How You Can Go on the Gold Standard in Your Personal Life
The Administration Endorses the New Coin
As we saw in Chapter X, the problem is to get our present day government, in actual practice, to enforce gold clause contracts.1 Jerry Jordan gave the first clue to what was coming shortly after 11:00 A.M. at the Gold Commission meeting of February 12, saying:
The American people own right now 264 million ounces of gold. I don’t think the government owns any gold. We are addressing the question about the way in which they are allowed to hold it. I think it was wrong to have 40 years of our history where the people were not allowed to directly own gold. I'm not at all terrified by the prospect that the people might choose to hold some of the U.S. gold stock in the form of gold coin. I will have confidence in the American people to exercise their own destiny, and I don’t think that we should prohibit them to have that right that they do. And so the Coyne proposal or Mr. Neal's varient, either one I think, is the one we should adopt.”2
Henry Reuss must have suspected that something was in the wind because he then asked Donald Regan for the official position of the U.S. Treasury on the gold coin. Regan replied:
The Treasury recommendation is that we do have a gold coin, and the Treasury would further recommend that the gold coin be exempted from capital gains taxation and that it be a weighted coin rather than a dollar denominated coin, and it would not have legal tender status.3 4
Is The Coin Money?
One of the paper money advocates immediately counterattacked. Congressman Wylie argued that the gold coins were not money and that they should be called pieces instead of coins to reflect this. The defeat of his position constituted the Commission's record that the new coin is intended to be money (i.e., used for the purchase of goods and in contracts as a unit of account) and not merely held in storage. The exchange went as follows:
Donald Regan: “Congressman Wylie moves to amend the majority … recommendation: the word that says gold bullion coins, that the words [sic] ‘coins’ be deleted and insert thereof the word ‘pieces’ so it would read: ‘we favor Treasury issue of gold bullion pieces of specified weights [laughter] and without dollar denominations.’”
unknown: “pieces of eight” [laughter]
Chalmers Wylie: “I think that the word ‘coin’ and ‘without legal tender’ are mutually exclusive in our society and that, if they’re not mutually exclusive, then they create an ambiguity. According to law, legal tender, coin of the realm … I think ‘coin’ is the word I want … and it seems to me that it now has been accepted as payment for public debt of our society. And if we try to combine another coin, which is what we’re in essence doing, a coin without legal tender is creating an ambiguity that could be confusing to the public, and I think it would make us look foolish frankly.”4
What Wylie was saying was that in order to be money, that is, a tender for obligations, a good has to be made legal tender. He was thus fighting for the medieval doctrine of fiat money — that a good becomes money by the decree of the sovereign. This is both bad economics and bad history.
Money is the medium of exchange. That is, it is the middle portion of an exchange. If you exchange an axe for some corn because you wish to eat the corn, then you are engaged in barter. However, if your intent is to swap the corn for some cooking utensils, then you are using the corn as a medium. In that case the coin has become money.5
It is true that at many points in history sovereigns have tried to get control over money (mainly to cheat the people), and they have propagated Congressman Wylie's doctrine. But that does not make it true. There are examples of societies in which money circulated without any authorization from the government, ancient Babylonia being one.
Another such society, of whom Chalmers Wylie is evidently ignorant, is the United States of America. The gold/silver dollar was originally chosen by the people of this country and circulated as money before it was given official endorsement by the government. After the continental currency collapsed in the early 1780s, the Continental Congress authorized Thomas Jefferson to make a study and recommend a new money. Jefferson made his study and reported back that, while Congress had been debating, the people had been carrying on with life and had adopted a money — the Spanish thaller, or dollar. Jefferson recommended that the government follow the decision of the people, and thus the gold/silver dollar was made a legal tender, after the people had already chosen it as a medium of exchange.6
As noted, when a good is made into a legal tender, it can be forced upon people against their will. They can be required to accept it in exchange even if they would prefer another money. Thus, gold advocates are opposed to legal tender laws in principle because legal tender laws violate freedom of choice. What is legally tender in an exchange should be what the parties agree upon as a tender. But the reader must forgive me for being pompus and refuting Congressman Wylie with a boring recital of economic principles. Herb Coyne effectively defended his proposal with humor.
