One of the most overlooked subjects in public education is the history of money. How it’s made, what it is, who is in charge of it, and where it comes from. Most of us hardly give it a second thought, except to check whether we have enough, and to scheme on ways to get more. In fact, in polite circles, it’s considered taboo to even discuss the subject of money. So why discuss it at all? Mostly because we are nerds about this stuff, but also because some background knowledge of the currency we use today is very helpful when it comes to spotting potential threats to that currency.
As world trade developed, so did a problem of how to pay for the trade. If a nation that used cattle as a form of money wanted to trade with a nation that used sea shells, neither party received money that was useful in their home country. To solve this problem, many nations settled on gold and silver as a unit of account. The benefit of being paid in a precious metal is that it is universally recognized as an object of value, so it can easily be converted into one’s home currency, regardless of what the domestic form of money was. Europe primarily used gold and silver as their form of money anyway, so its use for international trade was a natural fit.
During the 1500’s, Europe was in love with spices, porcelain, silk and other exotic goods from India, Indonesia, and the Far East. The purchase of these goods, and a series of expensive wars, resulted in a constant drain of gold and silver out of Europe. This created a problem because the precious metal was needed to create coins for domestic use. Being in short supply, the money makers had the brilliant idea of making a coin that looked like the original, but substituted gold and silver with cheaper metals. This practice of debasement became a ploy that has been used in various forms throughout the world, and is still practiced today.
In the meantime, let’s examine the quarter in your pocket. To understand its origin, we must first travel all the way back to 1518 and pay a visit to the town of Joachimsthal in the Kingdom of Bohemia (now the Czech Republic). The valley was known for its silver mines, and it is where the first “Thaler” was minted. The thaler was a silver coin that quickly became popular because it was known for its quality and consistency in content. This concept of consistency was a welcome change compared to the coins that were circulating throughout Europe during the 1500’s, so it became a favorite for world trade.
Fast forward to the 1700’s—the Spanish produced a silver coin almost identical in size and weight to the original Thaler. When the Spanish came to America, they brought these coins, and because the “th” didn’t roll so easily off the tongue, a “d” was substituted and they became known as a dollar. As the United States was created, so too was a need for its own currency. The United States Constitution gave Congress the power, “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures“.
In 1785, Congress accepted the Spanish dollar as the official unit of value. In keeping with their constitutional mandate of defining weights and measures, Congress defined the weight of a dollar to be 375.64 grains of fine silver and one ounce of gold to be worth 15 ounces of silver. We no longer think of a dollar as a unit of measurement, but it started in the US as one, no different than a quart, inch, or a pound.
Although today we still use the term dollar, it carries no resemblance to its ancestor at the time of this nations founding. Despite a constitutional mandate to define the weight and purity of a dollar, we couldn’t resist adopting the ways of the 15th century Europeans, and have since debased all the precious metal content out of our dollar. The silver that was in our dimes and quarters have been replaced with less expensive metals like copper and nickel, and the old $20 gold coin has been replaced with a piece of paper with a picture of a dead president on it. How did we transition to the dollar we have today? That story is coming in Part 2…
Image of the Thaler By Berlin-George [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons