Thus did the rooster move to the Nugget in May 1958, to much public acclaim. But before the year was over, the Secret Service contacted Graves and informed him that his rooster violated the 1934 Gold Reserve Act. They demanded a same-day meeting in the US Attorney’s office and suggested that Graves bring an attorney. Graves chose Paul Laxalt, an up-and-coming lawyer whose parents had been born in the French Basque country, and who married the daughter of a prominent Carson City lawyer and Republican activist. Laxalt’s own political career had already begun to take shape; four years earlier, he’d been elected district attorney of the county surrounding Carson City, and by the time the rooster saga was complete, was well on his way to being elected Nevada’s lieutenant governor. From early days, Laxalt’s political identity reflected the western states’ infatuation with gold. One of his campaign television spots featured a miner panning for gold at the side of a river; he turned to the camera to show the phrase “Laxalt for Lt. Governor” shimmering at the bottom of his pan.30
Laxalt and Graves explained to the Treasury officials that Shreve & Co. had obtained permission to make the rooster and considered the matter closed. But eighteen months later, in July 1960, the US government, which at the time was tussling with Nevada’s gaming industry as well as watching the outflow of gold, let its disapproval be known. The Treasury Department filed a complaint in federal court in Carson City, entitled United States of America v. One Solid Gold Object in Form of a Rooster. They issued a warrant for the rooster’s arrest, and that was when the US marshals arrived at the Nugget. The rooster was confiscated and transferred to a federal bank vault in California. Laxalt swiftly applied for bail for the statue, but was denied; the rooster had to stay incarcerated until trial. Graves, never one to miss a publicity opportunity, placed a bronze replica of the rooster in the case outside the restaurant—dressed in prison stripes.
The golden bird stayed locked up for nearly two years, until his trial by jury began in March 1962. If the government prevailed, the rooster would pay the ultimate price: he would be melted down and stored with the rest of the federal government’s gold reserves. Much of the trial testimony focused on the question of whether or not the Golden Rooster qualified as a work of art, not usually considered an area of Treasury’s expertise. Technically the government conceded that it was art, but maintained that because it was being used for advertising purposes, the rooster was primarily an instrument of commerce. Art critics from Denver and New York were flown into Carson City to meditate on the nature of statuary, and whether emphasizing the gold content of a statue enhanced or detracted from its customary, artistic value. During the trial one critic deemed the bird “exquisite,” while the government’s attorney, Thomas Wilson, got into an argument with the judge about whether it was more common for statues to be solid or hollow.31
Wilson also contended that the metal bird was a threat to the American economy, and even to law and order. He told the jury that Graves’s end run around the federal government’s explicit rejection of his initial sculpture plan “makes a mockery of both the law and the country’s attempt to control the gold problem and preserve our monetary basis.” Lest the jury doubt the severity of the Golden Rooster precedent, Wilson spelled it out in his closing argument, using some foreboding (and, at this stage in the trial, hard-to-verify) mathematics. “Our gold reserves have to be 25% of the amount of money outstanding if our money is going to have any stability at all,” he warned. “If one out of 180 people is entitled to make a gold object like that, it brings the gold down below the 25% requirement—and the result of that is economic chaos.”
Ignoring the unlikely scenario of a million golden roosters glimmering across America, Laxalt framed the tale of the Golden Rooster as a retelling of David and Goliath, with the role of Goliath played by a large and bumbling federal government. Yes, the rooster was a work of art created at considerable expense, but he maintained there was a “symbolic value,” which he spelled out: “It is rewarding to feel, people, that any one of us, whether we are big, small, important, unimportant, still have the right under our Constitution, under our laws, to disagree with a Government official.” He made it sound as if it was a Nevadan’s birthright to own and work with gold, and flattered the local jurors’ wisdom and ability to send a message back east. “It is refreshing to me,” Laxalt said, “to see people like Dick Graves who will say to themselves, ‘I still have rights under the Constitution, under the law a Government official can still be wrong, and I can have this problem resolved by a jury, not by some group in Washington who don’t know me or anything about me or the manner in which I live or the manner in which Nevadans live, not by them, but twelve people such as yourselves who live in our area, know the customs of the people and the people involved, and who will come up with a good decision.’ ” As if to demonstrate the unfeeling nature of the federal government, Laxalt encouraged the jury to consider the fate of the innocent statue should the jury find for his opponent: “It would be a terrible shame to see this rooster confiscated, melted down and put into the gold stocks at Fort Knox.”
