The Coinage Act of 1834 and its Affects on Gold, Silver and the Second Bank

The Coinage Act of 1834 (“the Act”) was advocated by Missouri Senator Thomas Hart Benton and signed into law by President Andrew Jackson to change the silver to gold exchange ratio and to set the official weight and therefore dollar value of the U.S. Gold Eagle. The value of gold in dollars at the time was tied to the 1792 coinage act which was undervaluing gold, resulting in a $10 nominal value gold eagle really being worth $10.66 and ⅔. This caused gold coins to effectively be removed from circulation due to the arbitrage of metal value vs dollar/fiat value.

One of the purposes of the act was to eliminate the devaluation of gold in order for gold coins to keep pace with market value and not be driven out of circulation, however the subtle purpose of the act as was to remove the power of the Second Bank by punishing silver, which it used a this time as its primary fiat backer.

To understand better why The Coinage Act of 1834 was pushed and signed into law, let’s review what was going on during this time period. Andrew Jackson was engaged in a protracted war with Nicholas Biddle over the fate of the Second Bank of the United States. Of course, it wasn’t only Nicholas Biddle that Jackson was at war with but an entrenched and self-serving aristocracy that tied back to Great Britain, the Bank of England, and some very old and very nasty people who like to control humanity through deception and dishonest schemes.

Jackson had pulled the federal deposits from the Second Bank which resulted in a credit shortage and an economic contraction. When Congress convened in 1833 the question was how to solve the ongoing problem and it pitted pro-hard money Jacksonians vs the fiat money central bankers and their masters back in Europe. Jackson’s opponents controlled the Senate but his supporters controlled the House of Representatives.

The House of Representatives passed the Act with the goal of undermining the circulation of the U.S. Bank notes (debt, fiat money) in favor of gold currency. The bill’s intent was to lower to devalue the then overvalued silver that the bank notes were backed by and revalue the undervalued gold.

While the intent of this Act was pro-hard money and anti-fiat bullshit money, the devaluation of silver in U.S. Dollars led to its export to Europe and it effectively dried up the silver in circulation. Silver’s elimination from circulation had bigger long term effects that will be covered in future posts.

Analysis: While on the surface the goal of Jackson and his supporters was to benefit hard money by establishing a gold value that matched the actual stated value of the coins, their ulterior motive was to strangle the Second Bank by cutting off its ability to obtain and keep silver which it used to back its fiat money. The Act succeeded in its goal but like most wars, it came with a consequence in the disappearance of silver which led to additional problems. It’s certainly a curious outcome that to this day the nominal value of gold and silver coins minted by the U.S. Mint is dramatically less in value than their true metal value.

Silverbugs and Goldbugs (often the same people) should not view this as a battle between gold and silver, as they both have a role in a fair bimetallism monetary system, as that is what the elites want, but more of a representation of how corrupt elites pit even precious metals against each other to create division that they profit from.