For most of the period prior to the early 1930s, obligations of the U.S. Treasury were payable in gold or silver. This meant the whole outstanding debt of our government was subject to redemption in a medium, the quantity of which could not be altered at the will of the government as it can with today’s fiat currency.
Hence, debt issuance and budget deficits were constrained by the potential market response to an economy inflated with excess credit, which would have drained the Treasury’s gold stock. Indeed, the United States skirted on the edges of bankruptcy in 1895 when our government gold stock shrank ominously and was bailed out by a last minute gold loan, underwritten by a Wall Street syndicate.