Financial History 141 Spring 2022 - Page 26

the myriad complexities involved in conceiving and developing a national mint from scratch . He wrote :
A plan for an establishment of this nature involves a great variety of considerations …. The general state of Debtor and Creditor ; all of the relations and consequences of price ; the essential interests of trade and industry ; the value of all property ; the whole income both of the State and of individuals are liable to be sensibly influenced , beneficially , or otherwise , by the judicious , or injudicious regulation of this interesting topic .
The Report is a verbose , complex work that is essentially a lecture that was written down . Hamilton proposed a question , vis-à-vis the existing monetary system in the United States , “ whether it may not be most advisable to leave things , in this respect , in the state in which they are . Why might it be asked … should alterations be attempted , the precise effect of which cannot with certainty be calculated ?”
Answering his own question , Hamilton cited “ immense disorders ” that were everpresent in the contemporary American economy , including the debasement and depreciation of the dollar to the tune of 5 %, which lowered the value of all property . And since much of the circulating specie of the day was foreign , states the Report , “ Nor can it require argument to prove , that a nation ought not to suffer the value of the property of its citizens to fluctuate with the fluctuations of a foreign Mint , and to change with the changes in the regulations of a foreign sovereign .”
The Report also discusses the “ unequal values allowed in different parts of the Union to coins of the same intrinsic worth …”— coinage of different denominations and values produced in the 13 individual states under the Articles of Confederation . Such a confusing situation would be remedied by the establishment of a “ national coinage .”
The Secretary discussed challenges inherent in forging a national mint , concluding , “ the difficulty of devising a proper establishment ought not to deter from undertaking so necessary a work .” He then presented an outline in the form of a series of questions , the answers to which would result in the framework of the US Mint . He first discussed the unit of account .
A 1774-JR Carlos III 8 Reales minted in Bolivia . Coins such as this circulated heavily in America , where they were called Spanish dollar or “ piece of eight .” Hamilton modeled the US silver dollar upon the Spanish 8 Reales .
The US Unit of Account
Hamilton determined that the national unit of account would be called the “ dollar ” and that , following earlier suggestions by Jefferson and others , it would be expressed in decimal units instead of 90ths , as in Pennsylvania , or in eighths , as in New York .
Prior to passage of the Mint Act , no national unit of account existed . Each colony and later state had its own duodecimal unit of account called “ pounds ,” each of which were divided into 20 shillings ( s .). Each shilling , in turn , was divided into 12 pence ( d .). Each colonial or state pound was rated in terms of the Spanish silver dollar or “ piece of eight .” On the eve of the Revolution , a full weight Spanish dollar was valued as 6s . in New England , 8s . in New York ( hence eighths or 12.5 cents ), 7s . 6d . in Pennsylvania ( hence 90 pence per dollar ) and 32s . 6d . in Charleston .
Media of exchange in the colonies and new states included full-bodied Spanish , Portuguese , French and British specie coins , commodity monies like tobacco warehouse receipts in Virginia and “ country pay ” ( goods , services and food products rated in terms of the local unit of account ). Individual states also issued paper “ bills of credit ” in convenient denominations that often were legal tender in payment of debts .
By selecting the decimalized dollar as the unit of account , Hamilton drew on something familiar , but also not tied to the nation ’ s British or colonial past . All that remained was to ascertain the precious metal content of the unit .
The Relative Valuation of Gold and Silver Coins
Hamilton offered a strong argument for a gold standard as opposed to silver : “ Perhaps if either were to be preferred , it ought to be gold rather than silver .” He continued :
Gold may perhaps , in certain senses , be said to have greater stability than silver : As being of superior value , less liberties have been taken with it , in the Regulations of different countries . Its standard has remained more uniform , and it has in other respects undergone fewer changes : As being not so much an article of Merchandize , owing to the use made of silver in the trade with the East Indies and China , it is less liable to be influenced by circumstances of Commercial demand .
However , despite his personal preference for a gold standard , Hamilton concluded : “ But upon the whole , it seems most advisable , as has been observed , not to attach the unit exclusively to either of the Metals ; because this cannot be done effectively without destroying the office and character of one of them as money , and reducing it to the situation of a mere merchandize …”
According to Richard Sylla and David J . Cowen in Alexander Hamilton on Finance , Credit , and Debt , the ratio between gold and silver was significant , for “ Hamilton realized that if one of the precious metals was overvalued at a future US Mint vis-àvis the other , it would dominate the actual circulating money supply because people rationally would import the overvalued
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24 FINANCIAL HISTORY | Spring 2022 | www . MoAF . org