Chapter VIII
The Dollar Coin And The Dollar Unit We Use To Express Exchange Value
After Spain discovered large amounts of silver in its colonies in Mexico and South America, the Spanish government made many silver coins. The silver coin made by Spain and used in large quantities throughout the Spanish-American colonies in trade with the English-American colonies was called the Spanish milled dollar. It was a large silver coin that at one time weighed 423.45 grains and at another time 417.28 grains. In 1786 and for some years thereafter, it contained 375.64 grains of pure silver.
The first United States silver dollar coin authorized by Congress in 1792 weighed 416 grains and had 89.24% silver content. After 1837 the coin weighed 412.5 grains and had 90% silver content. Both coins had 371.25 grains of pure silver.
In addition to the Spanish milled dollar coin, Spain also made a smaller silver coin called a "real." It too circulated extensively in the English-American colonies. The real was also called a "bit." One quarter dollar was two reals or two bits. A Spanish milled dollar was the equivalent of eight reals.
Because the Spanish-American colonies had an unfavorable balance of trade with the English-American colonies, the Spanish milled dollar was the predominant coin in circulation in the English-American colonies. These coins had the exchange value of their silver content. They were items used as goods are in bartering. They were not the evidence of claims for anything. They were not tokens, certificates of credit, or tax credit [p. 77] certificates. Governmental bodies did accept them, however, as payment for taxes and for other charges due the government at the exchange value (the market value) of their silver content.
Some of the colonies even declared the Spanish milled dollars to be legal tender at the market value of their silver content. In 1857, Congress repealed the legal tender power of all foreign coins.
Continental Currency
When the Continental Congress issued the bills that were to serve as the Continental currency, the following words were inscribed on the face of the bills:
THIS BILL
entitles the Bearer to receive
SIX SPANISH MILLED DOLLARS,
or the Value thereof in GOLD or SILVER,
according to a Resolution of CONGRESS
published at Philadelphia Nov. 2, 1776.
The Word "Dollar"—The Official Name of the Unit Used In the United States to Express Exchange Value
The Spanish milled dollar coin was so widely used in the English-American colonies that people were using the word “dollar,” not only as the name of the coin, but also as the name of the unit with which to express the exchange value of goods, services, and other currencies. The word "dollar" was so well established in its usage as the name of the common denominator unit with which to express exchange values, that on July 6, 1785, the United States Congress meeting under the Articles of Confederation, declared the word "dollar" the official name of the unit of account that was to be used in the United States.
The Congress called it the United States monetary [p. 78] (coin) unit. But it was not the name of a United States coin at that time because the United States dollar coin was not authorized to be minted until 1792. It was correct to call the word "dollar" the unit of account because the unit used in accounting is the unit used to express the exchange value of the items listed in accounts.
At that time, when the unit called a dollar was used to express exchange value, it meant the amount of the exchange value (the market value) of the silver in the Spanish milled dollar.
The word "dollar" was the name given to the abstract unit or concept or device that served the same purpose for the people in the English-American colonies as the "point" served for Peter Meyer when he first established it as the name of the common denominator unit with which he expressed his idea of the exchange value of his goods. It served the same function the English unit “pound,” served when it was first established as the name of the unit expressing exchange value.
When the early Americans first used the word "dollar" as the name of the unit with which to express the exchange value of goods and services, it meant the exchange value of the silver content of the Spanish milled dollar in relation to the exchange value of other items. They could have used the word "point" or "unit" and said that each Spanish milled dollar coin was worth, or was equal to, one point's or one unit's worth of the item to which it was applied and thus expressed the exchange value of all goods and services with points or units in the same ratio as with the unit they called the dollar.
We know that the word "point" or "unit" by itself has no exchange value. When the word "dollar" is used as the name of the unit to express exchange value, it too has no exchange value. In fact, it has no meaning unless it is applied to something which has exchange value.
When one asks a teller in a bank for one hundred dollars, it is unlikely that either the customer or the [p. 79] teller understands that the bank does not possess any dollars. The bank may possess coins, notes, or certificates, but these should not be called dollars. The teller will, however, ask the customer, "How do you want the hundred dollars?"
A bank customer using correct terminology would reply, “I would like fifty dollars' worth of one-dollar Federal Reserve notes, ten dollars' worth of Eisenhower dollar coins, ten dollars' worth of half-dollar coins, ten dollars' worth of one-quarter dollar coins, ten dollars, worth of dimes, and ten dollars' worth of nickels." The amounts of each monetary unit may vary, but the names of the units would be accurate. Thus, the hypothetical customer receives not one hundred dollars but one hundred dollars' worth of notes and coins. The word "dollar" or "dollars" is used correctly as an adjective, not a noun. It must be applied to something before it has any meaning. In the case illustrated above it is applied to notes and coins. The Eisenhower dollar coins are not dollars; they are coins.
Let us give another illustration: If a person owes you $4 and offers to give you forty 10 cent postage stamps as payment, you might accept them. People do accept postage stamps for certain payments. There is no reason why postage stamps could not be used as currency. In 1863, during a shortage of fractional (small denomination) coins, postage stamps were widely used as currency in the United States.
