In taking apart my 51 front axle I noticed that the spindle (knuckle) was shimmed between the top of the I-beam and the spindle. Am I correct in thinking it should be on the bottom under the thrust bearing so it is not in contact with the moving spindle?

The shop manual says the top.

I have always put the bearing on the loaded side to take the weight and the shims on the other side to take up any excess vertical play. While GM have the outer ends of the pin in the spindle I have found some manufacturers do the reverse though not a common practice.
Tony

Guess if the shim is harder or tougher or larger area (less apt to squish) than the bearing the shim should go on top. If the other way the bearing should be the one to take and spread the load. At least makes sense to me.

As usual Genes info is correct. I was concerned because the shim I removed is distorted and worn. It will go back together the same way after checking the gap. When the king pins were installed 18 years ago I remember the mechanic noting that he was barely able to get the shim in. The king pins were replaced due to failing to pass state inspection but after getting things apart there was not that much evident wear and we concluded that whoever did the inspection was not familiar with cars of this vintage. Thanks to all for replying.

The inspector probably mistaked the slop in the ball bearing with looseness of the king pin. If you check vertical versus horizontal movement you can determine bearing fit. Once that is done then evaluation of the king pin can be made.

You are correct Chipper as one side had no shim and the other was a bear getting the shim in. The pins and bushings had hardly any wear. Finding a qualified garage/mechanic to do state required inspections is a challenge.