At this point the president had two main goals: figuring out the right timing to announce his bold new plan, and keeping all leaks out of the press. Any hint of what the administration was planning could easily roil markets. Volcker knew well that his plans were explosive. The briefing book he had prepared for Connally included an entire “Section A” of bogus plans, in case a reporter or other outsider got hold of it; it also contained a “Section C,” but no “Section B,” to further sow confusion.29
In fact, the plan did leak to the press. In early August, syndicated columnist Paul Scott wrote that “it is impossible to exaggerate the gravity of the private discussions now going on here between President Nixon and his economic and financial advisers over the state of the nation’s economy.” The column referred to Volcker’s dollar contingency plan, which “stresses that a controlled devaluation could be brought about by having the Treasury close the so-called ‘gold window.’ ”30 The premature leak made Connally “very disturbed,” and Nixon asked Haldeman—this was the same summer that the “plumbers” later responsible for Watergate were first assembled—to track down who was responsible for the leak.31
The Oval Office discussion on August 12 was almost agnostic about which parts of the economic program were necessary so long as the appearance of dramatic action could be conveyed. Steps that could be taken without congressional approval had an obvious advantage; Congress was in summer recess and, by the time it reconvened and scheduled hearings, the administration would have weeks of head start. An import tax, for example, went to the top of the pile, because Shultz and Connally had figured out at least two legal ways to make it happen without legislative action, including invoking the Trading with the Enemy Act that FDR had used. As for closing the gold window, Nixon and his men were uncertain whether it should be presented as temporary or permanent—or indeed whether it should be included at all. Would markets and foreign governments be spooked, as Volcker feared? Or had markets so long suspected the move that it was already priced in, as Shultz argued? Nixon summarized the group’s collective ignorance: “Nobody knows what the public reaction will be to the gold window, I mean, because, frankly good God the people that are the experts don’t know what the hell it ought to be!”32 Also unclear was whether each of Connally’s proposals carried equal urgency. “I don’t think we should do the whole program right now, especially the freeze and the import surcharge,” Nixon told Connally. “But if you think shutting the gold window must be done immediately then you can announce it yourself . . . making it sound like a temporary measure, as a prelude to a complete package.” They discussed Burns’s position and his likely opposition to closing the gold window, but also predicted that he would go along with the decision.
Connally continued to hammer the point that the mechanics of the economic program mattered less than the opportunity to present Nixon as a president who made bold decisions that his predecessors couldn’t. This was an especially telling exchange:
Connally: Our problems are basically, to the extent that we have them, right here at home. And when they’re solved, your international problems are solved, your international trade problems to a large extent are solved, because it’s merely a reflection. It just mirrors your economic strength at home, that’s all. . . .
The reason you want this background, in detail along these lines, is to show that we’ve been deteriorating for twenty-five years—
Nixon: Right.
Connally: —and that you’re the first president that’s had the guts—
Nixon: Yeah.
Connally: —to take this comprehensive—
Nixon: Great.
Connally: —action.
That very afternoon, the British government requested a $3 billion gold “cover” for all their dollar assets. While the British request didn’t itself cause the administration to abandon gold convertibility, it certainly underscored the immediacy and the size of the problem. With less than $10 billion in US gold reserves left—the lowest amount since 1938—fulfilling the request would be highly dangerous. But not fulfilling it could send a panic signal to a key ally.
The time for decision had come; the president and his top advisers relocated to the presidential retreat at Camp David for the weekend. Participants were instructed to pack their bags and not tell anyone—including their wives—where they were going or why. En route to Camp David, Herb Stein from the Council of Economic Advisers told speechwriter William Safire that “this could be the most important weekend in the history of economics since March 4, 1933,” when FDR decided to close America’s banks. Safire didn’t understand what closing the gold window meant, but when he repeated the idea to a Treasury official in the helicopter ride, the man leaned forward, put his head in his hands and whispered “My God!”33
Many historians have documented the debate that took place at Camp David August 13–15, and portrayed it as the moment when the decision to close the gold window was made; partly, this is because Safire wrote an engaging account of the weekend. In fact, the plan had almost entirely been approved in advance, with just details and language in need of hammering out. Nixon said while planning the trip, “I personally have pretty much decided what I want to do anyway.” The Camp David discussions were, to a large degree, a kind of choreographed stage play, a meeting with a foregone conclusion designed to make participants—chiefly Burns—feel as if they had been consulted (this tactic was common in the Nixon White House). And it may indeed have been the case that Burns had been duped into thinking he had a chance to win the argument. Nonetheless, weeks before—even before the White House smeared him in the press—he had already personally resigned himself to Nixon’s railroading of his ostensible independence. In his diary in early July he had written: “I had often noticed RN’s love of the imperial manner and its trappings, but now I knew that I would be accepted in the future only if I suppressed my will and yielded completely—even though it was wrong at law and morally—to his authority.”34
Nixon instructed everyone assembled not to speak to anyone outside the camp for security reasons; “any leak would be treason,” Arthur Burns recalled. Probably more than any other attendee, Volcker recognized that a leak could have dramatic market consequences. “Fortunes could be made with this information.” (Haldeman quipped: “Exactly how?”)
