Gold

In the history of mankind there probably has not been a more valuable form of currency than gold. Gold is a rare precious metal that shines, is soft, and is very heavy. Its malleability makes it easy to mold and break, but difficult to carry in bulk. The words "expenditure," "pound," and "spend" all are derived from the Latin "expendere," which means "to weigh."

Aside from being pretty and easily molded, gold has intrinsic value because of its scarcity. Looking back over the history of the United States, there have been "gold rushes" when the metal was found in North Carolina, California, and Alaska. For much of the history of the United States, the value of paper currency and coins has been linked to the value of gold. To encourage the use of paper currency, there was a period when the private ownership of gold was illegal, even though Fort Knox in Tennessee is famous for store housing vast resources of gold that served as a guarantee that paper money was backed by something of value.

Gold Standard

This "gold standard" has not been limited to the United States. In England following the Napoleonic Wars, in 1816 amid worries about inflation, Bank of England notes were moved to a gold standard from silver to ensure its value. The very name "pound," refers to the fact that the currency was worth a pound of silver, and the move shifted its basis from one precious metal to another. Spain during the period was famous for its "pieces of eight," gold coins that could be broken into eight pieces when "making change."

Although most countries withdrew from the gold standard during and after the period of World War I, the United States did not. Following World War II, the dollar replaced the "pound sterling" of England as the international standard against which all currencies were judged.

Free Market

In the United States, the price of gold was fixed at $26 an ounce and private ownership of gold was officially prohibited. Increased international inflation during the early 1970s finally prompted a break with the gold standard in 1973, and the price of gold was allowed to follow market prices and Americans were allowed to buy gold.