From 1792 to 1964, the United States Congress established many coinage acts to combat inflation, steady the cost of precious metals, or establish national currencies. The Coinage Act of 1834 stands out as the Act that laid the groundwork for a de facto gold standard in the United States and aligned with President Jackson’s broader goal of reducing the influence of centralized banking and promoting specie-based currency.
The Coinage Act of 1834 and Gold
On June 28, 1834, the United States Congress adjusted the gold content in coins to 16:1 aligning more closely with international standards at the time, eliminating the 15:1 ratio established by the 1792 Coinage Act. Raising the ratio set the mint price for silver below its international market price. The primary goal of the Coinage Act of 1834 was to reinforce gold and silver’s status in the nation’s bimetallic monetary system and to ensure that gold coins stay in circulation within the United States and not be exported. Following the Coinage Act of 1834, over 2.1 million Classic Head Half Eagles ($5 gold coins) were minted between 1834 and 1837.
In addition, the Act allowed the United States Treasury Department to pay 5 days after the gold was deposited at the mint. This speeds up the process of minting coins for gold. Before this, payment delays often discouraged people from bringing gold to the mint, slowing the production and circulation of coins.
By guaranteeing quick payment, after deducting a small fee, Congress created a stronger incentive for individuals, banks, and merchants to convert their gold into official U.S. coins. This payment method helped increase the supply of gold coins in circulation and supported the government’s goal of reinforcing gold’s place in the national currency system.
International Currency and The Coinage Act of 1834
Prior to the 1857 Coinage Act, foreign coins circulated freely in the US, and issues of their varying quality and the risk of counterfeiting were significant concerns. In fact, the 1834 Coinage Act formally assigned official exchange rates to certain foreign gold coins from Britain, Portugal, Brazil, France, Spain, Mexico, and Colombia.
For example, British, Portuguese, and Brazilian coins were valued at 94.8 cents per pennyweight. The law also required these coins to be assayed annually to ensure their quality and continued acceptability in U.S. payments. The 1857 Act ultimately ended the legal tender status of most foreign coins, moving the country toward a standardized national currency.
De Facto Gold Standard & Effect on Silver
The Coinage Act of 1834 effectively changed the mint ratio of silver to gold from 15:1 to approximately 16:1 by reducing the gold content in U.S. coins. This made gold coins less undervalued relative to the international market and helped keep them in domestic circulation. In contrast, silver became relatively overvalued at the mint compared to its global price, which encouraged its export and hoarding.
As a result, silver coins began disappearing from circulation, creating a shortage of small change. The increased use of gold coins domestically, combined with silver’s withdrawal, led to a shift toward a de facto gold standard. To combat the silver shortage and prevent further export, Congress passed the Coinage Act of 1853, which reduced the silver content in smaller denominations like dimes, quarters, and half dollars. This made them unattractive for melting or export, ensuring their availability for everyday transactions.
Melting Coins for Profit
The Coinage Act of 1834 played a crucial role in stopping the widespread practice of melting down U.S. gold coins for profit. Before the Act, American gold coins contained more gold than their face value warranted, making them more valuable as bullion than as currency. This imbalance encouraged speculators to melt the coins and sell the raw gold, often overseas, leading to a shortage of gold coinage in circulation. To fix this, the Act reduced the amount of gold in each coin, ensuring that its face value was slightly higher than its intrinsic metal value. While the law didn’t explicitly ban melting coins, it made the practice economically pointless, effectively putting an end to it. By realigning coin value with market realities, the Act helped stabilize the currency system and ensured U.S. gold coins would stay in circulation rather than being melted for profit.
Gold Coin Changes
Congress reestablished in 1834 the number of grains of pure gold in each coin listed below. While grains are used today in specific circumstances, modern gold markets typically use troy ounces or grams. Gold Eagle coins minted during this time are very valuable.
- Gold Eagle: 232 grains of pure gold and 258 grains of standard gold with a $10 value
- Gold Half Eagle: 116 grains of pure gold and 129 grains of standard gold with a $5 value
- Gold Quarter Eagle: 58 grains of pure gold and 64.5 grains of standard gold with a $2.50 value
Gold Eagle coins were to be fully legal tender at their face value if they had the full weight listed above or proportionally lower if they were underweight. This policy ensured that even worn or slightly clipped coins could still be used in everyday transactions without being rejected. By allowing underweight coins to retain partial value, the government encouraged continued use rather than hoarding or melting.
The Consequences – Bank Notes
Bank notes were affected by the Coinage Act of 1834. Although the Coinage Act of 1834 did not directly change paper money, it significantly impacted how bank notes were viewed and used. At the time, most paper currency came from private state banks, and its value depended on the strength of the issuing bank. By increasing the circulation of gold coins and setting a clear gold standard, the Act made gold the trusted value benchmark.
This change pressured banks to maintain sufficient gold reserves to support their issued notes, highlighting the vulnerabilities of weaker banks that lacked adequate gold. As gold coins became more prevalent and trustworthy, the shortcomings of the banking system became increasingly evident to the public. These problems would eventually lead to larger reforms, including federal control over currency in the decades that followed. The Coinage Act of 1834 helped highlight the need for a more unified and trustworthy national money system.
United States Economy Impact
Five years after the Coinage Act of 1834, the U.S. economy saw increased gold coin circulation, greater public trust in gold, and reduced silver availability. The Act supported a transition from paper money and centralized banking, but these changes and other factors also contributed to the Panic of 1837, a major financial crisis that caused widespread bank failures and a severe recession.
