The administration was surprised at how cooperative the jittery Europeans were, although skeptical about results. Joseph Barr, who was a few months away from becoming treasury secretary, recalled, “None of us thought the darned thing would work.”27 Two weeks later, on April Fool’s Day, the London market reopened and not surprisingly went up, if modestly. By midyear, gold was often trading at more than $40 an ounce. Those who had bought gold in the late ’50s and early ’60s, expecting some kind of gold-dollar revaluation, had finally been rewarded, although not spectacularly—at least not through 1971 or so.
But the long-term prospects for the hastily agreed-upon gold system were poor. The two-tier plan was, as historian Francis J. Gavin called it, a “fiction” and an “obvious gimmick.”28 Declaring that gold has one value in a given setting and another value in another setting is unsustainable and potentially destabilizing, because it invites speculators to take advantage of the spread between the two. Even Europe’s central bankers would be tempted to tap the value in their vaults if the private price of gold rose high enough. Moreover, the world’s largest gold producer, South Africa, had a heavy interest in maintaining gold’s role in the international monetary system. Since it had never been a member of the Gold Pool to begin with, South Africa did not feel itself bound by any rules, and the two-tier market had no force of law behind it. And so, just a few weeks into the existence of the two-tier gold market, South Africa asked to purchase about $35 million worth of British sterling in exchange for gold, and also requested to sell gold to the IMF. Inside the Treasury Department, officials recognized that there was a “loophole,” and South Africa was emerging as a major threat to the two-tier system they had created in crisis.29
The failure to shape a more coherent global monetary policy did not stem from a lack of ideas or determination within the Johnson administration. Neither was there insurmountable resistance from most other nations; if anything, the crisis mentality of late 1967 and 1968 created a shared sense of mission among the central bankers and governments whose money mattered most to the world. For all its evident flaws, the two-tier gimmick was one that most major players had an incentive to honor (France, which had incentive to violate it, had by early 1968 lost much of its influence in the international monetary market).
What Johnson could not achieve was the genuine consent of Congress, even within his own party and its historic legislative majorities. The gold-cover legislation limped past the finish line with none of the moral rallying that Roosevelt had once enjoyed. Anything more comprehensive was not even worth proposing. By 1968, the Vietnam War had so distorted the nation’s spending and politics that the range of possible financial options had narrowed to a point of near irrelevance. Before the month was out, Johnson would announce his decision not to seek reelection. He famously framed his failure for historian Doris Kearns Goodwin: “I knew from the start that if I left the woman I love—the Great Society—in order to fight that bitch of a war, then I would lose everything. All my programs. All my hopes. All my dreams.” The same could be said for any hope for a rational, understandable, and popularly supported policy toward gold and American currency. Johnson’s desperate gold strategy proved once again that when America needs to choose between its wars, its sense of foreign supremacy, economic well-being, and gold-backed currency, it’s gold that always gives way.
To the world, the two-tier gold system meant that the dollar and not gold was now the mechanism of exchange. To the American nation, it meant that for the first time since the eighteenth century, there was no established relationship between gold and the dollar. There was no fixed price between them, and the market price established daily in London would directly affect almost no one who was obeying the law. There continued to be, from the citizen’s point of view, no guaranteed conversion of gold into dollars. Even when FDR took the United States off the gold standard in the 1930s, there had remained a mandatory quantity of gold sitting in a vault propping up the dollar. With the gold cover now removed, even that abstract relationship was gone.
And for Americans and their money, the unmooring of gold from money led many to seek protection against the falling dollar. Newspaper financial pages in 1968 were filled with anxious analyses of even far-flung investment vehicles, such as autographs and art nouveau objects—which were booming thanks to the aesthetics of psychedelia—but there proved to be few foolproof methods. Investments in metal made some historical sense, but beyond an initial and relatively modest price boost in the spring, it was not immediately clear what would happen to gold—gold’s year-end closing price in both 1969 and 1970 would end up dropping more than 5 percent each year—nor how much it mattered, given that it was still illegal for Americans to own gold at home or abroad. Gold’s price response to the establishment of the two-tier gold system may have been muted by the fact that, for goldbugs, the end of gold prohibition was the shoe that didn’t drop. One gold enthusiast had reasoned that, as soon as the 25 percent gold cover was dropped, “it seemed logical that the legal prohibition to the ownership of gold by US citizens would be removed simultaneously. If our Treasury considers gold worth less than paper, it can scarcely care who owns it.”30 Yet this removal did not occur, and there is scant evidence that the Johnson administration seriously contemplated it.
