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The myth of circulating gold in the early 20th century.
RWB
Posts: 8,082 ✭
Collectors are “raised” on the idea that gold coin circulated freely prior to 1934. Reality is that while gold coins were available for commercial use, few actually were used as money – what was called “gold” was more commonly in the form of paper gold certificates. Here are just a couple of many examples.
As early as 1902, mint Director Roberts noted in his annual report,
“It is opportune here to call attention to the fact that the gold coinage of the country is now entering almost entirely into storage and that the cost of coinage is an unnecessary expense….Practically all of the current coinage is being deposited in the Treasury for certificates. When gold is required for export it is wanted in bars, while for domestic circulation the public prefers the Treasury certificates….”
Twenty years later, little had changed: day-to-day commerce in the United States had minimal dependence on gold coin. Economist Oliver Lockhart noted the status of gold coin in 1924:
“In this country, gold circulated actively only in the form of certificates, the smallest denominations of which are $10 and $20. Reserve notes of these denominations have most directly contributed to the absorption of gold by the Federal Reserve banks, for the reason that they can most readily be substituted in circulation for gold certificates of like denominations.”
As early as 1902, mint Director Roberts noted in his annual report,
“It is opportune here to call attention to the fact that the gold coinage of the country is now entering almost entirely into storage and that the cost of coinage is an unnecessary expense….Practically all of the current coinage is being deposited in the Treasury for certificates. When gold is required for export it is wanted in bars, while for domestic circulation the public prefers the Treasury certificates….”
Twenty years later, little had changed: day-to-day commerce in the United States had minimal dependence on gold coin. Economist Oliver Lockhart noted the status of gold coin in 1924:
“In this country, gold circulated actively only in the form of certificates, the smallest denominations of which are $10 and $20. Reserve notes of these denominations have most directly contributed to the absorption of gold by the Federal Reserve banks, for the reason that they can most readily be substituted in circulation for gold certificates of like denominations.”
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Those of us who are more sophisticated (i.e., those who have been reading your work over the past several years) understand that gold coins mostly circulated in California (and perhaps the West) and that the rest of the country preferred paper money - except at Christmas, of course.
Check out the Southern Gold Society
(During the Great Depression the FRBs did not work together and each took a limited, regional view. This helped make the depression worse by confused policy and local interest dominating national interest.)
The western states had more circulating gold use than elsewhere, but it was still a lot less than we tend to assume. Keep in mind that the population of western states was small at that time, and comparatively isolated.
The VAST MAJORITY of the pre-World War One Indian Head and St. Gaudens U.S. gold that came in from family hoards (as opposed to collectors) showed signs of extensive normal circulation. The same can be said for 1920 and 1922 $20 Saints. Perhaps a significant percentage of the mintages of these coins did stay in the Treasury vaults and get melted after 1933, but those denominations DID CIRCULATE!
TD
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
According to several mint documents, the Indian design pieces were more easily abraded than the old design. However, I suspect that the main reason is that extensive recoinage of worn gold affected small denominations of the earlier Liberty type, more than small denominations of the Indian type. (WW-I marked the death of $5 and $2.50 with a few scattered exceptions. Many of these were used as gifts, then went right back into Treasury vaults until the next year.)
But I don't recall hearing or seeing a single non-cache $10 Indian or $20 saint found with a detector. And $2.5 and $5 indians finds are almost as rare.
It's anecdotal, but the truth about detecting is that if it was there and it exchanged hands, it was lost and detectorists will find it. It's that simple. But it just doesn't happen with 20th century gold.
--Severian the Lame
However, as Andy says, there are a LOT of well circulated 1908-1915 $2-1/2's, and 1910-1916 $5's. This is more than could be accounted for by a once a year trip around the block at Christmas.
These coins did circulate.
TD
Sure the ultra rich would carry then as bellman and doorman tips but in the 1910's, 1920's and 1930's, $10 and $20 was a LOT of money. Kinda like suggesting folks normally walk around with multiple $100 bills in their pockets today.
Some do, but the vast majority do not.
The name is LEE!
<< <i>There are a lot of well worn Morgan and Peace Dollars as well but that doesn't necessarily mean they circulated in the traditional sense.
Sure the ultra rich would carry then as bellman and doorman tips but in the 1910's, 1920's and 1930's, $10 and $20 was a LOT of money. Kinda like suggesting folks normally walk around with multiple $100 bills in their pockets today.
