The History of the Gold Standard in the United States
Throughout the history of the United States, its currency has been tied to the gold standard to varying degrees, which can be divided into five distinct periods.
To understand the nation’s history, it’s important to define the gold standard. It’s a system where a currency’s value can be defined in terms of gold and exchanged for actual gold.
The Bimetallic Monetary System (1792–1862)
Congress gained authority to develop a national currency with the ratification of the Constitution. The first US dollar was fixed to actual quantities of gold and silver strands with each coin minted containing its weight and value in gold or silver.
This fixed-price system was problematic whenever gold or silver flooded the market and although Congress adjusted the value of the dollar multiple times, it was always reactionary.
Financing the Civil War (1862–1879)
To finance the Civil War, Congress abandoned the gold standard, declaring currency was guaranteed only by the full faith and credit of the US.
By the end of the war, the Union printed $450 million in paper currency, inflation rose by 80 percent and the national debt reached $2.7 billion. To counteract hyperinflation, Congress discontinued silver dollars, which worked but created a depression.
In hopes of spurring prosperity, Congress reinstated the gold standard, ensuring all paper money could again be exchanged for gold by 1879.
Return to the Gold Standard
The gold standard increased deflation and took its toll on society. Essentially, the wealthy got wealthier, and the poor grew poorer.
The country was divided. Democrats called to expand silver to increase inflation and provide immediate relief. Republicans preferred strict adherence to the gold standard to ensure long-term economic growth and stability. Republicans prevailed and President McKinley completely discontinued silver dollars.
The 1913 creation of the Federal Reserve System allowed the Fed to print paper currency while maintaining 40 percent of the currency’s value in gold. This temporarily strengthened the economy, but could not protect against the Stock Market Crash of 1929 or the Great Depression.
Abandoning The Gold Standard & Creating The Bretton Woods System (1933–1971)
To stimulate the economy, President Franklin D. Roosevelt declared it illegal for citizens to own gold, other than jewelry. Citizens had to surrender all gold coins and bullion, and could not purchase gold for investments.
In 1944, FDR worked with global leaders to create the Bretton Woods System; nations agreed to restrict inflation to less than one percent.
The Fed maintained gold at $35 per ounce where it remained until 1971. This made American currency a reliable standard for international trade and investment.
A Fiat Monetary System (1971-Present)
In 1971, President Nixon ushered in a fully fiat monetary system: paper currency was ensured only by the full faith and credit of the United States.
In the 1980s, inflation soared. Under Reagan’s administration, The Fed reduced the money supply to curb inflation without being restrained by the gold price. In 1985, the US Treasury began selling gold coins to the public for the first time in over fifty years — collectors can still find these coins from dealers such as Metals.com.
Presently, the US Mint contributes to the gold supply of collectors and investors and buying gold in the US has become a simple, commercialized process.
A Return to the Gold Standard?
Currently, some advocate for a return to the gold standard in the US.
Proponents contend it would temper inflation, reduce government spending across categories, and balance budgets, setting the stage for economic growth and prosperity. However, even proponents struggle to agree on how a gold standard would be executed.
Detractors note that the Fed would be unable to increase money supply during recessions, war, or other emergency situations and declare it an outdated system.
Presently, gold prices fluctuate daily and its value has increased dramatically in recent years — notably during the recent Great Recession. Its increased value makes it a great investment for both collectors and those looking to diversify their investment portfolio. Both gold and silver can be purchased at Metals.com.
The Metals.com Staff
