James Ledbetter, “One Nation Under Gold: How One Precious Metal Has Dominated The American Imagination For Four Centuries,” Liveright Publishing Corp., 2017, 337 pp.
Some weeks ago I wrote a review involving Bitcoins and mentioned how I did not really understand bitcoins, or for that matter, dollars. Now I discover when reading this book, absolutely nobody, not just me, understands money, particularly when its last link to gold was eliminated. There was some understanding of money when it was linked to something like gold, but expanding economies made any link to a physical item impossible. Reading this book will help you partially understand why the gold-link had to be severed.
Not surprisingly, Tea Party politicians are attracted to a return to a gold based currency and Trump occasionally throws out bits of meat to this crowd. This linkage to gold is loathed by sane economists.
Exhaustively researched, One Nation Under Gold begins with the nation’s founding in the 1770s, when the new republic erupted with bitter debates over the implementation of paper currency in lieu of metal coins. Concerned that the colonies’ thirteen separate currencies would only lead to confusion and chaos, some Founding Fathers believed that a national currency would not only unify the fledgling nation but provide a perfect solution for a country that was believed to be lacking in natural silver and gold resources.
This book covers Andrew Jackson’s passionate advocacy for gold, the nation’s 1840’s gold rush, and William Jennings Bryan “Cross of Gold” speech in 1896. America’s stubborn attachment to gold persisted, wreaking so much havoc that FDR, in order to help rescue the Depression economy, ordered a ban on private ownership of gold in 1933. In fact, so entrenched was the belief that gold should uphold the almighty dollar, it was not until 1973 that Richard Nixon ordered that the dollar be delinked from any relation to gold―completely overhauling international economic policy and cementing the dollar’s global significance.
Addenda:
Within the first week of holding office, Roosevelt closed the nation's banks, fearing gold hoarding and international speculation posed a danger to the national monetary system, basing his actions on the WWI Trading with the Enemy Act. Congress quickly ratified Roosevelt's action with the Emergency Banking Act. The President soon afterward issued Executive Order 6102, requiring the surrender of all gold coins, gold bullion, and gold certificates to the government by May 1, 1933, in exchange for their value in U.S. dollars at the rate of $20.67 per troy ounce. Congress also passed a joint resolution canceling all gold clauses in public and private contracts, stating such clauses interfered with the power of Congress to regulate U.S. currency.
While the Roosevelt administration waited for the court to return its judgment, contingency plans were made for an unfavorable ruling. Ideas floated about the White House to withdraw the right to sue the government to enforce gold clauses. Attorney General Homer Cummings opined the court should be immediately packed to ensure a favorable ruling. Roosevelt himself ordered the Treasury to manipulate the market as to make it appear in turmoil, though Treasury Secretary Henry Morgenthau refused. Roosevelt also drew up executive orders to close all stock exchanges and prepared a radio address to the public.
All three cases (Gold Clause Cases) were announced on February 18, 1935, and all in favor of the government's position by a 5–4 majority.
My Notes:
Pg. 3: 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. That simple-seeming assertion has been hotly contested through the centuries. Gold has been hotly contested and at the center of American political debate as far back as the Constitutional Convention and right through to the most recent presidential campaigns. The Republican platforms mentioned a metallic basis for US currency and proposed a commission to investigate possible ways to set a fixed value for the dollar. In 2016, Trump became the first major-party nominee in more than a half a century to advocate a return to a gold standard…” it would be very hard to do, but, boy, would it be wonderful,” Trump said.
Pg. 13: Despite the prevalence of coins, paper money was abundant from the colonial period onward. Most states had a banking system that could issue its own notes, often theoretically redeemable for a given amount of gold. From the fall of the Second Bank of the US in 1837 until the passage of the National Banking Act in 1863—hundreds of loosely supervised banks were launched that printed paper money.
Pg. 49: Hepburn v. Griswold: Mrs. Hepburn contracted a debt five days before the Legal Tender Act was passed. She then attempted to pay off her debt later using paper money (greenbacks) which Griswold refused to accept.
To finance the Civil War, the federal government in 1862 passed the Legal Tender Act, authorizing the creation of paper money not redeemable in gold or silver. About $430 million worth of “greenbacks” were put in circulation, and this money by law had to be accepted for all taxes, debts, and other obligations—even those contracted prior to the passage of the act.
In Hepburn v. Griswold (Feb. 7, 1870), the Court ruled by a four-to-three majority that Congress lacked the power to make the notes legal tender. Chief Justice Salmon P. Chase, who as secretary of the Treasury during the Civil War had been involved in enacting the Legal Tender Act, wrote the majority opinion, declaring that the congressional authorization of greenbacks as legal tender violated Fifth Amendment guarantees against deprivation of property without due process of law.