Some do, but the vast majority do not. >>
Huh?
One problem with the above analysis is that well-worn gold coins without numismatic value were likely turned in and melted down in 1933. Thus, the numbers may be skewed toward the high grade pieces that sat in coin collections. However, it is not disputable that 5c to 50c coins of the early 1900s took a real beating in circulation. Many Barber coins have only a few hundred MS examples remaining out of original mintages in the millions.
If you review the Mint annual reports from the second half of the 19th century, you can see how many coins of each denomination were recoined every year. From the number of double eagles that were recoined, I infer that they were recoined almost as soon as they were worn down to XF/AU.
Also, while US gold coins really did circulate in the Pre-Civil War period, they were mostly used by travelers (no Federal paper money was available) and to pay tariffs (which meant that the coins mostly went from the bank to the Customs Office and back again). People in the major cities (where most of the money was, after all) could use currency issued by their local banks or checks for most purposes. (I collect old checks and have a number of them from before the Civil War.)
After the Civil War, especially after Specie Resumption in 1879, there really wasn't much need for gold coins in commerce - paper money was much more convenient for most people and uses.
Check out the Southern Gold Society
“In this country, gold circulated actively only in the form of certificates, the smallest denominations of which are $10 and $20. Reserve notes of these denominations have most directly contributed to the absorption of gold by the Federal Reserve banks, for the reason that they can most readily be substituted in circulation for gold certificates of like denominations.”>>
Actually, I think we can divide 1900-1933 into 5 different periods.
1) 1900 - WWI Gold circulated mainly as gold certificates as Roger has already mentioned.
2) WWI - 1922 Gold and gold certificate pulled out of circulation by the Fed.
3) 1922-1932 Gold certificates pushed back into circulation to limit possible inflation by the Fed with its large gold reserves.
4) 1932-1933 Big time hoarding of gold certificates. FRN's reach limit and FRBN's addded to the circulation mix.
5 ) 1933 Gold and gold certificate surrender order
I think this observation is quite logical as well. Hoarders wanted the larger values. The general public wanted small values, since that is probably all the average person could afford.
<< <i>Isn't it more common to see worn $5 Indians than, for example, worn $20 Saints? It seems that way to me (though I am definitely no expert in this area). If true, that suggests the bigger coins sat in the vaults, like RWB's research indicates, but the smaller gold denominations circulated more. >>
I have seen so many well-worn gold coins it is hard to say that which was more circulated. About five years ago I had a lawyer walk into the coin shop and say I need an appraisal for an estate. He opened up his briefcase and pulled out a cloth sack and dropped it on the case.
IT WENT THUD!!!
I said "All gold?" He nodded. I said "Let's go in the back." The deceased had told his family that he had some gold he did not turn in in 1933. IIRC, there was roughly $1,450 face in the sack, roughly $200 in $5's, $800 in $10's and $450 in $20's. Only five or six $2-1/2's.
The great majority of it was in XF to AU condition. After we bought it I picked out, again IIRC, five BU $5's that we sent in for slabbing. The rest was what I considered average circulated, not worth slabbing, and circulated from being in circulation, not from being in the bag.
Roger, you can say that a large percentage of the total gold coin mintage stayed in the Treasury if you wish, but please get it through your head that gold coins did circulate in America!
Call up Dillon-Gage and Rarcoa and ask them how many circ. $20 Saits they have in inventory right now. On a good day it could be thousands.
TD
TD
The Mysterious Egyptian Magic Coin
Coins in Movies
Coins on Television
Commentary on the Great Depression, Gold Confiscation, and the Federal Reserve Bank
<< <i>My take on the subject:
Commentary on the Great Depression, Gold Confiscation, and the Federal Reserve Bank >>
Great read... thanks for sharing!
We truly live in a fiat-currency-based economy.
i don't think he's saying they didn't circulate, the statement that "while gold coins were available for commercial use, few actually were used as money" is fairly clear. it's the same as with Morgan/Peace Dollars; while there were some which circulated the bulk of what was struck never did and probably were never inetended to circulate. my way of thinking has always been that the larger denominations of Gold were mainly coined to facilitate commerce on the level of transactions between businesses and not necessarily individuals. Silver Dollars were coined mainly to appease the Silver Mine owners and certain politicians. small denomination Gold was needed for day-to-day transactions just as Copper/Nickel/small denomination Silver was needed, just not the larger coins.
if the yearly wage of an average American at the turn of the Century was approximately $400, he'd be carrying around 5% of his annual income, or about three weeks pay, if he had a $20 Coronet in his pocket. transpose those figures to the current day and figure around $50k. at 5% it means the average American should be carrying around $2,500 in his pocket!!! maybe not a good comparison but i think it's revealing just the same.
