January 19, 1999
Normally, the value of a coin is based on how many were made. In years to come, however, the value of silver United States coins may hinge to a greater extent on how many were lost. Millions have been melted for the recapture of their metal, and the impact on coin collecting -- while still not fully gauged -- is likely to be great as time goes by.
Most of the melting took place in 1979 and 1980, when silver bullion soared to an all-time high of $50 an ounce. At that point, common-date silver coins were worth far more as metal than as money or collectibles. Even scarcer items could be melted at a profit.
The value of silver has plummeted since then. In recent weeks, it has hovered around $5 an ounce and the melts have been reduced to a virtual standstill. Nonetheless, the shape of the coin market has been changed dramatically by the earlier melts, and the future course of the hobby -- for better or worse -- has been altered permanently.
There is, of course, no real way of determining with precision the number of coins from each year that were melted. The dealers who bought the coins, and the processors who melted them, were far too busy with the big picture -- the overall dynamics of the process -- to find time for small considerations such as detailed record- keeping.
It's amply clear, however, that the numismatic losses were substantial -- some might say even staggering. And the long-term implications are enormous.
I discussed those implications in 1985 in interviews with several major coin dealers who witnessed the great silver melts firsthand. Their comments remain just as relevant and thought-provoking today, nearly 15 years later.
"Those coin melts probably hurt us more than we'll ever know," said Leon E. Hendrickson, proprietor of Silver Towne in Winchester, Ind., a dealership that has dealt extensively in bullion-related coins over the years. "They destroyed a lot of our `seed coins' -- the coins that got people started -- and put a lot of collectors out of business.
"Unfortunately, though, you can't do things over," he quickly added. "It's sort of like Humpty Dumpty. After he had his great fall, all the king's horses and all the king's men couldn't put him back together again. And that's the way it is with the coin market, too, I'm afraid."
Hendrickson himself was deeply involved in the silver melts, buying huge quantities of silver coins from customers and selling them, in turn, to refiners.
"I was part of it," he remarked, "so I can't point the finger at anybody else. I was just as guilty as anybody else. But that was the way everybody operated then; that was just the way coin dealers had to do business."
Hendrickson calculated that during 1979 and 1980, Silver Towne alone processed "thousands of bags" of silver coins that were destined for refiners' melting pots. He pointed out, however, that while that period marked the peak of the great silver melts, it was really the culmination of a process that had started more than a decade earlier, for silver coins had been melted -- surreptitiously at first and later more openly -- since the 1960s.
He noted, too, that from the hobby's standpoint, the loss of silver coins actually took place in two distinct stages: first, their withdrawal from circulation in the mid-1960s; and second, the melting itself. And, while the melting made the losses permanent, the physical withdrawal already had caused the hobby grievous harm.
"Once that happened," Hendrickson said, "a guy couldn't go down the street to the bank any more and get a bag of dimes and go through them and build up a collection. He had to buy every single piece at silver or above. As a result, he -- and others like him -- stopped assembling
"The collectors that are left," he said, "pretty near have to go to a type set. Losing all those coins killed date- and-mint collecting; it just eliminated the man who was building a complete collection."
The late Joel Coen of New York, a coin dealer who played a central role in the great silver melts, totally agreed with Hendrickson's assessment. In a 1985 interview, he shared his concerns with me.
"The melts hurt the hobby," Coen said, "but the real damage was done 20 years ago, when the clad coins came along and people started pulling the silver coins out of circulation. I turned to my partner at that time and said, `Do you realize that this is going to destroy not only the present generation of collectors, but future generations, as well?'
"That sounded the death knell for this business. From then on, no kid could look through his father or mother's change and form the nucleus of a coin collection, like I did when I was a kid. It's axiomatic that obsolescence eliminates accumulation. People need something out there -- something that's available -- to grab and hold their interest. And we're missing that today in numismatics."
Coen estimated that of all the silver coins produced by the United States Mint, only about one-quarter survived the ongoing melts. He confided that he himself sold refiners $400 million worth of fabricated silver, mostly silver coins, during the one-year period from July 1, 1979 to June 30, 1980 -- "and," he commented, "other guys were doing the same thing."
"All the low-end silver stuff got melted," he declared. "Any coins that wouldn't bring 35 bucks an ounce or more at retail -- there was no other point but to melt them.
"I remember one day melting 100 bags of 1963 Franklin halves," he related. "And, looking back, I'm glad I did. The most they bring today is maybe 6 bucks apiece, and I guess at that point I must have gotten 13 or 14 dollars each for them as dead items."
Silver dollars survived to a far greater extent than smaller silver coins, Coen reported. Nonetheless, they, too, suffered serious losses, he said.
"I personally melted a lot of uncirculated dollars," he said. "When silver went so high, they were worth more money dead than alive."
Hendrickson suggested that with silver dollars, at least, the melts may have had a positive aspect.
"They helped us get rid of a lot of the garbage dollars," he observed. "I'd say we got rid of 75 percent of the cull dollars -- and that was all to the good. It pruned the supply of dollars, so to speak; it made the ones that were left more collectible.
"With the other series, though, the melts went way beyond pruning. Everything was affected across the board. With Franklin halves, for instance, I'd hate to say how big a majority were melted, but I know the percentage was high."
Silver dollars' high survival rate may be simply a product of public perception. Not having seen them for decades in circulation, most people viewed them as scarcer and more valuable than other silver coins -- even though the opposite often may have been true. Thus, they were more reluctant to part with them. Also, as Hendrickson commented, "A lot of people just like cartwheels."