Burns was willing to accept some of the economic program, and thought it could be effective. But he drew the line at ending the dollar’s convertibility: “If we close the window . . . we are releasing forces that we need not release.” It would amount to “murdering the international monetary system without proposing to put anything in its place.” Part of his fear, which Volcker shared, was that other countries would immediately retaliate by increasing the price of gold. Connally, for his part, emphasized the vulnerability of the status quo: “Anybody can topple us—anytime they want—we have left ourselves completely exposed.”
As the Friday night discussion came to an end, no formal conclusion had been reached. But at 4:30 Saturday morning, Nixon called Haldeman and told him that he’d made up his mind to close the gold window. All that was left was to determine the timing. Initially, the group had planned for the president to address the nation on Monday the 16th. But Volcker argued that it was crucial to give international markets as much advance notice as possible. A Sunday night television address would mean interrupting the broadcast of Bonanza, one of the most popular programs of the 1960s and early 1970s, although the episode was a summer rerun. The group agreed the risk was worth it.
Nixon worried primarily about how to frame the argument. All the fear and debate about closing the gold window assumed an audience that understood this very complex subject. Yet, as Nixon had pointed out on Thursday, even the experts couldn’t agree on what the effects would be—so why bother explaining it at all? Volcker could be dispatched to Europe to soothe his counterparts abroad; what mattered to Nixon was how the domestic audience received the message. As Shultz put it a few years later: “Nixon knew most
people wouldn’t understand the implications of closing the gold window and wouldn’t care about it. Nixon knew he had to make a political statement and that’s why he told the people at Camp David not to write a speech for him as he wanted to do it himself.” (This was not entirely accurate; Safire was also instructed to draft a version of the speech, but the bulk of the 2,500-word speech did come from Nixon’s own pen.) In the helicopter on the way back to Washington, Nixon couldn’t help but divulge to Safire: “You know when all of this was cooked up? Connally and me, we had it set sixty days ago.”35
A relaxed-looking Nixon sat before a camera in front of a blue curtain, wearing a blue suit and tie, with only the collar of his white shirt poking through. His eighteen-minute address gave almost no hint that the international monetary system that had prevailed since the end of World War II was about to be dismantled. Instead, Nixon portrayed the United States as a nation under attack, and the only fair course of action was to fight back. “In the past 7 years, there has been an average of one international monetary crisis every year,” Nixon said. “Now who gains from these crises? Not the workingman; not the investor; not the real producers of wealth. The gainers are the international money speculators. Because they thrive on crises, they help to create them.” Then he laid out the current agenda of these crisis-mongers: “In recent weeks, the speculators have been waging an all-out war on the American dollar. The strength of a nation’s currency is based on the strength of that nation’s economy—and the American economy is by far the strongest in the world. Accordingly, I have directed the Secretary of the Treasury to take the action necessary to defend the dollar against the speculators. I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.”36
To refute what he called the “bugaboo” of devaluation, Nixon made a nakedly patriotic appeal. Yes, if you traveled abroad or bought a foreign car, your dollar might buy less. But if you were among the “overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.” The important lesson that Nixon imparted to his viewers was that America is strong, and its ability to compete depends on its citizens. “Two hundred years ago a man wrote in his diary these words: ‘Many thinking people believe America has seen its best days.’ That was written in 1775, just before the American Revolution—the dawn of the most exciting era in the history of man. And today we hear the echoes of those voices, preaching a gospel of gloom and defeat, saying the same thing: ‘We have seen our best days.’ I say, let Americans reply: ‘Our best days lie ahead.’ ” Nixon reckoned that Americans, offered a choice between a dollar valued by a chunk of gold and a reassurance about America’s preeminent role in the world, would choose the latter.
The political brilliance of Nixon’s plan was evident within hours of his speech. Most leading Democrats were caught completely off guard. Especially in the middle of an August recess, few were prepared to take on an issue as complex as closing the gold window, although George McGovern, who would end up as the Democratic nominee the following year, did denounce the speech as “sheer bunk, irrelevancy, and mystery . . . it is a disgrace for a great nation like ours to end in this way the convertibility of the dollar.” For the most part, however, Democrats had a sense of victory; they were pleased that Nixon was at last taking on the wage-price freeze they had long advocated. Senate majority leader Mike Mansfield of Montana said: “I’m delighted that [Nixon’s] patience has finally run out.” There was, as predicted, some confusion in international currency markets, many of which were closed so that they could digest the changes. The dollar would continue to slide against major currencies, but at least in 1971 it was hard to argue that the new policies made matters worse. More important for the White House, domestic market reception was strong: the Dow Jones Industrial Average closed up on Monday by nearly 33 points, or 3.8 percent—its best one-day performance in history to that point. Even the administration’s most prominent critics lacked any tangible alternative. “We have proved that we can take violent unilateral action, which may give transitory satisfaction to some,” wrote former State Department Undersecretary Eugene Rostow in a stinging New York Times op-ed. “But if devaluation was justified, we could have devalued at lesser risk by agreement and not by fiat.”37 Rostow, who just a few years earlier had barely blinked when contemplating putting nuclear bombs underground in a foreign country to blow gold out of the ground, had a justifiable point. Yet by quibbling over details of implementation he was effectively conceding the point: the era of defining the dollar by any amount of gold had ended. While no one could predict the floating future with any precision, neither was anyone with any authority realistically advocating a return.