On the day the decision was announced, a disapproving President Grant sent the nominations of two new justices to the Senate for confirmation. Justices Bradley and Strong were confirmed, and at the next session, the court agreed to reconsider the greenback issue. In Knox v. Lee and Parker v. Davis (May 1, 1871), the Court reversed its Hepburn v. Griswold decision by a five-to-four majority, asserting that the Legal Tender Act of 1862 represented a justifiable use of federal power at a time of national emergency.
Pg. 51: In 1866 Congress passed a law reducing the total number of Supreme Court justices from ten to seven. Then, in 1869 Congress brought the number back up to nine, one chief and eight associates.
Pg. 80: The Federal Reserve Act (1913) created a new national currency—Federal Reserve notes—designed to adjust to trade, and thereby solve the issue of money’s inelasticity. That money, in turn, was to be backed by gold reserves worth no less than 40 percent of the value of the currency in circulation. The Federal Reserve System left the gold-based dollar untouched, yet gave the US for the first time a set of tools to manage an economic downturn.
Pg. 83: There now exists agreement among most economists that the gold standard was a key element—if not the key element—in the collapse of the world economy during the Great Depression. Also, as Ben Bernanke maintains, that to an overwhelming degree, the evidence shows that countries that left the gold standard recovered from the Depression more quickly than countries that remained on gold (p. 89).
Pg. 96: Most of the world had gone off the gold standard by mid-1933; among the world’s largest economies, only France, Switzerland, Belgium, and Holland remained on the gold standard.
Pg. 111: The ‘gold clause’ cases. The Gold Reserve Act of 1934 abrogated gold clauses in government and private contracts and changed the value of the dollar in gold from $20.67 to $35 per ounce. The clauses had been I use at least as far back as the Civil War. The concept was simple: a debtor agreed to pay a creditor the amount owed in gold if asked. This act was upheld in 1935 5-4 by the Supreme Court. This price remained until August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value even for foreign exchange purposes, thus abandoning the gold standard. (Had the court ruled otherwise, it is estimated that $75 billion would have been added to the country’s already formidable public and private debts. At the time, the entire US GDP was $100 billion. Roosevelt prepared a radio address explaining why his administration had to ignore the court ruling, in case the government lost the case.)
Pg. 130: Bretton Woods, July 1944 where four dozen nations participated in the conference to forge a new international monetary order out of the wartime chaos. The Bretton Woods system was not technically a gold standard; it is usually referred to as a gold-exchange standard or gold convertibility standard. At its core, the dollar was fully convertible to gold at the same rate as in 1934: $35 an ounce. Each other major currency was assigned a par value from which it could deviate up to 1 percent; larger revaluations required permission from the International Monetary Fund, one of the two major institutions (along with the World Bank) established by the Bretton Woods agreement. For a decade or so the agreement worked remarkably well as an engine of stable expansion.
Pg. 215: Even though FDR essentially took the US off the gold standard in 1938, there had remained a mandatory quantity of gold sitting in a vault propping up the dollar. 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, so in 1968 Nixon removed this gold-cover requirement. And in 1973 the first bill Ford signed after Nixon’s resignation, allowed US citizens to again own gold beginning in August 1974.
Pg. 269f: In 1974 gold was trading at $100 an ounce. However, gold futures volume in the US became a surprise and by 1977, the volume of gold futures contracts would soar to more than $15 billion. In a tremendous coincidence of supply and demand, the market was about to explode for the Krugerrand. The Krugerrand is the widest-circulating gold coin in human history, some 50 million have been mined. Encouraged by the brisk sales of the Krugerrand, the US in 1986 began minting and selling its own gold coin.
Pg. 303: Legalization of gold in the US caused a boom for the gold industry that rivaled the 1840 gold rush. Between 1980 and 1990, US gold production shot up more than 500 percent to some 300 metric tons per year. Along with this came some severe environmental damage.
Pg. 318: A poll in 2011 found that 57 percent of US citizens would favor a return to the gold standard (only 19 percent opposed). It is striking that no other modern nation is 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 the nation’s most optimistic decade. (Why are we so different from other industrial nations??).
Pg. 322: Quite simply, there will never be enough gold in the world to support the US economy at its current size. In 2012, when Republican candidates suggested a commission to study a return to the gold standard, the study pointed out that the Monetary base of the US was about $2.56 trillion, and that the amount of gold in US reserves was about 262 million ounces. That would give the gold in US vaults an imputed value of about $10,000 an ounce, approximately 5 times the market price of gold in mid-2012.
Pg. 323: Supply and volatility problems are two major reasons why today, most of the world doesn’t want a gold standard. Not a single major economy anywhere in the world defines its currency in terms of gold or any precious metal.
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