Laxalt’s persuasive powers with Nevadans won the day. The jury deliberated for an afternoon and evening, came back the next day and delivered a unanimous verdict in favor of the rooster—and seven months later, Laxalt was elected Nevada’s lieutenant governor—and not long thereafter, governor, and then US senator. Laxalt’s rise represented a new era of American politicians—more conservative, more western-oriented, and with a free gold market at the top of their agenda.
CHAPTER 7
Operation Goldfinger
Presidential science and technology adviser Donald Hornig, left, with President Johnson and one of his beagles on Johnson’s ranch in Texas, in December 1964. Beginning in 1965, Hornig and allies in the Treasury Department convinced the president to back “Operation Goldfinger,” which sought to increase dramatically the nation’s gold supply by seeking the metal in unusual places. Courtesy LBJ Presidential Library, photograph by Yoichi Okamoto
IN THE SPRING OF 1965, when Treasury official Joe Barr agreed to meet with a group of western members of Congress led by Alaska’s senator Ernest Gruening, he knew just what to expect. Barr knew his way around Capitol Hill; the Indiana Democrat holds the distinction of being the first-ever member of Congress with a graduate degree in economics. Although Barr served but a single term, almost immediately after he left office in 1961, President Kennedy appointed him as the chief liaison between Congress and the Treasury, and so he spent his days buttonholing congressmen and listening to their gripes. After a stint as the head of the Federal Deposit Insurance Corporation (FDIC), Barr went right back to Treasury for the Johnson administration, again responsible for talking to the Hill.
Gruening’s home state of Alaska had not been a state for very long, but it was not shy about making demands. Very high on the group’s agenda was a plea that the federal government do something—anything—to revive America’s stagnant gold-mining industry. Worldwide demand for gold was booming, and yet US mines—once the epicenter of global gold production—were largely missing the party. Fixing the price of gold at $35 an ounce for more than a quarter century had predictably depressed the US mining industry, even as the demand for private gold shot up. The more easily obtained sources of gold had become depleted over the years, while harder-to-reach sources became more difficult to mine profitably, given the static price. Foreign competition—chiefly from Canada and South Africa—was far more intense by 1960 than it had been when Roosevelt set the price of gold. Rather than attempt to compete, many mines simply shut down. US gold production had never strongly recovered from the World War II slowdown; South Africa by this time was producing three-quarters of the world’s gold. The United States was a distant third in gold production (fourth, if consensus estimates of secret Soviet gold production were accurate).1 Gruening’s home state was faring the worst; Alaska had achieved international renown in the late nineteenth century because gold seemed to be everywhere in the state, bu
t by the mid-1960s the industry had nearly disappeared. From a peak of almost 700,000 ounces produced in 1940, Alaskan gold production plummeted some 95 percent. In 1966 the volume of gold mined in Alaska was its lowest since 1886, and the value fell to under $1 million.2 Gold-mining companies had begun to portray themselves as unique victims of an outdated government policy. Edward “Bob” Bartlett—the chief architect of Alaska’s statehood and its first senator—said in 1962: “No other industry has thus been discriminated against.”3
The industry argued that the price of gold needed to go up, or else mining should have a subsidy or a tax incentive to produce more gold; the western senators were drafting legislation for it. After all, the domestic silver industry was subsidized, and at least some gold-producing nations—notably Canada—subsidized their gold industry. To Barr, this was a nonstarter. For years, Treasury had reflexively opposed all versions of this proposal, fearing that any government policy that implied a change in the price of gold might—regardless of any salutary effects on US production—have a disastrous effect on the dollar or the government’s gold stock or both. The very discussion was one of those Capitol Hill rituals in which both sides pretend to engage debate—and both sides know that neither will budge. But Barr tried to find a small patch of common ground. While increasing the price of gold or directly subsidizing the industry were definitely off the table, Barr did allow that if there were a government-sponsored plan to aid research in the domestic gold industry, that ought not to interfere with the delicate role that gold played in the international monetary sphere.
