Under the coinage system thus adopted both gold and silver were made full legal tender and the mint was to be open to the free and unlimited coinage of both. At the market prices then existing a dollar would buy 371 1/4 grains of pure silver or 24 3/4 grains of pure gold, that is, gold was worth fifteen times as much as silver weight for weight. This ratio of 15 to 1 was therefore preserved in the coins.
1 The word dollar is a corruption of the German Thaler, abbreviated from Joachim thaler, a silver coin issued in Bohemia in the sixteenth century.
Before the mint had begun to manufacture the new coins, a change occurred in the relative value of gold and silver in the commercial market. Gold became worth more than fifteen times as much as silver, an ounce of gold exchanging as bullion for 15 1/2 ounces of silver.2 Under these circumstances very little gold was brought to the mint to be coined. Since an ounce of gold would buy 15 1/2 ounces of silver and the mint would give to 15 ounces of silver the same monetary power as to an ounce of gold, it was more profitable to sell gold as bullion and take only silver bullion to the mint to be coined. The little gold that was coined soon disappeared from circulation, being melted down or exported, and the country was reduced to the cheaper silver standard.
Our early experience with the new silver coins was also disappointing. Realizing that it would be some time before a sufficient supply of new coins could be made to meet the needs of the country, Congress had authorized the use of the Spanish dollar and several other kinds of foreign coins which were in circulation throughout the country. The Spanish dollar in perfect condition contained a little more silver than the new American silver dollar, and under the operation of Gresham's Law the American dollar should have driven out the Spanish coin, since both were full legal tender. But other influences interfered with the normal operation of the law in this case. There was at this time a considerable trade between the United States and the West Indies, and in both countries both dollars were accepted at their face value. American merchants engaged in this trade found it profitable to ship American dollars to the West Indies, exchanging them there for the heavier Spanish dollars, and sending the latter to the mint to be recoined into a larger number of American dollars. This practice became so flagrant that in 1806 President Jefferson directed the mint to suspend the coinage of silver dollars and no more were coined until 1834. As gold had been exported or hoarded, the circulating medium was composed of foreign and debased coin and paper money issued by the banks. Currency difficulties were aggravated by the liquidation of the first Bank of the United States in 1811, the war with England in 1812, and the resulting suspension of specie payments by most of the state banks. Though the second Bank of the United States, established in 1816, made a brave attempt to restore specie payments, the scarcity of coin made the task most difficult.
2 In the new coinage system established by France in 1803 the mint ratio of 15 1/2 to 1 was adopted.