Changes

Since the beginning of human civilization over 5,000 years ago, gold has had an inherent economic and monetary value. Numerous primary source documents from the Bronze Age Near East describe how gold bullion and dust was were traded as a form of currency and in the sixth century BC the . The first gold coins were minted on a large scale in the kingdom of Lydia. Gold continued to be used as a currency throughout the medieval and early modern periods of world history until it was finally combined with paper currency in the eighteenth century, creating what is commonly referred to by economists and historians as the “classical gold standard.”

The classical gold standard was an unofficial monetary regime that began in England in the early eighteenth century whereby the paper currencies of participating nations were fully backed by and could be exchanged for their weight in gold. Membership in the classical gold standard spread from England to include most of the industrialized nations of the world, including the United States, by the late nineteenth century. But the United States’ entry into the classical gold standard was not a foregone conclusion. Members of the populist “greenback” movement and silver interests were vehemently opposed to the gold standard and exerted considerable political power, especially in the Democrat Party, from the mid to late nineteenth century. In the end, the fact that the United States was quickly becoming a world power, combined with powerful pro-gold economic and political interests, ensured that the United States not only joined the classical gold standard, but codified its membership with the Gold Standard Act of 1900.

The currency situation in the United States proved to be different than it was in the other countries on the gold standard for a number of reasons. Most importantly, there was an abundance of precious metals in the United States, which allowed it the option to use silver <i>or</i> gold, or neither to back its currency in the nineteenth century. Early in the American Republic, support for the metal -backed currency was most concentrated in northeastern urban centers where traders, investors, and export-orientated manufactures would benefit from gold -backed currency. On the other hand, farmers and manufactures manufacturers in the interior, whose markets were primarily domestic and who therefore cared most about the low domestic prices of their products, favored “soft money” and devaluation of the dollar. As the growing republic became more economically dependent on trade with Britain, though, the supporters of a gold -backed currency became ascendant. The government adopted rates during the 1830s that drove silver out of circulation, effectively putting the United States on the gold standard. <ref> Frieden p. 149</ref>

The classical gold standard was the primary economic regime among the world’s industrialized nations for the entire nineteenth century. It helped foster a period of tremendous economic growth in the world, but the United States’ participation in it was the result of a long process. Although there was were widespread opposition to using gold as a currency standard, eventually eastern and urban trade interests, who which were pro-gold standard, proved to have more influence in the American government. In the 1896 presidential election, the American people elected William McKinley, essentially voting to keep the U.S. on the gold standard, which was codified with the Gold Standard Act of 1900.