Era 04 · 1862 — 1914

Wartime Suspensions

Loss of purchasing power

By the treasury

Pulse cycle

4.5s

In the 19th century, wars became the standard trigger for currency debasement. The U.S. Civil War introduced paper greenbacks; the Franco-Prussian War forced France off silver; the Russo-Japanese War pushed Russia off gold. The pattern was always the same: suspend metallic convertibility at the start of the war, over-issue paper during it, then fight a losing political battle over whether to return to the old standard. The United States returned to gold in 1879 — at great political cost. Argentina, Russia, and several European countries never fully returned. By 1914 the monetary system was held together by a gold standard that everyone knew was one war away from collapse.

Events in this era

Feb 25, 1862

U.S. Legal Tender Act authorizes greenbacks

The Legal Tender Act of February 25, 1862 authorized the U.S. Treasury to issue $150 million in United States Notes — soon known as 'greenbacks' — that were legal tender for all debts public and private, except customs duties and interest on the national debt. They were not backed by gold or silver. It was the first federal fiat issuance in U.S. history, driven entirely by the fiscal demands of the Civil War. Greenbacks traded at a discount against gold — as low as 35 cents on the dollar in 1864 — and the discount became the political battleground of the next decade. The 'greenback question' dominated American politics from 1868 through 1879.

First federal fiat currency in U.S. history

Feb 12, 1873

Coinage Act demonetizes silver — 'Crime of 73'

The Coinage Act of 1873, signed on February 12, 1873, eliminated the silver dollar from the list of coins the Mint was authorized to produce — effectively demonetizing silver as a monetary metal in the United States. The change was little-noticed at the time, but became politically explosive a few years later when large silver discoveries in Nevada and Colorado drove the market price of silver down sharply. Silver producers and debt-burdened farmers united in the 'Free Silver' movement demanding remonetization at 16 to 1 against gold — a ratio that would have meant massive inflation. The issue dominated U.S. politics for the next 23 years.

Silver demonetized — politics of inflation born

Jul 9, 1896

Bryan's 'Cross of Gold' speech

William Jennings Bryan delivered his 'Cross of Gold' speech at the Democratic National Convention on July 9, 1896, arguing for the free coinage of silver at 16 to 1 against gold. The speech — 'you shall not crucify mankind upon a cross of gold' — electrified the convention and won Bryan the presidential nomination at 36 years old. Bryan lost the November election to William McKinley by a narrow margin, and the U.S. formally went to the gold standard by statute in 1900. But the speech made the case that monetary policy was inherently political — that a choice between gold and silver was also a choice between creditors and debtors, Wall Street and Main Street, and that 'sound money' was never neutral.

Inflation politics permanently entered American mainstream

Dec 23, 1913

Federal Reserve Act

President Wilson signed the Federal Reserve Act on December 23, 1913, creating the Federal Reserve System and centralizing U.S. monetary issuance for the first time since 1836. The Fed was sold politically as a tool to prevent future banking panics like the Panic of 1907, but its structural effect was to institutionalize a federal money-printer. Federal Reserve Notes replaced the mix of greenbacks, silver certificates, and gold certificates that had circulated for 50 years. The new central bank was theoretically constrained by gold-reserve requirements (40 percent for notes, 35 percent for deposits) but those constraints would be loosened repeatedly over the following decades.

Centralized U.S. monetary issuance for the first time

Aug 1914

European powers suspend gold for WWI

Within weeks of the outbreak of World War I in August 1914, Britain, France, Germany, Russia, and Austria-Hungary had all suspended domestic gold convertibility. The suspensions were explicitly temporary — 'for the duration' of the war. In practice, only Britain and the United States ever returned to the pre-war gold standard, and Britain's return in 1925 lasted only six years before collapsing in September 1931. Germany, France, and most others used the wartime suspension as cover for permanent departures from the gold standard or — in Germany's case — for outright hyperinflation. The 'temporary' suspension became permanent for most of continental Europe.

Gold-standard Europe ends forever

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