<< <i>Isn't it more common to see worn $5 Indians than, for example, worn $20 Saints? It seems that way to me (though I am definitely no expert in this area). If true, that suggests the bigger coins sat in the vaults, like RWB's research indicates, but the smaller gold denominations circulated more.
I have seen so many well-worn gold coins it is hard to say that which was more circulated. >>
The premiums on low-MS $2.50 and $5 Indians are much higher than those for common date Saints (which sell for little more than XF/AU prices). That suggests that there are relatively fewer UNC Indians out there. Does that mean Indians circulated more than Saints? That seems to be at least a possible conclusion based on the "surviving evidence."
around six million Quarter Eagle Indians and around thirtteen million Half Eagle Indians were struck. by comparison, 1924 and 1928 Saints have a combined number struck of around thirtteen million. draw your own conclusions.
<< <i>around six million Quarter Eagle Indians and around thirtteen million Half Eagle Indians were struck. by comparison, 1924 and 1928 Saints have a combined number struck of around thirtteen million. draw your own conclusions. >>
That's why I suggested it as a possibility - nothing more. Without knowing how many were melted of each type -- and what proportion of the coins melted were circulated versus UNC -- the surviving coins probably don't tell us much.
After the war, circulation of gold coins never recovered, hence the low mintages of small denominations. (Compare values not piece count.) Treasury shipping records show clear seasonal patterns for small gold requests by banks. These patterns are supported by internal correspondence noting the consistent seasonal demand, and by expressions of the waste in time and material to make them for non business use. (This parallels the situation of the $1 gold where for at least the final 15 years of production, almost none entered commerce – they were used for jewelry in Britain and Japan.)
My purpose in the original post was the get folks looking more critically at the old assumptions and myths that have grown up around the subject. There are many ways to do that.
In more modern times the 40% was reduced to 25% gold backing.
Now it is 0 %.
Reason? The new immigrants were afraid to bank their family life savings as they were afraid of the banks mostly due to the language barrier. The poor? They were too transient to have bank accounts. Those with limited education? Many never learned to do business with banks and were simply intimidated by the grandeur of the large banks they did see.
As a result, while most of the gold coins did NOT circulate as RWB correctly states, there was a small portion of the population that did extensively circulate their gold coins for various reasons including the reasons stated above.
The reason for the low premiums on Unc Saints is that there are huge numbers of them available, far more than are needed to satisfy collector demand. The ratio of uncs to circs is therefore irrelevant, at least for the common dates.
As for the $2.50 and $5 Indians, the supply of uncs is much smaller. Collectors have to fight for them, and some have to settle for circs.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
<< <i>During WW-I US business did without gold coins or bullion bars. They found out that the metal wasn’t needed. The economy worked just fine. Federal Reserve Notes were backed by gold until the US left the fully convertible gold standard.
After the war, circulation of gold coins never recovered, hence the low mintages of small denominations. (Compare values not piece count.) Treasury shipping records show clear seasonal patterns for small gold requests by banks. These patterns are supported by internal correspondence noting the consistent seasonal demand, and by expressions of the waste in time and material to make them for non business use. (This parallels the situation of the $1 gold where for at least the final 15 years of production, almost none entered commerce – they were used for jewelry in Britain and Japan.)
My purpose in the original post was the get folks looking more critically at the old assumptions and myths that have grown up around the subject. There are many ways to do that. >>
Thanks again for an informative post. Keep them coming!
I think you're being confused by the misuse of the word "backed".
What people are referring to in this thread is the ability to take a Federal Reserve Note to a bank and exchange it for its face value in gold, which one couldn't do between 1861 and 1878, but which one could do from 1879 until the US was taken off the gold standard in 1933.
Check out the Southern Gold Society
agree that both RWB and Capt Henway are correct with the direction they took -- the value of a
typical gold coin in terms of average salary during the early 1900's would preclude widespread
circulation. On the other hand, the in-hand evidence supports the idea that some gold coins did
receive extensive wear. The question is, did this wear come through actual circulation, or was it
due to repeated handling and counting by the owner?
