The United States Constitution, in Article I, Section 8, conferred upon Congress the power “To coin Money, regulate the Value thereof, and of foreign Coin.” The first legislation Congress passed under this authority granted by the Constitution was the Coinage Act of 1792. The act was based on a report that Alexander Hamilton made to Congress a year earlier.
The act provided for the establishment of a mint, including naming the officers, specifying their duties, and setting their compensation. The act called for what was known as free coinage, indicating that anyone could bring gold or silver bullion to the mint for coinage at no cost to the owner. The gold and silver coins struck at this mint were legal tender for all debts, public and private.
The act also provided “that the money of account of the United States should be expressed in dollars or units, dismes or tenths, cents or hundredths, and milles or thousandths, a disme being a tenth part of a dollar, a cent the hundredth part of a dollar, and a mille the thousandth part of a dollar.” The dollar was intended to be same in value as the Spanish milled dollar that was then in circulation in the former colonies. The act called for the minting of eagles, equivalent to $10; half-eagles, equivalent to $5; and quarter-eagles, equivalent to $2.50. The eagles were gold coins. Coins minted in smaller denominations were made of silver and included dollars, half-dollars, quarter-dollars, dismes (ancestor of the current dime), and half-dismes. The act also called for minting cents and half cents from copper. The act held out the threat of the death penalty to discourage any employee of the mint from secretly debasing the coins (reducing the precious metal content) for personal gain or embezzling precious metals or freshly minted coins.
President Washington placed responsibility for the operation of the mint under the secretary of state, much to the disappointment of Alexander Hamilton, who was then secretary of the treasury. Hamilton later made his disappointment known, and Washington moved control of the mint to the Treasury Department. David Rittenhouse, an eminent scientist and philosopher from Philadelphia, became the first director of the mint.
Imperfections in the system soon made themselves apparent. The act had established an official exchange ratio between gold and silver at 15 pounds of silver to 1 pound of gold. It turned out that gold was worth more than 15 pounds of silver in world markets, causing gold to leave the United States. The overvalued silver coins should have stayed in the United States, but the freshly minted American dollars were more attractive than the Spanish dollars that actually contained more silver. Therefore the American dollars tended to disappear. The Coinage Act of 1793 made some foreign coins legal tender in the United States, and the Spanish dollar circulated as legal-tender money in the United States until 1857.
Although much of the culture and the social institutions of the early United States came from England and France, the dollar is one institution borrowed from the Spanish, a descendent of the Spanish milled dollar that circulated in the American colonies. Milled referred to the corrugated edge, now universal among coins, that made evident any clipping or other efforts to remove precious metal from the edges. Alexander Hamilton, a strong admirer of English political institutions, recommended the dollar to Congress as the money of account in the United States, citing the fact that the Spanish dollar had been in actual use in all the states and that the decimal system was superior to the duodecimal of England.