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Should the United States Return to a Gold Standard?
Gold Standard
Prior to 1971, the United States was on various forms of a gold standard where the value of the dollar was backed by gold reserves and paper money could be redeemed for gold upon demand. Since 1971, the United States dollar has been a fiat currency backed by the "full faith and credit” of the government and not backed by, valued in, or convertible into gold.

Proponents of the gold standard argue it provides long-term economic stability and growth, prevents inflation, and would reduce the size of government. They say a gold standard would restrict the ability of government to print money at will, run up large deficits, and increase the national debt. They say the economy has historically performed best under a gold standard.

Opponents argue a gold standard would create economic instability, spur periodic economic deflation and contraction, and hamper government's ability to stimulate the economy and reduce unemployment during recessions and financial crises. They say returning to a gold standard would be extremely difficult given the scarcity of gold and could severely harm the already fragile US economy. Read more...
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Gold Standard ProCon.org is a nonpartisan, nonprofit website that presents research, studies, and pro and con statements on whether or not the US should return to a gold standard. ProCon.org micro sites normally have no glossary and background sections with fewer than 1,400 words; however, this gold standard website has a significantly longer background section and a glossary for added context in this complex issue.
Did You Know?
  1. According to the World Gold Council, the total amount of mined gold that exists in the world weighs about 170,000 metric tons or 5.5 billion troy ounces. Melted across an NFL football field, it would rise 5.4 feet. [1]

  2. As of 2012, the United States Treasury holds 261.5 million troy ounces of gold. [72At the current market price of gold ($1,662 as of Dec. 27, 2012), [73] the total value of United States Treasury held gold is $434.6 billion.

  3. If the United States sold its entire gold reserves at market price, it would pay down 2.7% of the $16.3 trillion [31] national debt. In order to cover the US national debt, the price of gold would need to be about $62,475 per troy ounce.

  4. On Apr. 5, 1933, President Roosevelt issued an executive order forbidding the private possession of gold. [2] All gold coins, bullion, or certificates over $100 were to be turned in to the government and compensated at $20.67 per ounce. Personal gold jewelry and gold coins with numismatic value were exempted. [71] The right to own gold was not restored until 1974. [3]

  5. On Aug. 15, 1971, President Nixon announced that the United States would no longer back the dollar with gold reserves, thus ending the last ties between the dollar and gold.  Between 1971 and 2012 the US currency in circulation (M1) increased from $48.6 billion to over $1 trillion dollars. [4]
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Teacher Survey
Pro & Con Arguments: "Should the United States Return to a Gold Standard?"
PRO Gold Standard

  1. Gold retains a value that has been recognized across the globe throughout history. Our paper money is a "fiat" currency that can be printed without limit and has no real value – its value is only maintained by the "full faith and credit" of the government. Gold has real value due to its beauty, usefulness, and scarcity. Humanity has recognized the value of gold as a medium of exchange dating back to 550 BC, when the King of Lydia (modern day Turkey) began minting gold coins. [5] Steve Forbes, Editor-in-Chief of Forbes magazine, says gold "retains an intrinsic, stable value better than anything else." [6]


  2. A gold standard puts limits on government power by restricting its ability to print money at will. With a fiat currency the government can essentially manufacture money virtually out of thin air. [7] Since leaving the gold standard in 1971 US currency in circulation (M1) increased from $48.6 billion to over $1 trillion dollars in 2012. [4] Between 1971 and 2003 the entire supply of money (M3) in the United States has increased by 1,100%. [29] Under a gold standard, new money could only be printed if a corresponding amount of gold were availabe to back the currency. This restriction is an existential check on government power. According to Supreme Court Justice Stephen Field (1863-1897)," arguments in favor of the constitutionality of legal tender paper currency tend directly to break down the barriers which separate a government of limited powers from a government resting in the unrestrained will of Congress. Those limitations must be preserved, or our government will inevitably drift from the system established by our Fathers into a vast, centralized, and consolidated government." [35]


  3. Our current fiat monetary system is inherently un-democratic. Our current fiat monetary system empowers an unelected central banking committee (the Federal Reserve) to determine whether the supply of money grows or is reduced rather than allowing market forces to determine the supply of money as they would under a gold standard. Fiat dollars allow government to spend money without raising taxes, which shields them from democratic accountability. Instead, they impose the hidden tax of inflation. [34]


