To Henry, who reminds me that gold is very rare.
CONTENTS
Time Line of Events
Preface
Introduction
CHAPTER 1
El Dorado Comes True
CHAPTER 2
A Crash, a Clash, and a “Crime”
CHAPTER 3
The Dangers of the Yellow Brick Road
CHAPTER 4
FDR Bids Good-bye to Gold
CHAPTER 5
The Arsenal of Gold
CHAPTER 6
Out of Balance
CHAPTER 7
Operation Goldfinger
CHAPTER 8
Dueling Apocalypses
CHAPTER 9
This Time for Real
CHAPTER 10
Legal at Last
CHAPTER 11
Goldbugs in Power
CHAPTER 12
God, Gold, and Guns
Acknowledgments
Notes
Index
TIME LINE of Events
1700s
1788 US Constitution is ratified. Article I, section 10 stipulates that no state shall coin money, or “make any Thing but gold and silver Coin a Tender in Payment of Debts.”
1792 The Coinage Act creates a bimetallic, silver-gold standard in the United States. The US dollar is defined as equivalent to 24.75 grains of fine gold and 371.25 grains of fine silver, a silver-to-gold ratio of 15 to 1. Due to global market fluctuations in the gold-silver price ratio, gold is used primarily for transactions abroad, and silver primarily for domestic transactions.
1799 A twelve-year-old boy in Cabarrus County, North Carolina, discovers a 17-pound gold nugget, setting off the Carolina Gold Rush.
1800s
1804–1828 North Carolina supplies all the gold for domestic coinage from the US Mint in Philadelphia.
1812 For the first time, Treasury issues notes (not legal tender) that promise to pay gold or silver at a future date.
1816 Great Britain puts the pound sterling on a gold standard.
1834 Congress changes the silver-to-gold ratio to 16 to 1, thereby restoring gold coins to domestic use.
1848 Gold is found at Sutter’s Mill near Sacramento, ushering in the California Gold Rush.
1859 Comstock Lode of gold and silver struck in Nevada.
1862 Congress passes the Legal Tender Acts, creating for the first time paper money (“greenbacks”) that is not convertible to gold or silver. A dollar-gold market immediately emerges.
1868 Gold is discovered in South Africa.
1869 A ring of investors attempts to corner the gold market, which crashes on “Black Friday” after the US Treasury announces a sale of gold.
1873 Silver is demonetized, putting the United States on an informal gold standard.
1896 William Jennings Bryan “Cross of Gold” speech at the Democratic convention in Chicago.
1898 Gold is discovered in Klondike, Alaska, creating an Alaska Gold Rush.
1900s
1900 The Gold Standard Act formally places the United States on a gold standard.
1913 The Federal Reserve system is established, requiring that Treasury notes be backed 40 percent by gold.
1914–1919 Most countries (though not the United States) abandon a gold standard to pay for World War I.
1925 Great Britain restores a “gold bullion” standard, with money redeemable for gold but no circulating gold coins.
1931 Great Britain defaults on gold payments and abandons gold standard.
1933 United States leaves the gold standard and makes individual ownership of gold coins and bullion illegal. The Roosevelt administration begins day-to-day management of the price of gold.
1934 The Gold Reserve Act devalues the dollar and returns the United States to a gold bullion standard, setting the price of gold at $35 an ounce.
1939 War in Europe forces the London gold market to close.
1942 World War II brings about the closure of all US gold mines.
1944 The world’s major economies meet at the Bretton Woods conference in New Hampshire to create a new international monetary system, based on a dollar convertible to gold.
1954 London gold market reopens.
1960 Gold market spikes, pushing prices above $35 an ounce and indicating a US balance-of-payments crisis.
1961 Major central banks form “Gold Pool” to control private market transactions. American citizens are prohibited from owning gold abroad as well as at home.
1965 American government officials begin secret plans for “Operation Goldfinger” to dramatically increase US gold production.
1967 South Africa produces the first Krugerrand coin. UK devalues the pound sterling, causing large outflows of gold from the United States.
1968 Congress narrowly votes to lift the “gold cover” for US currency. The United States stops buying and selling gold with individuals. The world’s largest economies agree to a “two-tier” market, with one value for privately traded gold and a fixed value for transactions between central banks. The London gold market closes for two weeks.
1971 Richard Nixon “closes the gold window,” devaluing the dollar by making it no longer redeemable for gold.
1974 On December 31, it becomes legal for Americans to buy and own gold for the first time in forty years.
1975 Krugerrand becomes available for purchase in the United States.
1980 US Republican Party platform calls for a “dependable monetary standard—that is, an end to inflation,” interpreted as the first pro–gold standard party pledge in decades.
1981 US Gold Commission, chaired by Treasury Secretary Donald Regan, convenes to study gold’s role in the US monetary system.
1986 US Mint introduces American Eagle Gold Bullion Coin, minted with gold mined in the United States.
1990 After a decade of remarkable growth, the US gold industry becomes the second-largest producer in the world after South Africa.
