Brief History of the Gold Standard in the United States
Conclusion
This brief history, although essentially factual in nature, yields a number of observations relevant to claims about the gold standard. U.S. monetary history is not one of steady commitment to gold suddenly abandoned in favor of a fiat standard. Nor were the metallic standards of the 19th and early 20th centuries without paper money or other characteristics abhorrent to some advocates of gold.
First, a genuine gold standard existed only from 1879 to 1933. Prior to that was a bimetallic standard in which silver was dominant from 1792 to 1834, a bimetallic standard with gold dominant from 1834 to 1862, and a fiat money system from 1862 to 1879. After 1933, it was a quasi-gold standard that gradually became a pure fiat standard over the period 1967-1973.
Second, even under the gold standard, the United States had paper money. For most of the time the standard was in operation, this money was issued by banks. Until the Civil War, none of the paper money was legal tender; yet, it circulated. Moreover, the gold reserve behind paper money was never more than a fraction of the total. This is a common characteristic of metallic standards.
Third, a metallic standard is no guarantee against currency devaluation. The definition of the unit of account can be changed. This was demonstrated by the currency depreciation of 1834, which occurred without ever leaving the standard. Similarly, under a bimetallic standard, depreciation can occur as a consequence of the changing availability of the two metals.
Fourth, even under a metallic standard, the United States issued legal-tender coins that were less than full-bodied. As early as 1853, coins were minted with less silver than called for by the official mint ratio.
Fifth, the Federal Reserve system did not replace the gold standard. The Fed operated under the gold standard for nearly 20 years. A central bank and a metallic standard are not mutually exclusive. Indeed, central banks historically were set up to help the gold standard operate.
Sixth, the classic gold standard ended in 1933; what followed was only a partial—and not full—gold standard. A definition of a dollar as a given amount of gold does not make a real gold standard. A genuine metallic standard is one in which the public is able to freely shift gold from exchange to other uses, and paper issued by the government freely convertible into gold.
Seventh, the final move to a fiat money was not deliberate or purposeful. It occurred by default as links to gold became impossible to maintain. Nor did the final abandonment of gold occur suddenly or cleanly. The United States began to halt its redemptions of dollars into gold for international transactions in 1967 and 1968. The actions of 1971 and 1973 were not the adoption of floating exchange rates and fiat money, but the loss of the ability to redeem dollars at a fixed price. Floating occurred by default.
