Coinage Act of 1834 (United States)

The Coinage Act of 1834 put the United States on the monetary path that led to the adoption of the gold standard. By increasing the official value of gold, the act caused gold to flow to the mint for coinage because its mint price exceeded its free market price. Holders of silver found it advantageous to convert silver into gold at free market prices, and take gold to the mint, rather than to take silver directly to the mint. Thus the flow of silver to the mint vanished.
The Coinage Act of 1792 had overvalued silver relative to gold. According to official values fixed by the Act of 1792, 15 ounces of silver equaled 1 ounce of gold. In the free market, 1 ounce of gold purchased nearly 16 ounces of silver, meaning gold was worth more on the free market than at the mint. Holders of gold could obtain a larger value of coinage in face value by first purchasing silver on the free market and taking silver to the mint for coinage, rather than taking gold directly to the mint. Therefore only silver arrived at the mint for coinage, and gold coins disappeared from circulation as gold coinage came to a standstill. The overvaluation of silver in the act of 1792 was unintentional and—in the eyes of many observers—cost the states their prosperity.
Senator Thomas Hart Benton, one of the staunchest supporters of gold in United States history, apparently wanted to attract Latin American gold to the United States. In the book Benton wrote of his 30 years in the United States Senate, Thirty Years’ View, he put the issue in crystal-clear terms:
Gold goes where it finds its value, and that value is what the laws of the great nations give it. In Mexico and South America, the countries which produce gold, and from which the United States must derive their chief supply, the value of gold is 16 to 1 over silver; in the island of Cuba it is 17 to 1; in Spain and Portugal, it is 16 to 1; in the West Indies it is the same. It is not to be supposed that gold will come from these countries to the United States, if the importer is to lose one dollar in every sixteen that he brings; or that our gold will remain with us, when an exporter can gain a dollar upon every fifteen that he carries out. Such results would be contrary to the laws of trade, and therefore we must place the same value upon gold that other nations do, if we wish to gain any part of theirs, or regain any part of our own.
(Hepburn, 1924)
Congress enacted the Coinage Act of 1834 on 28 June with only 36 representatives and 7 senators voting against the legislation. Another piece of legislation, passed on the same day, gave Spanish dollars minted in the newly independent states of the former Spanish colonies the same legal-tender status enjoyed by the Spanish dollars minted in Spain.
The Coinage Act of 1834 decreased the grains of pure gold in the eagle, a $10 gold piece, from 247.4 grains to 232 grains, a decrease of 6.26 percent. The gold content of the two other gold coins minted by the Treasury, the half eagle and quarter eagle, were decreased proportionately. The act left the silver content of silver coinage untouched. The increase in mint value of gold raised the official ratio of silver to gold from 15 to 1 to 16 to 1, essentially making an ounce of gold more valuable in terms of a fixed weight of silver.
By 1834 the United States was on a de facto silver standard, and term contracts were written under the expectation that payment would be made in silver dollars, a factor that might account for the interest in keeping silver a part of the monetary standard. Proponents of the Coinage Act of 1834 saw clearly, however, that the provisions of the act pushed the United States toward a de facto gold standard. The passage of the Coinage Act of 1834 marked the first time that the United States Congress debated monetary questions, and it revealed that the majority opinion in the United States favored a gold standard over a silver standard, a view that was in step with future world trends. The California gold discoveries of the 1840s further depressed the market value of gold relative to the mint price, further adding to gold showing up at the Treasury for coinage, and the sight of a silver dollar became a rarity.