Gold Standard Act of 1900 (United States)
The Gold Standard Act of 1900 put the United States for the
first time explicitly on the gold standard, removing all traces of the
bimetallic standard based upon gold and silver. The United States remained on a
gold standard until 1933.
The world’s major trading partners had been moving toward the gold standard
since England adopted the gold standard in 1821. Portugal adopted gold as its
standard in 1854, even making British sovereigns legal tender, and Canada went
on the gold standard in 1867. After Germany adopted a gold standard in 1873
silver began to lose ground as a monetized commodity. The United States and
France ended free minting of silver soon after Germany acceded to a gold
standard. Austria-Hungary adopted a gold standard in 1892 and Russia and Japan
did so in 1897.
In 1873 the United States ended free minting of silver in legislation that
provoked no controversy at the time, but later social protest and silver
interests kept the United States on a limited bimetallic standard. The uproar
inspired a book, The Wizard of Oz, a monetary allegory of the advantages
of monetized silver. The proponents of silver wanted to return to the free
minting of silver, meaning that the Treasury stood ready to buy silver at $1.29
per ounce, above the then-prevailing world market price of silver. A return to a
policy of free minting of silver would have increased domestic money supplies
and eased the burden of a world trend of deflation that was making itself felt
in the United States. At the Democratic Convention in 1896 William Jennings
Bryan, referring to the enemies of silver and proponents of a gold standard,
exclaimed: “You shall not press down on the brow of labor this crown of thorns,
you shall not crucify mankind upon a cross of gold.”
Bryan lost the presidential election to William McKinley, who favored a gold
standard but was slow to take action, knowing that feelings ran high on the
issue. The Spanish-American War galvanized public support for McKinley and
shifted the issues that held the attention of the voting public. On 14 March
1900, five days before the next Democratic Convention, McKinley signed the Gold
Standard Act. Bryan, renominated as the presidential nominee of the Democratic
Party, launched a vigorous campaign, again favoring free minting of silver, but
lost a second time. McKinley’s reelection seemed to ratify the adoption of the
gold standard in the United States.
Probably, increased world production of gold, and particularly increased
United States gold reserves, accounts for the United States becoming the most
powerful convert to the gold standard. Early in the 1890s the United States
exported gold to the rest of the world, but late in the 1890s an excess of
exports over imports changed the United States to an importer of gold. A
substantial increase in tariffs on imported goods may have caused the trade
surplus,coupled with a general revival of the world economy. Also, world
supplies of gold rose significantly, partly due to new discoveries in Alaska,
Africa, and Australia and partly due to a new cyanide process that made
lower-grade ores a profitable source of gold. The annual world output of gold
grew from 5,749,306 ounces in 1890 to 12,315,135 ounces in 1900, and the United
States’ monetary gold stock doubled over the same interval.
The act unequivocally defined the value of the dollar in terms of gold alone, without reference to another metal. The dollar was defined as equal to “twenty-five and eight-tenths grains of gold nine-tenths fine.” Responsibility for maintaining parity fell to the secretary of the Treasury. No gold certificates were to be issued under $20, and silver remained as a subsidiary coinage and currency, with 90 percent of silver certificates remaining under $10.
The act also set up a system of reserves for national banks and substantially reduced the amount of capital needed to establish a national bank. These measures had the expected effect of increasing the quantity of bank notes in circulation, which rose from $349 million in 1901 to $735 million in 1913. These measures were also intended to make the supply of bank notes more elastic as the needs of trade varied. The elasticity of the currency, or lack thereof, remained a source of economic instability, leading to the establishment of the Federal Reserve System in 1913.
The United States remained on the gold standard until 1933 when the United States government, facing the debacle of the Great Depression, needed more flexibility in its handling of monetary matters. Like many governments around the world at that time, the United States government felt that a domestic money supply, completely uncoupled from domestic gold supplies, could be adjusted as needed by the Federal Reserve System to meet the needs of trade.
England had not officially gone off the gold standard during World War I, but the risk of transporting gold under wartime conditions effectively put an end to the convertibility of pounds into gold. After April 1919 the export of gold was strictly prohibited except for freshly mined gold imported from other parts of the empire.
To study the financial aspects of postwar reconstruction the British government in 1918 had appointed a committee, soon called the Cunliffe Committee after its chairman, Lord Cunliffe, governor of the Bank of England. Nine of the 12 members of the committee were traditional bankers, perhaps accounting for the deflationary recommendations of the committee. From the outset the Cunliffe Committee assumed that England should return to the gold standard, and that the value of the pound should be fixed at its prewar value. The recommendations of the committee were phased in over a 10-year period, including the return to the gold standard in 1925.
Wartime inflation had continued at the war’s end, lifting the 1920 price level threefold higher than the 1913 price level. In 1920, however, the postwar boom hit the skids, and by 1922 prices were less than twice the 1913 price level. The bout of deflation was temporary but prophetic, and the Cunliffe Committee would have done well to heed the warning.
With the help of loans from the Federal Reserve Bank of New York and a United States banking syndicate, England returned to the gold standard. The ban on the export of gold was lifted and the Gold Standard Act of 1925 made the pound convertible into gold at prewar parity. Unlike the classic gold standard of the prewar years, gold coins no longer circulated domestically, and the public could only convert Bank of England bank notes into gold bars. To meet the needs of international finance the Bank of England could have gold minted into gold coins, but the English public could not demand the convertibility of bank notes into gold coins.
