The Gold Standard


In 1927, an American aviator Charles Lindbergh made history when he flew across the Atlantic Ocean in the “Spirit of St. Louis.” He lifted off from Roosevelt Field on Long Island on May 20 and landed again 33.5 hours later at Le Bourget Aerodrome outside Paris. The flight covered an astounding 3600 miles.

Lindbergh encountered a number of problems during the long flight: icing, fog, and winds. The plane's enormous engine blocked his forward view. To navigate, he had to look out his side windows. He did not carry a radio or navigational equipment; so he had to manage his flight-plan by “dead reckoning.” Wikipedia's article on Lindbergh said he flew over the coast of Ireland barely five kilometres off-course.

When Lindbergh reached the aerodrome in France, 150000 people had come to greet him. While airborne, he had seen the headlights of their cars. They dragged him from his plane and carried him on their shoulders around the airfield for half an hour. He became an international celebrity overnight. Many nations around the world sent him some kind of recognition for his achievement. The Congressional Gold Medal is the most eye-catching.

None of this made him show much emotion. He received each honor studiously and unsmiling, as the hundreds of contemporary news-photos show; and after the hoopla of his Transatlantic flight died down, he married Anne Morrow and retired to a rural estate in Hopewell, New Jersey, to raise a family.

His life changed forever on March 1, 1932, when his son Charles Lindbergh, Jr., was kidnapped from his home in New Jersey and held for a $50,000 ransom. The parents raised the money and delivered it, as requested. They never heard from the kidnapper again, and all trace of him and their baby vanished.

But law enforcement officers had written down the serial number of the ransom bills, so that officers could trace them back to the kidnapper. On this point, the government gave them a fortuitous boost when it took the nation off the gold standard. It required all American citizens to turn in their gold coins and “Gold Certificates.” The Gold Certificates allowed the bearer to convert the bank-note into gold coin. In their place, the government issued new “Federal Reserve Notes.”

I can remember my grandmother telling me that she did as the government asked and turned in her gold coins and certificates, but she also told me that many of her friends kept their gold coins. They were suspicious of the Roosevelt administration's effort to get them off the gold standard. After all, Americans had used gold coinage since the late 18th century. Now, the government told them they could no longer use gold coins or even own them. They could only own gold bullion with a license—to manufacture gold jewelry or medals, for instance. Moreover, the government fixed the gold price at $35 an ounce.

At any rate, the conversion to Federal Reserve Notes made the kidnapper's ransom-money stand out. When the police started looking for him, they could just follow the money-trail—the gold certificates. He could hardly spend his ill-gotten gain without someone noticing. Each time he bought something with a gold certificate, the police closed in on him. Finally, a gas-station attendant waited on the kidnapper, while he paid for his gas with a gold certificate. Then, the attendant jotted down his license-plate number on the edge of a gold certificate, The police tracked him through New York's Department of Motor Vehicles.

Even fairly innocent Americans got into trouble when they did not obey the decision of the government regarding gold. They may have known that the government kept the price of gold artificially low. The government also permitted foreign governments to demand payment in gold for dollars that they held. The savvy government leaders knew they wanted gold instead of dollars, especially at $35.00 an ounce.

This went on for a deplorably long time. Market forces pushed the market price for gold higher than its official price. This incongruity led to a decline in America's gold reserve from 21,000 metric tons in 1957 to just over 8,000 tonnes in 1974, where it stands today. When the Congress finally relented, abolished the fixed-price approach, and allowed Americans again to own gold, its bidding price shot up. Today, private companies and individuals own thousands of tons of it. Released from price-controls, gold skyrocketed to its current $1821.00 an ounce.

In a sense, we all honor the gold standard, every time we lust for Lindbergh's Medal or a $10 Liberty-head gold piece. Gold has value in itself as a durable asset and can serve as a kind of economic indicator, because it reflects consumer confidence. When investors sense a downturn in the economy, they buy gold as a hedge, because of its historical ability to store value; but it can only serve as an indicator if it trades freely—free of interference by the government. The gold standard means more as a private institution, if you think about it.

