Not everyone reads the “fine print,” but in the mid-1960s, reading
and acting on the fine print found on a particular class of U.S. paper
money meant big profits for thousands of individuals and businesses.
Intermediate paper money collectors have learned that certain
classes of 19th century American notes have different legal redemption
clauses. Advanced collectors who also happen to be lawyers may fully
understand all of the fine print regarding tariffs and duties. Normal
collectors — normal people — do not! And for that matter, don’t care —
and never have.
But for less than half a decade, coin and paper money collectors
alike were focused on the “fine print” of silver certificates,
especially when profits could be made without guilt or great
difficulty. It was, perhaps, the most interesting four years since the
U.S. government began issuing silver-backed notes in 1878.
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A time when the logic of converting silver coins into
easier-to-carry paper was turned on its head.
A time when all those silver dollars minted as a result of the
Bland-Allison Act of Feb. 28, 1878, passed by Congress (over the veto
of Rutherford B. Hayes) to monetize the newfound mineral wealth of
Western America, were finally in demand.
The 1878 act authorized not only a new silver dollar, it also
offered an alternative linked to silver but more convenient to use.
Because few Americans really wanted to carry pounds of silver
dollars in their pockets, that 1878 act also authorized silver
certificates of deposit. Accordingly, Americans lived their economic
lives with folding paper while the vaults of the U.S. Treasury — and
many banks — filled with bags of coins.
But for that one shining period, even the public wanted to redeem
paper money for a piece of the Comstock Lode and lore.
The silver certificates of the nineteenth century were made fully
redeemable in silver dollars — and with this complete convertibility,
the paper money was a perfectly acceptable substitute.
When the size of American paper currency was reduced (from “large
size” to “small size”) in 1929, the federal government technically
made silver certificates even more desirable, by making them payable
in any silver coins — and again, no one needed to care. Redemption of
paper for silver was a moot point, as long as one dollar’s face worth
of silver coins contained less than a dollar’s worth of silver metal.
For that matter, the silver certificates circulated alongside
Federal Reserve notes and United States notes in the 20th century, and
no one cared except collectors interested in even more attractive
notes. For most of the public, coins were heavy and annoying. In 1960,
when I began collecting coins, I liked silver dollars, but it was
because they were historic and heavy!
The price of silver was about 90 cents an ounce (and the coins were
made of 90 percent silver and weighed less than an ounce), so
convertibility was more a theory than a practice.
A New Frontier for collectors
Then in 1961, everything began to change — for collectors and for
the wider public. In 1961, the price of silver closed above $1 an
ounce. The intrinsic value of a silver dollar was still less than $1
(as they do not contain an ounce of pure silver), but the Treasury
grew concerned. Industrial and jewelry uses of silver were growing
faster than mining, and the consequent production deficit forced
In November, President John F. Kennedy issued an executive order
suspending further sales of government silver, and starting the
retirement of $5 and $10 silver certificates. Silver continued its
record appreciation, hitting $1.28 on March 13, 1963. By summer, it
reached $1.29. Coin dealers smelled blood in the water. Then
collectors noticed, too, followed by the public.
The U.S. government felt the imperative to do something, so it
decided to fix the price of silver at $1.292929292~, the price at
which a silver dollar (containing .7736 ounce of pure silver) had an
intrinsic value equal to its face value. This had been silver’s
benchmark price for much of the prior century.
Just to be clear: if the price of silver rose higher in the
marketplace, silver dollars would be worth melting for their intrinsic
silver content. When understanding faileth, regulation followeth.
The government had to do something. On June 4, 1963, the Silver
Purchase Act was repealed, and the issuing of silver certificates
ended. Federal Reserve notes would become the currency of America,
including a new $1 denomination.
The government agreed to continue to redeem silver certificates with
unspecified coins (any silver denomination), and critically, to
continue to redeem them for silver dollars when presented at the cash
windows of the Treasury Department. For decades, the Treasury had
largely unsuccessfully tried to get rid of its silver dollars; its
wish was about to come true, despite the new roadblocks!
Treasury vaults open
Collectors knew that some of those bags of silver dollar bags coming
out of the basements of those vaults might contain more-valuable
dates, and word soon leaked about. The public joined collectors at the
Treasury’s cash windows, turning in silver certificates, and lugging
home 60-pound bags of silver dollars, all acquired at face value.
