In the twenty-first century, a return to a gold standard, despite its impracticality, has become part of a populist mistrust of technocratic elites. In a 2011 congressional hearing, Republican congressman Ron Paul asked Federal Reserve chair Ben Bernanke if gold is money. Getty Images / Chip Somodevilla
THERE ARE THREE economic scenarios scrawled on a portable chalkboard on the Fox News Channel studio set: Recession, Depression, and Collapse. Standing in front of it is the host Glenn Beck, being filmed live. He is dressed conservatively in a dark suit and yellow tie but clearly as agitated as any street protestor. The date is November 23, 2009, and the United States is officially but imperceptibly no longer in a recession; a huge percentage of Americans remain out of work, bankruptcies continue to mount, and the once-mighty auto industry is struggling even after a multibillion-dollar government bailout. To tens of millions of Americans, the psychic pain of the “Great Recession”—with the meltdown of the stock and housing markets that began in the fall of 2008—is all too present, and none of the scenarios Beck is discussing would seem out of the question.
On this particular day, Beck is giving a potted course in personal finance, which could easily have been cribbed from Harry Browne’s books from thirty-five years before. In the case of a return to recession, Beck advises his audience to “get out of debt and save.” Politicians, he says, “will never tell you to do this, because they need you to spend money to keep the economy going.” In the case of a depression, Beck recalls earlier generations’ habit of stockpiling food: “If you’re going to the store, and there’s one can of soup, and it’s on sale, get two.” But if the American economy were to collapse, Beck says his audience will need to rely on “the three G’s,” which he defines as God, Gold, and Guns.
To millions of regular Fox News Channel viewers, the advice to buy gold was unexceptional. Fox had become a regular fount of economic gloom, all or most of which its hosts readily blamed on the Obama administration. The month before, Beck had asked his audience, “Are we facing the end of the almighty dollar?” He stood at a table and moved stacks of coins from one side of a table with several miniature flags of the world, to the other side with a US flag, to represent the movement of gold in the early to mid-twentieth century. Alas, “you”—the viewer—have no gold, only a small stack of dollars which, Beck said, had lost 29 percent of their value in the previous seven years. The clear solution, as Beck evinced in an interview with management consultant David Buckner, was to “invest in things that are friendly to inflation,” which meant real estate and gold. This was something of a false choice. The once-booming real estate market, Fox viewers knew, had imploded the year before and showed few signs of recovering soon—or maybe ever. Moreover, Buckner noted, real estate might rise in value, but if interest rates got too high, no one would be able to buy—and that left gold.
The constant advice to buy gold as a protective investment might also have sounded familiar to Beck’s viewers because it was echoed in the many advertisements that supported Beck’s daily television broadcast and radio show, as well as many other Fox News programs, including those hosted by former Republican presidential candidates Mike Huckabee and Fred Thompson. Buying gold and buying into the Republican Party message were at this point intertwined; indeed, buy-gold messages had become practically nonstop on Beck’s show. A campaign had begun earlier that year to persuade corporations to stop advertising on Beck’s program after the host declared that President Obama has “a deep-seated hatred for white people or the white culture.” The campaign had, by the fall of 2009, been highly effective; major companies including Wal-Mart, CVS, and Best Buy pulled out from Beck’s program. As a result, some of the most loyal advertisers remaining on Beck’s program were precious-metal sellers, including Discount Gold Brokers, ITM Trading, and Goldline International. The last firm had a particularly strong relationship with Beck. The talk-show host promoted Goldline as “a top-notch organization” and “the people that I trust,” endorsements that the company frequently promoted. Beck brought Goldline president Mark Albarian onto his radio program to talk about how high the price of gold might go.
