Back in the 1950’s I was interested in coin collecting. In those oh-so bygone days before President Lyndon Johnson’s administration all U.S. coins of value higher than the nickel were made of .90 fine silver. As a kid, the only coins that I could afford to collect were dimes, but I remember others lamenting about the shortage of dollar coins. At the time I didn’t know that this shortage was yet another result of World War One.
When passed by Congress, the Pittman Act (April 23rd, 1918) was a seemingly innocuous piece of “Pork Barrel” sponsored by Sen. Key D. Pittman (D-Nev.) to support the price of silver and thus benefit the mining economies of eight western states, especially his own.
Silver dollar coins had become unpopular due to their weight and clunky size (1 ½ inches in diameter), so the U.S. Treasury was stuffed with them, even though the mints had stopped producing them in 1904. Pittman’s Act directed the conversion of up to 350 million of these silver dollars into bullion, which would either be sold ‘to assist foreign governments at war with the enemies of the United States’ or used to mint additional silver dimes, quarters and half-dollars, known as subsidiary coinage. Predictably, most of the bullion was sold to the British at the above-market price of $1 per ounce.
Westerners were concerned that the withdrawal of so many silver dollars would be a prelude to retiring the coins altogether (their fears were well-founded as paper silver certificates in $1 denomination were issued starting in 1929). So Pittman included a provision in his Act directing that the number of dollars so converted would be replaced by new coins minted over the period from 1920 to 1934, with the mint purchasing the silver from U.S. mines at the fixed price of $1 per ounce, which was a financial windfall for the silver industry. This was the first time in history that the U.S. government agreed to support the price of a commodity, an idea that caught on quickly, leading to the Agricultural Adjustment Act of 1933, which is still an important part of American farming.
The number of coins that were melted down came to 270,232,722 including 11,111,168 for subsidiary coinage.
So what did this have to do with WW1? That part of the story begins in India, of all places.
Although a British colony, India had a large, autonomous economy and it was supplying huge quantities of materials and manpower to the British war effort. The colonial government was paying for these purchases with Rupee notes, supposedly backed by silver but in fact there was little silver in the reserves. They had been ‘running the printing presses’, creating money that had no residual value.
This dirty little secret got out in early 1918, likely leaked by the Germans, and India was in crisis. To stave off an economic meltdown, many bank failures, ruinous inflation and civil unrest that would require many thousands of British and Indian soldiers to quell, the British needed to get their hands on a lot of silver bullion quickly. The only place that they could get it was from the U.S. Treasury. Of course, the British didn’t have the cash to buy those melted-down dollar coins, but, no worries, the U.S. government let them offset the amount owed against U.S. debt for British shipping that was transporting and supplying the American Expeditionary Force. Problems solved.
There was one more little twist to this deal. When the old dollars were melted down, the $250 million reduction in the money supply was covered by the issue of new Federal Reserve Notes, which were unsecured. As new silver dollars were struck, they were released to the Federal Reserve System in repayment of the notes.
It was announced that Sen. Pittman died after being re-elected in 1940, but many suspected that he actually died the night before the election and his body was kept literally on ice in a Reno hotel bathtub.