Big Money

The Long History of the Dollar and Its Climb to Global Dominance

In his new book The Almighty Dollar: 500 Years of the World’s Most Powerful Money, Brendan Greeley gives a different history of the dollar, one which is about the currency as it changed meanings and use across time. One of his main premises is that in America the dollar was an accident; something the United States, far from inventing, didn’t even choose as a currency, but rather stumbled into—and the Almighty Dollar has, in fact, a history far longer than the United States.

Greeley traces the history of the dollar itself as a creation, the name coming from the small Bohemian town of St. Joachimsthal, which happened to have a silver mine in the 16th century. A local sharp operator claimed the mine and began manufacturing coins from it, and before long these silver Joachimsthalers, or Thalers, became a medium of exchange.

Now this was a coin that could have large purchasing power. The average person would be unlikely to encounter one—but for merchants in long distance trade, such as had developed across Europe and through the Baltic, this was a good coin. This new Thaler was joining the ranks of Big Money, or moneta grossa, as large coins in Europe were then known—and would soon surpass its rivals. With a steady supply from Bohemia, it became a reliable medium of exchange among bankers and merchants, and was eventually copied abroad, not least by Spain’s silver dollar. The word Thaler was corrupted into Dollar in speech—even the name of the coin was an accident.

The Spanish, through their possession of silver mines in their American colonies, wound up getting in on the silver dollar business to a massive scale (to their Empire’s eventual cost). And it would be their dollars that wound up flowing through Britain’s American colonies, crowding out the use of the official currency of Pounds Sterling.

Greeley whizzes us through various historical periods, illustrating some with invented narratives, like the conversations of early-modern Bohemian tavern goers, but some involving his own conversations with historians, collectors, and finance experts. A long-time financial journalist, he’s on firm footing with the creation of the modern banking system and how the dollar works today. This was a slow evolution, from a heavy silver disk to the fiat currency numbers on spreadsheets. “The dollar was copied as real money first—a big silver coin—and then only over time became an imaginary money, written down on ledgers and scraps of paper that passed from hand to hand.”

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The dollar popped up early in America’s economy, as he notes, for the practical reason that dollars were around. Trading vessels brought in cash of various kinds, and Spanish dollars were in wide circulation: “Marylanders, like the rest of the colonists, kept their own accounts in local versions of the old Carolingian system of pounds, shillings, and pence. But they all knew to the penny the value of their own local currencies in dollars, because Spanish silver dollars were the coins most likely to actually cross their palms.” London was far away, and actual currency in the form of pounds and pence were hard to find, so dollars—and dollar-denominated notes of credit—were workarounds. And it wasn’t only Marylanders who made do with the money on offer: “New York in particular had so many pieces of eight that in the 1690s merchants kept their accounts in dollars and pieces of eight.”

The value of the dollar versus the pound led to opportunities for price arbitrage in the colonial Americas: traders in particular cities offered varying rates of exchange, and “[b]y 1700, a dollar was worth 6 shillings in New England. It was 6 shillings, 9 pence in New York.”

This shows a rather practical human talent among some colonists to leverage a market opportunity. From Greeley’s analysis, it also shows the dollarization of the US economy was an accident, something rather stumbled into. As he argues: “America didn’t invent the dollar. America succumbed to the dollar.”

So the dollar began as de facto legal tender in the colonial period, was accepted as official currency in the newly independent nation, and yet the dollar-driven accidents continue: the dollars created by independent banks in the 19th century (with various shades of legality), right up to the the official acquiescence to euro dollars in the 1970s (created not by US policy or the Federal Reserve, but by some rather clever bankers in England).

The idea that the US never chose the dollar, but the dollar chose it, certainly changes our understanding of the role of the currency in US history. Greeley also explains clearly the process of dollar creation in modern banking, and how our economy is driven on these fictive or spreadsheet dollars, a far cry from the old understanding that $1 on a banknote represented $1 worth of gold in a safe. Dollars can be made or dissolved at a keystroke.

The dollar as an object, and a concept, shaped American history in ways the Founders could not have anticipated—and the name of those silver coins from Bohemia runs economies around the world.

Katrina Gulliver is Editorial Director at FEE and Editor of The Freeman. She holds a PhD from Cambridge University, and has held faculty positions at universities in Germany, Britain, and Australia. She has written for the Wall St. Journal, Reason, The American Conservative, National Review, and The New Criterion, among others.