This concession did not placate the western congressmen; if anything, it may have spurred them to attack. That August, Gruening and seventeen fellow senators—including influential Democrats such as Frank Church, Henry “Scoop” Jackson, Warren Magnuson, and George McGovern—signed a blunt letter to President Johnson accusing him of letting America’s gold industry die. Gold, they said, “is the only commodity held down to a price established 31 years ago and compelled to sell only to the imposer of this strangling restriction—the Federal government.” Badly needed reform, they added, was being blocked by Treasury’s “negative attitude.”4 This was just short of a threat that the senators would take action on gold with or without the administration’s support. Previous Congresses had considered, though not passed, legislation to aid the gold industry, but the landslide Democratic victory in 1964 had produced “supermajorities” in both houses of Congress, and the Johnson White House could not afford to alienate western-state Democrats whose votes it needed for other legislation. And thus did Barr trek back to Capitol Hill in September, with his Treasury colleague Fred Deming, to meet again with the western congressmen in an atmosphere Barr described as “more heated than usual.” Fearful of being stuck in the same place, Barr had “a stroke of inspiration and suggested that possibly the Government could assist in this area by some sort of an R&D approach in the discovery of deposits and in the extraction process.” This pleased the members of Congress, and Barr and Deming promised to report back in early 1966.
Barr and a colleague from the US Mint then went to see Johnson’s science and technology adviser Donald Hornig, one of the most accomplished American scientists ever to occupy a position of political power. Hornig had worked on the Manhattan Project, babysitting the original test bomb in a shed atop a 100-foot tower; he worked on the space program and became an expert in ocean desalination technology; and he would become president of Brown University. Responding to this Treasury inquiry about gold research, Hornig asked the Geological Survey and the Bureau of Mines for a study, and word came back that, yes, “there is indeed an opportunity to secure significant quantities of additional gold production in the United States within the $35 an ounce price limitation.” The solution seemed simple enough: deploy state-of-the-art technology to detect gold and to extract it. Barr described himself as “thunderstruck” and began drawing up potential budget numbers, along with several far-reaching policy and economic questions, many reflecting the fear that applied modern science might be too effective: “At what level of production would the price of gold collapse?”
And so began one of the strangest untold episodes in modern American history. In the mid-to-late 1960s, as gold’s role in the international monetary system was about to implode, a handful of top Johnson administration officials, a few sympathetic members of Congress, and hundreds of government-paid scientists set off on a nuclear-age alchemy quest. Perhaps inevitably for a top-secret project of the 1960s, Barr gave it the code name Operation Goldfinger. Under the aegis of the program, the government would end up looking for gold in the oddest places: seawater, meteorites, even plants. And in an era that wanted badly to believe in the peaceful use of subatomic energy, serious plans were drawn up to use nuclear explosives to extract gold deep inside the Earth, and even to use particle accelerators to try to change base metals into gold.
