Because international trade had made the dollar (a common name for the Spanish peso) and its subdivisions more plentiful than any other coins in the commercial centers along the American seaboard during the colonial era, it became the common “medium of exchange.” It also became customary to reckon accounts in terms of dollars, although some merchants used pounds, shillings, and pence and continued to do so long after independence. The dollar, therefore, was also adopted as the “unit of account.” Fortunately for all of us, a decimal system of divisions was adopted rather than the arithmetically troublesome old English system of pounds, shillings (20 = 1 pound), and pence (12 = 1 shilling). Thomas Jefferson, who along with Robert Morris and Alexander Hamilton was most responsible for our adopting the decimal system, made the following cogent argument in his 1783 report to Congress:
The easiest ratio of multiplication and division, is that by ten. Everyone knows the facility of Decimal Arithmetic. Everyone remembers, that, when learning Money Arithmetic, he used to be puzzled with adding the farthings, taking out the fours and carrying them on; adding the pence, taking out the twelves and carrying them on; adding the shillings, taking out the twenties and carrying them on; but when he came to the pounds, where he had only tens to carry forward, it was easy and free from error. The bulk of mankind are schoolboys through life. (Ford 1894, 446-447)
More important than the decision to decimalize the currency was the question of a standard. Would the currency’s value be based on gold? Silver? Gold and silver? The inflationary experiences of the United States during the Revolution, and in some of the states under the Articles of Confederation, showed that paper issues without backing were liable to abuse: Governments were tempted to print too much. But it was hard to choose between the two great monetary metals, gold and silver. Ultimately it was decided
To use both. Gold would add its prestige to the monetary system and serve in higher-denomination coins; silver would serve for smaller denominations.
Alexander Hamilton, the first secretary of the treasury, pointed out that the silver dollar was, in fact, in general use in the states and that people everywhere would readily accept it as the monetary unit. The only difficulty, he said, was that Spanish dollars varied in their content of pure silver. He suggested that the pesos in circulation be assayed (tested) to see how much silver they contained. The number of grains of silver in the new U. S. dollar would simply be the average of that in the Spanish coins then circulating. Because gold was about 15 times as valuable as silver, gold coins need contain only one-fifteenth as much metal as silver coins of the same denomination. These ideas were ultimately translated into the Coinage Act of 1792. This decision for a bimetallic standard (both gold and silver) proved controversial over the three-quarters of a century during which it was maintained.
World History
