Chapter X:
The Battle Within the Gold Commission

To protect your wealth from the bankers, it is only necessary to use the gold coin. It is not necessary to understand the economic, legal and moral reasons why it is the right thing to do. But without that understanding, you have no way of knowing whether the arguments of the sound money people or the arguments of the bankers are correct. You have no protection against any future deception of the bankers. You are like a blind man trying to find his way through a complicated and dangerous wilderness. There is a right path. But there is only one right path. 100 people are giving you advice, and 99 of them are trying to cheat you. You got into this problem by following the authoritative newspaper writer who followed the authoritative congressman who followed the authoritative banking committee aide who followed the authoritative professor who is taking money from the bankers who steal your wealth. You can only get out by rejecting all authorities and doing your thinking for yourself. Thus the remainder of this book will be devoted to examining the gold coin, the political forces which brought it into being and the reasons it will allow you to write gold clauses and go on the gold standard in your personal life.

The History of the Abandonment of the Gold Standard

To understand the significance of the new coin, we must first explain how it was that America went off the gold standard. When the Constitution was written, paper money was outlawed,1 and this was clearly understood by both sides at the Constitutional Convention. The Convention refused to give Congress any legal tender power; and in case a state constitution gave a legal tender power to its state legislature, it was suppressed by Article I, Section 10. This constitutional provision was respected until 1862.

But in that year the Republicans issued legal tender paper money (in the form of United States notes) to finance the Civil War. And when the Supreme Court struck their action down as unconstitutional (Hepburn V. Griswald, 1870), they packed the Court and got the decision reversed (Legal Tender Cases, 1871).

But before it had been packed, the Court considered the question of gold payments in cases where there was an explicit gold clause in the contract. In Bronson V. Rodes (7 Wall 229), it said, let’s assume that legal tender laws are valid:

Nor do we think it necessary now to examine the question whether the clause of the Currency acts, making the United States notes a legal tender, are warranted by the Constitution.

But we will proceed to inquire whether, upon the assumption that those clauses are so warranted, and upon the further assumption that engagements to pay coined dollars may be regarded as ordinary contracts to pay money rather than as contracts to deliver certain weights of standard gold, it can be maintained that a contract to pay coined money may be satisfied by a tender of United States notes.2

Even in this case, the Court said, the debtor must pay in gold.

If, then, no express provision to the contrary be found in the Acts of Congress, it is a just if not a necessary inference, from the fact that both descriptions of money were issued by the same government; that contracts to pay in either were equally sanctioned by law … It is not easy to see how difficulties of this sort can be avoided, except by the admission that the tender must be according to the terms of the contract.2

When the Supreme Court overturned the Hepburn decision in 1871, this ruling meant that people could still remain on the gold standard — if they specified as much by an explicit gold clause. Lawyers so advised their clients, and in the late 19th century creditors insisted on gold clauses in all important contracts. They became standard in American business.

So when the bankers again got power, in 1933, they faced a secondary problem. Even if they substituted paper money for gold, all those people with gold clauses would still have to be paid in gold. And since this was a significant proportion of the country, the gold standard would have remained intact. They met this problem in a three-pronged attack (proving the inability of the legal system to uphold justice in the face of political pressure).

First, keeping a gold clause contract was declared to be against public policy, and it became legal3 to break such contracts. Second, even owning gold was made illegal3 (except for industrial or coin collection purposes). Of course, these grabs of power were unauthorized by the Constitution. That did not stop the Supreme Court from upholding them.

But the most subtle measure was a device which gets to the heart of the concept of fiat money. There is an old story about King Canute who had his courtiers set him on the beach. When the tide washed about his feet, he ordered it to fall back, and when it did not obey, he reminded them that even a king's power was limited.

But such a lesson was lost on the paper money advocates of the New Deal. They were not content with enacting laws telling people what to do or not to do. The coup de grace which they delivered to the gold standard was a special doctrine concerning economic value. It was called the established parity of all currency and coins.

What the banker agents meant by this was that a paper dollar was equal in value to a gold dollar. As a doctrine in economic science, this is simply false and has the same validity as saying a pound is equal in weight to a ton or a yard is equal in length to a meter. Economic value is determined by the people who value goods. What those values are can only be determined by observation. A law saying that people value a gold dollar as equal to a paper dollar is like a law saying that the earth is flat or that man did not evolve from a lower animal.

