Unit of account

Until the mid-1790s the monetary system of colonial times continued to exist in its basic form in the United States. The most important feature of that system was the dichotomy between the medium of exchange and the unit of account. The “Spanish dollar” – a silver coin produced in Mexico and Peru as well as Spain, and therefore sometimes called the “Mexican dollar” – was the dominant coin in transactions. Known in Spanish as the peso or piastre, it was termed the “dollar” or “piece of eight” in England and the colonies. The word “dollar” is a corruption of “thaler,” an abbreviation of “Joachimsthaler,” a silver coin produced in 1517 in a Bohemian county of the same name. The smallest subdivision of the peso was the “real,” one-eighth of a dollar. The term “piece of eight” flowed naturally for the entire peso.

In contrast, the unit of account was based on the English system of pounds (£), shillings (s.), and pence (d.), where £1 = 20s. and 1s. = 12d. The phrase “based on” rather than “equivalent to” is used advisedly, because “a shilling from the British mint was not a shilling in any colony” (Carothers, 1930, p. 34). Instead of a national, homogeneous, standard of value, the individual states, as the colonies before them, had their own units of account.