Financial Finagling in the Great War: The Pittman Act of 1918

The Owners of Nevada's Crown Point Mine
Benefited from the WWI Legislation

By James Patton

Back in the 1950s 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 other collectors lamenting about the shortage of silver dollar coins. At the time I didn’t know that this shortage was caused by World War One.

When passed by Congress, the Pittman Act (23 April 1918) was a seemingly innocuous piece of “Pork Barrel” sponsored by Sen. Key D. Pittman (1872–1940) (D-Nev.) to support the price of silver and thus benefit the mining economies of eight western states, especially his own. 

Senator Pittman

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 the coins returned by the banks, even though the mints had stopped producing them in 1904. The Pittman Act directed the conversion of up to 350 million of these "surplus" 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. As Pittman intended, 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, and later themselves replaced by Federal Reserve Notes in 1964.) Pittman also included a provision in his act directing that the number of dollars so converted would be replaced by bullion purchases for new dollar coins which would be minted over the period from 1920 through 1934, using silver purchased  from U.S. mines at the fixed price of $1 per ounce (reduced to 71 cents in 1939, then raised to 90 ½ cents in 1946), which was a financial windfall for the American silver miners. This marked the first time in history that the U.S. government agreed to support the price of a commodity. This was an idea that caught on quickly, leading to the Agricultural Adjustment Act of 1933, which is still an important part of American farming today. 

The number of coins that were melted down came to 270,232,722 including 11,111,168 used for subsidiary coinage. This amount was about half of the existing silver dollar coins.

American Silver Dollar

So what exactly did this have to do with World War One? 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 costs with rupee notes, supposedly backed by silver, but in fact there was insufficient silver in the treasury reserve. In popular parlance, the government had been "running the printing presses," creating money that had no residual value. 

This dirty little secret got out in early 1918, possibly leaked by Germany, and India was plunged into crisis. To stave off an economic meltdown, many bank failures, ruinous inflation, and civil unrest that would require many thousands of Indian and even British soldiers to quell, the British needed to get their hands on a lot of silver bullion quickly, and the only place that they could get it was out of the U.S. Treasury. Of course, in 1918 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 such items as the British ships that were carrying American troops and supplies to France, 400,000 Brodie helmets, gas masks, horses, and other gear. Voilà, problem 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 the brand-new higher denomination (not $1 or $2) Federal Reserve Notes, which were not backed by silver, only guaranteed by the Fed. A new silver dollar coin which was called the Peace dollar because it was supposed to memorialize the U.S.-Germany Peace Treaty of 1921, was introduced in that year. As these coins were struck, they were released to the banks through the Federal Reserve System as repayment of the Pittman notes, which was an off-budget transfer. 

Pittman was a senator from 1913 to 1940 and chairman of the Senate Foreign Affairs Committee during the early years of the Second World War. Through his career he authored several more important pieces of legislation, including the Pittman–Robertson Wildlife Restoration Act of 1937, which set up a formula for sharing of federal excise tax revenue with the states for their wildlife management efforts (which is still in effect) and the second Pittman Act in 1938 which, along with the Neutrality Act of 1939,  established the concept of “cash-and-carry” neutrality.

Site of the Senator's Demise

Details of Pittman’s death are controversial. Although his date of death was officially reported as 10 November 1940, he had suffered a serious heart attack on 4 November, the day before the general election. It was alleged by some that he did not survive, but the party leaders decided to suppress that news so that Pittman could be re-elected. If he then were to die after re-election, the law provided that the Democratic Governor Edward Carville would appoint a successor. If he was already dead when elected, there would have to be a special election. An embellishment to this story is the detail that Pittman’s body was kept for five days in a bathtub full of ice in Tonopah’s Mizpah Hotel (which is still there) before  taken to the hospital in Reno, where he was pronounced dead.