To understand the extreme rarity of the 1878-S half dollar one must go back to the darkest days of the Civil War. When armed conflict broke out between the states in 1861 with the bombardment of Fort Sumter on April 12, Northerners and Southerners alike expected a quick victory over their foe. By the end of the year, however, a string of early Confederate victories convinced Northerners that, not only was it likely to be a long war, but the outcome of the conflict was very much in doubt. On December 28, 1861, certain banks in the North stopped paying out gold coins at par in exchange for paper money, and by the 30th many other institutions had joined in the suspension. Americans responded by hoarding gold and, by early 1862, such coins were no longer seen in commercial use in the East or Midwest.

To help fund government operations, the United States Congress in March 1862 authorized Legal Tender Notes from $1 to $1,000, these paper bills not redeemable at par in gold or silver coins. Economic concern deepened and, by the summer of that year, silver coins also disappeared from circulation in the East and Midwest. (Gold and silver remained in circulation on the West Coast during both the Civil War and Reconstruction eras.) Many thought that, with Lee's surrender at Appomattox Court House on April 9, 1865, and the effective ending of the Civil War, silver coins would return to circulation. This did not happen, however, as people's confidence in the financial stability of the federal government continued for several years thereafter.

By the mid 1870s, it finally became apparent that silver coinage would see active circulation again soon. In anticipation of this event the federal government began striking large numbers of dimes, quarters and half dollars. The result is the record (for the era) high mintages of 1875 and 1876 from the Philadelphia, San Francisco and even Carson City mints. Then something happened that the Treasury Department did not anticipate: when silver coins and Legal Tender Notes reached parity on April 20, 1876, it triggered the release of long-hoarded silver coins into commercial channels. Although mintages of dimes, quarter and half dollars remained high in 1877, by the following year the market had become flooded with silver coins, resulting in a sharp decrease in the need for new coinage.

The effects on half dollar (and also dime and quarter) production were immediate and severe. Whereas the Philadelphia and Carson City mints had struck 8,304,000 and 1,420,000 half dollars in 1877, respectively, output at these facilities dropped to just 1,377,600 and 62,000 coins in 1878. Hardest hit, however, was the San Francisco Mint, which was called upon to strike just 12,000 half dollars in 1878 as opposed to its generous output of 5,356,000 examples the previous year.

Struck in extremely limited numbers, the 1878-S half dollar was almost pre-destined to become a leading numismatic rarity. It was helped along that path by its production in California during an era when there was essentially no numismatic activity in the American West. As well, collecting coins by mintmark was still in the future (Augustus G. Heaton's treatise on the subject was not published until 1893), and most contemporary American collectors were content to acquire Proofs from the Philadelphia Mint to meet their need for examples of new coinage. The result is that virtually the entire 12,000-coin mintage for this issue was consumed by commercial use on the West Coast, where the demand for circulating silver remained strong.

By the time Heaton's reference was published in 1893, the 1878-S had already become highly elusive. As Q. David Bowers (A Guide Book of Liberty Seated Silver Coins, 2016) states: "Writing in 1893 in Mint Marks, Augustus G. Heaton commented that while the 1855-S and 1857-S were rare, in the '1878 we have the great rarity of the San Francisco half dollar coinage.'" Today the legendary rarity of this issue is firmly established in numismatic circles, the experts at PCGS CoinFacts estimating that fewer than 50 examples are known in all grades. Taking a similar view, Bill Bugert states in his Register of Liberty Seated Half Dollar Varieties, Volume I (2009) that he and Randy Wiley believe that only about 60 coins are extant.

The example to the left was sold by Stack's Bowers Galleries in the D. Brent Pogue Part VII Auction, where it realized $288,000.