  4. Returning to a gold standard would lower inflation rates and slow the rise in consumer prices. Historically, the United States has had lower levels of inflation when on a gold standard. From 1880-1913, under a gold standard, average inflation was 1.6% per year. [8] In 1971, when Nixon took the United States off the gold standard, inflation was at 3.3%. By 1979 it had risen to 13.3%. [10] In a study of 15 countries covering the years 1820-1994, Federal Reserve economists found the average annual inflation rate under a gold standard was 1.75%, versus 9.17% when not on a gold standard. [11] From 1971 to 2003 the dollar lost nearly 80% of its purchasing power due to inflation. [29] Between 1971 and 1980 the inflation rate rose from 4.4% to 13.5%. [10] By 2011, the dollar's purchasing power had been reduced to the point that it has the same purchasing power as 19 cents did in 1971. [30]


  5. Returning to a gold standard would reduce the US trade deficit. Our current fiat money system allows the Fed to finance large trade deficits by printing money, allowing Americans to purchase imported goods "without really paying" for them. [22] Since abandoning the gold standard in 1971, the United States has had the highest trade deficits the world has ever seen – reaching a high of $378.6 billion in 2009. [32] Since 1995, foreign nations have taken the fiat dollars received in payment for exports, and used them to invest in United States debt (Treasury Bonds). In this way, foreign creditors have financed 50% of the US national debt since 1995. [33] According to US Representative Ron Paul (R-TX), this "free lunch cannot last. Printing money, buying foreign products, and selling foreign holders of dollars our debt ends when the foreign holders of this debt become concerned with the dollar's future value." [12]


  6. A gold standard would restrict the ability of the federal government to increase the national debt. Under the fiat money system used by the United States the government can raise money by issuing treasury bonds – which the Federal Reserve can purchase with newly printed money. These bonds count toward the national debt. Between 1971 and 2003, the national debt went from $406 billion to $6.8 trillion - an increase of 1,600%. This increase in debt corresponded with an 1,100% increase in the money supply (M3) between 1971 ($776 billion) and 2003 ($8.9 trillion). [29] As of Dec. 26, 2012 the national debt stood at $16.3 trillion. [31] As a percentage of the GDP (gross domesic product) the national debt has more than doubled since leaving the gold standard in 1971 - going from from slightly under 30% to 67.7% in 2011. [106]


  7. A gold standard would force the United States to reduce its military and defense spending and could prevent unnecessary wars. According to US Representative Ron Paul (R-TX) "fiat money enable[s] government to maintain an easy war policy... To be truly opposed to preemptive and unnecessary wars one must advocate sound money to prevent the promoters of war from financing their imperialism." [12] The government's ability to limitlessly print fiat paper money allows it to fund a massive global defense establishment, including 662 military bases in 38 countries [14] and costly foreign military interventions. [15] The United States spent $711 billion on defense spending in 2011, more than the other top 13 countries combined. [70] This level of spending would not be possible if the United States returned to a full gold standard.


  8. Returning to a gold standard would stabilize the price of oil and help slow the rise in gasoline prices. Since leaving the gold standard in 1971, inflation has reduced the value of the dollar, and inflated the price of oil about 32 fold. [17] In 1973, Saudi Arabia (and in 1975 all OPEC nations) agreed to trade oil only in dollars. [16] This created a new international demand for the fiat dollars the Fed was now printing and as more dollars flooded the world, general inflation (as well as spikes and collapses) in oil prices followed. [18] When on a partial gold standard in the 1950s and 1960s the nominal price of oil was stable, averaging $2.90 a barrel. By June 2008 the nominal price of oil hit $126.33 per barrel. Adjusted for inflation, a barrel of oil cost $20 in 1971 – it now costs close to $100. [19] According to Charles Kadlec, founder of Community of Liberty and Forbes contributor, if the gold standard had been maintained the price of gasoline today would likely be about $1.00 a gallon. [20]


  9. A gold standard would reduce the risk of economic crises and recessions such as the housing bubble and financial crisis of 2008-2009. The ability of the Federal Reserve to print fiat money and maintain easy credit by keeping interest rates too low from 2001 to 2006 [23] was a significant cause of the real estate bubble which led to the Great Recession. [21][22] The response to the recession has been more of what caused it in the first place – printing money. Over $2 trillion in bailouts for failed financial institutions was paid for with Federal Reserve money, [24] setting the stage for another possible bubble and collapse. [25] The Fed's history of providing economic stablility with fiat money has not been a good one. Since the United States abandoned the gold standard there have been 12 financial crises, including the financial crisis of 2008-2009. [20]


  10. A gold standard self-regulates to match the supply of money to the need for it. Since gold is a finite natural material, and must be mined and processed at a significant cost, it tends to be produced at levels consistent with demand. Under a gold standard, creating more currency requires obtaining more gold, which raises golds market price and stimulates increased mining. More gold is then used to back more money until a point when currency levels are adequate, the price of gold levels out, and mining gets scaled back. [26] It is a self-regulating system. [22] Under a fiat money system the production of money has no natural self-regulation mechanism.


