Why America Went To and Left the Gold Standards First we should know what the gold standard was. The gold standard use to be a monetary system where a country's currency especially paper monies value was directly linked to gold. With this being the standard, countries using this standard agreed to convert their paper money into a set amount of gold. So when a country uses the gold standard they set a fixed price on their gold and they buy and sell their gold at that fixed price. That fixed price is used to determine the value of the currency. A good example would be, if you set the price of gold at $300 an ounce, the value of the dollar would be 1/300th of an ounce of gold. So what committed America to adapt this standard? The gold standard …show more content…
DID The U.K. had to make a decision and they made it quite different than the French did. Here, instead of doubling the price of gold, they cut their money supply in half. This took them back to the pre-World War I levels. That was a decision made solely by Winston Churchill who was still in charge of England at that time. However, by doubling the money supply, you have to recognize that you’ve trashed your countries currency. Here Churchill felt that he was duty-bound to live up to the old value. This also threw the U.K. into a depression three years ahead of the rest of the world. While the rest of the world ran into the depression in 1929,What all the articles and books say is that they should have gone back to gold at a much higher price measured in sterling would have set the country on the right course. Thus choosing the wrong price was probably the greatest contributor to the great depression. Even today economists argue “We could never have a gold standard. Don’t you know that the gold standard caused the great depression?” Well, they are wrong. It was a contributor to the great depression, but it was not because of gold, it was because of the price. Churchill picked the wrong price and that was deflationary. And they continued down that path until, finally, it was unbearable for the U.K., and they devalued in