A Mighty Coin: How the Morgan Silver Dollar Nearly Destroyed the U.S.

The 1893-S Morgan dollar is the business-strike key to the series and this example, graded Fine 15, realized $3,671.88 when offered in a Feb. 8, 2013, sale at Heritage Auctions. (Photo: Heritage Auctions)

By Gerald Tebben

The Morgan dollar is a mighty coin. Every collector knows that. But few know that in 1893 it nearly destroyed the United States of America.

Avarice and stupidity were to blame. Singly, they are powerful forces. In combination, and wielded by Congress, they reduced the world’s mightiest nation to one that teetered on the edge of bankruptcy.

Throughout the 19th century, the United States clung to bimetallism—a fiscal policy that valued gold and silver in fixed ratio. From the founding of the Mint in 1792 to the 1870s, gold was worth roughly 15 to 16 times as much as silver. It was up some years and down others.

In 1834, when the ratio was scraping 16-to-1, the Mint reduced the weight of gold coins. Heavier pre-1834 coins, worth more as gold than as money, were melted wholesale, causing relatively common gold coins such as the 1822 Capped Head $5 half eagle to become exceptional rarities.

After gold was discovered in California, the scales tipped the other way, forcing down the value of gold in relation to silver. In 1853, when the ratio had dropped to 15.33-to-1, the Mint acknowledged changed circumstances and reduced the weight of silver coins.

Twenty years later, following spectacular silver strikes in Colorado and Nevada, the ratio was again nearing 16-to-1. The Mint responded in traditional fashion by increasing the amount of silver in coins.

In 1873, when the government effectively demonetized silver by eliminating the silver dollar from the coinage roster, silver began a slide that saw the metal speed through the 16-1 barrier in 1874 and the 17-1 mark in 1876.

The reverse of the 1893-S Morgan dollar. (Photo: Heritage Auctions)

Alarmed mine owners, allied with populists—who saw silver artificially maintained at the 16-1 ratio as a cheap way to pay debts—persuaded Congress to dig a fiscal pit. The result was the Bland-Allison Act of 1878, which required the Mint to spend $2 million to $4 million each month on silver “and cause the same to be coined monthly, as fast as so purchased, into . . . silver dollars.”

During the dozen years the act was in effect, the federal government paid an average of $1.05 an ounce for 291 million ounces of silver that was coined into 376 million silver dollars.

Despite massive government purchases designed to protect mine owners from free markets, the silver slide continued. In 1878, the Morgan dollar’s first year, the coin contained 89 cents worth of silver. By 1889, the value had dropped to 72 cents.

Mine owners sought a congressional cure for their continued ills and played Uncle Sam for a patsy again in 1890 by securing passage of the Sherman Silver Purchase Act. It required the government to buy even more silver—4.5 million ounces a month—and to pay for it with paper money that could and would be instantly converted to gold.

Massive government purchases caused the price of silver to rise briefly to 81 cents an ounce in 1890. But it fell all the harder the next year. Before the act was repealed by a frightened Congress on Nov. 1, 1893, mine owners had been paid an additional $156 million—in effect in gold—for 169 million ounces of silver. In 1893, the silver in a silver dollar was worth just 60 cents.

Between 1890 and 1893, the nation’s gold reserve—the backing for U.S. paper money—fell nearly by half, to less than $100 million, the minimum amount needed then to sustain operations.

As Congress debated repealing the Sherman Act that fall, the economy was in shambles and the federal government was perilously close to being unable to meet its obligations. Hundreds of banks suspended operations, unemployment hit 20 percent, farm prices tumbled and thousands of businesses shuttered their doors.

Both the Morgan dollar and the nation survived the assault. But silver dollar production slowed to a trickle. Many of the series’ rarities, including the 1893-S and 1895 Morgan dollars, were born of that terrible time.

  Year       Bullion value of silver dollar      Commercial ratio of silver to gold   
1872 $1.022  15.63
1873  $1.004  15.92
1874  $0.988  16.17
1875  $0.954  16.59
1876  $0.894  17.88
1877  $0.929  17.22
1878  $0.891  17.94
1879  $0.868  18.40
1880  $0.886  18.05
1881  $0.880  18.16
1882  $0.878  18.19
1883  $0.858  18.64
1884  $0.861  18.57
1885  $0.823  19.41
1886  $0.769  20.78
1887  $0.756  21.13
1888  $0.727  21.99
1889  $0.723  22.10
1890  $0.809  19.76
1891  $0.764  20.92
1892  $0.673  23.72
1893  $0.603  26.59
1894  $0.491  32.56

 Source: Report of the Director of the Mint, 1895

Gerald Tebben, a longtime numismatist, is editor of the Central States Numismatic Society’s Centinel and a contributing writer to Coin World.

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