The Dollar

The Dollar

The dollar was established as the official currency of the US in 1785.

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In 1620, the Mayflower set sail from Rotherhithe in East London bound for the New World, carrying religious dissenters in search of a new life overseas. Those first settlers took with them gold and English coins. But they weren't wealthy and they soon ran out of hard money, leaving them without means of buying food, animal skins, and other necessities from the indigenous people of the American continent.

Soon after their arrival, the settlers discovered that certain kinds of shells - known as wampum - had great symbolic significance for many Native Americans and as such could be exchanged by the English colonists for the things they needed, such as food. In fact, the wampum became so important in the early days of trading in what is now the Eastern seaboard of the US that in 1637 the Massachusetts Bay Colony declared them to be legal tender.

As trade among the settlers themselves became increasingly important, they started to use other goods for bartering. In the northern colonies they used corn and cod, for example, and in the more southerly colonies, they also favored tobacco. Many of these goods were declared legal tender at one time or another, although not all proved successful.

Jason Goodwin says that the value of tobacco tended to fluctuate depending on the success or otherwise of the crop. But there was, he says, another problem with tobacco: "The leaves were put in the store and then circulated, but of course they became very crumbly and dry and people always tried to pay people off with all the crumbliest and driest of their tobacco leaves. And it caused a lot of confusion because if your currency is actually deteriorating as well as losing value as you use it, it is not much good."

Goodwin also points out that when the settlers tried using nails some were tempted to burn down wooden barns to extract the nails, which had a value similar to money.

The price of goods tended to be different if you were paying in hard money - gold or silver or coins of one kind or another - rather than one of the forms of legal tender such as wampum. This was because hard money was more widely accepted and therefore more useful. As Madame Knight, a Boston schoolmistress observed in 1704 -with something of an understatement - it was a "very intricate way of trade".

Congress decided it would be a decimal system with 100 cents to a dollar. But disagreements among the members of Congress - which even then was divided about the extent to which the federal government should dictate to the individual states - meant that it wasn't until 1792 that a mint was established in America.


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