The importance of this is that in one case, Perry V. U.S. (294 U.S. 330), the Supreme Court did hold a gold clause contract as valid. The clause was on a government bond, and the government was not allowed to abrogate its own contracts.4 ‘This is fine,' John Perry said, ‘since I have won the case, pay me the equivalent of 54 ounces of gold (the original price of the bond). Since gold is selling for over $31/oz.5 on the European markets, I demand $1690 in paper money as an equivalent value.! Just a minute, said the Supreme Court, you have won the case, but:

determination of the value of the gold coin would necessarily have regard to its use as a legal tender and as a medium of exchange under a single monetary system with an established parity of all currency and coins.6

It based this on the Joint Resolution of June 5, 1933, which stated: Every obligation, heretofore or hereafter incurred, whether or not any such provision is contained therein or made with respect thereto, shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts. Since Perry’s bond was for 1,000 gold dollars, the Court held that he could be fairly compensated by 1,000 paper dollars, not 1,690 paper dollars as he demanded.

As a remedy for breach, plaintiff can recover no more than the loss he has suffered and of which he may rightfully complain. He is not entitled to be enriched.7

It therefore denied Perry’s claim for $1690 in paper money, making his victory merely theoretical. If today you present one of these gold clause bonds worth at the time one year's salary (as was done by the Gold Bondholders Protective Council a few years ago), the U.S. legal system will pay you off with paper money worth about one month's salary. After all, you are not entitled to be enriched. Of all the fiat money doctrines accepted by the Court of the 1930s, this was the most dangerous.

At this time, the New Deal was at the height of its power. My explanation for the outrageous legal decisions of that time was that the Court was afraid and chose the path of expediency rather than principle. When the Court did stand against F.D.R. and struck down his attempt to impose a fascist economic system on the country,8 he attacked it with his court packing scheme. Those were black days for freedom in the country of Thomas Jefferson.

The Battle in the Gold Commission

In the 1970s these measures came under attack. Gold ownership was legalized by the efforts of the National Committee to Legalize Gold9 in 1974. Gold contracts were legalized by a bill sponsored by Jesse Helms in 1977. Significantly, this repealed the dollar for dollar provision in the Joint Resolution of June 5, 1933 as it applied to contracts between ordinary citizens. This left two obstacles to a resumption of the gold standard.

To achieve a gold standard in the United States, it is not necessary that the government legislate it or that circulating paper dollars be made convertible into gold (although this would be the best way). All that is necessary is to give people the freedom of choice to make gold clause contracts. As will be discussed later, such contracts are very much in your interest when they cover a long period of time, such as your pension fund or an insurance policy. Given this freedom, people will gradually shift to gold clause contracts and from there to the general use of gold as money.

The first obstacle lay in the fact that the gold coins of the 1920s and early ‘30s were now mostly in the hands of collectors and possessed numismatic value above and beyond their gold content. This value fluctuates, making the coin less suitable for use in long term contracts. The second obstacle lay in the disgraceful record of the courts on questions of money. The Supreme Court first overthrew the Constitution (after having been packed by President Grant, see The Paper Aristocracy, Books in Focus, 1976, Ch. VI) by allowing the Government the legal tender power in 1871; it compounded this evil by ceding to it a host of further powers in 1935. These powers are no longer an obstacle to a gold standard, but if you are going to write, say, a 30 year gold clause contract, you would like absolute security that at the end of that time it will be upheld as valid in all the courts of the land.

The gold standard had been a primary objective of Ron Paul ever since his election to Congress, and in 1980, with the help of Jesse Helms, he won congressional approval on a bill setting up a commission to study the question. This commission met from August 1981 through March 1982 and was composed of the following people:


Ron Paul (gold supporter)
Stephen Neal
Henry Reuss (paper money supporter)
Chalmers Wylie (paper money supporter)


Roger W. Jepsen
Christopher J. Dodd
Harrison Schmitt

Federal Reserve Board members (issuers of the paper money):

Emmett J. Rice
J. Charles Partee
Henry C. Wallich

Members of the Administration:

Murray L. Weidenbaum
Jerry Jordan
Donald T. Regan (chairman of the Gold Commission)

Public members:

Herbert Coyne (coin dealer)
Lewis Lehrman (gold supporter and later Republican candidate for governor of New York State)
Paul W. McCracken
Arthur J. Costamagna

Commission advisor:

Anna Schwartz (co-author with Milton Friedman of A Monetary History of the United States, employee of the National Bureau of Economic Research, enemy of the gold standard)

Ronald Reagan is a good example of the type of conservative we have described above. Being conservative, he feels that he is expected to be pro-gold and publicly acts the part. But as an old New-Dealer, he is very much against it, and it was due to Reagan’s influence at the Republican convention of 1980 that the hard money plank was weakened and the word gold taken out of it.

