Decimal Currency: £ to $    

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“That will be three pounds, five shillings, and 10 pence.  Will you be paying in Connecticut paper money, Spanish dollars, or half Joes?”

So might your conversation have gone with a Hartford merchant in 1760.  The journey from there to dollars and cents was long and crooked, but the linchpin was a brief ordinance, inspired by Thomas Jefferson, enacted by the Congress which met under the Articles of Confederation on August 8, 1786.

From earliest times, American colonists had reckoned prices, wages, and rents in British pounds, shillings, and pence.  There were 12 pence to a shilling, and 20 shillings to a pound.  But, the colonists seldom paid in pounds, shillings, or pence.  The British forbade export of their coinage--even to their own colonies.  Traders and immigrants sometimes smuggled in British coins anyhow, but such coins typically found their way back to England in short order to pay for imports.

So, the colonists looked to other countries.  Traders exported food and lumber to the West Indies, which brought in Spanish silver dollars.  European traders and settlers also carried in French (Louis d’or), Dutch (guilders), and Portuguese (Johannes, known as Joes or half Joes) coins, which circulated in lesser numbers.  Merchants would translate these coins into pounds, shillings, and pence by virtue of their specie (gold or silver) content.

In general, however, the colonies experienced deflation.  Coins tended to leave the colonies, because the colonists imported more than they exported.  The money supply fell, even while the economy grew.  Prices fell as a result.  This was uncomfortable for borrowers, who found themselves forced to repay loans with money growing ever more dear.  They sought relief from colonial governments.

Colonial governments responded in one or both of two ways.  Some simply printed money, providing an immediate boost to the money supply.  Others devalued their currency, arbitrarily declaring that pounds, shillings, and pence within their colony represented a lesser quantity of silver.  Owners of silver dollars, it was hoped, would be more likely to bring them to, and spend them in, colonies where they were worth more pounds than where they were worth fewer pounds.

Neighboring colonies tended to match each other’s devaluations.  By 1775, then, there were no less than four clusters of colonies with different values for the pound, none of which were the same as the British pound:

Grains of silver per pound Ratio to British pound Value of Spanish $ in pounds:
NH, MA, RI, CT, VA 1289 0.75 0.29
MD, DE, PA, NJ 1031.25 0.60 0.36
NY, NC 966.75 0.56 0.39
GA, SC 1547 0.90 0.24
Great Britain 1718.75 1.00 0.22

Into this morass waded the Continental Congress in 1775.  The Revolutionary War had broken out.  Congress had to pay the Continental Army, and they had to pay for supplies, and (since they had no coin) they had to pay with paper money.  But how should the money be denominated, with five different pounds on the table?  From the beginning, Congress determined to print dollars, based on the Spanish dollar.  The Spanish dollar had roughly equivalent purchasing power from colony to colony, and people were familiar with it.  Merchants could translate it into their local pounds, shillings, and pence, just as they were already translating Spanish dollars.

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Congress did not use cents.  Fractions of a dollar were treated as just that—fractions of a dollar.  For example, on June 14, 1775, Congress resolved that lieutenants in rifle companies should be paid 13 1/3 dollars per month, versus 6 2/3 dollars for privates.  Congress also borrowed money and kept its books, such as they were, in dollars.

The dollar-denominated paper Continentals circulated alongside colonial (after 1776, state) paper money and foreign coins.  The following tables, from an early Nineteenth Century text book named Pike’s Arithmetic, give the flavor of translating among at least four types of coin and six different non-decimal units of account.  One wonders that anybody was able to buy or sell anything.

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Over time, Congress printed too many paper Continentals.  They depreciated into worthlessness.  In 1781, Congress had to start over, with a new dollar, borrowed in controlled amounts which the government might reasonably hope to one day pay back in specie.  The Continentals faded from circulation, leaving the field to coins, bank notes, and state-printed paper money.  States continued to print money, and merchants continued to reckon prices, in pounds, shillings, and pence.  The federal government continued to keep its books in dollars and fractions.

Peace came in 1783, and Congress began to fantasize about opening a national mint.  (The Articles of Confederation granted Congress the power of "regulating the alloy and value of coin struck by their own authority".)  What coins would such a mint strike?  Here Thomas Jefferson enters the scene.  Jefferson proposed to keep the dollar, but scrap the fractions.  His “Notes on the establishment of a money unit, and of a coinage for the United States” lay out the case for dollars and decimal cents in clear, thorough prose. 

“The most easy ratio of multiplication and division”, Jefferson wrote, “ 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 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.”

Jefferson departed Congress to serve as ambassador to France in July, 1784, but he did not write in vain.  On July 6, 1785, Congress passed a one-sentence resolution “that the money unit of the United States of America be one dollar”—formalizing what it had already been doing since 1775.  On August 8, 1786, Congress passed a longer resolution “that the money of account proceed in a decimal ratio”, with cents, dimes, and dollars—just as Jefferson had advocated.

As matters turned out, the Confederation Congress never set up a mint.  But Congress under the Constitution of the United States (COTUS) did in 1792, and Alexander Hamilton, then Secretary of the Treasury, retained the decimal currency scheme intact.   “The denominations of the silver coins”, Hamilton wrote in his report on the mint, “contained in the resolution of the 8th of August, 1786, are conceived to be significant and proper.”

And so they were.  As the mint began cranking out dollar and cent coins, merchants finally, gradually, began indicating their prices in dollars and cents.  Foreign coins continued to circulate, but they were translated into dollar values, not the hodgepodge of state-based pounds, shillings, and pence.  Pike’s tables faded into oblivion, and students were freed to concentrate on more useful subjects such as phrenology and Latin.

If the government under the Articles of Confederation had done nothing else, the establishment of a decimal currency, by itself, would entitle it to our everlasting gratitude.

Sources: Ron Michener, Money in the American Colonies, 2003; Thomas Jefferson, Notes on Coinage, 1784; Journals of the Continental Congress, Volumes 2, 29, and 31; Alexander Hamilton, Report on the Establishment of a Mint, 1791

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