Schilling and Dollar Manipulations
By far the leading species coin circulating in America was the Spanish silver dollar.
Defined as consisting of 387 grains of pure silver, the dollar was divided into pieces of eight, or bits, each consisting of one-eighth of a dollar.
Spanish dollars came into the North American colonies through lucrative trade with the West Indies.
The Spanish silver dollar had been the world's outstanding coin since the early 16th century and was spread partially by dint of the vast silver output of the Spanish colonies in Latin America.
More important, however, was that the Spanish dollar, from the 16th to the 19th century, was relatively the most stable and least the base coin in the Western world.
Since the Spanish silver dollar consisted of 387 grains and the English shilling consisted
of 86 grains of silver, this meant the natural free market ratio between the two coins would
be 4 shillings, 6 pence per dollar.
Constant complaints, both by contemporaries and by some later historians, arose about
an alleged scarcity of money, especially of specie in the colonies, allegedly justifying
In reality, there was no shortage.
It is true that England, in a mercantilist attempt to hoard specie, kept minting for
its own prerogative and outlawed minting in the colonies.
It also prohibited the export of English coin to America.
But this did not keep specie from America, for, as we have seen, Americans were able
to import Spanish and other foreign coin, including English, from other countries.
Indeed, as we shall see, it was precisely paper money issues that led, by Gresham's
law, to outflows and disappearance of species from the colonies.
In their own mercantilism, the colonial governments early tried to hoard their own species by
debasing their shilling standards in terms of Spanish dollars.
Whereas their natural weights dictated a ratio of 4 shillings 6 pence to the dollar, Massachusetts
In 1642, began a general colonial process of competitive debasement of shillings. Massachusetts
arbitrarily decreed that the Spanish dollar be valued at five shillings. The idea was
to attract an inflow of Spanish silver dollars into that colony, and to subsidize Massachusetts
exports by making their prices cheaper in terms of dollars. Soon, Connecticut and other
colonies followed suit, each persistently upping the ante of debasement. The result
The important part was to increase the supply of nominal units of account by debasing the shilling, inflating domestic prices and thereby bringing the temporary export stimulus to a rapid end.
Finally, the English government brought a halt to this feudal and inflationary practice in 1707.
But the colonial governments had already found another and far more inflationary arrow for their bow.
The invention of government fiat paper money.