The Attempt to Suppress the Hearings

This sentiment was not long in manifesting itself. At the very first meeting of the Commission, Secretary of the Treasury Donald Regan — a Wall Streeter whose company10 would have much smaller profits under a gold standard — summarily announced that future meetings of the Commission would be held in secret.

This was a stunning blow. The Gold Commission was supposed to be a debate on economic philosophy. It would have reference to facts which were available to all people and theories being independently circulated. There was nothing in it remotely concerning military affairs and no possible reason for secrecy, except one. It was evidently the Administration's intent to quash these troublesome gold bugs quickly and without a second thought. Obviously, they did not want any witnesses. The Gold Commission was about to go down the drain, and the American people would not even know that it had happened.

This Administration ploy was torpedoed by Bob Novak, who broke the secrecy attempt in his nationally syndicated column,11 and for the first time since the election campaign of 1896, the gold standard was big news. It was almost 10 years to the day since Nixon had killed the last remnant of the gold standard in 1971. The Reagan Administration was caught with egg on its face and backed down. At last there would be a true hearing.

There were many problems with the hearings. The pro-gold forces were demoralized, betraying an attitude of not expecting people to be rational. Thus they never made their strongest case. Henry Ruess was given to theatrics and making pompous declarations in stentorian tones. Most significantly, the majority of the moderates showed no real interest in getting at the truth. This was merely an unpleasant task imposed on them by their political duties; their minds were made up, and there was no disposition to give the subject any real thought. It is a fair evaluation of the hearings to say that the merits of the gold standard were not seriously debated.12

The War Against Conservatism

But while the economics of the gold standard took a back seat, the larger issue of where gold belonged on the political spectrum took precedence. While the members of the Gold Commission pretended to debate whether a gold standard was good for the country, the real question in their minds was, is the gold standard an ultra-right wing proposal? It was this idea which had buried the gold standard for the past generation and which constituted the central objection to it at the hearings.

The first battle in this war had occurred when the Commission members were chosen. In an unthinking concession, hard money supporters had included three members of the Federal Reserve Board on the Commission. This would never have been done if a conservative bias had not blinded them to the fact that the Federal Reserve was the creature of the very bankers who had taken us off the gold standard in 1933.13 It was as though the mice had met to consider their self-defense problem and had included three cats in their councils.

This trust in the bankers was a perfect duplicate of the error which destroyed the movement for a gold standard of the 1950s, under the Eisenhower Administration. At that time a group calling itself (coincidentally) by the same name as the author’s group of the 1970s — the Committee to Reestablish the Gold Standard — had made significant progress in lining up Congressional support. But accepting the conservative fallacy, this group made the mistake of appealing to the bankers for support. The funny thing was that most of the nation's small, country bankers were equally taken in by the Keynesian deception. They thought that a gold standard was in the interests of the bankers; so the vast majority of them supported it. But the big New York bankers who had taken the country off the gold standard knew the score. Although few in number, they had more assets than all of the country bankers together. When J. P. Morgan came out against the gold standard, the majority in Congress which had been lined up for it mysteriously14 disappeared.

Fortunately, at the September hearings the anti-Keynesian forces were able to strike a counter. In rebuttal to some figures from Anna Schwartz, Congressman Paul exhibited a chart showing the real wages of the American worker. It demonstrated that real wages decline precisely in periods of paper money and are declining rapidly now.

This provided evidence that a gold standard is in the interests of the working man. The chart had appeared in the summer issue of Hard Money News, which was thereupon provided to all the Commission members by your author.

This was a bit much for Henry Reuss to take, perhaps because the first page of that issue was so ungracious as to remind him of his prediction that the price of gold would fall (from $35/oz.) to $6/oz. since it was (after 1971) no longer supported by its tie to paper money. He attempted to discredit the chart by attacking the magazine in which it had appeared, calling it little bits of scurrility, crumpling his copy into a ball, and throwing it into a non-existent wastebasket. Perhaps he thought that this would cause people to forget that the statistics on real wages came from one of the Government agencies set up to promote the bankers’ ideology, the U.S. Bureau of Labor Statistics. At any rate his outburst led me to dedicate a poem to him.


We have a note for Henry Reuss,
Cause what he did just wasn’t neuss.
His demeanor he did lose,
Upset about Hard Money News.
And his insult to Howard Katz
Simply did not square with facts
But showed off his virility
By use of word scurrility.
And now we know that Reuss is strong
In using words 10 inches long.
But to predict the price of gold,
He still is standing in the cold.

