 15). Section 9 of the Act defined the Eagle as containing “two hundred and forty-seven grains and four eighths” of pure gold. Notice the numbers match the calculations and therefore the two sections of the Act agree. Apparently members of Congress back then possessed a good grasp of mathematics.
In 1792 a $10 Eagle contained 247.5 grains of gold. Therefore, a dollar—in terms of gold—was 24.75 (247.5 ÷ 10) grains of gold. An equivalent dollar in terms of ounces of gold would have been 24.75 ÷ 480 = .0515625 oz., or about 1/19.4 (19.393939) of an ounce. The reciprocal of that number implies that an ounce of gold had a purchasing power of $19.39.
Similarly, because a dollar was defined as 371.25 grains of silver, under the Troy system that equals 0.77344 ounces. In other words, the ratio of one dollar to ounces is 1:0.77344. Taking the reciprocal of that ratio means there are 1.29 dollars in an ounce, or $1.29/oz. However, bear in mind that statutorily declaring that silver is fixed at $1.29/oz. is an arbitrary mathematical relationship, not a market exchange relationship. Such a numerical relationship has meaning as a standard only.
Using the 1792 purity ratio numbers, calculating total grains of metal in a silver dollar would be 416 (371.25 ÷ [1485/1664] ) and for a gold Eagle 270 ( [10 × 371.25 ÷ 15] ÷ [11/12] ). Those are the exact numbers seen in Section 9.
In 1792, although no gold dollar coin existed, using those same numbers to calculate the equivalent gold in a dollar, there would be 24.75 grains of gold (247.5 ÷ 10), but total grains in the coin would be 27.
The Coinage Act of 1792 established one unit of account—the dollar—but provided a bimetallic system of coinage. That two forms of metal would circulate as currency was not a problem in itself, but some problems of bimetallism quickly became apparent soon after enacting the Act. Congress tried to make the two types of coin equal in purchasing power. If Congress had merely fixed the weight of the Eagle (or vice-versa with silver), the market would have determined the purchasing power of the Eagle with respect to the silver dollar coin. That decision likely would have kept both types of metal in circulation. Unfortunately, the Act fixed the exchange rate of gold coin. Soon after enacting the Act, for consumer reasons the commodity value of gold appreciated; thus the value of the Eagle as currency was less than the market value as a commodity; and gold soon ceased circulation as currency.
After many years with almost no gold coin in circulation, in 1834 Congress attempted to correct the problem by changing the gold exchange ratio to approximately 16 to 1. Congress therefore reduced in the Eagle the number of grains to 232 (10×371.25 ÷ 16 = 232). Total grains of metal was established at 258.
This Act was intended to encourage gold to reenter circulation and that indeed did happen. Yet, as you might imagine, the market again determined the perceived value of both metals as commodities. Later, discovery of new gold deposits (Australia and California) flooded the market with gold. By being more abundant for currency circulation than silver, silver coins soon dropped from circulation and became more valuable as a commodity than as currency. Gresham’s law took effect and silver almost completely ceased circulating as currency.
In 1834, an equivalent dollar in terms of gold was 23.2 grains of gold. A dollar in terms of ounces of gold would have been 23.2 ÷ 480 = .04833 oz., or about 1/20.69 (20.6896) of an ounce. The reciprocal of that number implies that an ounce of gold had a purchasing power of $20.69.
Notice the Act of 1792 has no “9/10” rule of purity. Section 12 of the 1792 Act defined the purity of gold coins to be 11:12 (.9167) and Section 13 defined the purity of silver coins to be 1485:1664 (.8924). The 1834 Act changed only the gold ratio of an Eagle.
This “9/10 pure” content is often found in many essays at many web sites but is incorrect when used in reference to the 1792 and 1834 Acts. The precious metal content of both silver and gold coin were close to a 9/10 ratio, but that is all. However, there is a basis for the “9/10 pure” ratio. The Coinage Act of 1837 changed the precious metal content of both coins to a 900:1000 ratio.
The 1837 Act maintained the silver content of the dollar at 371.25 grains; thus changing the total grains of metal (silver and alloy) from 416 to 412.5.
With that new ratio the Coinage Act of 1837 also adjusted the gold content of the Eagle to 232.2 grains (258 grains total metal and 23.22 grains for an equivalent dollar).
Using a ratio of 9/10 pure, the commonly seen number of 25.8 grains of gold can be derived by dividing 23.22 by 0.90. However, those numbers apply only to the Act of 1837, not the Acts of 1792 or 1834. That is, the 1837 Eagle contained 232.2 grains of gold (258 grains total metal), not the 1792 or 1834 Eagle.
Although the Acts of 1834 and 1837 combined with the subsequent gold rushes caused gold to be the standard coin of circulation, the fact remains that the nation was still on a statutory silver standard because the definition of a dollar remained unchanged. However, for much of that time the United States was on a populist gold standard.
The Coinage Act of 1849 introduced a gold coin that had a market exchange value equivalent to a silver dollar coin. However, that coin was not declared the unit of value or account. The gold dollar coin was considered a subset of the Eagle series (Eagle, Half-Eagle, Quarter-Eagle), but because silver had all but vanished from circulation as currency, Congress introduced the gold “dollar” coin. The purity ratio of that coin was the same as the other coins (900:1000). That ratio was maintained into the next century. Additionally, notice that Congress maintained the 16:1 ratio between silver and gold. That fixed ratio between gold and silver would continually agitate the American monetary system.
This essay shows that although there are many meaningful and sincere people all trying to help reform current monetary policy, many fictions float around the web disguised as fact. We hope you will forward this educational information to your friends and neighbors.
By the way, so seriously did the original Founders embrace the topic of monetary standards, that the 1792 Act included a clause addressing punishment for debasing the market exchange value of any coin. Death.
Act of June 28, 1834, Chapter 95, 4 Stat. 699–700
Act of January 18, 1837, Chapter 3 Sections 8–10, 5 Stat. 136–142
Act of March 3, 1849, Chapter 109, 9 Stat. 397–398
|When a fellow says it hain’t the money but the
principle o’ the thing, it’s the money.
Frank McKinney “Kin” Hubbard, 1926
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