With the central banks of the world embracing negative interest rates and endless balance sheet expansion, currency debasement is an issue that is especially relevant to today’s investors and savers. So I wanted to write a brief historical review of how the United States removed 90% silver coinage from circulation in the 1960s. Read on to find out more!
From the 1930s through the 1950s, the U.S. Treasury was a net buyer of silver on a truly gargantuan scale. During this time, the government acquired several billion ounces of silver via open market purchases which were mandated by the Silver Purchase Acts of 1934 and 1946. The intent of these laws was to put a floor beneath the price of silver in order to help the Western mining industry, while also providing ample monetary silver for the growing economy.
At this time, each silver dollar or $1 silver certificate was equivalent to 0.77344 troy ounces of fine silver. Subsidiary coinage (dimes, quarters and half dollars) contained slightly less silver per $1 face value – 0.7234 troy ounces. These traditional ratios established two vitally important silver price points: $1.293 and $1.382. $1.293 was the level at which the bullion content of a silver dollar equaled its face value, while $1.382 was the corresponding price level for 90% silver dimes, quarters and halves.
As long as the silver market stayed below these price points, 90% silver coinage would freely circulate in the United States. But if the price of silver ever rose above these levels, then silver coins would be hoarded by the public. This would create tremendous economic problems; a loss of faith in the currency combined with a dearth of small change might choke-off commerce.
All remained well until the 1960s dawned. It was then that the U.S. Treasury suddenly realized it had a major problem on its hands. In spite of a brief and shallow recession from April 1960 to February 1961, the U.S. economy was booming. This was generally a good thing. But it did create an unforeseen side effect – a massive shortage of silver coins in circulation.
The first culprit in this silver shortage was dramatically expanding industrial demand for the precious white metal. The burgeoning manufacturing-based U.S. economy of the mid-20th century needed huge and ever increasing quantities of silver for photography, electrical contacts, brazing and soldering alloys, mirrors and chemical catalysts. This was in addition to more traditional sources of silver demand from increasingly wealthy American households, such as jewelry and sterling silverware.
The industrially-driven scarcity of the lunar-themed metal was further compounded by an absolute explosion of newly-installed, coin-eating vending machines. Between the early 1950s and the early 1960s it was estimated that vending machines sales – including parking meters, phone booths and snack and drink dispensers – tripled to $3.5 billion annually. All of these vending machines sequestered enormous quantities of silver coins (primarily dimes and quarters) for extended periods of time.
The final component of the crisis was a boom in coin collecting, which increased from an estimated 2 million participants in the early 1950s to perhaps 8 million collectors by the early 1960s. Although many of these new collectors were children looking to fill out their coin albums with pennies, nickels or dimes pulled from circulation, others were adults who specialized in speculating in rolls or bags of modern (i.e. 1950s and 1960s) coinage. While the drain on the nation’s silver coins from young collectors was probably modest, the hoarding of millions of bags and rolls of silver coins by numismatic speculators was undoubtedly a significant factor behind the silver coin shortage of the time.
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All of this meant that the global supply of silver was increasing at a much slower rate than silver demand. By the late 1950s, silver production was expanding at about 1.5% per annum versus consumption growth of 4.0% annually. The monetary status quo in the United States was quickly becoming untenable.
As early as 1961, the Kennedy Administration determined that the only logical recourse was to cease striking 90% silver coinage. On November 28, 1961, President JFK wrote to the sitting Treasury Secretary that: “[I have] reached the decision that silver metal should gradually be withdrawn from our monetary reserves.”
The iconic U.S. silver dollar was the first casualty of the 1960s silver demonetization trend. At the beginning of 1963, the U.S. Treasury held a seemingly robust 94 million silver dollars as reserves against outstanding silver certificates. By the start of 1964, that number had precipitously dropped to 28 million coins. As the weeks passed, a run on silver dollars quickly developed. By March 1964, a mere 3 million of the silver cartwheels were left in government vaults, prompting the U.S. Treasury to abruptly suspend silver dollar redemptions on March 25, 1964.
But the silver dollar wasn’t the only U.S. 90% silver coinage experiencing supply problems. After JFK’s assassination in 1963, there was widespread public support for honoring the fallen president in some way. Congress reacted by authorizing a change to the design of the half dollar. The old Franklin half dollar would be retired after 1963, to be replaced with the new Kennedy half dollar in 1964.
