ABA Banking Journal
No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
SUBSCRIBE
ABA Banking Journal
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive
No Result
View All Result
No Result
View All Result
ADVERTISEMENT
Home ABA Banking Journal

How Pierpont Morgan Saved the Gold Standard

March 13, 2020
Reading Time: 3 mins read
How Pierpont Morgan Saved the Gold Standard

J. Pierpont Morgan photographed by Arnold Genthe (Library of Congress).

By John Steele Gordon

Debtors like inflation—they can pay their debts in cheaper dollars. Creditors, for precisely the same reason, do not. After the Civil War, the prosperous Northeast and Upper Midwest wanted a return to the gold standard, which requires the government to buy or sell unlimited quantities of gold for its currency at a fixed price, effectively preventing inflation. But the impoverished South and developing West wanted the free coinage of silver, which would increase the money supply, a sure recipe for inflation. Congress tried to accommodate both sides, with predictable results.

The country returned to the gold standard on Jan. 1, 1879, and Congress required that the Treasury keep $100 million in gold on hand to meet any demand to redeem dollars. But it also passed the Bland-Allison Act, which required the Treasury to buy between $2 and $4 million in silver on the open market every month and coin it at the ratio of 16-to-1. In other words, Congress fixed the price of silver at 1/16th the price of gold.

That was approximately the free market price of silver when the act passed. But as the great silver strikes in the West such as the Comstock Lode came into production, the price of silver began to drop.

In the prosperous 1880s, the government ran very large surpluses, and this masked the schizophrenic monetary policy. In 1890 Congress made things worse by passing the Sherman Silver Act , which required the government to buy $4.5 million ounces of silver a month and coin it at 16-to-1, even though the price of silver at that point was about 20-to-1. Gresham’s Law inevitably kicked in and people began to spend the silver and hoard the gold, which trickled out of the Treasury.

With the crash of 1893, the trickle became a flood, although Congress repealed the Sherman Silver Act. President Grover Cleveland was a strong supporter of the gold standard, but his fellow Democrats in Congress were strongly in favor of the free coinage of silver. When the Treasury gold supply dropped below $100 million, Congress authorized a bond issue to replenish it. But when it again dipped below the required level, they refused another bond issue. It looked like the United States would be forced off the gold standard at any moment.

J.P. Morgan, the country’s leading banker, hurried to Washington to find a solution. But at first Cleveland refused to see him, fearing the political reaction if he was perceived as kowtowing to Wall Street.

But the next morning, with the Treasury nearly out of gold, he had no choice. “Have you anything to suggest?” the president asked the banker. Indeed he did. Morgan said that a new bond issue, even if Congress allowed it, would not work, as the gold would just flow out again.

But his lawyers had noticed an obscure Civil War-era law allowing bonds to be issued without congressional authorization to buy coin. Morgan said he, along with August Belmont Jr., who headed the Rothschilds’ American interests, would use the bonds to buy gold in Europe. And even more importantly, they would guarantee—using sophisticated foreign exchange techniques—that the gold would stay in the Treasury. It was a breathtaking display of self-confidence.

But Morgan was as good as his word. Within a couple of months the Treasury had $107.5 million in gold on hand. With the economy by then recovering, the gold standard was safe.

The next year, William Jennings Bryan won the Democratic nomination for president with his anti-gold standard “Cross of Gold” speech. He lost badly to William McKinley, and the gold standard remained secure until the depths of the Great Depression nearly four decades later.

ADVERTISEMENT
Tags: From the VaultHistory
ShareTweetPin

Author

John Steele Gordon

John Steele Gordon

John Steele Gordon, the ABA Banking Journal's "From the Vault" columnist, is an acclaimed economic historian. His books include An Empire of Wealth, Hamilton’s Blessing and The Great Game.

Related Posts

New York Fed: Consumer inflation expectations mostly hold steady

New York Fed: Inflation expectations largely unchanged

Economy
July 8, 2025

Consumer inflation expectations in June ticked down at the short-term horizon but remained flat at the medium- and longer-term horizons, according to the most recent Survey of Consumer Expectations.

Poll: Small business owners optimistic about the future

NFIB Small Business Optimism Index edged down in June

Economy
July 8, 2025

The Small Business Optimism Index declined by 0.2 of a point in June to 98.6, slightly above the 51-year average of 98. Of the 10 Optimism Index components, four increased, four decreased, and two remained unchanged.

The ever-expanding role of chief risk officer

The ever-expanding role of chief risk officer

Human Resources
July 7, 2025

'A new era has emerged in which CROs faced greater nonfinancial risk amid pressure to boost the bottom line.'

Factory orders increased in May

Economy
July 3, 2025

New orders for manufactured goods in May, up five of the last six months, increased $48.5 billion or 8.2% to $642.0 billion, the U.S. Census Bureau reported today. This followed a 3.9% April decrease. New orders for manufactured...

International trade deficit increased in May

Economy
July 3, 2025

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis announced today that the goods and services deficit was $71.5 billion in May, up $11.3 billion from $60.3 billion in April, revised. The May increase in the...

ISM: Service sector expanded in June

Economy
July 3, 2025

Economic activity in the services sector grew in June after contracting for just one month. The Institute for Supply Management Services Index indicated expansion at 50.8%, above the 50% breakeven point for the 11th time in the last...

NEWSBYTES

Business First to buy Progressive Bancorp in Louisiana

July 8, 2025

New York Fed: Inflation expectations largely unchanged

July 8, 2025

FFIEC publishes 2024 data on mortgage lending

July 8, 2025

SPONSORED CONTENT

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

Navigating Disruption in Ag Lending – Why Tariffs Are Just the Tip of the Iceberg

July 1, 2025
AI Compliance and Regulation: What Financial Institutions Need to Know

Unlocking Deposit Growth: How Financial Institutions Can Activate Data for Precision Cross-Sell

June 1, 2025
Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

Choosing the Right Account Opening Platform: 10 Key Considerations for Long-Term Success

April 25, 2025
Outsourcing: Getting to Go/No-Go

Outsourcing: Getting to Go/No-Go

April 5, 2025

PODCASTS

Podcast: Inside ABA’s new Treasury Check Verification System API

June 25, 2025

Podcast: Staying close to clients amid tariff-driven volatility

June 18, 2025

Podcast: Old National’s Jim Ryan on the things that really matter

June 12, 2025
ADVERTISEMENT

American Bankers Association
1333 New Hampshire Ave NW
Washington, DC 20036
1-800-BANKERS (800-226-5377)
www.aba.com
About ABA
Privacy Policy
Contact ABA

ABA Banking Journal
About ABA Banking Journal
Media Kit
Advertising
Subscribe

© 2025 American Bankers Association. All rights reserved.

No Result
View All Result
  • Topics
    • Ag Banking
    • Commercial Lending
    • Community Banking
    • Compliance and Risk
    • Cybersecurity
    • Economy
    • Human Resources
    • Insurance
    • Legal
    • Mortgage
    • Mutual Funds
    • Payments
    • Policy
    • Retail and Marketing
    • Tax and Accounting
    • Technology
    • Wealth Management
  • Newsbytes
  • Podcasts
  • Magazine
    • Subscribe
    • Advertise
    • Magazine Archive
    • Newsletter Archive
    • Podcast Archive
    • Sponsored Content Archive

© 2025 American Bankers Association. All rights reserved.