  11. Under a gold standard the United States had stronger economic growth over its history. Over the 179 years the United States was on some form of a gold or metallic standard (1792-1971), the economy grew an average of 3.9% each year. Since 1971, under a fiat money standard not backed by gold in any way, economic growth has averaged 2.8% per year. [20] This lower growth rate translates into an economy that is about $8 trillion dollars smaller than it would have been had the gold standard not been abandoned in 1971. [27]


  12. A gold standard would prevent government from overprinting money to bail out financial corporations. To fund the past bailouts of financial corporations like Bear Stearns ($29 billion) and AIG ($180 billion), [23] the Fed created massive amounts of new fiat money. In Apr. 2008, the yearly growth rate of the money supply was 1.5%. By Aug. 2009 it was at 14.3%. [24] Between Dec. 2007 and Dec. 2008 the Fed's balance sheet (assets held such as government bonds) had gone from a yearly growth rate of 2.6% to 152.8%. [24] This massive expansion of the money supply put the country at risk of significant future inflation.


  13. Under the gold standard, income levels in the United States were rising much faster and unemployment levels were lower. In the decades prior to the United States abandoning the gold standard (1950-1968), the real median income for males rose 2.7% per year. Since leaving the gold standard in 1971, the average median income has only increased 0.2% per year. [28] If the gold standard had not been abandoned in 1971, and income levels had continued to grow at the prior rates, the average median family income today would be about 50% higher. [27] In addition, unemployment levels were lower in the decades leading up to the United States abandoning the gold standard. Between 1944 and 1971, while on a partial gold standard, unemployment averaged 5%. From 1971 to present, unemployment levels have averaged 6% under the fiat money standard. [20]


  14. Many politicians, businessmen, and organizations support the return to a gold standard. United States Representative Ron Paul (R-TX) has made the return to a gold standard a central focus of his political career, arguing that government creation of fiat money is "morally identical to the counterfeiter who illegally prints currency." [66] Steve Forbes, Editor-in-Chief of Forbes magazine, argues that a "new gold standard is crucial," [67] to save the country from a "crisis that would be even worse than 2008." [68] Many organizations support a return to a gold standard including the American Principles Project, [107] the Lehrman Institute, [108] and several economists of the Austrian school affiliated with the Ludwig von Mises Institute. [109]

CON Gold Standard

  1. The value of gold fluctuates widely and would not provide the price stability necessary for a healthy economy. Between 1879 and 1933, when the United States was on a full gold standard, the inflation adjusted market price of gold fluctuated from the $700 range (1890s) to the $200 range (1920s). From 1934-1970, when the US was on a partial gold standard, the inflation adjusted price of gold went from $563 to $201. [36] In 1980, the inflation adjusted price of gold was $2,337, much higher than than today's price of $1,672 per ounce (Dec. 19, 2012). [37] Fluctuations like these would be damaging to a gold standard economy, since the value of a dollar would be attached to the value of gold. For example, a 10% increase or decrease in the value of gold would eventually result in a 10% rise or fall in the overall price level of goods across the country - such fluctuations would destabilize the economy. [38]


  2. A well-managed fiat monetary system is the best way to keep inflation down, not returning to a gold standard. In 1981, when annual inflation was at 10.3%, [10] Congress authorized a US Gold Commission to study returning to the gold standard as a way to bring down the inflation. The commission concluded that "restoring a gold standard does not appear to be a fruitful method for dealing with the continuing problem of inflation." [39] By 1982, the monetary policy decisions of Federal Reserve Chairman Paul Volker had already stopped the inflation. [40] By 1983 growth in consumer prices was down to 3.2% from a high of 13.5% in 1980. [10]


  3. Gold standards create periodic deflations and economic contractions which destabalize the economy. Under a gold standard, economic growth can outpace growth in the money supply since more money cannot be created and circulated until more gold is first obtained to back it. When this happens deflation and economic contraction occurs. Between 1913 and 1971, when the United States was on some form of a gold standard, there were 12 years when deflation occurred – the highest levels were in 1921 (-10.5%), 1931 (-9.0%), and 1932 (-9.9%). [10] According to Federal Reserve Chairman Ben Bernanke, "the length and depth of the deflation during the late 1920s and early 1930s strongly suggest a monetary origin, and the close correspondence... between deflation and nations' adherence to the gold standard." [41] Since leaving the gold standard in 1971 there has only been one year (2009) in which any deflation occurred (-0.4%). [10]