Herbert Coyne: “Would the gentleman accept as a substitution the word ‘doubloon?’” [laughter]
Chalmers Wylie: [taking him seriously] “Too awkward.”
Herbert Coyne: “‘doubloons’ for ‘pieces …’”
Donald Regan: “My whole instinct is that, if we use the word ‘pieces’ in describing this that we’ll be misunderstood as to what we’re trying to do7 in the majority recommendation, and we’ll cause more confusion …“
Chalmers Wylie: “We have gold medallions right now. That’s why I didn’t change it to medallions. We could change to ‘medallions’ if we want to and say that we recommend the present law be repealed and that we substitute these new medallions in its place, if we want to go that route. But that’s what these amount to — they’re medallions.”
Donald Regan: “Mr. Pieces, or is it Mr. Coyne; would you like to speak?”
Herbert Coyne: “Mr. Secretary, as long as you put it that way, I would like to say with respect to Congressman Wylie, as he suggests that these should not be called ‘coins,’ I would like to suggest that they not be called ‘wylies.’ …
… As these coins are being contemplated in terms of their providing the American public with a credible store of value — to better preserve it or other assets — I would suggest that the use of a term other than ‘coin’ could simply tend to defeat the object of the exercise. If there were one single feature that made the U.S. medallion program unsuccessful more than any other feature — and it has a great deal of competition in that respect — it would be the use of the word ‘medallions.’ The use of the word ‘medallion’ or such a term as ‘piece’ or anything other than ‘coin’ would seem to me to be a decision to make it not work. There appears to be in the marketplace an insufficient amount of transferability of an item of jewelry rather than an item which is opposed to that which has some recognized monetary significance enhancing it.”
Donald Regan: “Any further comments? Then I’ll call for a vote on Congressman Wylie’s recommendation that we delete the word ‘coin’ in Congressman Neal’s amendment and to state that we favor Treasury issue of gold bullion pieces of specified weights and without dollar denomination, and so forth. All in favor of that substitution please signify by raising their hand: one, two. Opposed to that substitution: one, two, three, four, five, six, seven, eight, nine, ten, eleven, twelve.”8
Thus Congressman Wylie’s position that the new gold piece to be minted by the Treasury not be a coin, i.e., that it not be recognized as money, was overwhelmingly defeated by the Commission, 12 to 2. Even the three cats voted against it.
The Commission began its life in an atmosphere of conflict and then settled into boredom; but its most important work was done in a spirit of merriment. To the majority of the members, Wylie’s position — that money had to be ordained by the sovereign — seemed absurd, and they could not help but crack jokes and break into laughter. This said, more truly than their formal positions, that hard money had won a major victory.
The Purpose of the Coin
What gold bugs want and expect from the new coin is very simple. Today almost all Americans work and save money for their old age. A man who earns $20,000 a year may save $4,000 of that for his old age, but he knows when he takes that $4,000 out in the year 2025 it will only buy ¼, or perhaps 1/10, of what it buys today. He would like to have a credible store of value to better preserve his assets.
If instead of saving 4,000 paper dollars, you were to save 10 ounces of gold, the situation would be different. Let us assume that in the next generation the dollar loses 9/10 of its value (as it did over the last one) so that you need 40,000 dollars to have the buying power of 4,000 today. If you saved your money in the form of a paper money bond, then you are a loser. But if you have saved it in the form of a gold clause bond, you will not lose. With a gold clause, a bond representing one year’s savings will not read $4,000; it will read 10 ounces. When the bond comes due, 4,000 paper dollars may only pay your rent for a month because the average level of (paper money) prices is 10 times as high. But in that case, gold will be 10 times as high also. In that case, you can collect 10 ounces of gold with a market value of 40,000 paper dollars. Your assets have been preserved.
