Back in 1965, I was ten and an avid coin collector. I inserted silver dimes and quarters, and other coins, into the slots in the blue collection books. Then in 1965, I remember President Johnson asking Americans to start circulating silver coins again, along with the new, non-silver coins. I was a patriotic kid—the same year, I remember cutting out and studying a special color map in the Detroit News on the Vietnam War LBJ was escalating—so I spent all my silver coins like the new, non-silver coins I got from my allowance and doing chores.
The Wall Street Journal just ran an article by Seth Lipsky describing what really was going on. The overwhelmingly Democratic U.S. Congress enacted the Coinage Act of 1965 on July 23—50 years ago. LBJ signed it into law.
Lipsky: “‘In the face of a ‘worldwide shortage of silver,’ LBJ said, ‘the only really prudent course was to reduce our dependence upon silver for making our coins.’ Then the president made claims that look, in light of history, laughable.
“‘Some have asked whether our silver coins will disappear.’ He denied it; silver coins would ‘very definitely’ not disappear or ‘even become rarities.’
“The president estimated that the more than 12 billion silver dimes and quarters and half dollars in circulation would ‘be used side-by-side with our new coins.’ He also warned against hoarding silver: ‘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.’”
LBJ lied. It was part of what was called his “credibility gap,” especially about the Vietnam War. But about everything else, too. Only top LBJ historians can identify the rare instances he ever told the truth, and then by accident.
Of course, there was a “shortage” of silver. There always is, as with anything material people value. But since the founding, America always had been on a metallic standard—gold, silver or both—excepting only the Civil War. Even the creation of the Federal Reserve Board in 1913 and FDR’s devaluation of the dollar in 1933 still did not sever the dollar’s monetary backing. World War II, amazingly, saw no devaluation at all.
But in 1965, LBJ was firing up Nam and his Great Society welfare debilitation programs and needed money. As I noted in my review in Chronicles of Robert Caro’s last installment of his Johnson biography, in early 1964 LBJ passed the late JFK’s great tax cut—and at the insistence of “Old Harry” Bird in the Senate, even cut spending to “pay” for it. The economy took off like a Saturn V rocket of the day. As supply-siders predicted, federal tax receipts also rolled in at a record pace, as the growing economy expanded the tax base. The middle class, especially, flourished as never before, with great jobs in manufacturing.
But all that added tax revenue still wasn’t enough to pay for Nam and the Great Society—guns and butter—so LBJ lunged at the dollar. Old Harry left office in November 1965, then died the next year, cutting his tight rein on the budget.
As I noted in Chronicles a year ago, LBJ from early 1964 never believed Nam could be won, as now can be heard on tapes he made at the time. And he manufactured the Gulf of Tonkin Incident to get Congress’s approval for his escalation.
Lipsky: “The value of the dollar started sinking after the 1965 coinage act, and by 1980 the dollar—so long valued at 0.77 ounces of silver—plunged to 0.02 ounces of silver. Today it is valued at 0.06 ounces of silver.
“The pre-1965 silver coins have mostly disappeared from circulation.”
And get this: If you spend the money the government debased, you have to pay a capital gains tax!
In 1968, the money still wasn’t rushing into the U.S. treasury fast enough to pay for it all, so LBJ imposed an income surtax. In 1969, newly elected President Nixon foolishly promised to kept it in place. Why President Tricky Dick kept a promise to President Credibility Gap remains a mystery.
The surtax lasted through 1970, weakening the economy. In 1971, the Nixon Shock, which imposed wage and price controls and finally severed all connection of the dollar to gold, temporarily goosed the economy in Keynesian fashion to get Nixon re-elected in 1972. It all crashed in 1974 and the economy really hasn’t recovered since, especially for the middle class, whose tax rates the inflation pushed up into the higher brackets of the wealthy until indexing in 1985.
I was just a naïve kid in 1965. Today I know a lot more.