To Beck’s critics, the blurred lines between Goldline as an advertiser and gold being pushed as an investment in Beck’s programs transformed Beck into a paid spokesman for the gold company. (In 2009, Fox, concerned that Beck was violating Fox’s rule against paid product endorsements by on-air talent, sought “clarification” about Beck’s role at Goldline. Although the Goldline site actually did identify Beck as a “paid spokesman,” Beck’s representative responded, and Goldline confirmed, that Beck had never actually received any separate fees for speaking on Goldline’s behalf. Goldline subsequently changed Beck’s online designation from “paid spokesman” to “radio sponsor.”)1
Representative Anthony Weiner, a New York City congressman who served on a consumer protection subcommittee and would soon disgrace himself in a digital sex scandal, accused Beck and other on-air hosts of “shilling for Goldline.” These hosts, Weiner charged, “are either the worst financial advisors around or knowingly lying to their loyal viewers.” According to Weiner’s investigation, the average markup on coins sold by Goldline was 90 percent above the coin’s value if melted, and in one case 208 percent higher. In addition, Weiner charged that Goldline tacked on fees for storage, shipping, and reselling that effectively made it impossible for anyone buying a Goldline coin to earn any money on the investment unless the market price of gold doubled.2 Weiner’s investigation had been guided by a 2006 incident in which a Missouri state authority had fined Goldline and forced the firm to return the investment of a consumer the state said had been illegally provided with investment advice. Evidently, little had changed in the retail gold market since the SEC had tried to crack down on Pacific Coast Coin Exchange in the 1970s.
Weiner’s charges became more resonant when, in 2011, a California consumer protection unit charged Goldline with criminal theft and fraud. The city attorney of Santa Monica, where Goldline is based, maintained that Goldline used “bait and switch” tactics that pressured consumers into buying overpriced gold coins instead of gold bullion. Among the tactics Goldline deployed, according to the criminal complaint, was to stoke fear about a potential government heist of gold bullion. Part of the Goldline pitch was to invoke Roosevelt’s gold prohibition of 1933. That is, salespeople were trained to make “customers fear . . . government confiscation of bullion and to tell customers that the overpriced coins were exempt from such confiscation.”
Although Goldline initially refuted the charges, the company agreed in February 2012 to an injunction that required it to refund up to $4.5 million to past customers and set aside $800,000 for restitution of future claims. In one of the most bizarrely specific constraints about how a commercial entity is allowed to discuss history, the Santa Monica City Attorney’s office wrote specific scripts for how the company could represent the 1930s to existing and potential customers. For example, Goldline is allowed to say that “for more than a generation, Americans were banned from owning certain quantities of gold coins and bars.” But only if a customer wants more details is the company permitted to discuss Roosevelt’s actions toward gold, and it must avoid the word confiscation and note that gold owners were reimbursed at the then-prevailing price.
While the characters and specific charges had changed, the entire episode followed a historical pattern that had begun even before gold again became legal to own: a doomsday-scenario sales pitch; an overly cozy relationship with a popular media figure; and an investigation that uncovers irregularity and fraud in the selling of gold. The consistency of the fraudulent gold investment pitch is striking, and grows out of the fact that gold as an investment is a peculiar market animal. One of the properties that makes gold attractive to many of its admirers is that it cannot be physically destroyed. This indestructibility guarantees that the overall supply of gold on Earth cannot be lower tomorrow than it is today (unless someone were to shoot the gold into space). On t
he contrary, the supply is constantly increasing; typically, the supply of usable gold on the planet increases by 1 to 3 percent per year. Demand is more complicated; approximately 20 percent of all the world’s gold is currently tied up with central banks and not readily available for the private market. Gold trading by central banks is carefully orchestrated and often secret, so as to prevent undue marketplace shocks. And therefore, the only normal way for the value of any particular cache of gold to increase is for private-market demand to increase. Usually, gold market prices rise when people think the economy is weak or weakening (lots of people want to buy gold, because they fear that other assets will stagnate or lose value), and fall when the economy is strong or optimism is rising (lots of people want to sell gold, because they believe other assets will yield a better return). At least since the days of Harry Browne, predicting economic disaster has been a useful way to try and stoke the market for gold and drive up the value of existing gold owners’ investments. For the 1970s, it was runaway inflation that was supposed to bring about economic collapse; for the 2010s, it is runaway government debt—those selling gold offer it as a solution to any and all economic ills, just as free silver advocates did for their preferred metal in the late nineteenth century.
