The Gold Standard, From Newton’s Mint to Nixon’s Address

The classical gold standard has acquired a reputation for antiquity that its dates do not support. As a working international system it lasted roughly from the 1870s to 1914, a span of about forty years, and yet to the people who lived under it, it felt permanent, less a policy than a fact of nature. Its story is best told through five documents, and the documents are blunt in a way the mythology is not.

The first is a Treasury report. In September 1717 Isaac Newton, Master of the Royal Mint, was asked to address the chronic disappearance of England’s silver coin. His report fixed the gold guinea at twenty-one silver shillings, and his own reasoning shows he understood the ratio was the whole game: “If things be let alone till silver money be a little scarcer, the gold will fall of itself,” he advised, framing the question as whether gold should be lowered by the government or left to fall on its own (Newton). Parliament took the fixed ratio. In practice Newton’s price overvalued gold, silver kept draining abroad, and Britain slid, almost by accident, onto a gold footing that would later be formalized and imitated. A monetary era that eventually claimed the authority of natural law began as a rounding decision in a mint report.

The second is a thought experiment, and it supplied the era’s intellectual confidence. In 1752 David Hume asked his readers to imagine the impossible:

Suppose four-fifths of all the money in Great Britain to be annihilated in one night, and the nation reduced to the same condition, with regard to specie, as in the reigns of the Harrys and Edwards, what would be the consequence? Must not the price of all labour and commodities sink in proportion, and every thing be sold as cheap as they were in those ages? What nation could then dispute with us in any foreign market, or pretend to navigate or to sell manufactures at the same price, which to us would afford sufficient profit? In how little time, therefore, must this bring back the money which we had lost, and raise us to the level of all the neighbouring nations? (Hume 63)

Prices fall, exports surge, gold flows home, and the system rights itself without a minister lifting a finger. Hume’s price-specie-flow mechanism explained why a gold standard tends to be self-correcting, and under that confidence, from the 1870s to 1914, steamships and telegraph lines knit together a world of fixed exchange rates in which a merchant in Buenos Aires could contract with one in Hamburg and give currency risk barely a thought.

The First World War suspended the system, and the third document records the attempt to pretend otherwise. In 1925 Britain returned to gold at the prewar parity, valuing the pound as if the war had not happened. John Maynard Keynes had already delivered his verdict on the standard two years earlier, in words that have never left the debate:

In truth, the gold standard is already a barbarous relic. All of us, from the Governor of the Bank of England downwards, are now primarily interested in preserving the stability of business, prices, and employment, and are not likely, when the choice is forced on us, deliberately to sacrifice these to the outworn dogma, which had its value once, of 3 pounds 17 shillings and ten pence halfpenny per ounce. (Keynes, Monetary Reform 187)

When the return came anyway, Keynes wrote The Economic Consequences of Mr. Churchill to predict exactly how the overvalued pound would grind British industry through deflation and unemployment. He was right. Britain abandoned the parity in 1931, and the interwar gold standard died of the exceptions made to restore it.

The fourth document is an executive order, and its language deserves to be read rather than summarized. In April 1933 Franklin Roosevelt issued Executive Order 6102:

All persons are hereby required to deliver on or before May 1, 1933, to a Federal Reserve Bank or a branch or agency thereof or to any member bank of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them or coming into their ownership on or before April 28, 1933. (Roosevelt, sec. 2)

Private gold ownership in the United States was effectively ended for four decades, under penalty of fine and imprisonment. Whatever one’s judgment of the policy in its Depression context, its structural lesson is the one students should carry: a promise of convertibility is only as durable as the government’s willingness to keep it, and the willingness ended by executive order on a Wednesday.

The fifth is a television address. The Bretton Woods system built after 1944 kept gold one layer deep, with foreign governments able to convert dollars while citizens could not. On the evening of August 15, 1971, Richard Nixon closed even that window:

I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States. (Nixon)

In the same address he promised that the dollar “must never again be a hostage in the hands of international speculators.” The suspension announced as temporary has now outlasted the classical gold standard it ended, and every currency on earth has floated against every other since.

Forty years of discipline, then sixty years of managed exceptions. The gold standard’s history is not a nostalgia piece. It is a case study in how monetary systems earn trust through rules kept and spend it through rules bent, and it hands every student the question the twentieth century never quite answered: what should money be anchored to when the anchor itself is a policy choice?

The Money Wisdom Project is a Texas 501(c)(3) nonprofit. All of our K-12 monetary history curriculum is free under a CC BY 4.0 license at moneywisdomproject.org.

Works Cited

Hume, David. “Of the Balance of Trade.” Political Discourses, R. Fleming, 1752.

Keynes, John Maynard. A Tract on Monetary Reform. Macmillan, 1923.

Keynes, John Maynard. The Economic Consequences of Mr. Churchill. Hogarth Press, 1925.

Newton, Isaac. Report to the Lords Commissioners of the Treasury, 21 Sept. 1717. Reprinted in Select Tracts and Documents Illustrative of English Monetary History, edited by W. A. Shaw, Wilsons and Milne, 1896.

Nixon, Richard. “Address to the Nation Outlining a New Economic Policy: The Challenge of Peace.” 15 Aug. 1971.

Roosevelt, Franklin D. Executive Order 6102, Requiring Gold Coin, Gold Bullion and Gold Certificates to Be Delivered to the Government. 5 Apr. 1933.