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The gold standard, which was formally ended in 1971, actually had a relatively brief lifespan in its classical incarnation in the United States. Until 1834, the United States was formally on a bimetallic (gold and silver) standard. In 1900 when Congress passed the Gold Standard Act, the gold standard became official. The period from 1880 to 1914 is known as the classical gold standard (Bordo 2008). The gold standard broke down during World War I as the major European powers were forced to run massive deficits to finance their wartime expenditures (Bordo 2008). After 1925, a modified gold standard, known as the Gold Exchange Standard was implemented from 1925 to 1931. Under this standard, countries could hold gold or dollars or pounds as reserves, except for the United States and the United Kingdom, which held reserves only in gold (Bordo 2008)

The Gold Exchange Standard, according to Bernanke, combined with mismanagement of monetary policy by the Federal Reserve Bank, became one of the reasons the U.S. failed to pull itself out of the economic downturn after the 1929 crash, and recession spiraled into depression. The Feds first great error was its the deliberate tightening of monetary policy that began

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