It seems clear, however, that whatever the explanation, their higher survival rate made silver dollars even more attractive -- and even more useful -- to coin-market promoters in the years after the melts subsided. This, in turn, reinforced their traditional popularity and helped sustain their reign throughout the 1980s as king of the hill in the marketplace.
Something else seems clear regarding the melts themselves: While common-date coins and circulated pieces made up the bulk of the items that were melted, scarcer ones frequently bit the dust, as well. Although they had premium value as collector's items, many were worth even more as mere metal when bullion prices shot through the roof.
Many silver proof coins were melted, for example. So were certain semi-key silver coins in lesser grades.
Now and then, the melting pots also claimed material that was worth a great deal more. At the height of the hysteria, there was simply no way that dealers could examine every single coin that came their way -- and, as a result, some rarities surely slipped through their hands. In the process, of course, they were lost to the hobby forever.
Jim Carr, a longtime dealer from Pelham, N.H., recalled one near-miss that vividly illustrates this point. During the bullion crunch, Carr was vice president of the Crystal Coin Shop in Wakefield, Mass., a company with a large over-the-counter business, and he helped oversee one of the busiest coin-buying operations in the entire country. The purchase that stood out in his memory, though, involved another dealer.
"One of my good friends bought most of the bullion that came through New England," Carr related, "and some of the stuff he came up with -- from dealers, not the public -- was incredible.
"On this one particular occasion, he sold me a roll of brilliant uncirculated 1936-S Washington quarters that he had bought as silver from a dealer. The dealer undoubtedly bought it over the counter, never cracked the roll and never even realized what he had."
To Carr, it was no surprise that something like this could occur. In fact, he suspects that similar occurrences took place throughout the country -- often with less felicitous results for the hobby.
"You checked the stuff to a point," he said. "You did as much as you could. But during that period, you really didn't have the time to do it properly. You'd get in at 6 in the morning and work until 8 at night -- and then, at 8 p.m., when the time came to decide if you wanted to look for scarce dates, you'd say to yourself, `You know what? Maybe next shipment.'
"A lot of good coins undoubtedly got melted," he exclaimed.
Cases such as this, of course, were almost always accidents. No one with a good working knowledge of mintages and values deliberately consigned truly rare material to the melting pots.
On the contrary, key coins were almost always kept. And this led to one of the most fascinating -- and also most significant -- after-effects of the melts: a total rearrangement of relative rarity levels in every modern series of silver U.S. coins.
"Essentially," Carr observed, "the key coins now are common, since they're the ones that were saved -- and the formerly common coins are now rare, since most of them were melted.
"Take Roosevelt dimes, for example. The 1949-S and the 1955-P, D and S are probably the commonest coins in the series today in circulated condition, whereas before the melts they were the scarcest. Being worth a premium, they were saved. In circulated condition, the new key may be the 1946-D or something like that -- something where almost every available piece ended up being melted."
Harry J. Forman, well-known Philadelphia dealer and author of several books on coin investment, noted that a number of so-called "common" rolls of late-date silver coins already had made impressive gains. And, he said, other rolls are likely to follow suit, once their true scarcity is apparent to buyers and sellers.
"Lately," Forman pointed out in my 1985 interview, "we've seen some big promotions for brilliant uncirculated rolls of 1958-P Washington quarters and 1959-D Roosevelt dimes. These and the 1955-P Franklin halves were strongly recommended by a telemarketing company at very high prices -- prices way above the going market rate.
"Well, once people realize how scarce this material really is, those prices won't seem all that high. These telemarketing people are taking what little supply was left after the melts -- removing it from normal numismatic channels -- and that will serve to emphasize how few of these coins survived and how much they should really be worth."
Forman, for one, questioned whether market analysts will ever really know, with any degree of certainty, just how many silver coins remain and how they break down by date and mint mark. In short, he didn't believe -- and still doesn't today -- that future buyers and sellers will ever again enjoy the security once provided by meaningful mintage figures.
"There's no way we could ever tell," he said. "The only way would be to take a census -- and what guarantee do we have that any such census would be correct. Many people won't answer questions regarding their collections or their inventories. They like confidentiality, and I don't think you'd get them to cooperate."
Carr suggested that in time, the general outlines will be clear. He cautioned, however, that "it's going to take a lot of real research" to come up with even approximately accurate figures.
"Researchers will be able to develop a graph," he said, "based on the amount of offerings -- in advertisements, auctions and so forth -- over a 10-year period. But it's going to be a long, tedious process. I think there are going to be many underrated coins, but it's going to take a long time for their true rarity to come out."
He noted that numismatic researchers still have many unanswered questions regarding the impact of the gold-coin melts of the mid-1930s. And that was an episode that took place more than half a century ago and encompassed far fewer coins.
It may well be that as Leon Hendrickson, Joel Coen and other observers suggested back in 1985, the great silver melts were extremely detrimental for the hobby.
Carr didn't dispute this at the time, and he feels the same today. But he does see -- so to speak -- a silver lining: the fact that the melts ended when they did. He's convinced that if they hadn't, the stock of silver coins could have been wiped out completely.
"When silver hit $50 an ounce, I would say that 98 percent of the silver coins in existence were committed to smelting houses," he confided. "If the price had been maintained, most everything would have been lost.
"Fortunately," he added, "the refiners had a two- to three-month backlog, and as silver dropped in value they withdrew a lot of the coins. Even so, it's scary just thinking of what might have happened."
As it is, the great melts' aftermath has been a sobering time. So the hobby can be thankful that its hangover isn't even worse. And all of us can speculate what the really long-term impact may yet be.