2000s
2007 China surpasses South Africa as the world’s largest gold producer.
2012 US Republican Party platform invokes 1981 Gold Commission and proposes a similar commission to investigate possible ways to set a fixed value for the dollar. The party’s 2016 platform repeats the same pledge.
PREFACE
NO ONE TRYING TO UNDERSTAND the United States would be so careless as to avoid an examination of its money. The country that produced the wealthiest society in the world, the seat of the largest stock and bond markets, the granddaddy of the consumer society that has enveloped much of the planet—at home and abroad, America is synonymous with its dollar and the unabashed pursuit of it.
As powerful and ubiquitous as the dollar may be, however, America’s relationship to its own currency has throughout its history been uneasy, rocky, and divisive nearly to the point of insurrection. What is the dollar worth, according to whom, and how should that value be measured? These seemingly fundamental questions have never been settled to universal satisfaction even through four centuries of American financial history. From the very origins of the nation in eighteenth-century political fervor to the twenty-first century’s presidential debates, we continue to argue about the dollar with the often implicit understanding that far more than a piece of paper is at stake. The question of American money is wrapped up in patriotism, in the nation’s self-worth, and in America’s standing in the world, a standing that never feels as confident or sturdy as the imperial reach of the dollar and the American military machine might imply. In modern America the dollar is a way of projecting strength into the world, and therefore many Americans insist that the dollar must stand for something besides itself; the dollar ought to guarantee an enduring promise; the dollar shoul
d be, as President John F. Kennedy first said (and many after him), as good as gold.
The idea of money “as good as gold” is simple, immediately grasped, and quintessentially human; gold coins became a standard of exchange at least as far back as 1500 BC, and the United States, like most nations, used gold and silver coins as money for much of its early commerce. Gold has many qualities that one would hope to associate with money: it is indestructible, it is rare, and it is beautiful to behold.
And yet, gold for Americans is anything but simple. From the very beginnings of our national life, it has seemed impossible for Americans to look at gold dispassionately. The metal—and its seductive hint of boundless wealth—tap into a psychological wellspring that reaches beyond any purely physical qualities. Gold brings with it a spiritual dimension, a nonrational totem that stands for strength, control, and even adoration. We seek the immutable characteristics of gold in the same way that religions posit the divine and everlasting qualities of God and an afterlife, as if gold can somehow connect us to eternity and protect us from the vagaries of actual human existence.
The problem is that monetary gold can’t do those things. Fixing our money to gold and amassing great stacks of it is no more a guarantor of sustained economic health than a witch doctor’s potions. And, as with religion, what gold believers do can often resemble, in the eyes of the less devout, madness and destruction. From the earliest days of the American republic, gold blinded men from seeing the financial realities around them. And it brought with it all manner of fraud and false hope, gold by-products that are still with us today.
To slice through the hype of gold, we need to see our own history clearly. It is not enough to evoke the past, because gold mania carries its own nostalgic historical hues. Yes, gold can make Americans spectacularly wealthy, and the twentieth century’s restrictions on owning it were justly fought and overturned. Beyond that, however, lie many prejudices about gold, some debatable and some dangerous. To avoid gold’s false paths, we need to argue with the past, to test the assumptions that are too often and too casually passed uncritically. This book, I hope, is that argument.
ONE NATION
UNDER GOLD
INTRODUCTION
THERE WERE FEW OBVIOUS REASONS for cheer when James K. Polk delivered his fourth and final presidential message to Congress on December 5, 1848. Although Polk had been the youngest man to assume the American presidency, his term had taken a physical toll; he was visibly unhealthy and within a few months would die of cholera. The recently ended war with Mexico had cost thousands of lives and a then-exorbitant $100 million. Although the war with its jingoistic rallying cries had brought some benefits to an adolescent nation, it had exacerbated the tension over slavery that would soon erupt into the Civil War, with millions of Americans agreeing with Abraham Lincoln that the war had been “unnecessarily and unconstitutionally commenced.”
And yet, there was one unequivocally bright portion of Polk’s speech that united his political allies and foes in jubilation. Among the prizes won in the rusty skirmish with Mexico was California, a geographical gem with tantalizing proximity to Russia, China, and South America, a territory that Polk predicted would become “a great emporium.” Better still, Polk reminded his audience of the reports that California contained mines of precious metals. “Recent discoveries render it probable that these mines are more extensive and valuable than was anticipated,” he intoned. “The accounts of the abundance of gold in that territory are of such an extraordinary character as would scarcely command belief were they not corroborated by the authentic reports of officers in the public service who have visited the mineral district and derived the facts which they detail from personal observation.” With this speech, Polk also presented the War Department’s report and announced that a new Treasury mint would imminently open in San Francisco, to more “speedily and fully avail ourselves of the undeveloped wealth of these mines.”1
In the American nation’s sixty-odd years of existence, no presidential speech had ever created as much fervor and euphoria. The fantasies of unlimited wealth emanating from the ground that had propelled Cortez and Pizarro to conquer the New World seemed now to be realized or even surpassed. The Albany Argus said that based on the government’s accounts, “the fabled El Dorado is as nothing, compared to the gold regions of Alta California.”2 To many Americans, the passion for California’s gold not only invoked religious fervor, it surpassed it; one weekly newspaper declared, “the coming of the Messiah, or the dawn of the Millennium would not have excited anything like the interest” in Polk’s pronouncements.
