After leading the Union Army as commanding General during the Civil War, Ulysses S. Grant was elected as the 18th President of the United States. It was the summer of 1869 and President Grant was focused on improving the U.S. economy through a reduction in the supply of greenbacks. Grant did this by using government gold to buy dollars from citizens, in turn creating a currency tied to the price of gold—the underlying premise behind “the gold standard.”
Around this same time, businessmen Jay Gould and Jim Fisk would soon earn the reputation as two of Wall Street’s biggest scoundrels. The two men hatched a plan to get close to Grant through his sister, who they befriended through a mutual acquaintance. The plan was to “corner” the gold market. They would buy large amounts of gold while at the same time convincing Grant to stop selling government gold in turn increasing both the demand and value of the yellow metal and making themselves rich in the process.
The plan seemed to be working. The two schemers bought up as much gold as they could and offered Assistant Treasurer, General Daniel Butterfield, a piece of the pie to tip them off should Grant decide at any point to sell government gold – in which case they would unload their stash prior to the sales. Not long thereafter, after much persuasion, Grant went public with his decision to stop selling government gold.
Gould and Fisk continued to increase their stake in the commodity, and the price quickly climbed. Over time, rumor spread about a sneaky group of speculators who were trying to drive up the price of gold, and as a result others joined in for the ride, expecting the price to continue higher. It was about this time that Grant caught wind of the scheme. Needless to say, he was both embarrassed and irate. As a result, Grant secretly ordered his Treasury Secretary to sell a whopping $4 million in gold the following day, in turn flooding the market in hopes of driving the price down.
The news of Grants decision sent Wall Street into chaos and within minutes the price of gold fell from $160 to $133 an ounce. Grant did not realize the implications would in turn affect the stock market. Panic selling ensued, as stocks dropped 20% over the course of a week. The crash caused many of Wall Street’s most venerable firms to declare bankruptcy.
Gould and Fisk somehow escaped prosecution. Gould would go on to control the Union Pacific Railway, but Fisk wasn’t so lucky, as he was shot to death in 1872 after a dispute over a girl. While Grant was exonerated of any illicit involvement in the conspiracy, many historians say that Grant’s image from that point on was tarnished. Hollywood made a movie of the ordeal, and while The Toast of New York was not one of Cary Grant’s most famous films, the internet movie database gives it a 6.4 out of 10 – perhaps a rainy-day film for those that appreciate biopics.
While some politicians seem to romanticize the notion of returning to the gold standard, the majority of economists believe that it is next to impossible. For one, not just the United States, but nearly the entire world, would have to sign on, as the interconnectedness of economies is much more pronounced than ever before.
In addition, a gold standard would severely limit the tools available for the government to offer stimulus or issue new debt. Given the fact the U.S. is over $25 trillion in the red, there is not nearly enough gold possessed by the U.S. government to back such obligations. Based on the dollars in circulation, gold would have to be re-priced at around $10,000 an ounce. So, while the gold standard may sound logical to some, the possibility of returning to the gold standard given the rate that the U.S prints dollars is unlikely.