Perhaps the fateful mistake of the act was the return of the pound to its prewar value. The pound needed to depreciate to enhance the competitiveness of English exports in foreign markets, and to diminish the competitiveness of imported goods in English markets. England’s industry could not compete with German industry and industry from other parts of the world. England’s economy settled into a sluggish recession, marked by militant labor-management clashes, struggling along until the more devastating collapse occurred in the 1930s.
The Bank of England had to keep domestic interest rates up to make the pound valuable in foreign markets, restricting the desire to convert pounds into gold, and keeping England in possession of its gold reserves. But domestic economic problems limited the ability of the Bank of England to raise domestic interest rates to protect its gold reserves. A conflict between the need to improve domestic economic conditions and the need to support the pound put the Bank of England in a difficult position. In 1931 the conversion of pounds accelerated, causing a drain on England’s gold reserves. The English government suspended its gold standard with the Gold Standard Amendment Act of 1931. England, and the world’s trading partners, never returned to domestic gold standards after the debacle of the 1930s. Later in the 1930s a gold standard for international transactions was established, lasting until 1971.
The act unequivocally defined the value of the dollar in terms of gold alone, without reference to another metal. The dollar was defined as equal to “twenty-five and eight-tenths grains of gold nine-tenths fine.” Responsibility for maintaining parity fell to the secretary of the Treasury. No gold certificates were to be issued under $20, and silver remained as a subsidiary coinage and currency, with 90 percent of silver certificates remaining under $10.
The act also set up a system of reserves for national banks and substantially reduced the amount of capital needed to establish a national bank. These measures had the expected effect of increasing the quantity of bank notes in circulation, which rose from $349 million in 1901 to $735 million in 1913. These measures were also intended to make the supply of bank notes more elastic as the needs of trade varied. The elasticity of the currency, or lack thereof, remained a source of economic instability, leading to the establishment of the Federal Reserve System in 1913.
The United States remained on the gold standard until 1933 when the United States government, facing the debacle of the Great Depression, needed more flexibility in its handling of monetary matters. Like many governments around the world at that time, the United States government felt that a domestic money supply, completely uncoupled from domestic gold supplies, could be adjusted as needed by the Federal Reserve System to meet the needs of trade.
See also:
Gold Standard, Gold Reserve Act of 1934
References:
Davies, Glyn. 1994. A History of Money.
Hepburn, A. B. 1924. A History of Currency in the United
States.
Myers, Margaret G. 1970. A Financial History of the United
States
Gold Standard Act of 1925 (England)
The Gold Standard Act of 1925 returned England to the gold
standard after the disruption of World War I, signaling the beginning of a new
gold standard era that lasted until 1931.
England’s commercial supremacy and financial leadership had secured the gold
standard as the international monetary standard between the 1870s and 1914, the
years of the classic gold standard. If there was a headquarters for the
international gold standard, it was England, and the return of England to gold
after World War I was anxiously awaited.England had not officially gone off the gold standard during World War I, but the risk of transporting gold under wartime conditions effectively put an end to the convertibility of pounds into gold. After April 1919 the export of gold was strictly prohibited except for freshly mined gold imported from other parts of the empire.
To study the financial aspects of postwar reconstruction the British government in 1918 had appointed a committee, soon called the Cunliffe Committee after its chairman, Lord Cunliffe, governor of the Bank of England. Nine of the 12 members of the committee were traditional bankers, perhaps accounting for the deflationary recommendations of the committee. From the outset the Cunliffe Committee assumed that England should return to the gold standard, and that the value of the pound should be fixed at its prewar value. The recommendations of the committee were phased in over a 10-year period, including the return to the gold standard in 1925.
Wartime inflation had continued at the war’s end, lifting the 1920 price level threefold higher than the 1913 price level. In 1920, however, the postwar boom hit the skids, and by 1922 prices were less than twice the 1913 price level. The bout of deflation was temporary but prophetic, and the Cunliffe Committee would have done well to heed the warning.
With the help of loans from the Federal Reserve Bank of New York and a United States banking syndicate, England returned to the gold standard. The ban on the export of gold was lifted and the Gold Standard Act of 1925 made the pound convertible into gold at prewar parity. Unlike the classic gold standard of the prewar years, gold coins no longer circulated domestically, and the public could only convert Bank of England bank notes into gold bars. To meet the needs of international finance the Bank of England could have gold minted into gold coins, but the English public could not demand the convertibility of bank notes into gold coins.
Perhaps the fateful mistake of the act was the return of the pound to its prewar value. The pound needed to depreciate to enhance the competitiveness of English exports in foreign markets, and to diminish the competitiveness of imported goods in English markets. England’s industry could not compete with German industry and industry from other parts of the world. England’s economy settled into a sluggish recession, marked by militant labor-management clashes, struggling along until the more devastating collapse occurred in the 1930s.
The Bank of England had to keep domestic interest rates up to make the pound valuable in foreign markets, restricting the desire to convert pounds into gold, and keeping England in possession of its gold reserves. But domestic economic problems limited the ability of the Bank of England to raise domestic interest rates to protect its gold reserves. A conflict between the need to improve domestic economic conditions and the need to support the pound put the Bank of England in a difficult position. In 1931 the conversion of pounds accelerated, causing a drain on England’s gold reserves. The English government suspended its gold standard with the Gold Standard Amendment Act of 1931. England, and the world’s trading partners, never returned to domestic gold standards after the debacle of the 1930s. Later in the 1930s a gold standard for international transactions was established, lasting until 1971.
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