Investors seeking to protect their assets were left in a kind of limbo. The metal habit retained its allure. Millions of Americans held on to or even actively hoarded the pre-1966 silver coins; with silver trading at more than $2 an ounce in 1968, the old silver dollars, half-dollars, dimes, and quarters were worth substantially more than their face value. For a time banks would take the silver at market value as collateral on loans, but that practice ceased by mid-1968. Silver hoarders were left holding a currency that couldn’t be spent at its metallic value and couldn’t legally be melted down. Not that some didn’t try: Secret Service agents arrested three men in April 1968 in an airplane hangar near Tucson, Arizona, with two tons of silver dimes and quarters and a smelter. Charges against them, however, were thrown out.
No one, including the world’s most powerful financial authorities, could say with complete confidence what this new, post–Bretton Woods world would look like. Just as the demonetization of silver in the 1870s had created anger and charges of conspiracy, the idea of currency not backed by metal set off a wave of anxious, even dire predictions. Since the earliest days of gold prohibition under FDR, there had been critics who argued that the continued devaluation of the dollar was a recipe for economic doom—and the 1968 gold crisis increased the volume and urgency of their message. The eternal paper-money doomsayer Franz Pick, for example, found new popularity following the gold crisis—in August 1969 he published a feature-length essay on gold in Playboy, a magazine not normally associated with monetary policy. But gold advocates also began to adopt new guises. In some cases, arguments for monetary gold added intellectual heft through association with the Austrian school of economics. In other cases, these views overlapped with the radical conservative, and sometimes conspiratorial, critique of American society offered by, among others, James True Associates in the 1930s and the John Birch Society in the late 1950s. Just as the late 1800s saw a ferment of pamphleteering for and against metallic currency, the mid-1960s to early 1970s saw a blossoming of the “hard money” school into the political and commercial mainstream. Many of the leading figures of the hard-money movement worked or wrote for William F. Buckley’s conservative magazine National Review. The combination of scholarship, advocacy, and investment advice provided millions of Americans with a framework—however frightening at times—to understand the unprecedented economic and social convulsions around them.
One prominent cornerstone of the hard-money edifice was a brief essay called “Gold and Economic Freedom,” which appeared in 1966 in The Objectivist newsletter published by the iconic libertarian novelist and philosopher Ayn Rand. The author was Alan Greenspan, the clarinet-playing economist who had become part of Rand’s inner circle. The
article, which a Greenspan biographer later called “probably his most incendiary essay,” was a full-scale attack on government’s natural inclination to spend beyond its means. “Deficit spending is simply a scheme for the confiscation of wealth,” Greenspan insisted. “Gold stands in the way of this insidious process.” These views gained traction at the time, but would become difficult for Greenspan to defend two decades later, when he would take over the Federal Reserve, which props up the largest paper money supply in world history.
The most intellectually fertile work of this era was a sixty-page pamphlet entitled What Has Government Done to Our Money?, published in 1964 by the influential economist and historian Murray Rothbard. He offered a sweeping historical view of money, arguing not only that government control of money was a destructive and toxic appropriation of individual freedom, but that any libertarian-conservative vision would be limited in impact unless it tried to remove government’s chokehold over money. Part of Rothbard’s argument grew out of his study of the “wildcat banking” period of the 1800s, which had resulted in massive bank closings and subsequent economic damage. While many historians had viewed the period as evidence that banking needed to be tightly regulated, Rothbard’s study of the period argued that it was a healthy purge of a sick financial system that had been created by government interference.
Government’s money monopoly could be replaced, Rothbard argued, with a currency regime of gold (and possibly other metals), in which coins could be privately minted and traded. In situations where physical gold was impractical, gold-warehouse receipts could be used for trade. The free market would handle any issues of fraud and coin degradation that emerged. Although his arguments were logically presented and well documented, Rothbard’s rhetoric veered toward the martial. “Government has, step by step, invaded the free market and seized complete control over the monetary system,” Rothbard wrote. “The slow but certain seizure of the monetary reins has been used to a) inflate the economy at a pace decided by government; and b) bring about socialistic direction of the entire economy.”31 Rothbard transplanted a scholarly version of Andrew Jackson’s absolute rejection of paper money and central banking into a Cold War context, thereby issuing a radical challenge to American conservatives—if you don’t advocate the abolition of government-backed money, you are enabling socialism. The effect was explosive; as the economist and investment adviser Mark Skousen wrote, “What The Communist Manifesto was to Marxists, Rothbard’s What Has Government Done was to the hard-money movement.”32
To Rothbard’s revolutionaries, corroboration was everywhere to be seen in the mid-’60s. One devotee was Neil McCaffrey, a National Review contributor who left a job in mainstream book publishing in 1964 to publish books through Arlington House and the Conservative Book Club. Many of these were conservative tracts—one successful volume was Quotations from Chairman Bill: The Best of William F. Buckley, Jr.—as well as titles that appealed to McCaffrey’s passion for jazz and classic movies. McCaffrey began to publish books advocating “hard money” as a reaction to the government removal of silver from nickels and dimes in the mid-1960s. The first two such books were written by William F. Rickenbacker, an investment adviser who was also a senior editor at the National Review. Rickenbacker’s father was a decorated war pilot who founded Eastern Airlines; William achieved some notoriety in 1960 when he was prosecuted for refusing to fill out a census form, having declared it an illegal search of his home. He published a book called Wooden Nickels in 1966. Rickenbacker argued that “future writers . . . will no doubt agree that the event [the removal of silver from quarters and dimes] was one of peculiar importance.” In Rickenbacker’s view, government meddling with coins had pushed American money off an historic cliff: “For the first time since 1792, we are on a money backed by nothing better than the politician’s pledge.”33 This was before the 1968 gold crisis; he followed up with a similar volume called Death of the Dollar in 1968.
