David Lange continues his retrospective of the Pittman Act of 1918 and its effect on the outcome of World War I.
Last month, I looked at the some of effects of World War I on the world’s economies and how the Pittman Act was intended to relieve these problems. This same study continues here, with a further look at both the international and domestic impact of this important legislation.
The full title of the Pittman Act contains several clauses, including “. . . to assist foreign governments at war with the enemies of the United States . . .” World War I was perhaps the first war to effectively use disinformation as a destabilizing weapon. With Americans poised to enter the war in force during the spring of 1918, Germany realized it had a very limited time to end the war in its favor. Among its tactics was an attempt to destroy British credit in the crown colony of India by spreading rumors that Britain could not redeem its silver certificates. This situation threatened outright rebellion against British rule, and as Britain was America’s ally against German and the Central Powers, the USA had to do what it could to prevent a run on the banks in India.
Of the more than 270 million silver dollars destroyed under the Pittman Act, the bullion from some 259,121,554 of these was sold to Britain at a price of one dollar per ounce plus the processing charge. This permitted the redemption of any silver certificates presented for exchange in India, thus ending the rumors of insolvency. At the time its purchases began, Britain was paying well over the market value, but the price of silver rose so dramatically during 1919 and into early 1920 that it soon seemed a bargain. All of the silver needed by Britain had been delivered by May of 1919, however, and the melting of silver dollars then ceased.
“. . . to stabilize the price and encourage the production of silver . . .” As already noted, the inflationary and speculative effects of World War I were driving up the price of silver, which had been languishing below 50 cents per ounce prior to the war. This upward trend continued for a year or more after the war’s end, and it proved to be a mixed blessing. While inflation did encourage the domestic mining of silver to increase, this did not occur rapidly enough to furnish the silver needed by Britain, and thus many millions of silver dollars were condemned.
Of greater concern, however, is that this rapid price increase also threatened America’s coinage. By early 1920, the price of silver had exceeded $1.29 per ounce, the level at which the bullion value of the subsidiary coinage (dimes, quarters and halves) equaled their face value. This set the stage for widespread hoarding and melting of these coins, yet this never actually occurred. The price of silver receded before this potential bonanza became widely understood, and there was no disruption in the economy. While other nations reacted by reducing or eliminating the silver in their coinage, the American Congress never even had time to react. The crisis was over as quickly as it had begun.
Sadly, by the time the Mint began to purchase newly mined domestic silver to replace the melted silver dollars — a provision that the Pittman Act included as a gift to the silver mining industry — the price had fallen to a point at which the mandated purchase price of one dollar per ounce was now well above the market value! At least some savings was realized when the 11,111,168 silver dollars melted and originally assigned to the production of subsidiary coinage were redirected toward replacing the dollars. So too were six million ounces of silver bullion purchased from mine owners during 1918 utilized for silver dollar coinage.
By destroying more than 270 million silver dollars, the United States lost the face value of these coins and had to withdraw the silver certificates outstanding against them. It also had to provide for the replacement of this value in circulation. Ultimately, these pieces were recoined 1921-28, but in the short term, federal reserve bank notes of the Series of 1918 were issued as temporary place holders. As the U.S. Mint began to deposit the newly minted silver dollars with the Treasury, these notes were retired and replaced with a new issue of silver certificates, the Series of 1923.
Collectors may be interested in some figures taken from the 1928 Mint Director’s Report. The silver dollars melted for sale to Britain came from the following sources: the three active mints provided 97,535,554 pieces; the New Orleans Mint, 22,400,000; the Treasury Department in Washington, DC, 112,686,000; and the New York Subtreasury, 26,500,000. The destruction of these coins was carried out at the Philadelphia Mint (158,620,554), the San Francisco Mint (74,001,000), and the New York Assay Office (26,500,000). Of the silver dollars originally earmarked for recoining into subsidiary pieces, 10 million were melted at Philadelphia, one million at San Francisco, and just 111,168 at Denver.
Bear in mind that these locations provide no clue as to the dates and mints that the melted coins carried. The Treasury Department was concerned only with the face value of the coins and the number of fine ounces of silver recovered. Which issues were destroyed and in what numbers will forever remain a mystery.
David W. Lange's column, “USA Coin Album,” appears monthly in Numismatist, the official publication of the American Numismatic Association.