practice became so flagrant that in 1806 President Jefferson directed the mint to suspend the coinage of silver dollars and no more were coined until 1834. As gold had been exported or hoarded, the circulating medium was composed of foreign and debased coin and paper money issued by the banks. Currency difficulties were aggravated by the liquidation of the first Bank of the United States in 1811, the war with England in 1812, and the resulting suspension of specie payments by most of the state banks. Though the second Bank of the United States, established in 1816, made a brave attempt to restore specie payments, the scarcity of coin made the task most difficult.

20. The gold period. In order to bring gold back into circulation, Congress in 1834 reduced the weight of the gold eagle to 232 grains pure gold; in 1837 the fineness was changed to 9/10 for both gold and silver coins, thus making the weight of the gold eagle 232.2 grains of fine gold, and establishing the mint ratio of 16 to 1 between gold and silver.1 The actual commercial ratio in 1834, however, was about 15.73 to 1, so that the new coinage ratio undervalued silver just as the old ratio of 15 to 1 had overvalued it. Silver was now worth more as bullion than in the form of coins and so disappeared from circulation. Under the new ratio it became profitable to turn gold bullion into coin and after the discovery of gold in California in 1847 and in Australia a few years later, large quantities of gold came into circulation.

The disappearance of silver coins left the country badly off for small change. To meet this difficulty, Congress passed the subsidiary coinage act in 1853, which abandoned the principle of free and unlimited coinage of the fractional silver coins and directed that they should be coined only from bullion bought by the Government at the market price. The new subsidiary coins were reduced about 7 per cent in weight so that it would not be profitable to melt them to be sold as bullion, and they were not to be legal tender for more than $5. By this device a fairly adequate 1 The exact ratio established was 15.988 to 1.

supply of small silver came into circulation. The act of 1853 did not affect the silver dollar, but as it was worth from $1.01 to $1.05 as bullion, its coinage was not profitable. From 1834 down to the Civil War gold was the real standard of the country, and after the discovery of gold in California and Australia, gold coin came into circulation in large quantities. And though the silver dollar was not coined, the subsidiary coinage act of 1853 provided a fairly ample supply of small change. Thus for the first time the country possessed an adequate circulation of specie. During this period, however, the greater part of the circulating medium of the country was paper money issued by the state banks.

21. The paper standard period. To meet the tremendous expenses of the Civil War, Congress in 1862 authorized the issue of United States notes, and within a few months $400,000,000 of these notes were forced into circulation. They were made legal tender for all debts, public and private, hence the name "legal tenders." The injection of

this enormous amount of money into the circulation caused gold to disappear and reduced the country to a paper standard. At one time the greenbacks depreciated in value to about 35 cents to the dollar and prices rose and fell with the fluctuating value of these notes. When the Government suspended specie payments in 1862, silver coins. also disappeared from circulation. To meet the need for change, merchants and manufacturers issued tickets, due bills and other money substitutes. Congress tried various expedients to supply change: first, it authorized the use of postage stamps; then postal currency; and, finally, fractional paper currency in denominations corresponding to the subsidiary silver coins. At one time over $49,000,000 of this fractional paper currency was outstanding.

Another financial expedient of the Civil War period was the establishment of the national banking system in 1863. Banks organizing under this system were required to pur

1 These notes came to be known also as "greenbacks" because of their distinctive color.

chase government bonds against which they might issue their own circulating notes. In 1865 Congress passed a law imposing a tax of ten per cent on the circulating notes of state banks, which cleared the field for national bank notes. For a number of years after the war the circulating medium of the country was composed of greenbacks, national bank notes, and fractional paper currency.

22. Revision of coinage laws, 1873.-In 1873 Congress, anticipating the resumption of specie payments, made a general revision of the coinage laws in which the silver dollar was dropped from the list of authorized coins. This aroused no interest at the time, for under the ratio of 16 to 1 established in 1834 the silver dollar had become practically obsolete. In 1872 the silver bullion needed to coin a dollar was worth $1.02, so nobody thought of bringing it to the mint to be coined. Silver dollars, of which only about eight millions had been coined in the whole period since 1789, had not been in circulation for more than a generation. The act of 1873, which later came to be called by free silver advocates the "crime of '73," simply gave legal recognition to the fact that the silver dollar was no longer a part of the circulating medium.

