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Gold Standard - How the U.S. Government Created the Dollar

Currencies / US Dollar May 16, 2014 - 05:11 AM GMT



By Robert Prechter

The Government's Disastrous Reign Over U.S. Money

Very few people know that the United States did not create a monetary unit pegged to 'buy' some amount of metal, as if the dollar were some kind of money independent of metal. In 1792, Congress passed the U.S. Coinage Act, which defined a dollar as a coin containing 337.25 grains of silver and 44.75 grains of alloy. Congress did not say a dollar was worth that amount of metal; it was that amount of metal. A dollar, then was a unit of weight, like a gram, ounce or pound. Since the alloy portion of the coin was nearly worthless, a dollar was essentially defined as 1 Troy ounce.) In a nutshell, a dollar was equal to a bit more than 3/4 of an announce of silver; or, in reverse, an ounce of silver was equal to $1.293.

The same act declared that a new coin, called an Eagle, would consist of 247.5 grains of gold and 22.5 grains of alloy. It valued this coin by law at tend dollars, meaning 3712.5 grains of silver. In other words, Congress, rather than allowing gold and silver to trade freely against each other, equates the value of a certain amount of gold to the value of a certain amount of silver. Briefly, it established an official value for gold so that 247.5 grains of gold - 3712.5 grains of silver. This is an exchange ratio of 15:1. A dollar was 0.7734 ounces of silver, and Congress was declaring that a dollar would buy 0.0515625 ounces of gold, so gold was valued at $19.39/oz.

This stupid attempt at creating an artificial parity drove gold coins out of circulation, because the market had determined than an ounce of gold was in fact more than 15 ounces of silver. Still trying to establish a workable parity, Congress in 1834 passed another coinage act, changing the value of a ten dollar gold piece from 247.5 to 232 grains of gold (plus 26 grains of alloy), thereby tweaking the gold/silver ratio closer to 16:1. Now gold was pegged to 23.2 grains per dollar, which is equal to 0.04833 ounces, so gold was now valued at $20.69 per ounce.

This was no fix, because after gold was discovered in California the market quickly valued silver higher than gold, thus driving silver out of circulation. Neither Congress nor, as we will soon see, the Fed, can repeal the laws of economics and succeed at forcing a particular value on anything.

The coinage act of 1837 tweaked the purity ratio of gold and silver U.S. coins, making it 90%. This chang edged the gold content of an Eagle to 343.2 grains, meaning that one dollar would buy 23.33 grains of gold, so gold was now valued at $20.67 per ounce. A dollar, however, was still 0.7734 oz. of pure silver.

The silver standard ended in 1873, when a new Coinage Act scrapped the definition of a dollar as a certain weight of solver and adopted a new standard based on the eight of gold, maintaining the formula of $1= 1/20.67 ounce of gold. The Gold Standard Act of 1900 declared that gold would remain the only standard for valuing a dollar and confirm that a dollar was 1/20.67 ounces of gold.

In 1913, Congress passed the Federal Reserve Act. This act gave a new banking corporation the monopoly power to....

This was only a small portion of Prechter's full 10 page report that you can access for FREE that includes additional sections such as -

  1. Who is perpetrating the theft of your money
  2. How they are doing it so you barely notice
  3. Why it matters to you and your portfolio right now
  4. How a market professional who's been around the block a few times expects it to play out in the immediate future -- so that you can protect yourself and even prosper now, as well as when the government's secret strategy inevitably crumbles and comes to light

You can get the whole story when you download Prechter's full 10-page FREE report here.

As you know, threats are much less dangerous when you can prepare for them in advance. This report will help you prepare.

About the Publisher, Elliott Wave International
Founded in 1979 by Robert R. Prechter Jr., Elliott Wave International (EWI) is the world's largest market forecasting firm. Its staff of full-time analysts provides 24-hour-a-day market analysis to institutional and private investors around the world.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

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