Analyzing The Pitman Act of 1918

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Many articles regarding the history of Morgan silver dollars have made reference to the Pittman Act of 1918, under which 270,232,722 silver dollars were rendered into bullion. Typically, this figure is presented to justify the current scarcity of certain issues, which had high mintages, and little more information is included regarding this remarkable piece of legislation. While the story of how the bill was prepared and enacted is of some interest, it is the way in which its terms were carried out that provides the subject of this month's column.

In the course of researching my various books, one of the most useful documents has been the annual report of the director of the Mint. Still published today, recent editions have been quite skimpy and read more like shareholder's reports, with the emphasis being mostly on the Mint's marketing efforts and profitability. Earlier editions, however, particularly those from the 1890s through the 1920s, offer a wealth of historical and technical data. The 1928 edition includes a detailed summary of the Mint's fulfillment of the Pittman Act, and much of this information is unknown to the majority of silver dollar enthusiasts.

Enacted April 23, 1918 and named for its primary sponsor, Senator Key Pittman, this law was titled "An act to conserve the gold supply of the United States; to permit the settlement in silver of trade balances adverse to the United States; to provide silver for subsidiary coinage and for commercial use; to assist foreign governments at war with the enemies of the United States; and for the above purposes to stabilize the price and encourage the production of silver." It authorized the destruction of up to 350 million silver dollars, as needed, for the goals stated above.

Let's look at this legislation and its effects one clause at a time: "... to conserve the gold supply of the United States..." World War I began in 1914, lasted through most of 1918, and, in some countries, was followed by two or three years more of civil unrest. Among the war's first casualties was gold coinage. While the USA continued to coin and issue gold as late as 1916, most of the world's nations were compelled to suspend their gold standards almost immediately. Pumped-up wartime spending had led to inflation and speculation in precious metals, and this prompted the discontinuance of gold coinage. Most European silver coins dated 1915-20 survive in uncirculated or just lightly worn condition, as they were immediately hoarded for their intrinsic value.

In the USA, the payment of gold coin was suspended in 1916, and for the next several years these coins could be obtained only at a slight premium. It was not until 1920 that the normal coining of gold resumed, but the everyday use of these coins in commerce, once a common sight in the Western states, had gone forever. The quarter and half eagles were seldom coined and remained premium pieces, while the higher-value gold coins were unknown to Americans other than bankers and coin collectors. America's entry into the war in April of 1917 required the same massive expenditures that were then ruining the economies of Europe. With its undeveloped armed services, the USA was heavily dependent on European arms, aircraft, etc. International payments were always made in gold, and this left our nation with a negative balance of payments.

While this trend was ultimately reversed with America becoming the postwar banker to Europe, in the short term it created a drain on the USA's gold supply. The Pittman Act thus attempted to address this concern by freeing idle silver dollars that were offered in lieu of the precious gold. Desperate for American money and military personnel, the nations of Europe were likely to comply with this compromise. Thus we find the phrase "to permit the settlement in silver of trade balances adverse to the United States" included as the second clause in the Pittman Act's title.

 To provide silver for subsidiary coinage and for commercial use ..." As the melting of silver dollars commenced, 11,111,168 pieces were assigned toward the coining of subsidiary coins (after 1853, the half dollar, quarter dollar, dime and half dime had been coined at a lower weight standard than the dollar and were thus subsidiary to it). The reason for including this provision was that the U.S. Mint was coping in 1918 with an unprecedented demand for all coins, from cent through half dollar, due to the booming wartime economy. It was seen as a way of relieving this situation and partially compensating the Mint for its time lost in melting millions of silver dollars. The reference to "commercial use" was likely included to curb inflationary pressure on the price of silver, which was making its use in industry very difficult, By flooding the domestic market with silver, its price was almost certain to come down a bit.

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
placeholders. 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 Sub treasury, 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.