19th century finance. How to lose silver without really trying.
RogerB
Posts: 8,852 ✭✭✭✭✭
In the latter 19th century U.S. Mints bought silver bullion at market prices and used it for coinage. Since each silver coin contained somewhat less than its face value in silver, the mints made a profit. But this created an interesting situation when depositing Mexican ‘dollars’ and other foreign silver coins.
Mexican ‘dollars’ were purchased at the New Orleans Mint as bullion and sellers were paid in U.S. Standard silver dollars (not gold). The little table below shows how the transaction worked.
A broker deposited 1,000 Mexican dollars at the mint. These had a total fine silver weight of 780 Troy ounces. The mint paid $1.09 per fine ounce so the deposit was valued at $850.20.
The depositor was paid $850.20 in standard silver dollars. But, each silver dollar contained only 0.773 Troy ounces of fine silver, meaning that the depositor actually received 657.20 T ounces of silver that was worth only $716.35 as bullion.
Thus, the depositor’s original 780 ounces of silver was reduced to 657.2 ounces of silver. How many cycles would it take to be bankrupt (assuming the mint accepted its own coins) ?
Comments
Presumably the broker paid even less than the Mint, whatever the broker's source.
And of course, the Silver dollars passed at par/face.
The holder of a "current", but token, silver coin with a denomination can either have the face value, or the intrinsic value, but cannot have not both. Never.
One doubts that the broker "lost" anything. Somebody did, but probably not the parties closest to the top of "the food chain".
This kind of conundrum occasionally comes up when the Mint "pricing" of modern American Silver Eagles is discussed.
Source documents indicate brokers paid about 78 cents for a Mexican dollar. In 1879, smugglers and brokers could still get a better deal by shipping Mexican coins to London or New York. The NO Superintendent was trying to divert more of this to his mint. This was particularly important since at the time Mexican dollars were the primary source of coining bullion.
The important thing to note is that a lot of what NO was coining came from Mexico, and I believe the Mexicans didn't allow the silver out until it had been run through one of their mints first.
Mexico had high taxes on silver and gold exports.
I understand that the coins went through the Mint prior to export so that taxes could be/would be paid.
In colonial times, the King got his fifth. When the King was gone (and Iturbide too), the republican government wanted the same, No?
Wasn't lots of silver starting to flow from the Comstock at this time?
RE: Mexican silver. Mexican and post-Spanish governments in South America applied tax to extracted silver, plus a high fee to melt amalgam into rough bars, plus seiginorage on coinage. (See From Mine to Mint for a description of the 'patio process.') All silver and gold was supposed to be sold to the national mints, but miners could net much more cash by illegal exports. Most went to London, some to New York and a gradually increasing share to New Orleans Mint via the Gulf, and Texas ports of entry.
Nevada and Colorado mines sent almost nothing to New Orleans. Most went to San Francisco or Denver Assay Office and eventually to Philadelphia. Further, these ore fields were nearly depleted for large scale mining by the late 1870s.
Looks like typical profit making transactions.... Got to make a profit... it is the way of business...Cheers, RickO