Fix a Standard

The Definition of a “Dollar” and the Dollar’s establishment as the standard for the original monetary system of the United States.

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Under the newly formed Constitution of the United States, Congress
in 1792, established a mint and authorized the minting of both silver
and gold coins. The “Standard” was established by making the “Dollar”
the “money of Account of the United States” which all public offices
and courts were bound to accept, and defining that “Dollar” as 371.25
grains of pure silver(20) which was the average weight then of the Spanish Piece of Eight.(21)
Gold coins in the form of “Eagles”, “Half Eagles”, and “Quarter Eagles” were also authorized.(22)
The ratio between gold and silver (as then deemed accurate by the free market) was established as 15:1.(23)
The Eagle was to be “of the value of ten dollars or units” so its
weight was defined as 270.5 grains of pure gold (each “dollars” worth
of value being 24.75 grains of gold or 1/15 of 371.25 thus keeping in
line with the ratio of 15:1). Lesser Gold and Silver coins were also
authorized and their respective “weights” and “values” were also
determined by the standard–371.25 grains of silver. Thus Congress
“fixed” the standard of value as 371.25 grains of pure silver, called
this weight of silver a “Dollar”, and “regulated” the value of other
gold and silver coins (both the newly minted coins whether gold or
silver and the Spanish milled Dollar) according to this standard. It is
important to note that gold coins, taking the Eagle as an example, was
not denominated in terms of “dollars” but was simply called an “Eagle”
which had an intrinsic free market worth “of the value of ten dollars”.(24)

Thus in the Colonies and later under the Government of the United
States Constitution, a fixed weight of silver was recognized as the
standard by which to measure all other coins both gold and silver. Adam
Smith notes how the general public largely understood the concepts of
“fixing” a standard and “regulating” the value of coinage:

. . . as people become gradually more familiar with the use
of different metals in coin, and consequently better acquainted with
the proportion between their respective values, it has in most
countries. . . been found convenient to ascertain this proportion, and
to declare by a public law, that a guinea (of gold), for example, of
such a weight and fineness, should exchange for one and twenty
shillings (of silver) or be a legal tender for a debt of that amount.
In this state of things, and during the continuation of any one
regulated proportion of this kind, the distinction between the metal
which is the standard, and that which is not the standard, becomes
little more than a nominal distinction.(25)

Vieira notes how the founders used precise linguistic wording in their
use of the phrases “fix the standard” and “regulate. . . value” and
subtly diverge in meaning:

The phrase “fix the standard” empowers Congress to
define the basic units of “Weights and Measures”; whereas, the phrase
“regulate the Value” empowers Congress only to apply the basic unit of
“Value”, which the constitution elsewhere explicitly identifies as the
“dollar”, a known, historically fixed weight of silver. Moreover,
whereas the verb “fix” as applied to “Weights and Measures” implies
“stability and confirmation”, the verb “regulate” as applied to coinage
implies continuous adjustment. . . the Framers. . . in one phrase
selecting the verb that connotes the establishment of permanent
“Standards”, without which a system of “Weights and Measures” cold not
serve its purpose; and, in the other, choosing the synonym that
connotes a process of inter-comparisons among changing forms of
coinage, according to a set “Money-Unit”, without which a monetary
system involving both gold and silver could not achieve its end.(26)

20. Thomas Jefferson at first (before he saw the
wisdom of maintaining the standard of the piece of eight) advocated
making the original money unit or dollar (A silver coin) of the weight
of one ounce or one cubic inch, rainwater exactly, ‘measures, weights
and coins, thus referred to standards unchangeable in their nature
would themselves be unchangeable. (Jefferson’s Writings by H. A.
Washington, Vol VII p. 490 as quoted in Paul Bakewell, “Thirteen
Curious Errors about Money,” p. 49)

It was upon Alexander Hamilton’s suggestion that the United States
adopt as its standard the already existing standard–that of the
Spanish piece of eight. Hamilton had a study performed of the average
weight of the piece of eight (which was determined to be 371.25 grains
of pure silver) and in his report for the 1st Coinage Act stated:
“There is scarcely any authority in the economy of national affairs of
greater moment that the uniform preservation of the intrinsic value of
the money unit” (Annals of the First Congress, vol II, p. 211 as quoted
by Bakewell p. 490)

21. Weisman, pg. 16-19.

22. Ibid.

23. Ibid.

24. Weisman, pg. 17.

25. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Book I, Chapter 5 (emphasis is mine).

26. Vieira, pg 51.




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