23. Trade dollar. The coinage law of 1873 authorized the unlimited coinage of a silver coin, known as the "trade dollar," which it was supposed might be used as a substitute for the Mexican dollar in our trade with the Orient. It was legal tender in the United States only to the amount of $5. It contained 420 grains of standard silver, and so was slightly heavier than the standard silver dollar (412 grains), and was worth a trifle more than the gold dollar. Owing, however, to the decline in the gold price of silver, it became profitable to convert silver bullion into these trade dollars. In 1876 they were deprived of their legal tender quality and their coinage was restricted. In 1878 further coinage was prohibited except for "proof pieces," and in 1887 provision was made for the redemption of the outstanding coins at par in standard silver dollars or subsidiary silver. The total issue of trade dollars was $35,

965,924, of which $7,689,036 were presented for redemption,

24. The free silver controversy.-Shortly after the revision of the coinage laws in 1873, which suspended the free coinage of the silver dollar, the gold value of silver depreciated greatly and the silver question became the leading economic and political issue for a generation. From 1792, when our first coinage law was passed, to 1873, the commercial ratio of gold and silver had fluctuated between comparatively narrow margins, never falling below 16 to 1 or rising above 15 to 1. In 1875, however, the market ratio fell to 16.62 to 1; by 1880 it was 18.04 to 1; and in 1895 the ratio was 31.60 to 1. Among the circumstances that contributed to this great change in the relative values of the two metals, the following stand out prominently: (1) The opening up of rich silver mines in the Western States; (2) the stoppage of free and unlimited coinage of silver by several European countries; (3) a falling off in the demand for silver in India; (4) an increase in the value of gold as shown by the fall in the general price level of commodities.

Reference has been made to the very large issues of legal tenders by the Government during the war. These notes were simply the Government's promise to pay and did not specify how and when they were to be redeemed. Upon the restoration of peace and the return of normal financial conditions, the business interests of the country demanded the redemption of these pledges. Despite strong opposition to the retirement of the greenbacks on the part of those who wished to check the fall in prices which set in after the panic of 1873, Congress in 1875 committed itself to the resumption of specie payments. Then arose a clamorous demand, particularly from those interested in the new silver mines in the West, for the remonetization of silver, that is, the opening of the mints to the free and unlimited coinage of silver dollars at the ratio of 16 to 1. This demand on the part of the silver interests who wanted to check the falling price of their product was supported by the so-called currency "inflationists" who opposed the

resumption of specie payments and the retirement of the greenbacks. The silver agitation appealed also to the Western farmers who, after a period of high prices, were going through an era of falling prices and who believed that more money would bring higher prices; and many believed that the demonetization of the silver dollar in 1873 was an . injustice.

25. The Bland-Allison Act, 1878.-Though the silver agitation did not result in the restoration of free coinage of silver, two compromise measures were passed by Congress under which enormous quantities of silver were added to the country's circulation. The first of these measures was the Bland-Allison Act passed in 1878, which required the Treasury Department to purchase not less than $2,000,000 worth nor more than $4,000,000 worth of silver bullion a month and to coin it into standard silver dollars of 412 grains, which were again made legal tender. Under the operations of this act about 25,000,000 silver dollars were coined each year for the following twelve years. The act of 1878 provided for the deposit of silver dollars with the United States Treasury and the issue therefor of silver certificates redeemable on demand in the dollars.

26. The Sherman Act, 1890.-Despite this aid to silver its price measured in gold continued to fall, and the advocates of free silver kept up their agitation both in and out of Congress. In 1890, therefore, another compromise measure, known as the Sherman Act, was passed, which required the Secretary of the Treasury to purchase monthly 4,500,000 ounces of silver at the market price to be paid for by the issue of treasury notes. These notes were made full legal tender, and were redeemable in gold or silver coin at the discretion of the Secretary of the Treasury. They were known as "coin notes," also as "Sherman notes.' The silver purchased was to be coined only as rapidly as was necessary to redeem the notes, but the act of 1890 provided that when the notes were redeemed or received for dues they might be reissued. As a result of these two silver purchase acts over 576,000,000 standard silver dollars were