To Henry, who reminds me that gold is very rare. CONTENTS Time Line of Events Preface Introduction CHAPTER 1 El Dorado Comes True CHAPTER 2 A Crash, a Clash, and a “Crime” CHAPTER 3 The Dangers of the Yellow Brick Road CHAPTER 4 FDR Bids Good-bye to Gold CHAPTER 5 The Arsenal of Gold CHAPTER 6 Out of Balance CHAPTER 7 Operation Goldfinger CHAPTER 8 Dueling Apocalypses CHAPTER 9 This Time for Real CHAPTER 10 Legal at Last CHAPTER 11 Goldbugs in Power CHAPTER 12 God, Gold, and Guns Acknowledgments Notes Index TIME LINE of Events 1700s 1788 US Constitution is ratified. Article I, section 10 stipulates that no state shall coin money, or “make any Thing but gold and silver Coin a Tender in Payment of Debts.” 1792 The Coinage Act creates a bimetallic, silver-gold standard in the United States. The US dollar is defined as equivalent to 24.75 grains of fine gold and 371.25 grains of fine silver, a silver-to-gold ratio of 15 to 1. Due to global market fluctuations in the gold-silver price ratio, gold is used primarily for transactions abroad, and silver primarily for domestic transactions. 1799 A twelve-year-old boy in Cabarrus County, North Carolina, discovers a 17-pound gold nugget, setting off the Carolina Gold Rush. 1800s 1804– North Carolina supplies all the gold for domestic coinage from the US Mint in Philadelphia. 1828 1812 For the first time, Treasury issues notes (not legal tender) that promise to pay gold or silver at a future date. 1816 Great Britain puts the pound sterling on a gold standard. 1834 Congress changes the silver-to-gold ratio to 16 to 1, thereby restoring gold coins to domestic use. 1848 Gold is found at Sutter’s Mill near Sacramento, ushering in the California Gold Rush. 1859 Comstock Lode of gold and silver struck in Nevada. 1862 Congress passes the Legal Tender Acts, creating for the first time paper money (“greenbacks”) that is not convertible to gold or silver. A dollar-gold market immediately emerges. 1868 Gold is discovered in South Africa. 1869 A ring of investors attempts to corner the gold market, which crashes on “Black Friday” after the US Treasury announces a sale of gold. 1873 Silver is demonetized, putting the United States on an informal gold standard. 1896 William Jennings Bryan “Cross of Gold” speech at the Democratic convention in Chicago. 1898 Gold is discovered in Klondike, Alaska, creating an Alaska Gold Rush. 1900s 1900s 1900 The Gold Standard Act formally places the United States on a gold standard. 1913 The Federal Reserve system is established, requiring that Treasury notes be backed 40 percent by gold. 1914– Most countries (though not the United States) abandon a gold standard to pay for World 1919 War I. 1925 Great Britain restores a “gold bullion” standard, with money redeemable for gold but no circulating gold coins. 1931 Great Britain defaults on gold payments and abandons gold standard. 1933 United States leaves the gold standard and makes individual ownership of gold coins and bullion illegal. The Roosevelt administration begins day-to-day management of the price of gold. 1934 The Gold Reserve Act devalues the dollar and returns the United States to a gold bullion standard, setting the price of gold at $35 an ounce. 1939 War in Europe forces the London gold market to close. 1942 World War II brings about the closure of all US gold mines. 1944 The world’s major economies meet at the Bretton Woods conference in New Hampshire to create a new international monetary system, based on a dollar convertible to gold. 1954 London gold market reopens. 1960 Gold market spikes, pushing prices above $35 an ounce and indicating a US balance-of- payments crisis. 1961 Major central banks form “Gold Pool” to control private market transactions. American citizens are prohibited from owning gold abroad as well as at home. 1965 American government officials begin secret plans for “Operation Goldfinger” to dramatically increase US gold production. 1967 South Africa produces the first Krugerrand coin. UK devalues the pound sterling, causing large outflows of gold from the United States. 1968 Congress narrowly votes to lift the “gold cover” for US currency. The United States stops buying and selling gold with individuals. The world’s largest economies agree to a “two- tier” market, with one value for privately traded gold and a fixed value for transactions between central banks. The London gold market closes for two weeks. 1971 Richard Nixon “closes the gold window,” devaluing the dollar by making it no longer redeemable for gold. 1974 On December 31, it becomes legal for Americans to buy and own gold for the first time in forty years. 1975 Krugerrand becomes available for purchase in the United States. 