An old saying comes to mind here: “The road to hell is paved with good intentions.”
The public immediately hoarded the hotly-anticipated Kennedy half dollars as they hit circulation, sequestering the coins in sock drawers, closets and safe deposit boxes across the land. People were eager to have a memento of the slain president and the freshly redesigned half dollar seemed like the perfect keepsake. Speculators also did their part by hoarding freshly minted rolls of the new half dollar with the intention of re-selling them for higher prices later on. Despite the fact that over 429 million of the new coins dated 1964 were struck, Kennedy halves simply did not circulate.
In fact, it would not be a stretch to say that the ill-timed release of the Kennedy half dollar killed the 50 cent denomination as a regularly circulating coin in the United States. Before 1964, half dollars had passed right alongside dimes and quarters in everyday transactions in most parts of the country. But after 1964, they were rarely found in circulation.
Although the U.S. Government was at least partially culpable for the early 1960s silver coin shortage, it reacted to the emergency in a predictably self-serving way – it blamed the little guy. Coin collectors and speculators were repeatedly singled out by government officials as the chief culprits behind the rising price of silver bullion. Meanwhile, the U.S. Treasury conveniently ignored the far larger contribution to the crisis from the out-of-control vending machine industry and commercial silver users. This was undoubtedly because the moneyed interests behind these groups could afford to buy the silence of the political establishment.
But all this finger pointing did nothing to solve the underlying problem. By early 1963 the price of silver was only being held at the magic $1.293 rate by the U.S. Treasury freely selling silver to all bidders from the government’s rapidly depleting stockpiles. It was a situation that could not persist for long.
As 1964 progressed and the crisis deepened, President Lyndon B. Johnson signed legislation on September 8th that permitted the U.S. Mint to implement a date freeze. As a result, all U.S. 90% silver coinage struck after 1964 continued to bear the frozen 1964 date. This was intended to dissuade collectors and speculators from hoarding these coins.
Of course, numismatic speculation, although problematic, was a relatively minor issue in the grand scheme of things. This meant that the date freeze wasn’t terribly effective in relieving the coin shortage by itself. The primary issue was really the inexorably rising price of silver and the fact that too many silver certificates had been issued against the government’s reserves. The only reasonable way to resolve this problem was to remove silver from the nation’s circulating coinage – in other words to devalue the U.S. dollar.
Enter the Coinage Act of 1965, which LBJ signed into law on July 23, 1965. This legislation authorized the U.S. Mint to begin striking dimes and quarters in a cupro-nickel clad alloy with a pure copper core. Half dollars were to be minted from a debased, 40% silver composition. The law also prohibited the use of mintmarks on freshly-struck coins for the next several years – another largely senseless jab at coin collectors.
The first of these debased cupro-nickel coins (quarters) was not struck until August of 1965, with a subsequent release date in November 1965. Cupro-nickel dimes and 40% silver halves were first struck in December 1965 and only released into circulation in early 1966. Contrary to popular wisdom, practically all higher denomination coins in circulation throughout the entirety of 1965 were 90% silver.
All of the debased, cupro-nickel coins were dated 1965 (or later), which allows modern-day silver stackers to easily distinguish them from 1964-and-earlier dated 90% silver coinage. In addition, a quick look at the edge of a questionable coin will quickly reveal its composition as well. Cupro-nickel coins readily show a telltale copper sandwich (sometimes derisively called a “Johnson sandwich” after President LBJ) when viewed along their edge, an effect not visible on 90% silver coinage.
The last of the United State’s circulating 90% silver coinage was struck in early 1966. The country’s final 90% silver quarters rolled off the line in January 1966, while the last 90% silver dimes plunked into fresh mint bags in February of that same year. The end for the 1964 dated 90% silver Kennedy half dollars came just a little bit later, in April 1966.
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During this changeover period in late 1965 to mid 1966, the U.S. Treasury and President LBJ both publicly avowed that the old 90% silver coinage would continue to circulate side-by-side with the new cupro-nickel slugs for many decades to come. This was, of course, a great lie. Gresham’s Law – which states that bad, debased money drives out good money – ensured that any desirable silver coins would quickly be pulled from circulation.