In the context of Fox News, gold advocacy served a political function at least as important as its economic function—peddling gold as a solution to a bad economy meant blaming the government (and especially the Obama administration) for the state of the economy. The fact that most people in the government opposed the idea of a gold standard only seemed to confirm their irresponsibility! And if Goldline was prohibited from telling Americans that their gold might be insecure, there were others happy to fill the gap. The Swiss-born economist and noted gloom-monger Marc Faber, a frequent guest on CNBC, said in 2012: “If I were an American, I would store [gold] outside the U.S., because in the U.S., it is not completely unlikely that they will eventually take it away.”
Judging by the price of gold, however, the arguments in favor of gold worked pretty well in the first decade of the twenty-first century. Many American gold owners also believe that the United States today would be better off if it returned to a currency tied to gold, both because it would back up the US dollar with something of genuine value, and because it would enforce fiscal discipline on a government addicted to the creation of seemingly unlimited debt with a single computer keystroke.
One might have predicted that when the United States (and nearly every major economy) weaned its currency from gold in the early 1970s, the grip that the precious metal has on the American psyche would loosen. If anything, the opposite has occurred. Much of America seems locked in a permanent nostalgic infatuation with gold. The Gold Commission of the 1980s may have failed to restore gold to the center of the American monetary system. Yet the arguments that gold-standard advocates made to the Commission live on in political rhetoric, as do the people who made them. Former congressman Ron Paul, the Commission’s most outspoken goldbug, ran for president in 2008 and 2012 and made a gold standard part of his personal crusade. Although he failed to rally a large number of Republican primary voters, he nonetheless used his various platforms to score points for gold however he could. In a July 2011 congressional hearing, Paul grilled the long-suffering Federal Reserve chairman Ben Bernanke (a fellow Republican who’d nonetheless caught much flak from the American right for his Fed policy). Paul asked Bernanke directly: “Do you think gold is money?” When Bernanke asserted that it was simply a precious metal, Paul went on to ask why central banks held it in reserve, instead of diamonds.
While Bernanke and his fellow technocrats may have seen this as little more than an eye-rolling exercise, the exchange electrified supporters of Paul and gold across the Internet. Web video versions have been viewed hundreds of thousands of times, and social media outlets such as Reddit and Twitter crackled with partisan examinations of the argument’s finer points.
In the twenty-first century Republican Party, arguing for gold makes effective politics. During the 2012 Republican presidential primaries, for example, a majority of the candidates, including Ron Paul and former House Speaker Newt Gingrich, said that if elected they would either restore the country to a gold standard, or seriously consider it. One important exception was the eventual nominee, Mitt Romney; nonetheless, the 2012 Republican platform reflected the consensus view. The platform alluded to the Gold Commission from 1981, designed to “consider the feasibility of a metallic basis for U.S. currency.” While that Commission rejected the idea of a gold standard, the 2012 Republicans said, “we propose a similar commission to investigate possible ways to set a fixed value for the dollar.”3 In 2016, GOP presidential candidate Ted Cruz pushed for a gold standard, echoing the view of one of his largest financial backers, while the nominee Donald Trump gave an interview to GQ magazine in which he said: “Bringing back the gold standard would be very hard to do, but, boy, would it be wonderful. We’d have a standard on which to base our money.”4 And the 2016 Republican platform repeated the same “fixed value” language as 2012’s.
