When the Morgan Dollar Went to War.

 

U.S.A. Morgan Dollar, 1901-S

 

The "need" of the Morgan silver dollar was always somewhat artificial and its very existence was due in large part to the power of the "silver interests" in Congress. Western mines were producing huge amounts of bullion, greatly in excess of any need in the days before the photographic industry would sop up so much. Consequently, silver prices fell and an artifical "market" was created by the forcing through of the Bland-Allison Act ( 28 Feb. 1878 ) by which the U.S. government was ordered to purchase and coin between two and four million dollars per month. The same act also authorized the Silver Certificates whose backing were the silver dollars in storage. As things turned out, the paper certificates became the actual circulating currency while some 90% of the more than half-billion silver dollars remained in government vaults by the turn of the century. The election of William McKinley, a "Gold Man", in 1895 eventually caused the coining of silver dollars to cease. Just before election to his second term, McKinley managed to put through the Gold Standard Act of 1900, placing the U.S. finally and officially on the Gold Standard. The act also specified that only such silver as remained on hand should be coined into dollars and henceforth cease. 1904 was the last year coined. For a while.

This giant hoard of dollars remained mouldering in the vaults for years, still there when the U.S. went to war against Germany in April, 1917. Meanwhile, on the other side of the world, the British were experiencing some difficulty with their currency in British India . War costs are always high and Britain was making up for some of it by substituting greater use of paper notes for coinage silver, even to ceasing the striking of the little silver 2-anna coin and minting a copper-nickel piece instead. As well, the heretofore smallest denomination in paper, the 5-rupee note, was joined by 1- as well as 2-rupees-8-annas (i.e., 2 ½ rupees) notes. These were sort of "silver certificates", the 1-rupee even showing the equivalent coin on front and back.

German agents in India - and probably anti-British forces as well - were quick to cause trouble with these currency moves. The rumour immediately was spread that Indian paper notes probably had little or no actual backing in silver. There was a germ of truth in the rumour: even the most fiscally responsible governments at the time rarely had more than 20% actual bullion backing for their note issues - a notable exception being the U.S. "Silver Certificates" (their Gold notes may have been something else).

 

 

The rumours gained strength throughout late 1917 until by early 1918 runs on some of the smaller banks - probably orchestrated - were seeming to prove them correct. Such banks sometimes did run out of silver cash when faced with large demands of note redemption, even though they could accomplish it within a day or so. But British India required a massive - and immediate - infusion of coinage silver and there was only one place for the British to turn: their new ally, the United States .

The U.S. not only complied at once, they turned a good dollar in doing so. By the Pittman Act (23 April 1918) President Woodrow Wilson authorized the melting of 270-million silver dollars into bullion for sale to the British at a price of "not less than $1 per ounce" - well above world price at the time and significantly higher than the original bullion price paid. Not that the British had any qualms; they needed the silver and it would be turned into rupees and its fractions that themselves had a face value in excess of bullion at the rate of more than two rupees per dollar (a rupee had .3438 Troy ounce of silver, a Morgan dollar .7736). Immediately the bullion ships landed and the Indian mints at Bombay and Calcutta began to churn out rupees and their ½ - and ¼ - fractions by their millions and hundreds of millions. Of rupees alone, nearly a billion were turned out 1918-22, after which there were so many that they were not struck again for circulation until 1938. The useful fractions generally continued on although mintages per year were reasonably modest.

 

Silver, of course, took off immediately following WWI, the bullion price skyrocketing through 1919 until it reached a heady point around New Year's, 1920, where even U.S. silver had face and bullion equal - or even slightly surpassed. Then the prices broke even faster than they climbed. The silver Indian rupees were largely immune from this, it being largely a silver currency economy, and with both the notes redeemable in coin and the coins themselves, the rupee value simply rode the silver prices up and down.

The U.S. did fine as well. The Pittman Act had also specified that the silver dollars melted down had to be replaced as backing for the Silver Certificates. After a while. Having sold high, the U.S. held off buying the necessary replacement silver until after the price break in 1920. About 87-million were struck in the three U.S. mints during 1921 using dies of a copied Morgan dollar. In December, 1921, the new Peace Dollar dies were ready after which some 180-million more replacements were struck by 1928, fulfilling the provisions of the Act. The rather modest mintages of the Peace Dollar in 1934/5 were the result of Depression-era legislation.

Wayne Jacobs is a numismatic expert. Currently secretary and editor of the "Mid-Island Coin Club Numismatic Journal"of Nanaimo, Vancouver Island , British Columbia, he is the award winning author of numerous articles. The MICC journal are hosted here: MICC webpages Copyright 2006 Wayne Jacobs. This article may be reprinted freely for non commercial purpose only if the resource box is left intact, linking back to us.