In the October meeting, the gold bugs scored another major point which will go a long way to clearing up several centuries of monetary confusion. As noted, the original American gold dollar was a unit of weight, defined in law as (approximately) 1/20 of an ounce. But the word dollar, taken from the name of a Spanish coin, was not recognized as a weight by the general public. This made it possible for the average man to accept a piece of paper with dollar on it as a dollar. If you write one-twentieth ounce of gold on a piece of paper and hand it to an average person, he is not going to believe that this is gold.

People who knew the legal definition, i.e., monetary experts, were outraged by F.D.R.'s actions. But the general public was taken in. For this reason, no political force rose to strike down the New Deal monetary legislation. A massive fraud was perpetrated on the American public.

It is thus a major objective of the hard money forces to denominate our money in a unit of weight. This point was made by Congressman Paul in the October meeting when, in answer to a question by Anna Schwartz, he stated:

Paul: You should have a weight of gold; gold should be money; and if paper circulates, it should be a certificate which is a substitute for the gold, and there should be no definition of the price of gold.15

This prompted a question by Murray Weidenbaum, one of the Administration representatives on the Commission.

Weidenbaum: Mr. Chairman, can I ask a few questions for clarifications here? Congressman, assume we were on the gold standard right now and that the Treasury issued currency that, as fully as you specified by vote, for a given number of grains of gold, what denomination would the Treasury issue?

Paul: I’m not sure I understand the question. Please let me say my concept is that, if we have a hundred … for every ounce of gold we will have a fixed number of circulating substitutes for money; they would be 100% redeemable.

Weidenbaum: What denomination would appear on those issues of currency worth one ounce of gold?

Paul: Well, preferably, if you had one ounce of gold, you would have a piece of paper that would say redeemable in one ounce of gold.

Weidenbaum: But it wouldn’t say one dollar, ten dollars, fifty dollars?’

Paul: Not in a true gold standard … in order to think of it as a pure gold standard, you should have constant gold and a piece of paper that says that, if you put it to the Treasury or to your bank, you will have it redeemed in an ounce of gold.

Wallich: Does this mean that prices then would be quoted in terms of multiples of a weight of gold, for instance a car would cost 10 ounces of gold?

Paul: This would be the best way.16

Isn’t this simple? Under a gold standard, you just go into the store and say, how much for that refrigerator? The clerk says, one-half ounce. You take a half-ounce of gold out of your pocket (or a paper certificate redeemable for such), give it to the clerk and walk out with your refrigerator. No problem.

At the public hearings in November, the anti-gold forces struck back, and again the weapon was not any debate on the merits of the issue; it was the myth that the gold standard is a conservative position. Three conservative witnesses who had been expected to give arguments for the gold standard emerged, when the chips were down, as enemies of gold. These were Alan Greenspan Hans Sennholz and Henry Holzer.

With Alan Greenspan, we can clearly see the process of paper money returning to its conservative home. In 1966, he had written:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value …This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the hiddenconfiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.17

But in 1981, it was a different story. While Greenspan insisted that he still retained his convictions, these convictions could not be allowed to affect the policy of the country. There was, a seemingly impossible obstacle.18 The reason for this was that,

if you try convertibility [into gold] in my judgment without something relevant to those spreads between fiat instruments and gold based instruments converging to zero,19 you're going to run into a massive financial problem.18

Hans Sennholz was even worse, saying:

It is futile to discuss the return to a gold standard or the use of gold in our monetary system as long as the Federal Government suffers large budgetary deficits. The Government needs an elastic paper standard that can be stretched to finance … a total federal sector deficit of more than $150 billion a year.20

And Henry Holzer backed up Greenspan, saying:

Indeed, should this commission recommend that a gold standard be instituted, and should Congress and the President take the unlikely follow-up step of introducing one, even then a gold standard resurrected under today’s economic and monetary controls would not be worth the paper it was proclaimed on.

Why Greenspan Opposes the Gold Standard

Now that Greenspan is Chairman of the Federal Reserve — the body which makes the decision on printing paper money — his lack of integrity is an important matter for the country. As he continues the policy of confiscation of wealth, which he condemned as evil in 1966 let us examine his motives in more detail. To do this we must return to the mileau in which he was raised, the period when the U.S. left the gold standard.