When FDR initiated gold prohibition in 1933, it was in part because his administration (and Hoover’s before him) openly worried about individuals hoarding gold. At various points the Eisenhower, Kennedy, and Johnson administrations also worried about individuals buying and selling gold, usually overseas. By contrast, Nixon’s 1971 landmark decision to close the gold window had absolutely nothing to do with whether or not Americans could own or invest in gold. The Nixon administration was trying neither to inhibit nor encourage any particular consumer behavior; indeed, the experience of floating currencies was so unfamiliar that the most experienced authorities in international finance didn’t know what to expect. Longtime Federal Reserve official Charles Coombs, for example, stated in a 1967 debate with floating-advocate Milton Friedman that if the dollar were to fully float, he did not believe there would be an exchange market for US currency at all.38 One searches in vain through memoranda and transcripts for any discussion about creating a private investment market for gold, or even for how floating the dollar might affect the existing private gold market. Not only was it not a motivation, it didn’t even appear to be on the radar of the top officials in the White House, Treasury, or Federal Reserve.
This is especially striking because the early 1970s witnessed a booming market for metal investors, which would soon evolve into the modern goldbug investor movement. Its legal foothold took the form of trading in silver coins. When silver was removed from dimes, quarters, and half-dollars in 1965, it became illegal to export or melt down the pre-1965 silver coins. For several years, this policy frustrated those who collected or hoarded the coins; rising silver commodity prices—silver traded well above $2 an ounce in 1968—gave the coins a much higher metallic value than face value. By 1969, however, very few silver coins remained in common circulation, and silver prices had begun to fall. That spring, Nixon’s Treasury Department lifted the prohibition against melting down the coins.
This jump-started a market in buying and selling silver coins. Demand became widespread and sophisticated enough that, in April 1971, the New York Mercantile Exchange began trading silver coin futures contracts. But silver enthusiasts did not need the “official” market, thanks to a burgeoning cottage industry of coin traders; between 1972 and 1973, some twenty coin exchanges began doing business in California alone. An exchange’s standard offering was a bag of pre-1965 coins with a face value of $1,000, but with silver content that exceeded that. The granddaddy of the coin exchanges was Pacific Coast Coin Exchange (PCCE); between 1970 and 1974, PCCE sold $1 billion in coin contracts to approximately 25,000 investors. The firm, which later was named Monex International, was founded by Louis Carabini, a coin dealer in Newport Beach, California. Carabini and PCCE had close ties to many of the writers and thinkers offering policy and investment ideas around gold and silver through the publisher Arlington House. Harry Browne’s bestseller How You Can Profit from the Coming Devaluation, for example, gave readers PCCE’s address and called the firm “well acquainted with the silver market and the inflationary problems of today.” Browne particularly suggested PCCE to readers looking to tap the sil
ver commodity market, in which PCCE would lend money for a portion of the purchase price of silver coins. In 1972, Carabini edited his own volume for Arlington House, Everything You Need to Know Now About Gold and Silver, which featured interviews with Harry Browne, Franz Pick, Murray Rothbard, and others.
It turned out that the ties between Carabini and the burgeoning goldbug movement were more than ideological; the Arlington House books were explicitly used to drum up business for his company. An investigation by the Securities and Exchange Commission revealed that Browne actually held the title of director of marketing for PCCE and received about $100,000 in commissions from the company between 1970 and 1974. Specifically, according to the SEC, the company paid Browne “a commission for investors attracted to PCCE from reading Browne’s books.” Browne had not bothered to share this information with his many readers. (Franz Pick, too, was prominently featured in PCCE’s advertising, although the SEC’s summary of its litigation does not mention Pick.)
But if the SEC complaint made Arlington House look like it was deceiving readers by dressing up a sales pitch as independent analysis, it was far more damning about PCCE and the coin market itself. First, the SEC portrayed PCCE as preying on consumers who weren’t positioned to make good judgments. The complaint criticized PCCE’s “polished, hard-sell fraudulent promotional and marketing campaign . . . directed at attracting large numbers of small and unsophisticated investors with little understanding and experience in such investments.”39
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