American interest in Spain has surged thanks to their victory over Argentina in the FIFA World Cup. For Chattanoogans, the curiosity was rekindled thanks to the team’s five week training stay in the Scenic City. As the Times recently noted, Spanish conquistadores under Hernando de Soto were the first Europeans to encounter indigenous people living around Moccasin Bend in 1540.
This historic linkage between the two countries is still evident in every financial transaction we undertake today. We can thank the Spanish Empire for our dollar.
Colonial America was rich in natural resources but suffered a persistent shortage of hard money. England’s mercantilist economy required laws prohibiting the export of British coins to the colonies, while the crown also forbade local minting. Early American commerce often depended on barter or utilized inferior forms of money including wampum, tobacco, pelts, even nails and livestock.
With the growth of foreign trade, particularly in the West Indies, silver coins from Spain, Portugal, and France began to circulate in America during the 18th century, facilitating local commerce as well. Spanish coins in particular gained a foothold in the colonies because of their consistent quality and expanding supply. And much easier to carry than a goat.
Why Spain? While Britannia may have ruled the waves in the 1700s, the Spanish Empire was arguably the first global superpower beginning with the ascension of the Catholic monarchs in 1469 and the voyage of Columbus to the New World in 1492. Spanish power reached its zenith around 1600 and ultimately controlled more territory than the Roman Empire.
Spain’s conquests in the New World created vast riches from silver mining, primarily from the abundant deposits in Mexico, Bolivia, and Peru. Slugs of silver were smashed between 2 engraved dies to produce relatively standardized coins that found their way throughout the empire as the first global currency.
The unit of money in the Spanish Empire was called the “real”, from a Latin word meaning regal. In 1365, King Pedro I of Castile issued the first “royal coin” or real, and in 1497 the real became the official coin of the realm by decree of Ferdinand and Isabella. The real retained its official status for 5 centuries.
Back in the colonies, Americans were adopting Spanish coins as their own. Spain was minting silver coins primarily in denominations of 8 “reales” often called “pesos de Ocho reales” from the Spanish peso for “weight”. To facilitate small transactions, these coins were often sliced into 8 wedges of 1 real each, hence the coins became known in English speaking ports as “pieces of eight.”
The dollar gets its name. By the 16th century, silver has largely replaced gold as the standard precious metal for coinage. In 1519, a large, high-quality silver coin was minted in Bohemia, a kingdom within the Austrian Empire (comprising most of the modern Czech Republic). The coin was produced in the small town of Joachimsthal, and in time it came to be known as the “Joachimsthaler”, later shortened to thaler or taler. In German, thaler transliterated into tolar; in Scandinavian, it became daler. Dutch merchants brought their version, the daalder, to the New World where it ultimately morphed into the English “dollar”.
Colonists began referring to coins collectively as “dollars” but in time the term dollar referred specifically to the Spanish piece of eight. Individual slices of 1 real were called “bits,” hence a quarter dollar was worth 2 bits.
Spanish technological innovation also promoted wide circulation of these silver coins. The adoption of mule powered rolling mills around 1732 produced a more consistent weight and higher quality stamping. It also allowed for the milling of knurled ridges along the edge of the coins, largely defeating attempts to debase their value by clipping or shaving. As the colonies chafed under the rule of King George, America’s money supply consisted mostly of Spanish dollars.
To finance the Revolutionary War, the Continental Congress issued promissory notes that served as paper currency. These “Continentals” of various denominations were, in theory, exchangeable into the specified amount of “Spanish milled dollars.” Continentals became essentially worthless due to excessive issuance and lack of actual convertibility.
The dollar becomes official. The Continental Congress adopted the dollar as the American monetary unit in 1785. The pre-revolutionary congress also allowed the individual states to mint their own coinage, leading to a farrago of state coins with the same or similar names but varying values.
The Constitution of 1787 endowed Congress with the sole authority to issue coins, leading to the Coinage Act of 1792 establishing the first U.S. Mint in Philadelphia. The act declared the dollar to be the official unit of money un the United States and adopted Alexander Hamilton’s preference for a decimalized denomination. The mint began producing various U.S coins from gold, silver, and copper. However, persistent shortages of materials, production inefficiencies, and fluctuations in the market value of the base metal meant that the mint could not keep up.
Additional coinage acts over the next 60 years and even the construction of a new larger mint facility failed to meet demand, so the Spanish dollar continued in wide circulation during the early years of the republic up to the eve of the Civil War. Only in 1857 did Congress finally pass a law that ended the legal tender status of all foreign coins. The Treasury department was authorized to exchange foreign gold or silver coins and remelt them for use at the U.S. mint.
So long silver. The United States no longer uses any silver in circulating coinage due to the sharp rise in cost. The value of the metal in a 1794 U.S. silver dollar is around $46 in today’s market, and the mint stopped using it altogether in 1970. Meanwhile, the spending power of a dollar isn’t what it used to be. Cumulative inflation since the first coinage act has totaled about 3,300%, meaning that one dollar in 1972 (Spanish or otherwise) would buy you 3 penny candies today. If you can find them.