The Banking Bill of 1933, which took the country off the gold standard, was drawn up in five days of secret meetings under the direction of William Woodin and scores of worried desperate bankers.21 Woodin, F.D.R.’s designate as Secretary of the Treasury, was the President of American Machine and Foundry and a director of the Federal Reserve Bank of New York (as well as a member of the board of a half dozen large corporations). A common man, a man of the people, a working man, he was not; born to the purple, he was. As we have seen, his bill was rammed through Congress in one day, with no hearings and only 40 minutes debate allowed in the House. A couple of days before, a plan to abandon the gold standard had been presented to Woodin by Frank A. Vanderlip, a banker who had organized The Committee for the Nation. Among the signers of the plan were: J. H. Rand, Jr. (president of Remington Rand), Frederic H. Frazier (chairman of General Baking Co.), John Henry Hammond (chairman of Bangor & Aroostook Railroad), General R. R. Wood (president of Sears, Roebuck), Lessing J. Rosenwald (chairman of Sears, Roebuck), Vincent Bendix (president of Bendix Aviation), Samuel S. Fels (president of Fels & Co.), E.L. Norton (chairman of Freeport Texas), Philip K. Wrigley (president of William Wrigley, Jr. Co.), howard E. Coffin (chairman of Southeastern Cotton), Gerard S. Nollen (president of Bankers Life Insurance), Farny R. Wurlitzer (vice president of Rudolph Wurlitzer Mfg.), William J. McAveeny (president of Hudson Motor Car, the predecessor of American Motors), Henry Pope, Sr. (president of Bear Brand Hosiery), John W. Kiser (president of Phenix Mfg.), and William A. Wirt (a banker).22 The day after Woodin's bill had passed, The New York Times reported on an inside page:

Bankers here hail Roosevelt Action

Leading bankers in this city expressed admiration yesterday for the courage and leadership by President Roosevelt and the new administration, for Congress for the speed with which the emergency banking measures were adopted, and praised the tenor of the measures themselves.23

James Perkins, chairman of the board of National City Bank; James G. Blame, president of Marine Midland, William S. Gray, Jr., president of Central Hanover Bank and Trust; J. Stewart Baker, chairman of the board of the Bank of Manhattan; Samuel H. Golding, chairman of Sterling National Bank and Trust; Elisha Walker, partner in Kuhn Loeb & Co.; and Percy H. Johnston, president of Chemical Bank & Trust were listed in support of the bill.

Two months later, a Wall Street speculator, Irving Fisher, wrote the following letter to his wife concerning the abandonment of gold:

Now I am sure — so far as we ever can be sure of anything — that we are going to snap out of this depression fast … Even you haven’t really known what I've been through this last month, between the mountain and the precipice. I felt that the only hope lay, not only for the country which is the important thing but for our own little selves, in Washington here; and the balance trembled back and forth … My next big job is to raise money for ourselves. Probably we'll have to go to Sister again, but I hope this can be avoided. I have defaulted payments the last few weeks, because I did not think it was fair to ask Sister for money when there was a real chance that I could never pay it back.

I mean that if F.D.R. had followed [Carter] Glass24 we would have been pretty much ruined. So would Allied Chemical, Sister, and the U.S. Gov't.25

Fisher, whom Milton Friedman claims as his intellectual mentor, is reported to have made a million dollars speculating in stocks during the credit expansion of the 1920s but was losing money in the early ’30s. He spent a great deal of time lobbying congressmen and New Dealers against the gold standard.

This was the reality. But the casual readers, who merely listened to the political slogans and perused the headlines on the front page, were getting the exact opposite impression. As far as they were being told, the New Deal was violently anti-banker.26 On March 9, the Times had shouted on its front page:

Aldrich Hits at Private Bankers in Sweeping Plan for Reforms

A reform program, designed to purge the commercial banking business of all taint of speculative leadership and calculated to reduce the present overlords of the New York money market to a position of relative impotence, was proposed last night by Winthrop W. Aldrich, chairman of the governing board of the Chase National Bank, in connection with an announcement that the bank had decided to divorce its security affiliate, the Chase Securities Corporation … In his statement Mr. Aldrich, who is a representative of the John D. Rockefeller interests, largest stockholder of Chase, and who succeeded Albert H. Wiggin as executive head of the Chase organization last January, not only condemned the policies of his predecessor, but, in effect declared his opposition to some of Wall Street’s most powerful figures and their particular interests.

