Mises Wire

What an Old Coin Collection Tells Us about Money from the Past

I was recently given a coin collection that belonged to another relative. Most of the coins in it are not in circulation anymore, and while you don’t see them every day, they are definitely not rare. Most aren’t in good condition either. In fact, they look much worse for wear than the coins you get as change at the grocery store. So, why would anyone bother to save these when they could have spent these coins? The reason is because, up until 1964, our American coins were minted in 90 percent silver.

Why Use Precious Metals in Coins?

Gold and silver are both precious metals, which means that they are scarce and high in quality. They have been used as a medium of exchange since prehistory. As society and governments became more advanced, these metals were minted into standardized coins that people could use as money to exchange for goods and services. The precious metal in the coins was what backed the faith in the government that produced and minted the coins. After all, even if the government producing the coins collapsed one day, the gold value was still there.

This system of money created public faith in the legitimacy of the coinage and encouraged the fast flow of commerce that in turn fueled economic growth. However, for those in favor of large government, this system has the drawback of a mostly finite money supply, with the only way to grow it being the acquisition of more gold or silver. When this is not possible, the next logical step is to devalue the currency. The government does this by reducing the precious metals in the coins and making up the difference by adding a nonprecious metal in its place.

Interestingly, while this is perfectly acceptable for the government to do, private citizens are prohibited from doing this. The grooved edges on the coin are there to discourage anyone from shaving off the metal from the edges. Also, it is still illegal to melt down United States coins for their precious metals even if the coins are no longer in circulation. However, the government is “generous” enough to allow us to take our silver-filled coins and exchange them for paper money at their face value.

Silver Value in US Coins

It’s rare today to see a half-dollar coin with President John F. Kennedy on it. Before Kennedy’s assassination, Benjamin Franklin’s bust was on that coin between 1948 and 1963, which still has a fifty-cent face value. These coins contain 12.5 grams of silver. As I write this article, one gram of silver has a spot value of $0.76. This means that the melt value (the silver alone in the coin) is worth $9.50, which is nineteen times more than the face value of the Franklin half dollar. In extremely fine condition, these coins even sell on the collector’s market for a few dollars more than their melt value.

Based on the precious metal value alone, fifty cents in 1963—12.5 grams of silver—is worth $9.50 in 2023. However, the Consumer Price Index (CPI)—the official government measure of inflation—disagrees. Using the CPI inflation calculator on the US Bureau of Labor Statistics website, fifty cents in 1963 is worth $5.06 now. While I have little faith in the accuracy of the CPI because it’s the government creating its own report card on itself, both of these numbers express huge devaluations in our currency over the past six decades.

When Did the United States Start to Devalue Its Currency?

In 1965, the United States reduced the silver content in coins like the half dollar from 90 percent to 40 percent. This coincided with the guns and butter policy that President Lyndon Johnson set the nation on in the 1960s. Massive spending on the military was needed to maintain the Vietnam War and an edge in the Cold War while Great Society welfare programs drastically expanded government spending at home.

The predictable result was that the US government was spending more money than it had. Instead of increasing taxes, it opted to devalue its coinage by reducing the precious metal content. This was done under the guise that there was not enough silver to satisfy the demands of both industrial need and coin production. While this is true, the shortage was sparked by the beginnings of a rise in inflation caused by government spending.

This reduction was still not enough, and in 1970, the treasury stopped minting coins with any silver content. The following year, President Richard Nixon took the United States off of the gold standard. This freed up the government to repay its debts by printing money out of thin air. Since then, the value of the dollar has drastically decreased every year, taking away part of the incentive of saving money.

Why Did People Save the Old Coins?

The 1960s was not the first time that the US government devalued the wealth of its citizens. Thirty years prior to that, Franklin D. Roosevelt wanted to expand the monetary supply but was limited from doing so in any meaningful way because the US dollar was pegged to the price of gold at $20/ounce. To get around this, he signed an executive order that basically outlawed the ownership of gold and silver by private citizens. Everyone was forced to sell their precious metals to the government at the government’s set price or face criminal prosecution. Once the government got most of the people’s gold, it then raised the price to $35/ounce, which increased the supply of money while decreasing the personal wealth of the average citizen.

Coins were the only legal way for Americans to own precious metals in the 1960s. When 1965 rolled around, a lot of people realized that the amount of silver in old coins was worth more than the new ones and saved these older coins. It wasn’t until the 1970s that private ownership of precious metals was made legal again thanks to legislatures who were concerned about the dollar’s decreasing value. With plenty of older coins with 40–90 percent silver in existence, this currency became a collectible.

The Purchasing Power of Coins

There has been some debate today about abolishing pennies from circulation because the cost to produce one today exceeds its face value. Most people would not even bother to pick one up if they dropped it. However, when I look at these older coins from the first half of the twentieth century, the first thing I notice is how worn down they are. That’s because the paper dollars had much stronger purchasing power than the ones of today. In 1962—one of the last years of sound money—a loaf of bread cost $0.21, a gallon of gas was $0.27, and eggs were $0.32 for a dozen.

Inflation drives up prices when too much money chases too few goods. During World War Two, the government needed to spend more money than it had so it borrowed the money from the people in the form of war bonds. Since the 1960s, the government has been confronted with the same problem but has chosen a different “solution,” the silent tax of inflation as a policy, which has made everyone’s cash less valuable.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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