Gold has a magisterial beauty that maintains an inherent value across the globe and all its people. Used frequently in religious art, it acts as a conduit to the divine. Men have lusted for it and killed for it at least since the time of the Pharaohs, according to archaeological evidence. No other substance on the planet excites us so.

The Limits of Gold

Currency in the US is printed and issued by the government. Nowadays, I really pay for things more often with a credit or debit card—a private intermediary, so to speak. Currency plays less and less of a role in our transactions. At least, people still call it “money,” and hardly anyone can look at a satchel full of loot and keep a straight face about it. The handsome, high-tech banknotes are works of art.

Wealth, on the other hand, is a many-splendored thing, taking many forms. Perhaps 10% of the nation's wealth ever appears as cash. To understand the complexity of it, all you have to do is look at the accounting of a business. No one keeps a lot of cash around. Knowledgeable people sock it away in a myriad of forms other than cash—certificates, contracts, and other official-looking pieces of paper with gingerbread on them. Even ordinary business-letters can have legally-binding language that obligates someone to perform tasks, pay out monies, or else just to stay quiet, and don't make trouble. Even oral assent and handshakes can be legally-binding. Used skillfully, the handshakes and documents work like hydraulic fluid in a machine, greasing the gears of a vibrant economy and enabling forward-movement.

Often, documents transition into other kinds of documents; one kind of business activity evolves into another. Everyone counts on unfettered interchangeability and mobility, despite the inherent risks of identifying the evolving documents in a legal situation. It all adds up to trust or obligation that business-people count on, to provide financial support. In some instances, the documents and actions evolve into an asset known as “venture-capital.”

People pool their resources to launch a new product-line or business. It happens all the time, and God help us if the government puts the brakes on it! That goes for other forms of capitalism—research and development, plant expansion and re-tooling, or employee training. Everything costs money which, in one form or another—has to be available. Wealthy people sit around and wait for someone to come to them with a viable business concept. They meet, shake hands, and a pot of money awaits them if they succeed. We count on them to succeed.

Gold still plays a part, but it's just another asset. When merchants trade in gold, it takes the form of contracts. They never actually see or touch the gold, and increasingly, they never see a paper-contract. A computer stores all of the pertinent information in an electronic file. All that stuff takes place on-line, now.

Multiplying Wealth

Capitalism is one of those unmentionables, a necessary evil, like sex, defecation, or cleaning toenails with a tooth-pick. Each evil reflects amoral self-interest. It's really the self-interest that is unmentionable. The guys who brag about their sexual prowess are also likely to brag about money and other exploits. Other people look down on them for bragging, and if they exhibit that posturing stance too often when dealing with people, they could get into trouble. Most people don't like braggers. We expect braggers to lie anyway, which adds to the objectionableness of it.

Society celebrates mostly generous people, who give their time to improving the lot of the poor, contributing financially to good causes, and making life better for all of us. Rarely does society celebrate an acquisitive or avaricious person, even though all of us would like more dough—not less of it. In a society like ours, we survive by our own wits. There is no paternal leader, no church authority, or charity box that we can turn to when we need it. We have to scramble, make do, and tend to our own affairs. That is the material downside of a free society.

The prejudice against wealth-oriented braggadocio starts with The King James Bible. It warns repeatedly against “filthy lucre,” a memorable, if archaic term:

  1. Titus 1:7—“For a bishop must be blameless. . . not given to filthy lucre.”
  2. Titus 1:11—“Whose mouths must be stopped . . . teaching things . . . for filthy lucre's sake.”
  3. 1st Timothy 3:3—“Not given to wine, no striker, not greedy of filthy lucre.”
  4. 1st Timothy 3:8—“be grave, not double-tongued . . . not greedy of filthy lucre.”
  5. 1st Peter 5:2—“Feed the flock of God which is among you . . . but willingly, not for filthy lucre.”

