Gold Standard Act of 1900
Gold Standard Act of 1900
Jerry W. Markham
The Gold Standard Act of 1900 (31 Stat. 45) was the culmination of an epic political battle over monetary policy in the United States. But it also reflected an age-old debate over whether gold or silver should control monetary measurements. The act set the value of gold at $20.67 per troy ounce (troy weight is based on a pound of twelve ounces). The act further states that:
the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine ... shall be the standard unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity of value with this standard, and it shall be the duty of the Secretary of the Treasury to maintain such parity.
Gold and silver have long served as monetary standards throughout the world, but debate raged as to their relative values and whether one of those precious metals should be preferred over the other in the monetary system. The introduction of paper currency complicated this debate because it usually promised to pay gold or silver upon demand. Such specie payments, or payments in coin, were often suspended in times of monetary stress. The Civil War was one such event.
After the war the question of whether the country should return to a specie-based monetary system was hotly contested. A populist movement sought to inflate farm prices through the increased use of paper currency and called for the use of silver, which was more plentiful than gold, as backing for that currency. The high point of that movement was the "Cross of Gold" speech, given by the lawyer and politician William Jennings Bryan to the Democratic convention in 1896. Bryan became the Democratic candidate for president but lost in the general election, and the United States went onto a gold standard in 1900 with the adoption of the Gold Standard Act.
The Great Depression in the 1930s resulted in the abandonment of the gold standard by the United States. President Franklin Roosevelt changed the valuation of gold to $35 per ounce of gold as an inflationary measure, where an increase in the valuation of gold tends to increase price levels in general. Farmers, for example, will get more dollars for their grain, but they will have to pay more for the goods purchased with the inflated grain sale proceeds. The Gold Reserve Act of 1934 also withdrew all gold from circulation, and Congress nullified clauses in public and private contracts that provided for payment in gold. In 1935 the U.S. Supreme Court considered the constitutionality of the ban on gold in the so-called Gold Clause Cases, where the court upheld the statute's negation of gold clauses: Perry v. United States, Nortz v. United States, and Norman v. Baltimore & O.R.R.
THE INTERNATIONAL MONETARY FUND
At the conclusion of World War II, the United States and Great Britain created the International Monetary Fund (IMF). That body set a "value" of $35 per ounce for gold. Other countries participating in the IMF were required to maintain their currencies at a specified parity against the dollar, thereby tying much of the world to a dollar standard that was in turn tied to a gold standard.
That system, however, fell apart after debilitating inflation in the 1960s caused a run—as countries began exchanging dollars for gold from the U.S. Treasury when world gold prices exceeded the $35.00 value set under the IMF agreement—on U.S. gold stocks. President Richard Nixon announced on August 15, 1971, that the United States would no longer exchange dollars for gold under the IMF standard. Within two years, currency exchange rates were allowed to float against each other. These floating currency rates are set by market forces rather than the artificial parity rates set by the IMF, and change constantly in foreign exchange transactions conducted through banks and currency dealers. In 1975 the IMF eliminated gold as the basis for international monetary standards, and two years later, the prohibition against gold clauses was repealed, allowing private sales of gold.
Markham, Jerry W. A Financial History of the United States. Armonk, NY: M.E. Sharpe, 2002.