In so doing, Mr. Aldrich did not spare his own bank, for the Chase National organization, as it is at present constituted, violates almost every one of the principles he advocated.27

The key to the 1930s is that, when the New Deal presented itself as anti-bank and liberal, it was widely believed. The fact that its measures brought huge profits to the bankers and large corporations it denounced was not understood. (Anthony Sutton reports that in his campaign for the Democratic nomination in 1932, Roosevelt received 78% of his contributions from within a one mile radius of his former Wall Street office at 120 Broadway, New York, N.Y.28)

Alan Greenspan's home is Wall Street; he identifies with and defends the bankers interests. But he was too naive to understand the strategy of deception which they employed at that time. When he was told that it was mainly bankers who supported the gold standard, he naturally supported it too. He became known as a conservative economist who opposed the New Deal.

However, when we come to concrete steps to actually put the country on a gold standard (as the Gold Commission was considering), he was a good enough economist to see that this would bankrupt his Wall Street friends. It would cause a massive financial problem.

Of course it would. Since the bankers and their friends are making huge fortunes by exploiting the saver and the wage earner, stopping this exploitation would wipe many of them out. There would be a giant crash on Wall Street, and some of the biggest banks and the biggest debtor corporations would go under. Instead of recognizing this as the desired reestablishment of justice, Greenspan sees it as a seemingly impossible obstacle. He is a true conservative and is consistent only in upholding the interests of his social class. It is such people who say free enterprise when they mean the interests of the large corporations and support record issues of paper money while they associate themselves with gold.

The effect of this deception is enormous. The reader can picture himself, an average American, sitting on the Gold Commission panel and trying to get at the truth of the matter.29 He listens to the arguments on both sides. Then he hears several supposed gold advocates saying that the Government needs an elastic paper standard and that a gold standard enacted today would not be worth the paper it was proclaimed on. What is he to think? This gold standard couldn’t be too good if even its own supporters can say such things about it.

In his younger days, Greenspan had written: gold and economic freedom are inseparable.30 But, as noted, that was when he thought that the bankers supported gold. These days he is a member of David Rockefeller's group of concerned citizens (The Trilateral Commission) and goes to parties with Happy Rockefeller, Willard Butcher and Henry Kissinger. This is how one gets to be the head of the Federal Reserve, as indeed the Federal Reserve has been associated with the Chase-Manhattan (formerly the Manhattan) Bank since its inception in 1914.

In the three year period 1991-1993, Alan Greenspan and his compatriots on the Federal Open Market Committee took the actions which led to a 36% increase in the U.S. money supply, the second biggest peacetime money increase in the nation's history. (Volcker holds the peacetime record.) Sad to say, I had predicted it. Economic freedom? Confiscation of wealth? Property rights? All these were just pretty words. At that time he believed that this was the bankers’ interest.

The old Greenspan once stated: The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise.31 Indeed they must; otherwise the society could get rich by printing money.

As noted above, a giant cycle has been set into motion due to the fact that commodity prices react to the printing of money with a very long lag time. Commodities did not go up when money was printed in the 1960s and then made it up by going up much faster than money in the 1970s. This caused the consumer price index to understate currency depreciation in the ‘60s and overstate it in the ‘70s. Commodities went down, despite huge money printing in the 1980s, causing the consumer price index to again understate. But an analysis of commodities in the early 1990s shows that they are again ready to group much faster than money. This will cause the consumer price index circa 1995-2005 to overstate the depreciation of the currency creating the same problems for Presidents and Fed Chairmen of this era as were faced in the ‘70s. The law of supply and demand is not to be conned.

During the 1980s, not only did conservatives not support the gold standard but they went to a paper money extreme with what they call supply side economics. Supply side economics is simply the supply side of the Keynesian equation and advocates a budget deficit caused by a tax cut rather than a spending increase.

While your author prefers a tax cut to a spending increase, a deficit is an evil no matter how you arrive at it. It is financed by printing money. It operates to increase the money supply and lower interest rates below the free market rate. This distorts the economy in the way described in Chapters IV-VII. It takes wealth from the worker and the saver and gives it to the paper aristocracy, and it misallocates resources (that is, a smaller pie divided with less justice). Today’s conservatives do not know that Ronald Reagan was a New Dealer and brought his New Deal economic principles with him into office. They point to the economic growth of the ‘80s as evidence of the success of Reagan's tax cuts not knowing that the measure of growth (GDP) is fundamentally flawed and measures not wealth but activity (i.e., waste). They are blissfully unaware that real wages are falling and that it now takes the average American several months longer to earn enough money to buy the average car. For a brief period, from the 1930s to the 1970s, conservatives defended sound money by supporting a balanced budget, but the old conservatives are dead, and the new conservatives tell us, deficits don’t matter.

Nevertheless, when the conservatives abandoned the balanced budget, the desire for it did not die among the American people. In 1992, a third party candidate arose based principally on the sentiment for a balanced budget, and this viewpoint gathered 19% of the vote. This has sent politicians scurrying to put themselves on the side of the balanced budget without actually having to balance it.

