clarified the lawful money standing of silver certificates, which had been unclear since their debut in 1878.
“ The Report of the Comptroller of the Currency of 1882” states,“ silver certificates … are authorized to be counted as part of the lawful reserves of national banks.” In addition, writes Taussig,“ the decline in the circulation of national bank notes, which began after the maximum had been reached in the early part of 1882, contributed still more to make way for growth in the volume of silver circulating in the community.”
National bank notes were never counted as a bank reserve. Therefore, national banks preferred stocking silver certificates to national bank notes in their vaults. Additionally, silver certificates could be used to pay customs duties, among other taxes, while national bank notes could not. Overall, the years 1881, 1882 and 1883 saw silver currency taken in by the public as fast as silver dollars were struck at the mints. Of course, this was mostly in the form of certificates.
The Panic of 1884 and Silver
The year 1884 saw the extraordinary failure of the Marine National Bank and the investment firm( and Ponzi scheme) of Grant & Ward— both in May. They were followed by other bank suspensions, as well as the failures of numerous private bankers and brokerage houses and the collapse of railroad enterprises. The building of railroads virtually ceased, production of iron dipped significantly and bank loans and deposits decreased. This state of affairs greatly affected the circulation of silver currency.
Overall, the amount of currency possessed by the American public was stagnant from early 1884 to mid-1886. Still, the US Treasury was compelled by Bland-Allison to purchase a minimum of $ 2 million per month to strike silver dollars, no matter how dire the economic situation. Writes Taussig,“ Under these conditions the regular coinage of silver dollars necessarily caused dead silver to accumulate in the Treasury; and in July of 1886 the dead silver reached its maximum, nearly $ 94 million.”
Unused cash stockpiled in bank vaults around the country. Bank reserves grew as deposits contracted. As other types of cash gathered in bank vaults, silver certificates accumulated in government vaults.
The depression in trade saw receipts of the government— most notably from customs— fall off. Thus, silver certificates found their way into the Treasury. From 1882 – 1883, gold and gold certificates represented between 70 – 80 % of customs receipts in New York City. However, starting in 1884, the amount of gold shrank, and for fiscal year 1884 – 1885, the proportion was less than 35 %. This resulted in the net gold holding of Treasury dropping from over $ 150 million at the beginning of 1884 to
A $ 5 United States note( greenback) issued in 1862.
under $ 116 million at the end of May 1885. That was the smallest reserve of gold since the resumption of specie payments in 1879.
In a June 1885 essay entitled“ Shall Silver Be Demonetized?,” Economist J. Laurence Laughlin wrote:
So long as gold is steadily diminishing and silver steadily increasing in the hands of the Government, we can see the crisis approaching. Could any measure be better calculated to
A $ 5 series 1875 national bank note from the Vineland National Bank in Vineland, New Jersey.
www. MoAF. org | Spring 2025 | FINANCIAL HISTORY 39