Weights and Measures
April 21, 2007
A few people have remarked how their understanding of the relationship of the dollar and gold was helped by last week’s comment, in which we showed that $20 used to be, essentially, another name for an ounce of gold. From this we can measure very precisely the decline in dollar value since that time, simply by ascertaining how many $20 bills it now takes to receive an ounce of gold in return.
Actually I was being a little loose with history to make the basic point. That step now behind us, we can look a bit at how it came to be that $20 was a troy ounce of gold.
The Constitution of 1789 determined gold and silver to be the sole monies of the new country. In the Coinage Act of 1792, the dollar was defined as 371.25 grains of silver — the weight of the Spanish silver dollar, which was commonly in use in the United States at the time. (A “grain,” by the way, was originally the weight of a grain of barley from the middle of the ear.) In these days most money was metal, and since gold was of high value and useful only for large-scale transactions, most day-to-day transactions were done with silver. Silver was co-defined, under the bimetallic conventions of the day, as having a 15:1 value ratio to gold, roughly its normal free-market price. Thus, a dollar was also 371.25/15 = 24.75 grains of gold. The market ratio of silver to gold was about 15.30:1, so in practice it was a little cheaper to discharge your debts in silver rather than gold. A troy ounce contains 480 grains of gold, so: 480/24.75 = $19.39/ounce of gold. In 1816 Britain went to a monometallic gold standard, and perhaps this was some impetus to put gold on top in the US as well. In 1834 the ratio of silver to gold was changed to 16:1, or in other words the dollar was worth 371.25/16 = 23.203125 grains of gold. That makes $20.69/ounce. The market ratio was around 15.625 at the time, so this made it cheaper to discharge debts in gold rather than silver, thus also making gold the preferred metal for transactions. The Gold Standard Act of 1900 put the monetary system on a monometallic basis (no more silver) and redefined the dollar as 23.22 grains of gold, or $20.67/ounce. Thus, the $20 coin was actually just a bit heavier than a troy ounce of bullion before 1834, and a bit lighter afterwards. (Actually, the coins of that time, like the coins of today, had a bit of silver and copper alloyed to improve wearability, since gold is too soft even to make coins of. The gold bullion content of the coins, then and now, was as indicated however.)
The troy ounce derives from the British monetary system, introduced by Henry II (1133-1189). The British pound was originally a Tower pound (5,400 grains) of silver. In 1528, the standard was changed to the Troy pound (5,760 grains). The term “troy” comes from the French city of Troyes, an important trading center in the Middle Ages, where troy measures were in use since before 1000 AD. A troy pound contains 12 troy ounces. Each troy ounce contains 20 pennyweights. Thus, the troy pound had 240 pennyweights. The British pound was subdivided into 20 shillings each containing 12 pennies, or 240 pennyweights per pound. Why didn’t they make it 12 shillings/ounces per pound and 20 pennies/pennyweights per ounce? Hey, it’s Britain. The British system in turn derives from the Roman system. The Roman pound was about 327 grams and divided into 12 ounces. The Roman word for the pound was libra, which also means “scales, balances” in Latin. Thus, the use of “lb” or the “curly L” to denote “pound.” The shilling derives from the Roman solidus, and the penny from the denarius, which is why British pence were traditionally abbreviated with a “d” rather than a “p”.
The Founding Fathers were real serious about the importance of maintaining a stable currency value. In Section 19 of the Coinage Act of 1792, they indicated the penalty for messing with the monetary system:
Sec. 19: And be it further enacted, that if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officer or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.
“History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance.” — James Madison
“If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.” — Thomas Jefferson
“Give me control of a nation’s money and I care not who makes the laws.” — Mayer Rothschild [1744-1812]
“I care not what puppet is placed on the throne of England to rule the Empire. The man who controls Britain’s money supply controls the British Empire and I control the British money supply.” — Nathan Rothschild [1777-1836] son of Mayer Rothschild