As the decade progressed, there was something ironic about Arlington House’s fervor for small government; the company that bought it in 1968, Computer Applications Incorporated, had built its fortune through government contracts from the military and NASA. But Arlington House and its hard-money advocates hit pay dirt when they managed to translate the movement’s more abstract ideas into everyday financial realities, with more than a tinge of Chicken Little. The man for the job was Harry Browne, a Tennessee-based investment adviser; if Rothbard was the Marx of hard money, Browne was its Lenin, a tireless synthesizer and proselytizer. Born in New York City, Browne had grown up in Los Angeles, the son of a musician, film composer, and radio personality on the Columbia Broadcasting System. His parents had met at the New York City radio station WABC, and Browne’s father wrote and performed 1920s programs such as “The Cellar Knights,” which featured two African American janitors, and “Tramp Tramp Tramp,” which chronicled hobo life. He was later the producer of the pioneering radio musical-comedy show “The Spike Jones Show.” Harry Browne quit junior college after two weeks, noting later that he “couldn’t stay awake in class.” He tried his hand at editing conservative magazines and then writing a weekly syndicated newspaper column, which ran in dozens of smaller papers in the West and Midwest (regular publishers of Browne’s column included the San Marino (CA) Tribune, Lima (OH) News, and Pampa (TX) Daily News).
Browne spent a great deal of time absorbing libertarian and laissez-faire economic thinking—first and foremost Rothbard, whom he said provided “the most important help” for his writing on money. Borrowing from Rothbard, for example, Browne popularized the notion that all paper money—whether it is called “dollar” or “franc” or whatever—should properly be called “money substitute” because it takes the place of the stated equivalent amount of gold, the only “real” money. Under such circumstances, and because only a small amount of gold can be added to the world’s usable supply in any given year, any economy that grows at more than about 2 percent a year is guaranteed to produce inflation. From the writer Henry Hazlitt, Browne absorbed the lesson that government officials will often lie or dissemble on crucial issues regarding currency and devaluation.
Browne’s intellectual interests took him further afield. He was influenced by a group of entrepreneurial California aerospace engineers who became involved in the insurance and brokerage business, and also founded a school devoted to laissez-faire thought. Although heavily influenced by Austrian theorists such as Ludwig von Mises, they rejected the self-description “libertarian” in favor of the classical sense of “liberal.” The spiritual leader of the group was Andrew Galambos, an anarchist whose views were challenged even within libertarian circles. Galambos was a Hungarian émigré who became an astrophysicist planning flight paths for nuclear missiles; he also had a side business selling securities and insurance, and later taught physics at Whittier College. In the early 1960s, Galambos founded a private research and teaching organization called the Free Enterprise Institute, where he taught a political philosophy known as “volitional science.”34 Galambos embraced a view of intellectual property so severe that he prohibited his students from disseminating his ideas; reportedly every time he used the word liberty he put a nickel in a jar as a royalty payment to the descendants of Thomas Paine, whom he believed had coined the word.35 Browne wrote that Galambos “had a profound effect on thousands of individuals who took his courses” and inspired him to write all his books.
Even these eccentrics did not represent the limits of Harry Browne’s affinities. Like Galambos, Browne put a value on direct teaching to individuals, on top of his regular newspaper writing. To presumably wealthy clients in Hollywood and Long Beach, California, Browne taught multiday, in-depth seminars with titles such as “The Economics of Freedom” and “The Art of Profitable Living” beginning in about 1966. Through these seminars Browne developed a taste for what would get and hold an audience’s attention and tapped into much of the fashionable thinking of the era. For example, Browne was influenced by the embrace of s
imple, self-reliant living that gained popularity in California in the late ’60s, and later would be associated with the environmental movement (epitomized in such works as The Greening of America).
But there were also darker strains. Browne, with something of his father’s flare for show business, determined that America in the late 1960s had a taste for the apocalyptic. In most respects, Browne’s investment outlook during this period was unremarkable, if conservative: stocks and real estate were too tied to the overall health of an unreliable economy, so better to invest in gold and silver, and to protect assets in a Swiss bank account. What distinguished Browne was his insistence not merely that the status quo was untenable, but that economic collapse was imminent—as in a matter of days.
One Nation Under Gold Page 23