Indeed, it was common in nineteenth-century America, which was on the cusp of the Third Great Awakening, to interpret world events as a reflection of divine will—and the discovery of gold confirmed for many that God had tremendous plans for the United States. “Our country seems destined, in the coming age, to be the new historical centre of the earth,” wrote The American Review, a monthly magazine associated with Edgar Allan Poe and the Whig Party (Polk’s rivals, who took over the White House in 1849). “God intends to give here, on this continent, a scope for human energies of thought and will, such as never yet been seen since the days before the flood . . . in overcoming and annihilating the old limitations of human endeavor; in unfolding the physical resources of the earth; in the creation of boundless wealth and a boundless sphere for action and enjoyment.”3 It was as if gold had reversed the curse of Eden, restoring mankind to a state of laborless wealth, at least in the United States.
Not everyone, however, viewed California’s gold in a positive light. References to gold “mania” and gold “disease” were common, and pulpits across America warned about excess, idolatry, and a loss of traditional values. The reality on the ground seemed to bear out their concerns, as California fast became a magnet for outcasts, charlatans, fugitives, and desperation. Two historians concluded, “The gold rush was the product of a kind of mass hysteria, and it set a tone for California and created a state of mind in which greed predominated and disorder and violence were all too frequent.”4
But for better and worse, the California Gold Rush made clear that America’s so-called manifest destiny was now intertwined with the precious yellow metal that has entranced mankind throughout human civilization. Gold did not, of course, spring up genie-like in the nineteenth century but had already been enshrined in the US Constitution. Article I, section 10 says that no state shall “make any Thing but gold and silver Coin a Tender in Payment of Debts,” although the meaning of that simple-seeming assertion, as this book demonstrates, has been hotly contested through the centuries. Gold has been at the center of American political debate as far back as the Constitutional Convention and right through to the most recent presidential campaigns. The 2012 and 2016 Republican platforms, for example, mentioned “a metallic basis for U.S. currency” and anachronistically proposed a commission “to investigate possible ways to set a fixed value for the dollar.” In 2016, Donald Trump became the first major-party nominee in more than half a century to advocate a return to a gold standard. “Bringing back the gold standard would be very hard to do, but, boy, would it be wonderful,” Trump said. “We’d have a standard on which to base our money.” Decades after the major economies of the world moved to a floating currency, there is no other developed nation in the world in which a major political party proposes returning the country’s currency to a gold standard.5
Obviously, part of gold’s appeal is universal, and not exclusively American. Gold ties us to ancient civilizations and religions, and it connects us to countless cultural guideposts, from the Bible to Shakespeare to Kanye West. Gold is suffused in our language and our lives: our best athletes win gold medals; our best-selling musical recordings are (these days, only metaphorically) cast in gold; we speak of anything best in its class as a “gold standard.” Our everyday references—from Oz’s yellow brick road to the gold-toothed “grills” favored by hip-hop stars—are forged in the yellow metal. Even if we could
overnight strip the role of gold from the international monetary system—a goal of many an economist and late twentieth-century American policymaker—our language and our need to think in symbols of perfection and indelibility would still be suffused with gold.
And yet for Americans, gold’s appeal is more specific, more grounded in the national experience. Gold carries for Americans a sense of national pride and birthright. Gold mining on the American continent goes back at least as far as four thousand years, and from the very first encounters with European explorers and conquistadors the metal was the object of fascination and desire. When Christopher Columbus landed in the Bahamas in 1492, he noticed that the inhabitants wore small pieces of gold in pierced nose holes, and his early communication with them was an attempt to discover where he might find a greater supply.6 This finding seemed natural enough, since he had set out to find a route to gold-rich Asia, and his discoveries encouraged a wave of Spanish and Portuguese expeditions in the early sixteenth century in search of gold and other riches. Ponce de Leon, for example, reported finding a cache of gold in Florida in 1513.
Not long after the United States became an independent nation, in 1799, gold was discovered by accident. A twelve-year-old boy in Cabarrus County, North Carolina, was shooting fish with a bow and arrow on a Sunday afternoon when he found an unusually marbled 16-pound rock “the size of a small smoothing iron” and took it home to use as a doorstop in his family’s farmhouse. Three years later, a Fayetteville jeweler identified the rock as gold, and mining began in North Carolina. Soon thereafter gold was unearthed in Georgia, and a genuine gold rush set in. Tens of thousands of men worked the mines, and tens of millions of dollars’ worth of gold were mined and refined in the early nineteenth century in this region; prior to 1829, all the gold mined in the United States and coined in the Philadelphia Mint came from North Carolina.7 The Carolina Gold Rush foreshadowed the “Gold Fever” that would spread over California and other western states beginning in the late 1840s.
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