If postage stamps were commonly used as currency, and one acquired $100 worth of stamps, he might decide to deposit them in his checking account at a bank. Then, if he wrote a check for $10, he would be giving the bank an order to pay to the payee of the check $10 worth of postage stamps (which, as currency, could be used by the payee to purchase other goods and services).
It is in the same manner that, when we now write a check for $10, we give an order to the bank to pay to the payee $10 worth of currency (coins or notes). The bank does not payout dollars. It pays out dollars' worth of currency. Dollars are not currency. [p. 80]
Postage stamps are received by the post office as payment for postal service. Coins and notes are received by the government as payment for taxes and other charges due the government.
Postage stamps, coins, United States notes, and Federal Reserve notes may be used as currency and their exchange value is expressed as dollars' worth of stamps, or dollars' worth of coins, or dollars' worth of United States notes, or dollars' worth of Federal Reserve notes.
We should not be surprised when we are told that the unit (the dollar) used to express exchange value has no exchange value in itself. When we study the units used in other fields, we find they too have no value or meaning until they are applied to things.
Numbers have no meaning until they are applied to things. The numbers 2, 10, or 100 by themselves mean nothing. One does not say, "I have two, ten, or one hundred." Such a statement is meaningless. But if one says, "I have two cars, ten children, and 100 chickens," he is giving meaningful information.
Likewise, the unit used to express (not measure) weight—the pound—has no weight. Scales are used to measure the weight of an object; then the weight is expressed in pounds or other units used to express weight.
The unit used to express length, the yard, has no meaning until it is applied to something. One cannot buy yards; one may buy yards of something. A yardstick is used to measure the length of an item and then the length is expressed in yards. There is a difference between the yardstick and the yard, the unit used to express the length of the yardstick. Likewise, the dollar coin and the unit dollar, used to express exchange value, are two different things.
Let us give another illustration by comparing the dollar unit to express exchange value with a unit we use to express volume, the gallon.
If a person says that he has a gallon jug, the word "gallon" is used as an adjective. It describes the noun, [p. 81] jug. If a person says that he has a gallon of water, the word "gallon" is used as a noun. It is the name of a unit we use to express a certain volume. A person does not say, "I have a gallon," because a gallon as a unit to express volume does not exist as a physical thing. The unit called gallon exists only as a concept.
The same is true for the unit we call a dollar. When the word “dollar” is used as the name of the concept or device we use as a common denominator unit to express the exchange value of goods, services, and currencies, it is used as a noun. When the word "dollar" is used to describe a Federal Reserve note or a coin, it is used as an adjective.
When we use the word "dollar" as a noun, it is the name of a concept. It has no meaning unless it is applied to something, just as the word "gallon" has no meaning unless it is applied to something. A person cannot buy a gallon. He cannot carry a gallon. He cannot store a gallon. But a person may buy, carry, or store a gallon of something.
Similarly, a person does not receive dollars from a bank. He does not carry dollars in his pockets. He does not store dollars in his safe. But a person may receive, carry, or store a dollars' worth of currency (coins or notes) because items of currency are physical things, they are not concepts.
When we hear the statement, "the dollar lost value," we should understand that it does not tell us anything. We know that the dollar unit did not and could not lose value because the unit, being a concept, has no exchange value to lose. What is meant by the statement, “the dollar lost value,” is that the currency, the exchange value of which is expressed in dollar units, lost exchange value.
The question might be asked, for what purpose is the dollar unit used? The dollar unit was and is used to express the ratio of the exchange value of one item to the exchange value another item.
For example, a dollar bill has a specific exchange value, one dollar's worth, when it is used as a payment [p. 82] for taxes. But when it is used to buy goods and services, it will have the amount of exchange value to which the buyer and seller agree at the time of the transaction.
As an illustration, let us say a person offers to sell his potatoes for one-dollar bill per bushel. The one-dollar bill will have the exchange value of one bushel of potatoes. If, at a later date, he offers to sell the potatoes for two one-dollar bills per bushel, each dollar bill will then have the exchange value of only one-half bushel of potatoes. The dollar unit was used to express the two different ratios of the exchange values of the dollar bills and the potatoes.
We should note that the exchange value of both the dollar bills and the bushel of potatoes changed between the first transaction and the second transaction. The dollar bill was used to express the different ratios of exchange value of the dollar bills and the bushel of potatoes in both transactions.
When people in the early days of our country decided to use the exchange value of the silver dollar coin as the exchange value to be expressed with the dollar unit, the unit expressed the exchange value of the coin. The silver dollar coin was intended to be the embodiment of the concept, unit called the dollar. It remained so only as long as the price of silver did not increase or decrease. When the price of silver changed, the unit called the dollar might just as well have been called a unit or a point because it served only as an abstract unit to express the exchange value of other items.
Once the ratio of the exchange value of each item is established in relation to the exchange value of other items, the exchange value of all items, including currency, can be expressed with an abstract unit called a unit, a point, or any other name, as well as the unit called the dollar. [p. 83]
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