Victor Lasky's book from 1963, JFK: The Man and the Myth, brings everyone back to earth. Lasky writes that the Boston, Massachusetts, city government increased the fee for a business license of a sightseeing firm. An official from the local government arrived at the business to pick up the fee. The book-keeper said angrily, “Here's your filthy lucre.”

The government official replied, “Friend, it may be filthy lucre, but you'll note that I take the filthy lucre and put it in my pocket.”

There are so few people to defend acquisitiveness, even in a free society. We all wear clothes because we have always worn clothes. No one can remember a time when we didn't. People need a car, a TV, refrigerator, and now a cell-phone or computer, just to keep pace with the technological tilt of the society. We like the convenience of using them, but they are really necessities in the American context—conveniences that we can't do without, and they cost money.

We have to buy most of the things we use, and not too surprisingly, America's large wealthy class can buy more than poorer Americans. The poor complain about the way the wealthy take advantage of them, but they go on buying, all the same. They would just as soon be rich, themselves, rather than continue to be poor, and they would like to own better appliances or devices, than the el-cheapo items they own.

We can test my thesis experimentally. Place two TV sets side by side. On one TV, a man counts hundred-dollar bills or fondles items of jewellery. On the other, a man preaches about tolerance and equality. It should surprise no one that most people will watch the man with the money.

The Public Broadcasting System would like its viewers to watch socially conscious programs but will probably admit that its viewers prefer to watch the Antiques Roadshow, where they can watch jewellers appraise expensive items of jewellery.

Americans have to understand that leading Democrats like Buffett, Gates, Spielberg, and others did not get rich by giving their money away. They worked hard, watched their nickels and dimes carefully, and invested wisely. They invest in winning stocks. They also invest in winning governments.

Like any shrewd investor, they watch the ebbs and flows of the political market and the leitmotifs that define the winning party and make a decision based on their projections for the party—not very different from their stock-market projections. 

The Democrat stance on social justice, equality, tolerance, and sharing lure plenty of wealthy people, like betting on a winning stock. The rest of us should not deceived that Democrat promises are all built on a disingenuous thought-process. It worries me, because it leads people to express two conflicting viewpoints. One side joins the chorus of exhortations toward charity and condemnation of filthy lucre; the other side keeps its own counsel, and if the country divides, they'll follow the money and stick with the Republicans.

My guess is that, if the US divides, the Democrats will occupy a largely unpopulated country. The Republicans know better than the Democrats that money does not grow on trees. In a free society, wealth results from enterprise. It also has a higher, intrinsic, moral value, inasmuch as the aquisition of wealth through enterprise in a free society has replaced a less-honorable form of wealth-acumulation—war-booty.

The larger endowments in the nation, Ford, Carnegie, and so on, need to re-educate Americans on the high value of money, the common-wisdom of the Left notwithstanding. Money counts for more than egalitarian sentiments, especially when those sentiments degenerate into threats and extortion, holding the free-society hostage until it pays up.

The extorting party may be the democratically-elected government. Democrats need to get off their high-horse when they extoll the unconditional worth of a democratically-elected government, since it can take away tomorrow what it gives it citizens today.

And the reproduction of wealth depends on wealth in private hands. Governments can only spend the stuff. Private citizens have to create it. And again, if circumstances force the nation to divide, the Democrat will stand on empty space, because everyone likes money more than poorly-defined humanitarian abstracts. Money is wealth, only up to a point, just as dollars are rupees or rubles, up to a point. Wealth consists of thousands of volitional actions carried out by individuals in a free-society, even if looks like a skein more than something coherent..

Most people will accept dollars any day; the rupee and the ruble, not so much. Not only do Americans like dollars, most of the world's governments like dollars, too. They like even more the American wealth-skein, which has been wildly successful for most of 200 years, now.