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.
