Gabriela Calderón de Burgos is a Fellow for Latin American Studies at the Cato Institute
In The Road to Serfdom, F. A. Hayek wrote that “economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends.” Hayek saw economic freedom as the foundation of a free society, and its absence as the foundation of a society of slaves. In a way, this is a very American idea, expressed by an admirer of the American experiment. But it is often forgotten that, from the outset, the American continent itself was unified by the first global currency: the Spanish Empire’s silver dollar or real de a ocho.
It is worth remembering this currency’s role in the American Revolution on its 250th anniversary. The thirteen British colonies had tried unsuccessfully to issue their own “shillings.” In A History of Money and Banking in the United States: The Colonial Era to World War II, Murray Rothbard writes:
“By far the leading specie 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 out-standing coin since the early sixteenth 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 sixteenth to the nineteenth century, was relatively the most stable and least debased coin in the Western world.”
Rothbard explains that both the British Empire and the colonial governments engaged in mercantilist practices, hoarding metallic currency and debasing their respective currencies relative to the Spanish dollar. The colonies practiced an early version of “competitive devaluation” to subsidize their exports. Each colony then suffered massive currency depreciation, inflation, and the gradual disappearance of Spanish dollars due to Gresham’s Law: bad money drives out good. But Spanish dollars were not banned and continued to be accepted across all colonies.
Despite the multiple failures of each colony with their respective shillings, the Continental Congress insisted in 1775 on issuing its own fiat money—the “continentals”—to finance the Revolutionary War. Congress issued 6 million continentals in 1775 and ultimately issued a total of 225 million continentals over a five-year period. While in 1775 one continental was worth 1.25 Spanish dollars, by 1781 it took about 168 continentals to get one Spanish dollar. This episode of rapid devaluation gave rise to the phrase “not worth a continental.”
The colonies differed in many ways, but they all shared trust in the real de a ocho, popularly referred to as the “Spanish milled dollar” or “pieces of eight.” So much so that the U.S. dollar sign we know today derives its origin from the Spanish silver dollar. According to the U.S. Bureau of Engraving & Printing:
“the most widely accepted explanation is that the symbol is the result of evolution, independently in different places, of the Mexican or Spanish ‘Ps’ for pesos, or piastres, or pieces of eight. The theory, derived from a study of old manuscripts, is that the ‘S’ gradually came to be written over the ‘P,’ developing a close equivalent of the “$” mark.”
Why was there such demand for Spanish currency? Historian Elena María García Guerra emphasizes that:
Spanish eight-real coins became the most coveted in Europe for world trade, not only because they were abundant, but because their intrinsic qualities inspired confidence in merchants and bankers. Everyone respected this currency because they recognized its quality—because they recognized that it was a sound coin in both weight and purity. Unlike other European currencies, the reals suffered no alteration whatsoever—neither in weight nor fineness, nor even in nominal value—between 1497... and 1686... the idea of a strong and stable currency has always been linked to a sign of power and prosperity... For nearly three centuries, the piece of eight or eight-real silver coin set the standard for international monetary integration, just as the British later did with the pound and Americans do today with the dollar.
Today, dollarised nations are part of a broad monetary network in a wave of globalization that continues, despite governments’ best effort to undo it.
This article first appeared in Spanish in Primicias.ec