  4. The gold standard caused many financial panics, bank failures, and prolonged the Great Depression. Between 1879 and 1933 the United States had financial panics in 1884, 1890, 1893, 1907, 1930, 1931, 1932, and 1933. [45] During the panic of 1933 alone 4,000 banks suspended operations. [48] Many of these panics were exacerbated by contraction in the money supply caused by the gold standard (more money could not be printed without first acquiring additional gold to back it). [41] Many economists contend that the gold standard played a role in preventing the United States from stabilizing the economy after the stock market crash of 1929, and prolonged the Great Depression. In 1933, when the United States went off the full domestic gold standard, the economy began to recover. [49] [44] [50]


  5. A gold standard would limit the ability of the Federal Reserve to help the economy out of recessions and depressions. Under the current fiat money system the Federal Reserve can use monetary policy to respond to financial crises by lowering interest rates during a recession, raising them during a period of inflation, and injecting money into the economy when necessary. A gold standard would severly hamper it from performing these functions. [44] After the 2008 financial crash, the Fed’s TARP (troubled assest relief program) created $700 billion to bail out financial institutions and stabilize the economy. [46] According to Nobel Prize-winning economist Paul Krugman, without the Fed's intervention a "powerful deflationary forc[e]" [45] would have been created. Without the intervention of the Fed it is possible the 2008 crash could have led to another Great Depression. [47]


  6. Returning to a gold standard would limit government’s ability to address unemployment. According to Federal Reserve Chairman Ben Bernanke a gold standard "means swearing that no matter how bad unemployment gets you are not going to do anything about it using monetary policy.” [44] Under our current fiat money system, the Fed can expand the US money supply by purchasing treasury bonds and the government can use this money to help put the unemployed to work through public spending [51] as the Obama administration did with the $787 billion fiscal stimulus. [110] It is estimated that the 2009 Obama stimulus prevented the loss of about three million jobs. [111] Under a gold standard the stimulus could not have occured.


  7. Returning to a gold standard could destabilize and crash the already fragile United States economy. The last time the United States moved from a fiat monetary system to a gold standard was in 1879, when the United States returned to a gold standard after the Civil War. The shift caused a massive deflation. [47] Given the current fragility of the United States and global economy, the deflation caused by moving from a fiat money system to a gold standard would severly harm, if not crash, the economy. According to economist Barry Eichengreen, it would be a "recipe for disaster." [47]


  8. A gold standard would increase the environmental and cultural harms created by gold mining. Returning to a gold standard would create increased demand for gold and mining activity would increase. Many gold mines use a process called cyanide leach mining that creates large scale water pollution [55] and massive open-pit scars on the land. Producing one ounce of gold creates 70 tons of mine waste. In addition nearly 50% of global gold mining occurs on indigenous lands, [56] where the communities' land rights are often violated. [57] [58] For example, in Nevada, Barrick Gold is currently engaged in a legal fight to dig out a 2,000 foot open-pit gold mine on Mt. Tenabo, a sacred mountain of the Western Shoshone. [59]


  9. Returning to a gold standard would be a large waste of time, money, and resources. Gold mining and refining is expensive and time consuming. According to Barrick Gold (the world’s largest producer), an ounce of gold cost $560 to produce in 2012. [52] All the human labor used for mining, refining, and storing gold is time and energy diverted from the real economy. The direct costs associated with a fiat paper money system (paper and printing costs) are much lower (a paper federal reserve note only costs $0.087 to produce). [53] Economist Milton Friedman estimated that for the United States to maintain the gold reserves necessary to back its currency, it would cost 1.5% of the national income. [54]


  10. A gold standard makes the supply of money vulnerable to the ups and downs of gold production. Under a gold standard the supply of money would be dependent on how much gold is produced. Inflation would occur when large gold discoveries were made and deflation would occur during periods of gold scarcity. [60] For example, in 1848, when large gold finds were made in California, the United States suffered a monetary shock as large quantities of gold created inflation. This rise in US prices caused a trade deficit as US exports became over priced in the international marketplace. [9]


  11. A gold backed currency could not expand fast enough to maintain a healthy rate of international trade and economic growth. At current mining rates, the total world gold supply increases about 1.5% to 2% per year [61], which is not enough to maintain a healthy rate of global economic growth. According to United Bank of Switzerland economist Paul Donovan, the nominal rate of growth in world trade should be around 6% to 6.5%. If an international gold standard were to be re-introduced this growth rate could not be maintained. [62]


  12. Returning to a gold standard could harm national security by restricting the country’s ability to finance national defense. In times of war, a quick expansion of currency to finance war buildup is sometimes necessary and a gold standard would prevent this from occurring. In order to help finance the Civil War, President Lincoln authorized the printing of $450 million in fiat currency known as "greenbacks." [63] The United States financed its involvement in WWII in large part by having the Fed print money (which was not convertible to gold by the public since 1933), selling war bonds, and running large deficits. According to Congressional Research Service (CRS) researchers, "the means by which the increase in the money supply came about was through the Federal Reserve’s purchase of government bonds. In effect, the Federal Reserve made a loan to the government of newly printed money." By 1946, publicly held debt was 108.6% of GDP. [64]


  13. Returning to a gold standard would be extremely difficult, if not impossible, given the scarcity of gold and the vast amount of money already in circulation in the United States. As of 2012 the US treasury held about 260 million troy ounces of gold reserves. At the market price of gold, about $1,662 an ounce (as of Dec. 27, 2012), that would equal about $434.6 billion in gold. However, the current United States money supply, including cash in circulation and bank deposits, is about $2.6 trillion. In order to peg the dollar to gold, the United States would either have to vastly increase its gold holdings, set the dollar price of gold at $10,000 an ounce, or suffer a massive deflation and contraction in the money supply (or some combination of the three). [65] All the gold that currently exists in the world - about 5.5 billion troy ounces - would be worth about $9.1 trillion dollars at current market prices. [1] Even that is not enough to cover the $16.3 trillion national debt of the United States. [31]


  14. Many prominent economists oppose returning to a gold standard. Nobel Prize-winning economist Paul Krugman has called returning to a gold standard "an almost comically (and cosmically) bad idea," [45] and the Chairman of the Federal Reserve, Ben Bernanke, has said "the gold standard would not be feasible for both practical reasons and policy reasons." [44] In one survey of 50 economic experts, all senior faculty members at "elite research universities," not a single one believed returning to a gold standard would be "better for the average American" in terms of price stability or employment outcomes. According to one economic advisor to the Congressional Budget Office, "Love of the G.S. [gold standard] implies macroeconomic illiteracy." [43]

Comment Comment
Background: "Should the United States Return to a Gold Standard?"
Prior to 1971, the United States was on various forms of a gold standard where the value of the dollar was backed by gold reserves and paper money could be redeemed for gold upon demand. Since 1971, the United States dollar has been a fiat currency backed by the "full faith and credit” of the government and not backed by, valued in, or convertible into gold.

Proponents of the gold standard argue it provides long-term economic stability and growth, prevents inflation, and would reduce the size of government. They say a gold standard would restrict the ability of government to print money at will, run up large deficits, and increase the national debt. They say the economy has historically performed best under a gold standard.

Opponents argue a gold standard would create economic instability, spur periodic economic deflation and contraction, and hamper government's ability to stimulate the economy and reduce unemployment during recessions and financial crises. They say returning to a gold standard would be extremely difficult given the scarcity of gold and could severely harm the already fragile US economy.

Since its founding in 1776, the United States has had a variety of monetary systems including bimetallic systems where the dollar was backed by both gold and silver (1792-1862), a fiat monetary system (1862-1879), a full gold standard (1879-1933), and a partial gold standard (1933-1971). From 1971 to present the United States has been on a fiat monetary standard. [71]

1792-1862: The Bimetallic Standard

1795 US Gold Eagle Coin
(Click to enlarge image)
Image of first United States gold coin - the 1795 Gold Eagle.
Source: Stack's Bowers Galleries, "Brilliant Uncirculated 1795 Eagle with Reflective Fields,"
stacksbowers.com (accessed Dec. 31, 2012)
In 1792, Congress passed the first Coinage Act, establishing the US Mint to provide official coin currency for the nation's bimetallic monetary system (dollar valued in gold and silver). The Act fixed the dollar as the equivalent of 24.75 grains of gold and 371.25 grains of silver. [75] For example, the first US Gold Eagle coins produced by the Philadelphia Mint in 1795 [76] had a face value of $10 and contained an equivalent value of actual gold (270 grains). [75] Although gold and silver coins circulated, paper money (backed by gold and silver reserves) was also printed and circulated by banks and the US Treasury. [71] During this time period large silver finds in Mexico and South America caused a decline in the market value of silver relative to gold, resulting in an influx of silver flowing to the US mint for coinage. Gold coins began to leave circulation as their metal content became worth more than their face value. [39]

To bring gold coins back into US circulation, on June 28, 1834 Congress passed the Coinage Act of 1834, and reduced the gold value of one dollar to 23.2 grains of gold. [78] Gold discoveries in Russia, Australia, and California in 1848 significantly increased the amount of gold on the market, and further reduced its value in comparison to silver. In 1849, the gold influx caused congress to authorize the minting and circulation of a $1 gold liberty coin, the smallest US coin that has ever existed. [77] By 1850, the silver content of coins was worth more melted down than the face value of the coin, and silver coins began to disappear from circulation. [39]

1862-1879: The Civil War Fiat Standard

In Feb. 1862, less than one year after the outbreak of the Civil War, the United States passed the Legal Tender Act, authorizing the issue of the first paper fiat currency. These bills, known as "greenbacks," were not backed by gold or silver, but only by the "full faith and credit" of the federal government. To help finance the Civil War, the Union issued nearly $450 million of these greenbacks (and $500 billion in war bonds). [63] [79] During the Civil War, the Union states experienced inflation of up to 80%, [80] and some believed the new greenbacks in circulation had been a contributing factor. Aside from the inflation, by the end of the war in 1865 the federal government had also amassed a $2.7 billion national debt (up from $65 million in 1860). [81]

In an attempt to move to a gold standard after the Civil War, the government began reducing the amount of money in circulation by destroying the greenback bills. Between 1865 and 1868 price levels in the country fell 25%. [2] By this time, a national debate was ensuing over whether or not the government had a legal right to issue fiat currency. Creditors who were angry over the war time inflation, which they believed the greenbacks had created, took the issue to court. [82] In 1871, the legality of fiat currency was upheld 5-4 by the US Supreme Court in the case of Knox v. Lee. [63]

Cross of Gold Speech
(Click to enlarge image)
1896 Political cartoon of William Jennings Bryan holding a "cross of gold."
Source: Cartoon by Grant Hamilton, printed in Judge Magazine, 1896, authentichistory.com (accessed Dec. 31, 2012)
In 1873 the Fourth Coinage Act ended the ability to exchange silver at a fixed price, discontinued government production of silver dollars, reduced the money supply, and moved the country closer to a gold standard. [83] Shortly after the Act passed, the collapse of a large banking house (Jay Cooke & Co) triggered the "Panic of 1873." During the panic, 101 banks failed as people rushed to withdraw their savings. A period of deflation and financial depression ensued. [84] [85] In 1874 people upset over the effects of deflation formed the Greenback party to advocate against the gold standard. [63] They favored inflationary policies that would expand the money supply with silver currency and government-issued paper bills. [86] This populist movement was countered by advocates of the gold standard known as "gold bugs" who favored a deflationary monetary policy. [63] On Jan. 14, 1875, advocates of the gold standard won a victory when Congress passed the Specie Payment Resumption Act, which mandated that beginning on Jan. 1, 1879, all greenbacks still in circulation would become redeemable in gold. [87]

1879-1933: The Gold Standard

Throughout the 1890s debate continued between backers of the gold standard, represented by bankers and financial interests who feared inflation, and the advocates of an expanded silver currency, primarily farmers and laborers, who were being hit hard by deflation. In 1893, another banking panic hit, triggering a deep depression [88] and the failure of over 500 banks. [85] The crisis of 1893 further fueled debate in the country over monetary policy giving rise to the Free Silver Movement, a populist coalition of farmers and laborers. [89] The debate over the gold standard culminated in the presidential election of 1896 between Republican William McKinley, an advocate of the gold standard, and populist Democrat William Jennings Bryan, who opposed it. [83]

Bryan, an advocate of free silver, made the issue of the gold standard central to his campaign. His speech to the Democratic national convention became known as the "cross of gold," speech where he stated: "Upon which side will the Democratic party fight: upon the side of the ‘idle holders of idle capital’ or upon the side of ‘the struggling masses?’… If they dare to come out in the open field and defend the gold standard as a good thing, we will fight them to the uttermost… You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.” [90] The Republican Party Platform of 1896 articulated their opposing position: "The Republican party is unreservedly for sound money. It caused the enactment of a law providing for the redemption of specie payments in 1879. Since then every dollar has been as good as gold. We are unalterably opposed to every measure calculated to debase our currency or impair the credit of our country. We are therefore opposed to the free coinage of silver... All of our silver and paper currency must be maintained at parity with gold…” [91] McKinley won the 1896 election, and on Mar. 14, 1900, he signed the Gold Standard Act, officially ending the use of silver as a standard for US currency and formally putting the United States on a gold standard. [92] [71]

On Dec. 23, 1913, President Woodrow Wilson signed the Federal Reserve Act into law. [88] The Federal Reserve System was created, in part, as a
McKinley political poster
(Click to enlarge image)
1900 political poster of President William McKinley standing on a gold coin.
Source: Michael O'Malley, "History 398, The American History of Money," chnm.gmu.edu (accessed Dec. 31, 2012)
response to the severe financial panic of 1907 and other past financial crises. [85] The Act allowed the Fed to print paper money (Federal Reserve notes) that could be lent to banks when the need for cash arose, and required that at least 40% of the value in circulating notes be held in gold reserves. [71] [93] In 1914 World War I began and many nations abandoned their gold standards – with the exception of the United States. [39] During WWI (and into the 20s) gold flowed into the Federal Reserve from Europe as payment for US imports. By 1929 the Federal Reserve banks held $3.12 billion in gold – twice the amount that was necessary to back the Federal Reserve notes in circulation. [71] [93]

