Wednesday, January 16, 2019

A Tribute to the EAC grading system

EAC grading is not perfect; it is just the best system we have today.

Attempts to systematize coin grading for U.S. coins began in the early 20th century. The American Numismatic Association (ANA) was a leading proponent of this effort. Coin grading was deemed important because of the correlation between the amount of wear on the coin and its market value. Dozens of books have been published to describe various grading systems. Adjectives were assigned to describe progressive levels of wear (eg. ABOUT UNCIRCULATED, EXTREMELY FINE, VERY FINE, FINE, VERY GOOD, GOOD). Following the publication of a book called Early American Cents by William Sheldon in 1949, the adjectives used for grading coins were supplemented with numerical grades ranging from 1-70. The ANA published the first edition of ANA Grading Standards for U.S. Coins in 1977. Shortly thereafter (1979) ANACS (the ANA Certification Service) issued its first coin grading certificates. These certificates were intended to facilitate coin trading, and featured photos of both sides of the coin and a grade estimate, based on ANA grading standards. A useful history of the ANACS grading service has been published, and can be read here:

Problems associated with grading continued to plague the coin market. In 1986, The Professional Coin Grading Service (PCGS) introduced the concept of grading & encapsulation, wherein the coin was graded, and encapsulated in a hard plastic holder, along with an insert upon which a certified grade was printed. The origin story for PCGS makes interesting reading, and can be found here:

Other companies followed the PCGS example, and today the coin market is heavily reliant on coins graded & encapsulated in holders from 3rd party grading services. If 3rd party grading had “solved” the problem with grading, no other system would be necessary. However, as we will discuss, that is not what happened.

Adjectival definitions for grades (eg. GOOD, FINE, VERY FINE, ABOUT UNCIRCULATED) have remained relatively constant over time. Likewise, the numerical grading scale (ranging from 1, for a coin just recognizable as to date & type, to 70 for a flawless coin) remains in place. However, the standards by which various grades are defined have not remained constant. This lack of permanence was the original justification for the 3rd party grading services. Unfortunately, these services have not been able to maintain adequate consistency of their standards. This has resulted in much confusion in the market for 3rd party graded coins. In addition, the increasing price spread between coins near the upper end of the grading spectrum gave rise to demand for increased precision in commercial grades. In response to this market phenomenon, PCGS introduced 11 discrete mint-state grades (MS60-MS70), and later added intermediate “+” grades, in an attempt to refine the definition of grade. In many cases, the difference between these 1-point grade spreads is too small to maintain with consistency (at least with human graders).

Coin grading has been described as part art & part science. For circulated coins, it is straightforward to define points along the continuum of wear – this is the “science” part of grading for circulated” coins. The “art” part involves accounting for differing striking pressure, which will also affect the amount of detail in the resulting coin. Another important aspect of the “art” of coin grading is deciding how particular defects (eg. rim bumps, scratches, abrasive cleaning, etc.) will impact the value (or grade) of a coin. The location and the severity of the problem will impact the coin’s value, and is unique to each and every coin graded. For coins that are strictly uncirculated (ie. No wear visible) it is theoretically possible to define points on the scale of beauty that involve the quality of the luster and the number of marks acquired by the coin during handling at the mint (or elsewhere) – this is the “science” part for uncirculated coins. The “art” part involves assessing the “eye appeal” that each uncirculated coin possesses within the context of its particular coin series.

The EAC grading system evolved within the Early American Copper community as a unique answer to the grading conundrum for problems experienced with circulated coins. The vast majority of early copper coins are circulated. The EAC system uses two numbers to define the grade of any coin. For a circulated coin, the first number defines the “sharpness” of the coin (on a 1-60 scale). For EAC grading the second number is called the “net” grade of the coin, after accounting for the impact of any problems. The net grade is either equal to, or lower than the sharpness grade. For uncirculated coins, the same two-number system is used. The 1st number (from 60-70) is related to the color, luster, and eye appeal of the coin. The second number is the “net” grade, which will be equal to or lower than the first number, and accounts for any problems the coin has.

The EAC system grading scale looks the same (on the surface) as the other grading systems. The same grading adjectives are also utilized. The most important differences are as follows:
  • The EAC standards for sharpness on circulated coins are a little stricter than commercial grading standards. A coin that grades “40” at a commercial grading service is likely to have too much wear to qualify for the sharpness grade of “40” by EAC standards. It will more likely have an EAC sharpness grade of “30”.
  • Problems are handled completely differently within the EAC system than by the commercial grading systems. For a coin graded using EAC standards, there is a 2nd number, derived from the sharpness grade, which accounts for any issues on the coin (eg. cleaning, scratches, damage, rim bumps, etc.). For a coin graded commercially, there will be no 2nd number. If a coin has issues, but they are deemed to be “minor” by the grading service (ie. Below the threshold that will prevent assignment of a numerical grade), the “net” grade (sharpness minus some allowance for the issue(s)) will be put on the holder. If the issues are above the “threshold” level, then the grading service will encapsulate the coin in a holder marked “Genuine”, usually with an adjectival description of sharpness, and an indication of the problem(s). For example “AU Details / CLEANED”.

  • The EAC grading system is not simple. There are just too many variables involved in grading for a simple system to work. However, the EAC system is consistent and capable of delivering trustworthy guidance about the market value of copper coins. Coin market participants who utilize EAC grading have made a concerted effort to sustain the grading standards that have been in use since the 1960’s. The consistency and time invariance of the EAC grading system renders it more useful today than any other grading system. The book devoted to describing (and illustrating) the EAC grading system is called “Grading Guide for Early American Copper Coins”. The first edition of this book has sold out, and must now be purchased on the secondary market.

    No comments: