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Then came the Bretton Woods agreement mentioned in Congressman Paul’s preamble, and if you’re looking for the precise moment that an interconnected, globalized, and heavily manipulated monetary system took wings, this is it. Bretton Woods is a resort town situated in the shadows of New Hampshire’s 6,288-foot Mount Washington, which owns the dubious renown of being home to the world’s worst weather. It’s a region of breathtaking scenery, backdropped by jagged peaks that etch against the sky, like a row of teeth from the remains of some prehistoric beast that roamed the earth in a time before anyone even knew what money was. But perhaps most crucially, Bretton Woods represented the onset of the US dollar’s rise to domination as the reserve currency of the world.
The agreement, which was hammered out by 730 delegates from all 44 Allied nations in July of 1944, established a framework for financial relations between the major industrial states of the mid-20th century. It was at Bretton Woods that the International Monetary Fund (IMF) was established, and it was at Bretton Woods that each participating country was obligated to peg its currency to the US dollar; fluctuations between currencies would be limited to 1 percent of their value. This was pitched as a stabilization effort, but of course it meant that in essence the United States controlled global monetary policy. Meanwhile, it was agreed that the dollar would again be backed by gold at the prevailing rate of $35 per ounce. In effect, the agreement created an international gold standard, with the US dollar serving as a bridge between individual currencies and the shiny yellow metal.
Was Bretton Woods good or bad? That depends very much on whom you ask and what time frame you consider. There’s little question that the agreement generated a period of much-needed economic stability following the twin upheavals of the Great Depression and World War II (remember the golden rule: Shifts in monetary policy are almost always concurrent with economic crises); with individual currencies marching in lockstep, the paralyzing fear of sudden and massive currency devaluations—rampant during the Depression—was eliminated. This paved the way for sustained growth in trade and the expansion of capitalist markets.
No country benefited from this more than the United States, which suddenly held the keys to the metaphoric global lockbox. As master of the global reserve currency, the United States essentially became banker to the world. This happened at a particularly convenient time, because many of the world’s major economies were deeply in debt from war expenditures. To pay that debt, they pawned their gold reserves for dollars, which only the United States Treasury could print. As such, American bankers were able to accumulate tremendous stores of gold, which they exchanged for fiat currency that was deemed to be “good as gold,” a promise that could only be kept so long as few countries actually called its bluff.
The inevitable bluff calling began in the mid-1960s, when foreign investors began to question the solvency of the United States, which was mired in the Vietnam War and spending like G.I. Joe on leave at Barbie’s Dream House. The choice facing American political and economic leaders was stark: raise taxes or print dollars. They choose the latter. Not surprisingly, this course of action didn’t sit very well with foreign nations that held significant dollar reserves and wished for the value of those reserves to remain undiluted by inflation. French president Charles de Gaulle was the first to come knocking, looking to exchange $300 million for the gold that supposedly backed it. Before long, other nations followed suit, and the United States, fearing the worst, took stock of its gold reserves. The resulting tally was sobering. The United States of America, holder of the world’s reserve currency and caretaker of the shiny metal that supposedly backstopped the dollar’s value, owned only 22 percent of the gold necessary to cover global dollar reserves.21 Whoops.
All of which begins to explain the so-called Nixon Shock that swept through the global financial system like a summer thunderstorm in August of ’71. Unilaterally, instantaneously, and without taking part in consultation with anyone beyond his closest advisors, President Nixon severed completely the dollar-to-gold exchange; this is what Ron Paul is talking about when he speaks of “the breakdown of the Bretton Woods Agreement.” Suddenly, the United States dollar was backed by nothing more than the government’s assurance that it would be accepted as legal tender wherever and whenever one wished to exchange it.
Whether or not this has been a good thing depends, again, on one’s perspective. Certainly, eliminating the gold standard has provided monetary policy makers with a level of never-before-realized flexibility to manipulate a currency’s value though printing, without fear that anyone might choose to redeem their money for gold. But, of course, this is a double-edged sword, particularly so in an era of interconnected financial markets through which nations trade debt as if they were school kids with an endless supply of baseball cards. Sure, a country can choose to inflate its money supply, but it does so at the risk of causing interest rates on its debt to rise. In other words, if China perceives that the United States is diluting its money supply via increased printing, it will demand increased return on its investments to make up for the erosion in value of these investments over time.
The belief that the United States should revert to a gold standard has widespread, if not exactly ubiquitous, support—although these days few dare utter the phrase “gold standard.” Indeed, the movement’s term of choice is now “sound money,” a shift of vernacular that was itself a sound decision, given the marginalization of gold advocates in the latter half of the 20th century. One who reveres the metal has come to be known as a “gold bug,” and the metal itself is often called a “barbarous relic,” a nod to the monetary theorist John Maynard Keynes, who coined the term in 1924. Keynes was a pivotal figure in the Bretton Woods agreement and, according to rumor, the very reason the delegates met in New Hampshire, rather than the more logical locations of New York or Washington, DC: Keynes had a bad heart, and worried that his ticker couldn’t take the stifling heat of the city in summer (he may have been right to trust his instincts; Keynes died of a heart attack 2 years later).
Leaving policy aside, there are certain pragmatic factors that make gold (and to a lesser extent, silver) an ideal token of exchange. For starters, it’s relatively rare, a quality that imbues it with a degree of inherent desirability and all but assures that large quantities of human energy and natural resources will be expended in search of it. Second, it’s virtually impervious to the elements: Beyond a bit of discoloration, neither gold nor silver is likely to degrade via exposure, and both metals are extremely durable. A gold coin is not going to wear out, no matter how much you fondle it. Third, both metals—gold in particular—are fairly malleable, making the minting of coins, as well as the formation of less formal weighed chunks and flakes a relatively simple affair.22 And finally, as sound money advocates are keen to remind us, and as we have seen, gold and silver have enjoyed a long-standing monetary precedence.
Attempts to return gold and silver to their monetary origins have come and gone in recent decades, but none have come so close to achieving widespread circulation—and therefore, viability—as the Liberty Dollar. The Liberty Dollar was the brainchild of a voluble man named Bernard von NotHaus, co-founder of the Royal Hawaiian Mint Company and self-proclaimed “monetary architect.”
The Liberty Dollar was released on October 1, 1998, in the form of gold and silver coins and paper bills, the latter of which was described by von NotHaus as “warehouse receipts.” The idea was markedly similar to the original gold standard backing United States Notes: Every bill represented an actual portion of gold or silver, held for the bearer in Coeur d’Alene, Idaho, at Sunshine Minting, which produced the Liberty Dollar coinage as well as blank coins for the US Mint. One could, both in theory and in practice, redeem Liberty Dollar bills for actual gold or silver.
It was an auspicious time to launch a sound money currency; on the day the Liberty Dollar was released, the national debt stood at $5,540,570,493,226.32 (let’s dispense with all those bothersome commas and just call
it $5.5 trillion, shall we?), reflecting a steady rise from about $2 billion at the turn of the century. In other words, over the preceding 98 years, the national debt had grown at a rate of about $56 billion annually. Alarming, perhaps, if one paused to think about it, but slow enough that few did. But over the next decade, the rate of growth would pick up just a bit, to approximately $500 billion a year; the current rate of growth is over $1 trillion annually. Both the rapidly escalating pace and alarming total of America’s debt was becoming harder to ignore.
Ron Helwig was one of those paying attention. Helwig’s interest in monetary policy was fomented just as the Liberty Dollar was gaining steam, when he was presented with a $5 silver Liberty medallion as a door prize for being the first person to show up at meeting for an objectivist group.23 That small medallion of silver had a lasting impact on Helwig. “I moved to New Hampshire in 2005, and by 2007 I felt settled enough to say, ‘Okay, it’s time to get serious about the Liberty Dollar,’ ” he told me. Helwig had moved to the Granite State as part of a political migration known as the Free State Project, which seeks to populate New Hampshire with 20,000 freedom-loving libertarians.24 When I stopped in at Helwig’s nondescript apartment in January 2012, the organization was closing in on 1,000 members, only 19,000 short of its goal. At number 103, Helwig had been among the migration’s first wave, and this fact seemed to please him.