It was a great treasure hunt, but one still had to be lucky to
profit from finding rarer issues. As often as not, the searched bags
were turned in at local banks while waiting for silver to rise still
higher. The lines forming at Treasury cash windows seemed to grow
longer each day, as witnessed with photographs on the front pages of
The Treasury Department announced in January 1964 that silver
dollars were flowing out of the vaults at the rate of 700,000 per
week, and that only 28 million were left. To hasten the activity, some
11 million coins were shipped westward, especially to Las Vegas, Nev.,
for use by gamblers and casinos. There was no telling where valuable
coins might turn up.
And still the lines grew longer. The Treasury announced on March 21,
1964, that 1 million silver dollars were leaving its vaults every day,
and that only a two-week supply remained. On March 26, the Treasury
announced that only 2.8 million silver dollars remained. If you are
thinking that none of these numbers add up, you are correct, of
course; government statistics are ... well, never mind.
The spigot is shut, mostly
The Treasury was unhappy with all these people legally profiting
from their government; on March 26, 1964, Treasury Secretary C.
Douglas Dillon announced a major change in redemption policy at the
Treasury. Under little cover of law, he suspended redemption for
silver coins and replaced it with bags of silver bullion.
Dillon was quite correct that the public would not like this, and
they didn’t — so many switched to redeeming notes for smaller silver
coins at their local banks. The Wall Street Journal trumpeted that
Dillon had driven “the money-changers out of his temple.” So much for
professional courtesy. Small exchanges were done as envelopes of
refined silver granules; large exchanges received silver bars.
News of this “Treasury Treachery,” this blatant disregard of the
legal contract implicit in the notes, spread throughout the public. As
silver continued to climb, anyone could take their silver certificates
to their local bank, then take their silver coins to their local stamp
and coin dealer, and make an instant profit. Those were the years!
Life was good, very good, if you weren’t a true collector liable to
find interesting things to save as all those coins passed through your hands.
Over a relatively short period, most of the silver certificates in
circulation were redeemed. But for a glorious time, short as it was,
Americans joined together to get dollars back from their government.
And truth be told, plenty of collectors were born, as they started
looking at the history in their hands. There was an implicit suspicion
that if the government didn’t want you to have it, it was worth
hanging onto. But we still all learned to use $1 Federal Reserve notes.
Nailing shut other barn doors
I worked for the government, but I’ll still say it — if one act is
good, two are even better, and four are certainly necessary and
proper. The Treasury became devoted to preventing Americans of all
walks of life from making an honest profit.
Redemption of silver certificates was moved out of Washington, D.C.,
to Assay Offices in New York and San Francisco. Thus, a broker trade
arose. And thank you, coin dealers.
As silver continued to rise, the Coinage Act of 1965 removed silver
from the dime and quarter dollar and reduced the amount of the metal
in the half dollar; in effect, the public had no choice but to accept
fiat coins for their fiat paper. In fulfillment of Gresham’s Law, the
public responded by pulling every silver coin out of circulation, for
either immediate profitable conversion or held for even greater future increases.
Finally, on June 24, 1967, Congress passed the innocuous sounding
Act to Authorize Adjustments in the Amount of Outstanding Silver
Certificates and Other Purposes. This act allowed the Treasury to
cease redemption on the theory that any outstanding silver
certificates had been destroyed or were in the hands of collectors.
But to be fair in their unilateral breaking of the social contract,
and violation of issuing law, the Treasury didn’t lock the door on
redemptions of silver certificates in silver until one year after
adoption of the act. After that, they were only “... redeemable from
any moneys in the general fund of the Treasury not otherwise
appropriated.” That, of course, meant Federal Reserve notes.
What astonished everyone was how many millions of silver
certificates emerged out of safes and safety deposit boxes, from under
beds, and possibly from under wool skeins. Many Uncirculated notes
still in their original wrappers received their first and only use in
commerce — at redemption.
The Treasury also transferred its remaining silver holdings to the
General Services Administration. On the plus side, the GSA did
ultimately sell the Carson City Mint dollars that Treasury had held
back from redemption because of their collector value (remember the
discrepancy in the number of silver dollars remaining unredeemed
mentioned earlier), but that is another story.
All official redemptions of silver certificates for silver — silver
dollars, silver coins, or silver granules and bars — ended on June 28,
1968, ninety years after it started. Many new collectors were born,
but the increase in note supply overcame the growing demand. The small
but useful profits to be made at the height of that ‘silver rush’
still make old-timers smile.