20th-century money

In October 1907, New York trust companies faced a run, and J. P. Morgan’s group organized private support because no Federal Reserve yet existed to do it. Sixty-four years later, on 15 August 1971, the United States closed the last official promise that foreign governments could still turn dollars into gold at $35 an ounce — the gold window.

Between those two dates the rules of money changed faster, and more violently, than in the centuries before. A private rescue became a central bank. A peacetime gold standard ended in a war. A German mark stopped working as money. American citizens handed in their gold. A postwar system tied the world to the dollar and the dollar to gold, then let go. Most readers still live inside what that century built.

From a private rescue to a central bank

Congress answered 1907 with emergency currency legislation in 1908 and the Federal Reserve Act in 1913. The Panic of 1907 and the Fed follows that road: a trust-banking liquidity crisis, bankers improvising a lender of last resort, and the political fight that turned the improvisation into law. The Fed came after 1907, not before it.

A year after the new bank opened, war broke the older order around it. Before 1914, major currencies were convertible into gold at fixed rates in peacetime, and gold moved between London, Paris, Berlin, and New York when the rates slipped. In the summer of 1914 the belligerents blocked gold exports and protected their notes. The end of the classical gold standard tells how that machine stopped, and why the “returns to gold” of the 1920s reused the name without rebuilding it.

Paper without a stop

Germany’s mark collapsed in 1923 under war debts, reparations, and extreme paper issue. By that autumn it no longer did the daily work of money: it bought less by the hour, and wages paid at noon were spent before supper. Weimar 1923 is that collapse, with its own causes, dates, and institutions. It was not a little inflation that got out of hand.

Ten years later the United States left gold by a different road. In 1933 it recalled private monetary gold, and it later revalued official gold from $20.67 to $35 an ounce for the government’s own accounts. The 1933 gold recall is the moment American citizens lost their monetary gold rights — nearly four decades before 1971.

Thirty-five dollars an ounce

At Bretton Woods in 1944 the Allies rebuilt a gold-exchange system. Other countries pegged to the dollar and held dollars as reserves, and those dollars were supposed to be convertible into gold at $35 an ounce for official holders. The promise held while the United States had gold to spare and the rest of the world wanted dollars more than metal. Through the 1960s the strain showed.

Bretton Woods and Nixon 1971 follows the system from its founding to the Sunday evening of 15 August 1971, when the window closed for foreign official holders.

Paper had lost trust before. John Law’s System broke in France in 1720, and the revolutionary assignats died in the 1790s. 1971 did not invent paper money. The older chapters of Sound Money History begin with coins and warehouse receipts.