Helwig saw the Liberty Dollar as an opportunity to rally around a sound currency, and also thought it might free him from the rut of what he calls “debateatariansim,” a term he coined to describe the libertarian tendency to spend more time debating, and less time doing. So he arranged a meeting for fellow Liberty Dollar supporters, to discuss how they might best promote the currency.
To put it mildly, his timing stunk. Two days before Helwig’s scheduled meeting, the FBI and Secret Service raided Liberty Dollar offices. At the time, there was somewhere in the range of $75 million worth of Liberty Dollars in circulation. The agents seized gold, silver, and platinum, as well as nearly 2 tons of “Ron Paul Dollars.” They took computers and files, and froze all Liberty Dollar bank accounts. Von NotHaus’s Web site was taken down, and he was ultimately charged with counterfeiting and fraud. The US attorney handling the case called the minting and distribution of the Liberty Dollar “a unique form of domestic terrorism.” The US attorney said: “While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.” As of this writing, von NotHaus was awaiting sentencing, which could eventually include enough years to see him through the remainder of his natural life (he’s nearly 70).
Despite the abrupt shift in the Liberty Dollar’s fortunes, Helwig’s meeting went ahead as planned. “It was sort of like ‘Okay, what do we do now?’ The consensus was that we want to be minting our own rounds.” But what about the raid and subsequent arrest of von NotHaus? Hadn’t that given pause to the notion of creating a currency? Not so, Helwig assured me, for he had recognized a key flaw in the Liberty Dollar model—the centralization of its operations and precious metal reserves. “I recognized the need to decentralize. It’s like dealing drugs; you spread everything out so they can never fully stop you.”25
To answer his question of what to do now, Helwig launched a currency he calls “Shire Silver,” which consists of gold or silver strips he cuts from jeweler’s stock. Each length of metal corresponds to a specific weight, as displayed by a small, electronic scale boasting one-hundreth-of-a-gram accuracy. Once he has achieved the proper weight (Helwig finds it helpful to use a precut length of drinking straw as a guide, although the weights he’s dealing with are so minute—as little as one-twentieth of a gram—that even a slight bend in the wire can throw off his accuracy), Helwig sandwiches the gossamer strip of metal between two credit-card-sized pieces of plastic and runs the sandwich through a lamination machine.
I sat with Helwig for a couple of hours as he talked about and made money, his hands moving between coils of silver and gold, a pair of scissors, a digital scale, and the laminator. Outside, the sun shone brightly, but the window blinds were drawn, and Helwig possesses the milky pallor of one who spends the majority of his waking hours indoors. His thinning hair was cut short and emerged from his scalp in the spiked manner of a porcupine. He is heavyset and currently unemployed; he is a single father to a 20-month-old son, and he hopes soon to be making a livable income from Shire Silver. If it struck Helwig as ironic or simply dispiriting that he was depending on the success of his sound money currency to create an income denominated in Federal Reserve Notes, he didn’t mention it.
To understand Helwig’s sound money quest, and von NotHaus’s before him, it’s crucial to understand that the right to issue private currency is protected by the US Constitution, so long as one does not claim it to be “legal tender” and so long as one abides by the Constitution’s directive: “Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both.” In other words, if you’re going to issue a private currency, you’d better be damn sure it’s not mistaken for Federal Reserve Notes, or you’re likely to wind up in the hoosegow. Still, an estimated 8,000 currencies have been issued in our nation’s history, although most of these failed to gain much traction.