1980 US Republican Party platform calls for a “dependable monetary standard—that is, an end to inflation,” interpreted as the first pro–gold standard party pledge in decades. 1981 US Gold Commission, chaired by Treasury Secretary Donald Regan, convenes to study gold’s role in the US monetary system. 1986 US Mint introduces American Eagle Gold Bullion Coin, minted with gold mined in the United States. 1990 After a decade of remarkable growth, the US gold industry becomes the second-largest producer in the world after South Africa. 2000s 2000s 2007 China surpasses South Africa as the world’s largest gold producer. 2012 US Republican Party platform invokes 1981 Gold Commission and proposes a similar commission to investigate possible ways to set a fixed value for the dollar. The party’s 2016 platform repeats the same pledge. PREFACE NO ONE TRYING TO UNDERSTAND the United States would be so careless as to avoid an examination of its money. The country that produced the wealthiest society in the world, the seat of the largest stock and bond markets, the granddaddy of the consumer society that has enveloped much of the planet— at home and abroad, America is synonymous with its dollar and the unabashed pursuit of it. As powerful and ubiquitous as the dollar may be, however, America’s relationship to its own currency has throughout its history been uneasy, rocky, and divisive nearly to the point of insurrection. What is the dollar worth, according to whom, and how should that value be measured? These seemingly fundamental questions have never been settled to universal satisfaction even through four centuries of American financial history. From the very origins of the nation in eighteenth-century political fervor to the twenty-first century’s presidential debates, we continue to argue about the dollar with the often implicit understanding that far more than a piece of paper is at stake. The question of American money is wrapped up in patriotism, in the nation’s self-worth, and in America’s standing in the world, a standing that never feels as confident or sturdy as the imperial reach of the dollar and the American military machine might imply. In modern America the dollar is a way of projecting strength into the world, and therefore many Americans insist that the dollar must stand for something besides itself; the dollar ought to guarantee an enduring promise; the dollar should be, as President John F. Kennedy first said (and many after him), as good as gold. The idea of money “as good as gold” is simple, immediately grasped, and quintessentially human; gold coins became a standard of exchange at least as far back as 1500 BC, and the United States, like most nations, used gold and silver coins as money for much of its early commerce. Gold has many qualities that one would hope to associate with money: it is indestructible, it is rare, and it is beautiful to behold. beautiful to behold. And yet, gold for Americans is anything but simple. From the very beginnings of our national life, it has seemed impossible for Americans to look at gold dispassionately. The metal—and its seductive hint of boundless wealth— tap into a psychological wellspring that reaches beyond any purely physical qualities. Gold brings with it a spiritual dimension, a nonrational totem that stands for strength, control, and even adoration. We seek the immutable characteristics of gold in the same way that religions posit the divine and everlasting qualities of God and an afterlife, as if gold can somehow connect us to eternity and protect us from the vagaries of actual human existence. The problem is that monetary gold can’t do those things. Fixing our money to gold and amassing great stacks of it is no more a guarantor of sustained economic health than a witch doctor’s potions. And, as with religion, what gold believers do can often resemble, in the eyes of the less devout, madness and destruction. From the earliest days of the American republic, gold blinded men from seeing the financial realities around them. And it brought with it all manner of fraud and false hope, gold by-products that are still with us today. To slice through the hype of gold, we need to see our own history clearly. It is not enough to evoke the past, because gold mania carries its own nostalgic historical hues. Yes, gold can make Americans spectacularly wealthy, and the twentieth century’s restrictions on owning it were justly fought and overturned. Beyond that, however, lie many prejudices about gold, some debatable and some dangerous. To avoid gold’s false paths, we need to argue with the past, to test the assumptions that are too often and too casually passed uncritically. This book, I hope, is that argument.