What Does Crime of 1873 Mean?
The Crime of 1873 refers to Congress removing silver dollars from official coinage, leading to the adoption of the gold standard in the U.S. The law excluded the conversion of silver coins, angering those holding them and opponents of the gold standard.
Basics
On February 12, 1873, Congress passed a coinage law which, when signed into law by President Ulysses S. Grant, led to the "Crime of 1873". The law notably excluded the standard silver dollar, which was highly controversial. This paved the way for the United States to adopt the gold standard. Many people were affected by this change, as they could no longer turn their silver into legal tender.
A Brief History
The Coinage Act of 1792 established the U.S. Mint and made the dollar the official standard unit of money and legal tender in the United States. In 1873, the Coinage Act revised the laws to move the country towards the gold standard and away from silver. It specified silver coins to be minted in the future but excluded the standard silver dollar. Only the coins explicitly included in the Act were considered legal tender from then on.
Before that, the United States operated on a silver standard, but the California Gold Rush brought gold back into circulation. Subsequent silver rushes increased silver production and threatened to push gold out of circulation. The United States embraced the gold standard as the rational economic approach and passed the Coinage Act in 1873. The gold standard was officially adopted in 1900.
The Shift to Monometallism
Before 1873, the United States had a bimetallism system using both gold and silver to value legal tender at a fixed exchange rate. The Coinage Act of 1873 removed silver from this system, preventing people with large silver holdings from converting it into money.
Critics feared that this shift to monometallism could lead to unstable prices and reduce the money in circulation. Some accused the law of being passed corruptly, but no evidence supports this. However, industrial progress and gold rushes, like those in South Africa and the Klondike, increased the availability of gold and brought economic reassurance.
Modern Economy & Fiat Standard
After 1971, the gold standard was no longer in use. After that, most modern economies shifted to using fiat money, which means money's value and inflation rate are determined by the government rather than being tied to gold or silver. The U.S. dollar is a prime example of fiat money.
Conclusion
The Crime of 1873 marked a significant turning point in the monetary policy of the United States. It led to the adoption of the gold standard and a shift away from bimetallism, due to the removal of silver dollars from official coinage. Although controversial at the time, this decision ultimately paved the way for a more stable and reliable economic system.