A Short History of Paper Money and Banking

The money unit of the United States is the dollar, consisting of 416 grains of standard silver, or 371¼ grains of pure silver and 34¾ grains of alloy. All our contracts are to pay and receive dollars; all our accounts are kept in dollars. The dollar is thus our money of both account and contract, and its legal value is fixed by our having a coin of the same name, containing the quantity of pure silver and alloy which has just been mentioned.

Gold is, in the spirit of our laws, a subsidiary currency, its value being computed in silver dollars. At the United States Mint it is rated as fifteen to one—that is to say, one ounce of gold is considered as worth fifteen ounces of silver; or, what is the same thing, as many grains of pure gold as are equal to the number of grains of pure silver contained in a dollar, are coined into an eagle and a half eagle, and estimated at the mint as worth fifteen dollars.

The market rate of gold to silver, as determined by sales of gold bullion and silver bullion, in a series of years past, is about 15.8 to 1. Consequently, if the mint rate corresponded with the market rate, the quantity of pure gold contained in an eagle and a half eagle, ought to be estimated at the mint at about fifteen dollars and eighty cents.

The undervaluation of gold at the mint, is not the reason that it has disappeared from circulation. Eagles have disappeared for the same reason that dollars have disappeared. Whenever Bank notes are used, no more specie is retained in a country than is necessary for transactions of a smaller amount than the least denomination of paper, and is necessary for meeting the few stray notes that may be presented to the Banks for payment. It has been found impossible in England to make sovereigns and one pound notes circulate currently; and we all know that small notes in the United States have not only driven away gold coins, but also such silver coins as are of a higher denomination than a half dollar.

If Bank notes had never been introduced, eagles, half-eagles, and quarter-eagles would have continued in circulation, notwithstanding the undervaluation of gold at the mint. The eagle would not have been current at the rate of ten dollars; but at the rate of ten dollars and fifty cents, ten dollars and seventy-five cents—or whatever else it would have been worth. The calculation of the fraction would have been productive of some inconvenience; but the utility of gold coins, in large transactions, would have made them current at a rate probably a little above that which they have borne in the bullion market.

A new gold coinage is desirable; but the proposition to coin eagles of a less weight than the eagles of former times, is not entirely free from objection. As all our contracts are to pay dollars, and as there is no gold at present in circulation, an issue of a new coin, called an eagle, which should be of the exact value of ten dollars, would cause no practical injustice. But the issue of a new coin of different weight from the old, and yet bearing the same name, might give countenance to the idea that money is something which owes its value to the authority of Government, and lead, perhaps, at some future time, to an alteration in the dollar—an alteration in our true standard of value.

The Eagle is the proper name of a coin which contains 247½ grains of pure gold, or 270 grains of standard gold, of twenty-two carats fineness. A coin which would contain but 234.84 grains of pure gold, or 256.20 grains of standard gold, ought to be called by another name, and, to prevent all possibility of mistake, should have a different device. “When the English ceased to coin pieces containing 118 58–89 grains of pure gold, and began to coin pieces containing 113 grains of pure gold, they did not call the new pieces by the same name as the old. But if the proposition which was laid before Congress, a year or two since, should be adopted, there will be a greater difference in the weight and value of our new half-eagles and our old half-eagles, than there is in those of English sovereigns and English guineas.

To attempt to fix by law what is not fixed by nature, is preposterous. Gold and silver vary in value when compared with one another, in the same manner as copper and iron vary. The variations in the relative value of the precious, metals are, it is true, very small; but in different epochs of our history, 232,234,238,247,250, and 252 grains of pure gold may be worth ten silver dollars. If we should, through all such changes, pertinaciously insist on coining eagles, adapting the quantity of gold in them to the varying state of the bullion market, we should have a dozen different coins, each of a different weight, and yet all bearing the same name.

As there is little use for a gold coin so small as the quarter-eagle, and as we have imitated the Spaniards in our silver coinage, perhaps it would be judicious to imitate them in our gold coinage also, and issue American doubloons, half-doubloons, and quarter-doubloons, of the respective values of sixteen dollars, eight dollars, and four dollars. But, if pieces containing five and ten dollars’ worth of gold be preferred, call the ten dollar piece, “the Republican,” “the President,” or by any name that may please the fancy, except that of “the Eagle.” This is a name affixed, by long usage, to a piece containing neither more nor less than 270 grains of standard gold, and calling a piece containing a fewer number of grains by the same name, will certainly lead to confusion of ideas, and perhaps, at some future period, to practical injustice.

Whatever kind of new coins may be preferred, it will be proper to stamp on them the number of grains of pure gold and alloy that they may contain. Each new gold piece will then be a primer of political economy, and help in dissipating the erroneous ideas entertained respecting money.

It will be quite unnecessary to declare by law, that the new gold coins shall be a tender in payment of private debts. People who receive Bank notes at their nominal value, will not refuse gold at its real value.

To ascertain the quantity of gold it would be proper to put in the new pieces, nothing more is necessary than to strike an average of the price gold bullion has borne as compared with silver bullion, in the principal markets of the world, during the last ten years. The mint regulations of different countries, are of no further account than as they affect the value of gold and silver in the bullion market.

If, from some error in the data made the basis of the calculation, the gold in the new coins should happen to be rated a decimal fraction too low, so small an undervaluation will not cause the coins to be exported. Their utility as a circulating medium will keep them in circulation, the issue of five and ten dollar notes being prohibited.

If the gold should happen to be rated a decimal fraction to high, it will not, as some seem to fear, drive silver out of circulation. The necessity for silver coins in small payments will cause them to be retained in the country.

Should there be a greater error than a decimal fraction either too much or too little, in the valuation of gold, the new coin would continue to circulate, but at a small discount or a small premium, thus correcting the error of the mint valuation.

If one metal be made the standard and the legal tender, neither gold nor silver can be driven from circulation, except by paper, and paper cannot obtain currency except through the sanction or the connivance of government.

Gold is undervalued at the French mint, as well as at our own: but, according to Mr. Gallatin, “it is only during short and extraordinary periods, that the fluctuations have been so great, as that the gold coins did either fall to the par of silver coins, or rise to the premium of one per cent. During by far the greater period of forty-five years, the premium has fluctuated from one-fifth to one-half per cent.: so that the variations in the relative price of the two metals have, with the few exceptions above mentioned, been less than one-third per cent.” From the result of experience in France, there is every reason to believe, with Mr. Gallatin, that “the fluctuation in the relative market price of gold and silver, issued under proper mint regulations, would be so small a quantity that it might be neglected.”

To establish a system of sound currency and sound credit, it is not absolutely necessary to have a new gold coinage. Only let Bank notes be withdrawn, and eagles, half-eagles, and quarter-eagles, will come into circulation, and pass at their real value. But as four and eight, or five and ten dollar pieces, would be more convenient than pieces of the worth of five dollars and the indeterminate parts of a dollar, or ten dollars and the indeterminate parts of a dollar, a new gold coinage is desirable. It would be attended with injustice to no individual. No seignorage being charged at our mint, whatever quantity of gold bullion a man sent there, he would receive back the same amount in gold coin: and this coin he would pass in the market for whatever it might be worth.