What is a dollar?

The Spanish milled dollar was made the unit or standard for all foreign silver coins in the American colonies in 1704 by Queen Anne (there was a Parliamentary statute in 1707). It was made the standard for the United States by the Continental Congress under the Articles of Confederation, before the Constitution was even written. So in fact the dollar preceded the writing of the Constitution. It preceded the ratification of the Constitution. It preceded the first Congress, the first President, the first Supreme Court, the Federal Reserve Board, and everything else. Do you think it might be independent of all those things, having preceded them?

As a historical fact, the dollar is independent of the Constitution. The father of the dollar, in our system, was Thomas Jefferson. He was the one who proposed it to the Continental Congress. In the first government under the Constitution, Jefferson was Secretary of State, and Alexander Hamilton was Secretary of the Treasury. They didn’t agree on very much, if anything, except this: They both agreed on the monetary system. The Federalists and the Anti-federalists were in complete agreement. And what did Congress and the Treasury do in 1792 with the first coinage act? They went out to determine what the value of this “dollar” was.

How did they do that? They went to the marketplace. In what we would call statistical analysis, they collected a large sampling of Spanish milled dollars that were circulating, and they did a chemical analysis of them to determine on average how much silver they contained. This appears in the Coinage Act of 1792 where they wrote: “The Dollar or Unit shall be of the value of a Spanish milled dollar as the same is now current, that is, running in the market, to wit, three hundred and seventy-one and one-quarter grains of silver.”

Now you know something that 99.999% of Americans do not know, and probably a higher percentage of lawyers. The “dollar” is a silver coin containing three hundred and seventy-one and one-quarter grains of silver and it cannot be changed by constitutional amendment, definitionally, any more than the term “year” can.

How much is a dollar worth today? 371.25 grains is .7796 troy ounces*. Silver closed at 5.95 per troy ounce yesterday, so that means one dollar equals 4.64 Federal Reserve Notes. That’s only 364 percent inflation in 202 years, or 1.8 percent a year. However, the US silver dollar coin consisted of 416 grains (.8736 troy ounces) until 1878, then was debased to 412.5 grains (.8663 troy ounces) until production was stopped in 1964. This suggests that the bulk of the inflation happened after 1964, since what was a silver dollar coin worth FRN 1 (and 1.11 dollars) is now worth FRN 5.15. That’s 415 percent inflation in 40 years, or 10.38 percent per year. What happened? The answer is simple. Bretton Woods and the imperial global reserve dollar.

This inflation looks a lot worse when measured in gold terms, however. The same dollar was also defined as 24.75 grains of gold, or .052 troy ounces. Yesterday’s gold closed at 416.10, which indicates that that same 1792 dollar also equals FRN 21.63. This gives us 2063 percent inflation over 202 years, or 10.21 percent a year. This suggests that silver is probably undervalued and repeats the ancient lesson that one is foolish to put much hope in any economy based upon the long term health of paper money.

*Thanks to GD, for catching my conversion into the wrong measure, which led to an absurd conclusion.