Academic journal article Economic Commentary (Cleveland)

The Trime

Academic journal article Economic Commentary (Cleveland)

The Trime

Article excerpt

In 1851, under severe competitive pressure, the U.S. postal service lowered the postage on a one-page letter from 5 cents to 3 cents. The act changed the character of American money.

This Commentary tells how a confluence of two events, the expansion of steam-powered transportation and the California gold rush, created a problem of "monetary indivisibility" for the U.S. post office, the solution to which was the minting of a 3-cent silver coin, the trime. Besides being the smallest of all U.S. coins, the trime had another distinction: It was the first legal tender with a face value greater than the market value of the metal it was minted from. The trime was America's first step toward separating its money from precious metals and the eventual creation of our "fiat" money-a money that is not backed by or convertible into any commodity. That is, a money with no intrinsic worth.

* Railroads, Postage Stamps, and Indivisible Money

In the early to mid-nineteenth century, the U.S. postal service, the largest U.S. commercial enterprise of the era, had a virtual monopoly on mail delivery between major cities, the large profits from which it doled out in political patronage.1 But the postal service's stranglehold on mail delivery began to loosen with the great expansion of cheap rail and steamship transportation. Between 1840 and 1850, track in operation more than doubled to 6,000 miles, and the cost of shipping by rail fell nearly 40 percent. As travel became more routine, large volumes of mail began being carried by ordinary travelers and "express companies," which delivered pouches and boxes of mail between cities. The postal monopoly was crumbling.

In 1845, Congress cut postage rates by more than half, to 5 cents for a one-page letter delivered within 500 miles. But by the late 184Os, private express companies were delivering mail between major cities for 2 cents a letter, and the competition from the private carriers pressured government postage rates even lower. In 1851, Congress reduced the postage rate to 3 cents a letter.

The drop in postage to 3 cents created a monetary problem. Gold coins were only produced in denominations of $1 and above because smaller denominations would require coins so small that they would be impractical in trade. Silver coins, which were relatively awkward for denominations of more than one dollar because they would have been too heavy to be conveniently carried, were only produced in denominations of $1, $0.50, $0.25, $0.10, and $0.05. While copper cents and half cents were minted, the circulation of the coins was mostly limited to the major eastern cities and, even there, they were unpopular with the public.2 Because the nation had no widely circulating money in a denomination less than 5 cents, many people would have been forced to buy the new 3-cent stamps in bundles of five or ten.

The problem confronting the United States with the drop in postage is referred to as "monetary indivisibility," and it is a common shortcoming of monetary systems in which the value of the money is tied to a particular good (a "commodity" money). The problem occurs when the smallest denomination of money is too large for people to trade effectively.

To solve the monetary indivisibility created by the new 3-ccnt stamp, Congress authorized the minting of a 3-cent silver coin in the same act. The coin, called the trime, had a metallic value worth only about 2 ½ cents, but was legal tender for sums up to 30 cents, making it our first money with a content in precious metal worth less than its legal value in trade (sometimes called a "subsidiary coin") The trime was 20 percent smaller than our modern dime, and only about onethird of its weight (figure 1). While the British were on a gold standard and had been using subsidiary silver coins for small change for nearly 40 years, the trime was a decided break from the American experience.

Why did Congress choose to reduce the silver content of the 3-cent coin? …

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