Helwig endured 2 years of trial and error determining how best to mint his own coinage. A log splitter was employed because of the tremendous hydraulic pressure it was capable of exerting, but the process was found to be “very slow and cumbersome.” Ditto a hydraulic car jack. And the dies used to mold the metal into shape were themselves a problem: A die set might last for only 100,000 pressings and would cost upwards of $2,000. This was simply too much overhead for a fledgling currency to absorb. Besides, the upfront cost would impede efforts to decentralize production per Helwig’s drug-dealing analogy, and this violated a key tenet.
Eventually, Helwig settled on the laminate idea, which met all of his requirements for the minting of a metals-backed currency. The lamination equipment was fairly portable and, because it was cheap (minus the computer, the whole setup cost less than $500), it encouraged replication. Best yet, he could “print” small quantities of minor denominations quickly and cost effectively.
Helwig’s decision to tinker in the monetary realm is rooted in his having mildly antisocial tendencies. Fairly early on along his libertarian path, he identified two national systems he felt needed reform: money and education. But the latter, he realized, would necessitate human interaction on a scale he found somewhat discomfiting. “Education system fixes require you to be going out and talking to people,” he told me. “I’m not really a social person.” I glanced toward the window and the feeble light attempting to infiltrate the room. “My dream in college was to get a job working on a computer in a back corner where no one would bother me.”
At the time of my visit, approximately 18 months had passed since the launch of Shire Silver, which had occurred at the 2010 PorcFest, an annual Free State Project gathering that, to the largest extent possible, exists outside the purview of the federal government. Trade in metals is encouraged, and moonshine and marijuana are widely available. In those 18 months, Helwig had distributed more than $30,000 worth of Shire Silver, not including the two cards he gave me in exchange for $5. One card contained a half-gram of silver; the other, one-twentieth of a gram of gold.
For a moment, I studied the pair of cards, which had just come out of the laminator and were still warm. Maybe it was merely the effect of the plastic, but both metals looked disappointingly dull and laughably inconsequential; the length of gold was no more substantial than a strand of hair. This was unsettling enough, but furthermore, I realized I had no way
to validate its authenticity. I mean, I trusted Helwig; I did not for a second believe he was trying to rip me off. But what if he had been ripped off? And then I wondered: What if I couldn’t find anyone to accept the cards as payment? What if they just sat in my wallet, looking for an opportunity to be spent? Could they really be counted as money? Because no matter how “real” or “sound” Helwig’s currency was, if it couldn’t be spent, it held little value to me. Thank goodness I hadn’t sprung for the half-gram gold card, which would have cost me a full 40 bucks.
It wasn’t long before I stumbled on the ultimate irony. Sound money advocates tend to wax poetic about the ability of precious metals to act as a “store of value” and about how a metals-backed currency would stem the erosion of the US dollar. They point to charts that show the dollar losing more than 90 percent of its value over the past 100 years, while the value of gold and silver has remained steady and, in recent years, spiked. But of course, the value they speak of is measured in dollars, and metals merchants are only too happy to exchange their product for Federal Reserve Notes at the prevailing rate, as Helwig had just demonstrated.
And so a strange thought occurred to me, one which I did not share with Helwig, if only because it is so heretical to the belief system of sound money advocates, that I feared his reaction: What if it is exactly the opposite? What if it is actually the US dollar, with all its fiat-based, inflationary temptation, that gives value to the metals? Because without this means of exchange, the metals and metal-based currencies like Shire Silver exist in something of a vacuum. I’d traded a small handful of Federal Reserve Notes for the nearly microscopic holding of gold and silver I now tucked into my wallet, but until I could find someone to take them off my hands, either for a good or service, or in exchange for their currency, they were worthless to me. There was no more intrinsic value to the metals than there was to the $46 in cash I’d carried with me to Manchester, New Hampshire. I reflected for a minute on my newly acquired Shire Silver dollars. I couldn’t eat them, I couldn’t wear them, and I couldn’t burn them for warmth. I could only hope that someone else would recognize their value, and exchange them for the essentials of human survival.