In a sense, Operation Goldfinger represented the logical culmination of what became in the 1960s a government obsession with not having enough gold. No president had ever been as concerned with gold and the international balance of payments as John Kennedy—to a fault, in the eyes of many of his colleagues. Especially given the more visceral geopolitical developments of the period—Fidel Castro’s revolution and the Bay of Pigs invasion, the Cuban missile crisis, early escalation of US involvement in the Vietnam War, the Berlin crisis, and the construction of the Berlin Wall—Kennedy’s deep concern with the balance-of-payments issue seemed, to many of his advisers, extreme. Kennedy constantly told people around him that the most dangerous and intractable problems the nation faced were (depending on the retelling) either Cuba or the prospect of nuclear war—and the balance of payments. Kennedy’s close adviser Theodore Sorenson wrote: “Almost to a man, Kennedy’s associates in the administration thought he was excessively concerned about the [balance-of-payments] problem.” George Ball, who was Kennedy’s undersecretary of state, called him “absolutely obsessed with the balance of payments.”5 C. Douglas Dillon, a Republican from the Eisenhower administration whom Kennedy appointed as his first treasury secretary, said Kennedy “had this almost phobia about gold.”6
When the price of gold spiked in the London market during the 1960 presidential campaign (see previous chapter), Kennedy tried in public to make light of the predicament. But he believed that the issue was fundamental to the global economic order. Less than a month after he took office, Kennedy delivered a special address on gold and the balance of payments. “This loss of gold is naturally important to us, but it also concerns the whole free world,” he told Congress. “We are the principal banker of the free world and any potential weakness in our dollar spells trouble, not only for us but also for our friends and allies who rely on the dollar to finance a substantial portion of their trade.” In a private 1962 conversation with the chairman of the Federal Reserve, Kennedy hit the point more urgently: “My God, this is the time . . . if everyone wants gold we’re all going to be ruined because there is not enough gold to go around.”7 Kennedy also seems to have been the first president to use a phrase that would be recycled thousands of times by presidential successors and contenders: he pledged that the American dollar “should be as good as gold.” Some who were close to Kennedy attribute his outsized concern for gold and the balance of payments to the influence of his father. Nonetheless, his successor quickly reached a similar view; Johnson told Senate minority leader Everett Dirksen, “The biggest problem I’ve got outside of Vietnam is balance of payments.”8
While those around him may have found Kennedy’s “obsession” to be distorted, the balance-of-payments issue was in several ways closely tied to that decade’s geopolitical tensions (and particularly, as we shall see, to the Vietnam War). Partly, that connection existed because Kennedy built his budgetary oversight in a manner that explicitly linked gold with national security spending. The Kennedy administration aimed at spreading American wealth throughout the world, partly out of a belief that America’s econ
omic interests were served by enriching its friends, and partly as a bulwark against Communist intrusion in places like Latin America and Africa. In a 1962 address, Kennedy called foreign aid “a method by which the U.S. maintains a position of influence and control around the world and sustains a good many countries which would definitely collapse or pass into the communist bloc.”9 And thus substantial sums were committed to programs like the Agency for International Development, the Alliance for Progress, and the Peace Corps.
Even assuming, however, that America had sufficient wealth to be able to send it abroad for no tangible goods in return, and that these programs were essential to maintaining a capitalist system in the face of global Communist intrusion, such aid intrinsically strained the balance-of-payments problem—the very fact of having so many dollars abroad threatened the stability of the currency, and thus of the international economic order. Kennedy hoped to have it both ways; in August 1961, he sent a “national security action memorandum” to his treasury secretary, asking to be regularly provided with “an up-to-date study of our gold position.” Responding to this concern, the following year the administration introduced a “gold budget,” in which the impact of every spending program had to be evaluated on the basis of how it affected the country’s gold supply. This program factionalized Kennedy’s cabinet by making the Treasury and Budget office seem like unwanted supervisors over State and Defense. It also had the effect of pretending that the nation’s gold stock could somehow provide an objective basis for decisions that were intrinsically political; who, after all, but the president could adjudicate whether one abstract goal (creating global military and economic security to stem Communist influence) should take precedence over another (preserving the balance of payments to prevent a dollar crisis)?
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