At this writing there is much debate over a constitutional amendment which will decree the budget to be balanced. You see, balancing the budget requires political discipline. Programs have to be cut. Bureaucrats have to be fired. Entitlees have to be disentitled. How much easier it is to simply declare piously that the budget must be balanced. This is what the balanced budget amendment does. It puts off any action on the subject until the next millenium (2002) and then declares total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless …

Putting aside the unless clause, the practical mind may ask, what if outlays do exceed receipts? Amazingly, the amendment is silent on that point. There is no automatic scale-back in spending, no jail terms for congressional big spenders. There is a serious problem with the idea of balancing the budget by constitutional amendment because spenders can always find accountants who will define outlays and receipts in flexible ways; but the 1995 amendment does not even come to grips with that issue because, once Congress disobeys it, there is no enforcement provision. It is a hollow log designed to ensure continued deficits for the next seven years. It is a way for politicians to trick the public into thinking that they are for a balanced budget without having to do the cutting that balance requires. (The 1995 amendment also has a back door legitimization of undeclared wars.)

Interestingly, while America was on the gold standard, the budget was routinely balanced. This is because a government deficit would so disrupt the credit markets and so raise interest rates that financial people (the rough equivalent of today’s paper aristocracy) would descend on Washington demanding that the budget be balanced. This would provide enough countervailing political pressure to offset the spending demands, and Congress would find the political will to make the necessary cuts. This worked prior to 1933 and would work again. In the 1820s-30s, the Government ran a continual surplus, which ultimately paid off the national debt. There was no Federal tax at this time, and the only Federal revenue was the tariff; when a move started to eliminate the surplus by cutting the tariff, protectionist sentiment was too strong. They kept the tariff and made gifts of the extra revenue to the states.

To return to the November hearings, what also emerged was a definite generation gap. Almost everyone under 45 favored the gold standard. Except for Murray Rothbard and Roy Jastrom, practically everyone over that age opposed it. A nice surprise came from three younger witnesses, Ralph Banko, Marc Miles and Alan Reynolds, who gave solid pro-gold testimony. This balanced off the conservative defections and saved us from defeat.

The Gold Coin Is Proposed

At the December meeting, coin dealer and Commission member Herb Coyne (whose name punsters will probably celebrate for the next several centuries of economic history) began to push his own plan for a gold coin to be minted by the Treasury. It seemed like an innocuous measure. Indeed, my first inclination was to oppose Treasury coinage as merely another way to sell off the Treasury gold stock. But as it gradually emerged, Coyne intended his coin to have monetary properties — to be a competing currency with the paper dollar.

In early 1982, the Reagan Administration was in trouble with its conservative allies. It had just admitted that it intended to run a $100 billion deficit — the biggest in American history. Those sound money people who still regarded themselves as conservatives were shocked, and the Reagan coalition was threatened. It was necessary to appease these people lest they desert the conservative movement. Thus we see President Reagan, the originator of the largest peacetime budget deficit in American history up to that time, endorsing the proposal for a balanced budget amendment. In the same spirit, after trying to bury us in a secret hearing, the Administration decided to throw the gold bugs a bone, a bone in the form of this gold coin. After all (they must have reasoned), what harm can it do? Everyone knows that the gold standard is obsolete. Let them have their gold coin if they think it will matter.

Joe Cobb, at that time Congressman Paul’s aide, told me that it was Jake Dreyer, an advocate of Friedrich Hayek’s theory of competing currencies who swung the balance and tipped the Administration to support the coin. Credit should also go to Herb Coyne and Jerry Jordan. And your author likes to think that his three books32 and his 500 radio/TV appearances promoting the gold standard across the nation made a contribution. At any rate, by February of 1982 all of these influences came together, and the Reagan Administration decided to endorse the gold coin.


