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The Gold Standard of Yesteryear

Updated on October 16, 2013

Gold

The Demise of the Gold Standard

The most commonly envisioned gold standard is the bold bullion standard that allowed people to exchange dollars for real gold. While nations still hoard gold supplies, no one on earth anymore uses these supplies to back up any kind of currency.

People still search for gold in mines. Every year tons of it are taken from the earth. Gold has historical value. As currency, it was used thousands of years ago in lands we now know as belonging to the country of Turkey, and in the surrounding territories that used to be called Asia Minor in ancient times.

The use of gold coins spread across Europe. As the world became modernized, the Eastern Hemisphere nations wanted to have a gold standard for their currencies so that they could trade with the Western nations. Having gold became desirable for everyone in the world.

It was World War One that put an end to the gold standards used by many countries. Tremendous inflation resulted from the war ending. There was too much fluctuation in the world economy due to the ravages of war. When the Great Depression followed, the gold standard was abandoned for good.

Nations in the Twentieth Century didn't have enough gold to back up the currency needed to make payments on repairs of war-torn buildings and roads, reparations that Germany and others had to pay to make good repairs of damage they caused, and funding of infrastructure programs to put workers back on their feet again. But even without a gold standard, the world could not bounce back to normal after the War to End All Wars.

During the Great Depression, there was a run on the banks in many countries. People lost their life savings because there just weren't enough dollars in the vault. Nations floundered in the mire of depression, wondering whether it would be best to return to a gold standard as an anchor. But the Second World War began and, with it, chaos once again.

Leaving the gold standard helped many countries to recover more quickly from the Depression of the Thirties. Although the gold standard provided some stability of prices, holding back inflation, it helped mainly countries with productive gold mines.

Having a gold standard meant that a recession or depression couldn't be jump-started by printing more money, because of the requirement to have it backed up by gold.

Because the United States emerged from World War Two as the leading nation on earth, its dollar has become the world standard, rather than gold bullion. Prices inside nations are reflecting the dollar, not gold. The demise of gold was based more on the desire of billions of people in the world for currency than on anything else. As the standard of living of the world's billions rises, so does the desire for money. Gold cannot be found in quantities great enough to back up the money demanded by the world population. In a long-ago time when fewer people expected much from life, the gold standard worked to stabilize the lives of the very wealthy. But with the advent of the phenomenon of the middle class, the demand for dollars increased to the point where they no longer could be backed up by bullion. The average worker wanted too many things. Dollars were printed, gold was ignored, and the future, with its inevitable inflation, continued on and on.



The Vault

Fort Knox, Kentucky

Fort Knox isn't just imaginary or fictional. It's a real place, located at 75 Estrada Avenue, Fort Knox, KY 40121 (telephone (502) 624-1181). It has its own website: www.knox.army.mil. It's an Army post.

But it's also a household word meaning a cliche for visions of gold bullion bars once used to justify issuance of US dollars. The Treasury Department still operates the gold depositary building on the fort premises. Because of this, Fort Knox has developed a reputation as being an Army fort with extra security guards.

In the famous 1964 James Bond thriller film "Goldfinger," the villain planned to take gold from the depositary at Fort Knox but of course was thwarted.


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