On Oct. 24, 1929, the US stock market crashed. [94] Between 1929 and 1931, as the Great Depression took hold, the Federal Reserve pursued a policy of deflation - it allowed the money in circulation to drop in relation to its gold reserves. [39] Between 1930 and 1932 cumulative deflation hit 30%. [95] By 1933 economic uncertainty, and the failure of nearly 10,000 banks over a three year period, [88] caused an explosion in public demand to redeem Federal Reserve notes for gold. By early Mar. 1933, the Fed's gold reserves were below the legal 40% limit, [39] and the full gold standard system began to fall apart.

1933-1971: The International Gold Exchange Standard

In response to the deepening economic crisis, on Mar. 6, 1933, President Roosevelt declared a three-day banking holiday and suspended the ability to redeem paper money for gold. Three days later on Mar. 9, he signed the Emergency Banking Act, giving himself emergency powers over banking transactions and gold policy, [39] and on Apr. 5, he issued an executive order forbidding the private possession of gold (gold jewelry and coins with numismatic value were exempt). All monetary gold coins, bullion, or gold certificates over $100 were to be turned in to the government – people were compensated for their gold at $20.67 per ounce. [71] The right to own gold was not restored until 1974. [3]

On Jan. 15, 1934, Roosevelt issued a statement to Congress arguing "the practice of transferring gold from one individual to another or from the government to an individual within a nation is not only unnecessary, but is in every way undesirable," and recommended that the US government should take permanent legal "title to all supplies of American-owned monetary gold." Two weeks later on Jan. 30, Congress passed the Gold Reserve Act, which legally nationalized all US gold. The next day, Roosevelt devalued the dollar from $20.67 per ounce to $35 per ounce - a price it would remain at until 1971. This devaluation was undertaken to "stabilize domestic prices." [96] The government's gold reserves would now serve only as backing for its currency and for use in international transactions. US citizens would no longer be able to exchange their paper money for gold. One year later, the economy began to turn – the 5.1% annual deflation in 1933 became a 3.1% annual inflation by the end of 1934. [10] In 1936 the US Bullion depository at Fort Knox was completed to store the government's gold reserves and by 1941 it held 649.6 million ounces of gold. [97] [39] On Dec. 8, 1941, the United States entered WWII.

1922 $50 gold certificate
(Click to enlarge image)
1922 United States $50 gold certificate.
Source: Stack's Bowers Galleries, "Lot #1486. Fr. 1200. 1922 $50 Gold Certificate," stacksbowers.com (accessed Dec. 31, 2012)
At the conclusion of WWII in 1944 President Roosevelt presided over the creation of a new international monetary system – the Bretton Woods system. Under the system, all countries agreed to keep the value of their currency stable – to not inflate or deflate their currency by more than 1%. The dollar became the mechanism by which this was made possible as countries bought and sold dollars to keep their own currencies stable. [98] The United States pledged to back the dollar with gold – any foreign holder of dollars could exchange them for gold at $35 per ounce. [71] Throughout the 1950s, US dollars flooded the world [98] in the form of loans and as payment for goods imported into the US. [112] By the late 1960s a large fiscal deficit had developed as the United States increased its printing of dollars to fund expenditures on the Vietnam War and President Johnson's "Great Society" social programs. [74] Foreign holders of the dollar began to fear it had become overvalued and started exchanging their dollars for gold. This fear was further stoked in 1968 when the requirement to hold gold reserves against Federal Reserve notes was repealed. [71] Between 1949 and 1968, the US gold reserve was reduced from 701 million ounces to 296 million ounces. [98]

1971-present: The Fiat Standard

On Aug. 6, 1971, a congressional report concluded that the dollar was overvalued, and over the next week nearly $4 billion in gold and other assets left the United States as foreign nations redeemed their dollars. [98] The remaining US gold reserves at Fort Knox were reduced to the point that they would only cover about 1/3 of the dollars still held by foreign nations. [99] On Aug. 15, 1971, to prevent further draining of the United States’ gold reserves, President Nixon announced that dollars held by foreign countries would no longer be exchangeable for gold. [96] The international gold exchange standard that had existed since 1933 was over. The United States dollar was no longer backed by gold in any way and the dollar became a fiat currency supported only by the "full faith and credit" of the United States government.

