What was the official mint ratio of ounces of silver to gold?
Understand the US government's efforts to fix and adapt the silver-to-gold ratio for its early monetary system.
In the early years of the United States, a monetary system known as bimetallism was adopted. This system defined the value of the nation’s currency by making the monetary unit equivalent to specific quantities of gold and silver. A primary goal was to foster a stable and flexible monetary environment.
To implement bimetallism effectively, a legal “official mint ratio” between gold and silver was established. This fixed ratio determined the proportional value of gold to silver in coins for circulation. This ratio ensured consistent valuation and interchangeability of gold and silver coinage within the economy.
The Initial US Mint Ratio of 1792
The United States formally adopted a bimetallic standard with the Coinage Act of April 2, 1792. This legislation established the U.S. Mint and its coinage specifications. A central provision declared the proportional value of gold to silver in coins would be fifteen to one.
This meant one ounce of gold was legally equal to fifteen ounces of silver for coinage purposes. The rationale behind the 15:1 ratio, as proposed by Alexander Hamilton in his report, was to align the mint ratio with prevailing market rates in international commerce. Hamilton aimed to prevent either metal from being undervalued at the mint, which could lead to its disappearance from circulation.
Despite this intention, the 1792 ratio resulted in an undervaluation of gold at the mint compared to its market value. The market ratio of gold to silver often hovered closer to 15.5:1 or 16:1. This disparity incentivized individuals to export or hoard gold coins, as they could obtain more silver in the open market than at the mint.
Consequently, gold coins became scarce in domestic circulation, with silver largely dominating the currency supply. This imbalance, where the more valuable gold flowed out of the country or was hoarded, demonstrated the challenges of maintaining a statutory ratio that diverged from market realities. This phenomenon is known as Gresham’s Law—where “bad money drives out good.”
Ratio Adjustments and Their Economic Impact
Recognizing issues from the 1792 mint ratio, Congress enacted changes to address gold’s undervaluation. The Coinage Act of June 28, 1834, altered the official ratio between gold and silver. This act set the new ratio at approximately 16 to 1 by reducing the fine gold content in U.S. gold coins while keeping their face value the same.
Further refinement occurred with the Coinage Act of January 18, 1837, which slightly adjusted the ratio to 16.002 to 1. The motivation behind these adjustments was to correct the imbalance that had driven gold out of circulation and encourage its re-entry into the monetary system. By making gold more valuable at the mint, lawmakers hoped to align the official rate with international market values, stimulating gold coinage and circulation.
The economic impact of this new 16:1 ratio was a reversal of the previous situation. With gold now overvalued at the mint relative to its market price, it became more profitable to bring gold for coinage. Conversely, silver became undervalued at the mint, leading to its export or hoarding. Silver coins began to disappear from circulation as their bullion value exceeded their face value.
This shift resulted in a scarcity of silver coins for everyday transactions, creating inconvenience for commerce. While the intent was to stabilize the bimetallic system, the adjustments inadvertently favored gold, setting the stage for future monetary developments. The challenge of maintaining a fixed ratio between two metals, whose market values constantly fluctuated, posed a challenge for the bimetallic standard.
The Shift Away from Bimetallism
Maintaining a fixed mint ratio between gold and silver proved increasingly difficult due to dynamic market forces. Significant events, such as the California Gold Rush in the mid-19th century, increased the global supply of gold. This influx of gold further disrupted the balance of the bimetallic system, making it harder to sustain the mint ratio.
The growing disparity between the official mint ratio and the fluctuating market values of gold and silver led to a gradual move away from bimetallism. A key legislative action in this transition was the Coinage Act of February 12, 1873. This act, sometimes controversially termed the “Crime of ’73,” removed the standard silver dollar from authorized coinage, effectively ending the free and unlimited coinage of silver for standard currency.
While the act did not explicitly abolish silver as legal tender, it significantly demonetized it for new coinage, establishing a de facto gold standard for the United States. This meant gold became the primary metal backing the currency, and individuals could no longer freely bring silver bullion to the mint for coinage. The shift generated political debate, particularly from those who advocated for “free silver” to expand the money supply and alleviate debt.
The formal adoption of the gold standard was solidified with the Gold Standard Act of March 14, 1900. This act established gold as the sole standard for U.S. currency, ending any pretense of a bimetallic system. With this legislation, the concept of an official mint ratio between silver and gold for standard coinage became obsolete.