  1. Paper money advocates, such as Luther Martin, went home from the Constitutional Convention advising their supporters to oppose ratification of the Constitution on the grounds that it outlawed paper money. See The Paper Aristocracy, (New York, Books in Focus, 1976), Chapter VI.
  2. U.S. Supreme Court, Bronson v. Rodes, 7 Wall 229 at 251-52, 7 L. Ed. 141 at 147.
  3. These words are in quotes because the above laws were unconstitutional, hence null and void. However, the Government enforced them until they were repealed by Congress in the 1970s.
  4. Many Government bonds are held by bankers. It is perfectly all right for the Government to cheat the people, but it is strictly forbidden for the Government to cheat the bankers.
  5. Gold was manipulated up by F.D.R. in 1933-34 from $20.67/oz. to $35.0O/oz.
  6. U.S. Supreme Court, Perry v. U.S., 294 U.S. 330 at 357.
  7. Ibid., 294 U.S. 330 at 355.
  8. NRA
  9. principally the good work of Jim Blanchard, Evan Soule and Charles Curley
  10. Merrill Lynch, the nation’s largest brokerage house
  11. Evans and Novak, Enemies of Gold, Washington Post, August 5, 1981, p. A-23.
  12. The closest the Commission ever got to consideration of the merits was the objection that the 19th century gold standard in the U.S. had led to economic instability — the cycle of boom and depression which we have already examined. Of course, the 19th century gold standard was not a full gold standard. It was a compromise system with a large element of paper money. Commercial banks could print paper money to the extent of 3-5 times their gold. And it was precisely this paper money element which led to the instability. Gold bugs countered this point with the obvious question: what about an uncompromised gold standard with no banker privilege? This would be the most stable system possible. At this suggestion, a clap of thunder would be heard, the paper money advocate would raise his eyes, and a majestic figure would appear declaring: Thou art forbidden to consider that question. The paper money advocate would then sweat profusely and reply (to us, not to the majestic figure), ‘Oh, you mean a pure gold standard. A pure gold standard can’t exist in the real world.' He (or she) would then faint away in a dead swoon, and the discussion would be ended.
  13. Conservatives will often claim that it is government which prints money, not the bankers. There is something to this, but it is more nearly a half-truth, not a full truth. In the sense that the Federal Reserve banks are quasi-government agencies, government must take responsibility for their actions. But the bankers conceived the system, pushed the government into it, operate it and make the profits from it. When conservatives accuse the government to exonerate the bankers, it is a falsehood.
  14. That is, it was mysterious to the head of the 1950s movement, who told me this story and who believed that bankers naturally were against the banker privilege to create money.
  15. Gold Commission meeting, October, 1981.
  16. Gold Commission hearing, October 1981.
  17. Alan Greenspan, Gold and Economic Freedom, The Objectivist, July 1966, p. 16.
  18. Gold Commission hearing, November 1981
  19. What Greenspan (probably) means by this is as follows. Interest rates on paper money bonds (instruments) were then running around 15%. Interest rates on gold bonds run around 4%. The 11 spread existed because people who bought the paper money bonds expected their principal to depreciate by 11% a year. If the bankers stopped issuing paper money, then the spread would drop to zero. Thus Greenspan is willing to go on a gold standard if first the bankers stop issuing paper money. I do not believe the chances for this are very large.
  20. Gold Commission hearing, November 1981
  21. Robert Goldston, The Great Depression, (Greenwich, Ct., Fascett, 1968), p. 112. The bankers were worried because people were coming to the banks and demanding the gold they had been promised, and the bankers knew they did not have it.
  22. See, Vanderlip Favors End of Gold Basis, The New York Times, March 6, 1933, p. 6, as reported in, 1933: Roosevelt's Decision, the United States Leaves the Gold Standard, by Jordan Schwarz, (New York, Chelsea House, 1969), pp. 44-46.
  23. Bankers here Hail Roosevelt Action, The New York Times, March 10, 1933, p. 8.
  24. Carter Glass had a Hamiltonian view of money. He supported a central bank but believed that the paper notes of that bank should be redeemable in gold.
  25. Irving Fisher, Letter to Mother, May 4, 1933, as quoted in: 1933: Roosevelt's Decision, the United States Leaves the Gold Standard, by Jordan Schwarz, (New York, Chelsea House, 1969), pp. 37-38.
  26. the media lie of that day
  27. Aldrich Hits at Private Bankers in Sweeping Plan for Reforms, The New York Times, March 9, 1933, p. 1. This was probably the ploy by which the Rockefeller interests achieved their domination over the Morgan interests.
  28. See, Anthony C. Sutton, Wall Street and FDR, (New Rockelle, N.Y., Arlington House, 1975), p. 119.
  29. Arthur Costamagna, a public member of the Commission who later gave a qualified approval to the pro-gold position, most impressed the author as sincerely trying to get at the truth. He and Anna Schwartz (the Commission's advisor) deserve highest marks for intellectual integrity.
  30. Alan Greenspan, Op. Cit., p. 11.
  31. Alan Greenspan, Ibid., p. 15.
  32. The two most stalwart gold advocates on the Commission, Paul and Lehrman, had both read your author’s first book, The Paper Aristocracy.