In addition, government officials knew that the Treasury’s rapidly dwindling silver reserves would soon shrink to the point where they would no longer be capable of suppressing the market price below the critical $1.293 threshold, where silver dollars would start being profitable to hoard. The next important price point wasn’t much higher, at $1.382. This was the level where 90% silver dimes, quarters and halves would be sequestered en masse by the public.
After their hurried introduction in 1965, the U.S. Mint took great pains to produce absolutely massive quantities of its new cupro-nickel coins. From 1965 to 1967 the U.S. Mint struck over 4.1 billion Washington quarters and more than 5.2 billion Roosevelt dimes. By June 14th, 1967, the U.S. Treasury felt that enough of the new debased coins were in circulation for it to stop holding down the price of silver.
After this seminal event, the price of silver quickly rose above the all-important $1.293 barrier. Indeed, by the end of 1967, silver was over $2.00 per troy ounce. This meant that all 1964 and earlier U.S. 90% silver coins – dimes, quarters, half dollars and silver dollars – were quickly hoarded by the American public for their intrinsic value.
Once the U.S. Treasury let silver prices run in mid 1967, the age of circulating silver coinage in the United States came to a shockingly definitive end. Silver only very briefly dipped below the pivotal $1.382 level once for a handful of months in late 1971, where 90% silver subsidiary coinage could theoretically circulate. It never again touched the $1.293 price point that would have made silver dollars uneconomic to hoard.
The only loose end left now was the remaining silver certificates in circulation. Even though the U.S. Treasury had stopped paying out silver dollars to holders of these certificates back in March of 1964, it was still obligated by law to redeem them for the appropriate legal weight (0.77344 troy ounces per $1) of silver granules (for smaller sums) or silver bars (for larger sums) at the New York and San Francisco Assay Offices. However, this final contractual link between the U.S. dollar and silver was set to expire on June 24, 1968, per Congressional decree. After that time, the U.S. Treasury would no longer honor its obligation to redeem silver certificates for bullion (although the notes would continue to be legal tender).
In the months leading up to the historic date, enterprising entrepreneurs widely advertised their willingness to buy silver certificates for anywhere from 10% to 60% over face value in newspapers and magazines. They would then travel to New York or San Francisco to redeem these accumulated notes at the Assay Offices for bullion worth even more than they had paid.
In the few weeks before the final June 24th redemption date, people desperate to redeem their silver certificates mobbed the New York and San Francisco Assay Offices nearly every business day. On the morning of the deadline itself, hundreds of people lined up around the block at both Assay Offices for their last chance to exchange their paper silver certificates for silver bullion.
In the aftermath, silver was well on its way to being completely demonetized in the United States. By the late 1960s, silver dollars simply couldn’t be found anywhere in circulation. And subsidiary 90% silver coinage was rapidly being pulled from the banking system by both an enthusiastic public and a disingenuous Federal Reserve (which shamelessly “mined” the remaining silver coins in circulation in order to reap a profit for the Treasury).
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The final act in this sad drama played out in 1969. At this point, the only circulating U.S. coin that still contained any silver was the 40% Kennedy half dollar. But the perpetually rising price of the white metal made it apparent that this token coin would soon have to be sacrificed at the altar of fiat currency as well.
The end for 40% silver Kennedy halves came not with a bang, but with a whimper. In 1969, its last year of commercial production, nearly 130 million pieces were struck. But in 1970 the 40% Kennedy half was restricted to mint and proof sets; none were released for general circulation. Only 2.1 million specimens were struck in this final year, making it one of the key dates in the series. When commercial Kennedy half dollar production finally resumed in 1971, they were struck from the same miserable cupro-nickel alloy already found in the dime and quarter.
And with that the glorious 178 year history of circulating U.S. silver coinage came to a pathetic close. Although 90% silver coinage could still sometimes be found in circulation in the late 1960s, by the early 1970s the monetary system had effectively been picked clean of these high value coins. Even the debased 40% Kennedy halves didn’t last much longer, as their silver content exceeded their face value by January 1974.
From that point on, only dedicated coin roll hunters picking through the dustiest, most undisturbed corners of bank vaults could hope to find the occasional silver treasure. The age of circulating U.S. 90% silver coinage was over.
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