When the United States left the gold standard in 1971 inflation was at 4.4%, but over the decade it began to rise. In 1974, 1979, 1980, and 1981 the United States saw double digit inflation. [10] [100] During this same decade the amount of US currency in circulation (M1) rose from $52.9 billion in 1971 to $124.6 billion by 1981. [4] When Republican Ronald Reagan was elected in 1980, monetary conservatives saw an opening for policy change and began advocating for a return to the gold standard, which they saw as a tool to fight the currency expansion and inflation. [101] On June 22, 1981, a 16-member US Gold Commission was appointed to study the issue, and on Mar. 31, 1982 they recommended against "the issue of Treasury gold-backed notes or bonds," and found that "restoring a gold standard does not appear to be a fruitful method for dealing with the continuing problem of inflation." However, this finding was not unanimous. A minority of the commission concluded that "the only way price stability can be restored… is by making the dollar (and other national currencies) convertible into gold. Linking money to gold domestically and internationally will solve the problem of inflation, high interest rates, and budged deficits." [39] One of the members of this minority was US Representative Ron Paul (R-TX). Although returning to a gold standard was rejected, the commission did recommend that the US Treasury begin production of gold bullion coins for sale to the public. On Dec. 17, 1985, President Reagan signed the Gold Bullion Act of 1985 authorizing, for the first time in 50 years, the production of US gold coins minted by the Treasury. [102]
Federal Reserve gold vault
(Click to enlarge image)
Image of gold bars stacked in the Federal Reserve gold vault in New York City.
Source: Federal Reserve Bank of New York, "Gold Vault," newyorkfed.org (accessed Dec. 31, 2012)

During the 2012 presidential race a debate about the gold standard resurfaced, with Republican candidate Ron Paul making it a major focus of his campaign. The 2012 Republican Platform called for a new commission, similar to the Gold Commission of 1982, to study the role of gold and "investigate possible ways to set a fixed value for the dollar." [69] In response to the renewed debate, Federal Reserve Chairman Ben Bernanke addressed the issue of a gold standard in a 2012 lecture, arguing that a gold standard "would not be feasible for both practical reasons and policy reasons.” [44]

Although there is no official link between the dollar and gold, the United States continues to hold 261.5 million troy ounces of gold (as of Dec. 2012). Of this total about 95% (248 million troy ounces) is held by the US Mint. The remaining 5% (13.4 million troy ounces) is held by the Federal Reserve. The US Mint holds about 2.8 million ounces of its gold as "working stock" to be used in the production of official US gold coins for sale to the public as numismatic collectibles, and for investment purposes. [72]

As of 2012, the total world-wide supply of gold stands at about 170,000 metric tons or 5.5 billion troy ounces. Melted across a 100-yard NFL football field, it would rise 5.4 feet. [1] According to the World Gold Council, the majority of world gold is used for jewelry - about 59%. Investors hold about 19% of total world gold, and government sector reserves comprise about 17%. The remaining gold is used for industrial and technological purposes. [103] [104] Of the government sector reserves, the United States holds the largest with 261.5 million troy ounces, followed by Germany (109.2 million troy ounces), Italy (78.8 million troy ounces), France (78.3 million troy ounces), and China (33.9 million troy ounces). [105]
Video Gallery

Televised debate on Bloomberg TV's Reganomix with Trish Regan between US Representative Ron Paul (R-TX) and Nobel Prize-winning economist Paul Krugman on economic and monetary policy, including the pros and cons of returning to a gold standard.
Source: Reganomix, "Paul Vs. Paul," youtube.com, Apr. 30, 2012
Newsreel footage covering President Roosevelt's decision to abandon a gold standard in 1933.
Source: "FDR Ends Gold Standard in 1933," YouTube.com (accessed June 6, 2014)
Lewis E. Lehrman, Chairman of The Gold Standard Now, describes how returning to a gold standard would stabilize the value of the dollar.
Source: The Gold Standard Now, "The Gold Standard Is a Yard Stick," YouTube.com (accessed Jan. 7, 2013)
Ben Bernanke, then Chairman of the Board of Governors of the Federal Reserve System, contends on C-SPAN2 that returning to a gold standard is infeasible.
Source: Think Progress, "Ben Bernanke Slams the Gold Standard," youtube.com (accessed June 6, 2014)
Notices for Gold Standard and Other ProCon.org Information (archived after 30 days)

9/10/2014  NEW ProCon.org Website! – Should students have to wear school uniforms? - Our 51st website explores the pros and cons in the debate over mandatory school uniforms. Almost one in five US public schools required students to wear uniforms during the 2011-2012 school year, up from one in eight in 2003-2004. Proponents say that school uniforms make schools safer for students, create a "level playing field" that reduces socioeconomic disparities, and encourage children to focus on their studies rather than their clothes. Opponents say school uniforms infringe upon students' right to express their individuality, have no positive effect on behavior and academic achievement, and emphasize the socioeconomic disparities they are intended to disguise.

Archived Notices (archived after 30 days)


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