"Shave and a haircut, two bits...."  "Two bits, four bits, six bits, a
dollar...."  These little songs bring back old memories from our childhood,
but did you ever wonder, what in the heck is a bit?  Sure our parents or
grandparents told us two bits was a quarter, but neither my parents or grand
parents knew why.  Did yours?  The answer I was given was, "Because
that is what a quarter is called...two bits!"  That was just not good
enough for me, not way back then, but I had to just bide my time.  It
wasn't until I took the first of my classes in numismatics, that the question
that haunted me, "what in the heck is a bit?," was answered.  So, for all
you parents and grandparents reading this article, let me help you.  When
that little tike says to you, "Mommy (or Daddy), what in the heck is a bit?,"
you can say, "Well honey, the term go way back to time when the United States
was only a group of  Colonies...."

If you open your "Red Book," A Guide Book of United States Coins by
R.S. Yeoman, to the first page of text, one will find The Spanish Mill
Dollar.  This dollar is also known as the "Pillar Dollar" or
"Pieces of Eight."  There is your first hint, "Pieces of Eight."  You
remember reading about the "Pieces of Eight" in Robert Louis Stevenson's
Treasure Island.  Pirates....buried treasure....sailing the high seas. 
Letting our imaginations drift as we created the romantic visions of the story
in our minds.  A book our children would never read, after all it is a
classic, and it is not a computer game, but alas, that is a rant for another
time.

During the infancy of the American Colonies, as each colony sprang up in this
New World, there was a wide variety of monies in circulation because the
colonists brought money from their native lands.  There was British,
French, Spanish, Dutch and German just to name a few.  Think of what it
would be like trying to do basic transactions.  It must have been a
nightmare, and as each of the colonies grew, they also added to the difficulty
of the monetary system by producing their own coinage.  Even though there
was this myriad of monies in circulation, there was one that seemed to stand
out, and was universally accepted everywhere, and that was the coins of Spain. 
The coins of Spain, as a matter of fact, were almost universally accepted as
good money throughout the known world.  In some circles of numismatics,
coins that were accepted as universally  are called Coins of the Realm.  The "Pieces of Eight" carried a denomination of 8 Real, and the
Spanish Milled Dollar (1732 -1772) was not the only 8 Real that circulated in
the New World.  There were also those of Felipe V (1700 - 1746), Carlos
III, El Pretendiente (1700-1714), Luis I (1724), Fernando VI (1746 - 1759),
Carlos III (1759 - 1788), and Carlos IV (1788 - 1808) among others.  Most
of the coins that circulated in the Colonies were struck in the Spanish New
World mints, in places such as Mexico, Peru, Colombia, Bolivia, and Chile, and
the full spectrum of Spanish Silver coins found in the New World, and produced
by the Spanish, by denomination, are as follows: 1/2, 1, 2, 4 and 8 Reales. 
By far the most prevalent of these denominations was the 8 Real.  So, what
was one to do when the fractional parts of the 8 Real was not available for
commercial transactions.  The answer, cut them up into 8 pie shaped pieces. 
Do you know what each of those pieces were called?  If you guessed "a bit,"
then you are correct.  So, two bits equaled 1/4 of the 8 Real, but the
story doesn't stop there, there is more.

During the early years, when the Articles of Confederation were adopted, in
March of 1781, a great debate was occurring as to whether the production of
coinage should be under the control of each individual state or if it should be
controlled by a centralized government.  To add to the confusion, there was
also a wide disparity as to which country's monetary system should be adopted. 
Some favored The British system, some the Spanish, and still others opted for a
decimal system of coinage.  It was not until May of 1785 that the Grand
Committee recommended a system which appears to have been a combination of the
Spanish and the decimal systems.  They recommended the new U.S. government
produce a $5 gold piece, and a dollar of silver with the fractional parts
thereof, which were to be manufactured in the same metal.  The fractional
parts of the dollar would be: the half, the quarter, the tenth and twentieth
(roughly the same as the Spanish) with copper pieces valued at 1/100 and 1/200
of the Silver Dollar.

After the election of George Washington, as the first President of the United
States, Alexander Hamilton was appointed as Secretary of the Treasury, and the
burden of the design and manufacture of coinage under a centralized government
fell upon his shoulders.  The initial attempts at supplying a country with
much needed coinage, and coinage that would have values equal in exchange to the
rest of the world failed.  Congress had to make other provisions to prevent
collapse of the country.  In 1797 an act was passed to reinstate the
Spanish coinage as legal tender along with the coinage that was being produced
in the United States.  That made the bits (the pie shaped pieces of the 8
Real) an ingrained part of the U.S. culture.  It is even know that the U.S.
Mint took part in the production (the cutting into 8 pieces) of these "bits" for
circulation.  The bill that was passed in 1797 remained in effect until its
repeal in 1857.  So the terms of two bits and four bits became just a part
of the U.S. vernacular for a quarter and a half dollar. 

I can almost here you say, "What a cute story, but did the 'bit' have any
real relavance to the American Society?"  Yes, it did.  If one traces
the origins of the New York Stock Exchange they will find it was established in
1817 with its root going back in time to 1792.  All stock prices were
listed with the smallest fraction of the price being an eighth.  That
pricing remained in effect until 1997 when the NYSE made 1/16 the smallest
fractional part of the dollar for stock listings.  Then in July 3rd, 2000,
the NYSE converted stock pricing to the present day decimal system.

That is the story.  The Spanish coins played just as important a part in
the history of the United States economy as the U.S. coins did, and for all the
U.S. type coin collectors who are reading this article, where are your Spanish
Reales?  Those coins should be in your collections too.  It is easy to
remember, "Two bits, four bits, six bits, a dollar...."