<< <i>My grandparents told me that the $2 1/2 and $5 gold coins circulated mostly after 1905 with the new immigrants and/or those who had limited education and or economic status. In other words, those two gold coins were likely to circulate with the poor and those who knew little English.
Reason? The new immigrants were afraid to bank their family life savings as they were afraid of the banks mostly due to the language barrier. The poor? They were too transient to have bank accounts. Those with limited education? Many never learned to do business with banks and were simply intimidated by the grandeur of the large banks they did see.
As a result, while most of the gold coins did NOT circulate as RWB correctly states, there was a small portion of the population that did extensively circulate their gold coins for various reasons including the reasons stated above. >>
Good point. We had a large iflux of European immigrants who were used to dealing in gold and silver.
I seem to recall reading somewhere that when immigrants came in through Ellis Island, they were strongly encouraged to exchange their European gold and silver, which basically represented their life savings since they were never going back, for U.S. money. One would assume that they received gold for gold and silver for silver, subject to change in lesser metals due to the differing face values and exchange rates. Can anybody document this?
Many then went on to ethnic communities, where perhaps they traded among themselves, keeping the coins in "circulation." Gold not needed for necessities would be held, hidden, for emergencies. One would assume that such a population would be less inclined to surrender the gold coins in 1933.
TD
Was this gold not in "circulation" before it was turned in?
TD
<< <i>During WW-I US business did without gold coins or bullion bars. They found out that the metal wasn’t needed. The economy worked just fine. Federal Reserve Notes were backed by gold until the US left the fully convertible gold standard.
After the war, circulation of gold coins never recovered, hence the low mintages of small denominations. (Compare values not piece count.) Treasury shipping records show clear seasonal patterns for small gold requests by banks. These patterns are supported by internal correspondence noting the consistent seasonal demand, and by expressions of the waste in time and material to make them for non business use. (This parallels the situation of the $1 gold where for at least the final 15 years of production, almost none entered commerce – they were used for jewelry in Britain and Japan.)
My purpose in the original post was the get folks looking more critically at the old assumptions and myths that have grown up around the subject. There are many ways to do that. >>
That is one possibility. Another is that there was a large enough quantity of gold coins already in or available for circulation that the Mint did not need to strike any more for a while. Look at the dimished mintages of most denominations in the 1920's.
Here's a question for you: If $2-1/2 gold pieces were not circulating after World War One, why did the Mint strike 2,360,000 of them between 1925 and 1929?
TD
Ellis Island money exchange linky
linky
probably a misguided and perceived "need" for them to facilitate day-to-day commerce based on the scant numbers struck from the start of issue, years when none were struck and the overall low mintages of the early 1920's.
do you think that is due more to the lower numbers struck or higher rate of circulation??
The public wanted new, shiny, bright coins for gifts – regardless of denomination – and the Treasury tried to comply.
Also, the total quantity is tiny compared to the economy and the potential commercial use. Note that Treasury recommended getting rid of the $2.50 in 1929, and Congress dropped the denomination in 1930. That action supports the other evidence that the coin did not really circulate in commerce to any meaningful extent.
(Neat Ellis Island photos.)
I notice that the first of the 1925-29 strikings was in Denver. Is it possible that gold was circulating "out West"? It is a fact that silver dollars circulated "out West" until the 1960's, even while the Midwest, East and South ignored them except at Christmas.
There are people on here who will claim that silver dollars did not circulate, because "everybody knows that is true," while the truth is that they did circulate "out West." Is it possible that the circulation of gold was regional, and ignored by so-called experts back East who simply did not see it, but wrote as though their own personal experience was the way of the entire country?
TD
<< <i>Here's an 1887 postcard-size Advertising Trade Card for Gold Coin Stoves, manufactured by the Chicago Stove Works, showing a gold coin decorating the Christmas tree.
Excellent date in a $5 Lib !
Sorry, it's an "S".
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
<< <i>Is it possible that the circulation of gold was regional, and ignored by so-called experts back East who simply did not see it, but wrote as though their own personal experience was the way of the entire country? >>
Great point. I would also add -- having done historical research at the National Archives in D.C. back in my student days -- that just 'cuz it's written in a government document doesn't mean it's true. Government documents are just as prone to error, myth, etc. as any other organization's documents (and maybe more so).
Edited to add: this is not in any way to diminish the value of archival research (like the invaluable work RWB is doing). Archival research pushes the ball much further down the field than the often-wrong "common knowledge" it displaces.