Many in the hard money camp know that it was in 1971 when Nixon put the kibosh on the convertibility of dollars to gold. Just six years before this, in July, 1965, Johnson introduced coinage without silver – as he proudly proclaimed “we will have made the first fundamental change in our coinage in 173 years. The Coinage Act of 1965 supersedes the act of 1792.”
In my opinion, not something to brag about – which ruler ever proudly proclaimed the clipping of coins?
Johnson explained the reason why this change was necessary:
Now, all of you know these changes are necessary for a very simple reason--silver is a scarce material. Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.
A more accurate statement would have been:
Now, all of you know these changes are necessary for a very simple reason—we are not able to tax enough to pay for both guns and butter. Our need for fiat is growing as my welfare and warfare program grows. The hard fact is that government consumption is now more than double new silver production each year. So, in the face of this government gluttony, and our rapidly growing need for fiat, the only really prudent course was to reduce our dependence upon silver for making our coins.
LBJ goes further:
If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.
Of course, if Treasury had enough silver to keep the value consistent with the value in the silver coinage, none of this would have been necessary – the coins would have continued to be minted with the silver content intact. The fact of the matter is that the government wanted to take one more step toward freeing itself from all constraints on the production of money.
As to LBJ’s prognostication that there would be no value in hoarding, as of today’s silver price he only missed that by 95% as the metal value value of a silver dime is just over $2.00.