There was little likely harm in including such a plank in the Republican platform, and at least some potential political benefit. For millions of Americans in the twenty-first century, gold has become simultaneously an article of economic faith and a political cause. It has been fueled by the deepest recession since the Great Depression and the often achingly weak economic recovery that followed. Polls of likely Republican voters in the 2012 primaries in at least three states found majorities strongly or somewhat favoring it.5 And a national poll of all voters in 2011 found 44 percent favoring it.6 That same poll found that juicing the question a bit yielded an even more dramatic result. Asked if they would “favor or oppose returning to a Gold Standard if you knew it would reduce the power of bankers and political leaders to steer the economy,” those in favor increased to 57 percent versus only 19 percent opposed.
The reliability of such polling is certainly open to argument. Nonetheless, it is striking that in no other modern nation are citizens hotly debating whether or not to tie their currency to a precious metal—or to any physical entity at all. The backdrop, of course, is a nationwide sagging confidence in nearly every institution that once defined American life. The presidency, churches and organized religions, big business, labor, Congress, banks, the medical profession, the Supreme Court—all of them inspire less confidence in the second decade of the twenty-first century than they did in the 1970s, which itself was not America’s most optimistic decade.7 In the age of Obama, older white Americans felt particularly detached from the nation’s traditional centers of power and economic growth; the long-standing manufacturing job base of their youth and the pensions that came with it had in many places disappeared. Their anger fueled the rise of the Tea Party, which made itself felt in the 2010 elections. Indeed, Obama had famously (and to some, offensively) observed in 2008 that in small midwestern towns, when jobs had gone and wages had fallen, “they cling to guns or religion or antipathy toward people who aren’t like them or anti-immigrant sentiment or anti-trade sentiment as a way to explain their frustrations.” Politically, this group was also sympathetic to Glenn Beck and the third “G” in his doomsday scenario—gold.
Of course, as gold-standard Republicans discovered in the 1980s, what makes for passionate politics does not readily translate into policy. The obstacles to actually restoring a gold standard are enormous—so enormous that the sincerity of those arguing for it must be questioned. For starters, gold-standard advocates can’t agree on what system they want. This difficulty was very much on display during the Gold Commission hearings in the early 1980s. For some purists, the only acceptable monetary standard is best labeled free-market money or a gold-coin standard—that is, a system in which gold is the physical basis for American money; in which legal-tender laws would be removed and paper money would be outlawed; and anyone who wished could mint gold coins that would function as day-to-day currency.
A more pract
ical version would be a gold bullion standard, in which the dollar would be defined as a fixed amount of gold, but gold itself would not circulate as currency. This was roughly the system that obtained during the Bretton Woods system, in which the value of the world’s major currencies was defined in relationship to gold and, within very narrow ranges, in relationship to one another. However, with the crucial exception of the US dollar, currencies were not truly convertible to gold; instead, the US dollar functioned as the peg and the reserve currency for other nations. Although such a system would probably be easier to establish than other forms of a gold standard, essentially no one today argues for it. Most of the world recognizes that the system broke down when global economic development outgrew it, and for American gold-standard advocates it would not achieve the fiscal spending constraints they usually advocate.
One further level of abstraction from an absolute gold-coin standard would be a system in which paper currency is “backed” or “covered” by a defined quantity and purity of gold; this has been the case at various points in US history, as recently as the late 1960s. One putative anti-inflationary virtue of such a system is that it limits how much paper currency the government can print. Twenty-first-century American gold-standard advocates, however, tend toward purism and would be unlikely to support such a system unless the paper currency were genuinely convertible into gold.
Even assuming that American gold-standard advocates could agree on a system, it’s nearly impossible to imagine a desirable political scenario under which the system would be imposed. For better or worse, big, groundbreaking monetary changes are almost always timed due to crises, not careful and inclusive debate, and they are often badly executed. As this book has repeatedly demonstrated, novel monetary strategies are devised in secret, rushed through Congress or enacted outside of Congress, and justified with war or other emergencies. The Supreme Court decisions that result—from the legal-tender cases through the gold-clause cases—are widely acknowledged to be among the worst argued and worst handled cases in the country’s history, in part because it is so difficult to square straight constitutional interpretation with economic and political necessity.
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