Henry Reuss could not abide the banker defeat. He became argumentative and started to object on every little parliamentary point, forcing the chairman to overrule him. Then he rose and announced:
Mr. Chairman, this whole thing is so abysmally rigged and so unrepresentative that I shall now absent myself from the proceedings and shall oppose what has occurred here.9
The entire room broke into applause.
The Competing Currencies
It is important to understand what the Gold Commission recommendation does and does not do. The vote to endorse the gold coin did not establish a gold standard. It voted only to set up a competing currency. That is, instead of being required to use only Federal Reserve notes, denominated in dollars, as money, the recommendation gave Americans a choice between the Federal Reserve note and the gold coin (or gold certificates redeemable in the coin). This was recognized, not only by the gold advocates, but by the moderates and the anti-gold forces. For example, on April 21, 1982, addressing a dinner in Washington, Undersecretary of the Treasury Beryl Sprinkel, who had chaired the Commission meetings in Regan’s absence, stated that the Administration would support the gold coin to:
give it a fair chance at being another form of currency.10
Paul Volcker, then head of the Federal Reserve and (as of this writing) the greatest issuer of paper money in American peacetime history, wrote in a letter to the Chairman of the Senate Banking Committee:
… private transactors might come to make more widespread use than heretofore of their right under current law to denominate certain contractual obligations in gold. U.S. gold coins if available might sometimes be used to discharge such obligations, in conjunction with other forms of gold, such as U.S. medallions, foreign coins, and bullion.11
Manuel Johnson, representing the U.S. Treasury at the hearings on the coin, said:
These coins could be used by private citizens as a store of value and, where mutually acceptable, as a medium of exchange.12
Turning to other aspects of the bill, we recognize the main thrust behind proposals for the introduction of a U.S. Gold Coin is to provide a form of money which people can hold and use as an alternative to money expressed in dollars.12
This will give the American people a choice between two currencies, the old paper currency which they are in the habit of using and the new gold currency which they must take pains to learn about and make a positive effort to use. Economists are used to the idea that bad money drives out good. This is because a legal tender law allows debtor's choice of tender; debtors generally tender the cheap (bad) money and keep the good for themselves; thus the bad money circulates, and the good goes into hiding. However, since the reestablishment of Bronson V. Rodes, the money you pay is no longer debtor's choice. It is the mutual choice of both parties. In a sense it was a constructive compromise. The Gold Commission did not recommend to set up a gold standard; it recommended to set up freedom of choice and let the final decision rest with the American people. In this choice, it left all the advantages of representing the established order with the paper money.13 But gold advocates are not afraid of such a challenge. We are confident that gold money is in the interests of the large majority of the people and that they will choose it, despite the obstacles. Paper money advocates have argued the opposite, that paper money is more efficient and more in the interests of the people.14 If that is so, they should have few worries and actually welcome this opportunity to prove us wrong. Thus, the Gold Commission recommendation was one of the few times when a Washington compromise was actually a constructive step.
The Political Battle
While these events were going on, the conservatives launched an attack which torpedoed my own organization. I had founded the Committee to Establish the Gold Standard and its magazine The Gold Bug on the principle that the gold standard was not a conservative issue but rather a (classical) liberal issue. My first book demonstrated that the gold standard was for the working man (in that it gave him higher wages) and the elderly and that paper money was for the (commercial) bankers and the big corporations. My second book demonstrated that paper money was a cause of war and the gold standard a force for peace. Therefore, a gold standard would advance liberal causes, and any conservatives who were for the gold standard would have to choose between their conservative allegience and their pro-gold convictions.
I thought to keep conservatives out of my own organization by denouncing them repeatedly. I assumed that most people would have enough self esteem to reject an organization that denounced them; but it turned out that one of my most trusted “supporters” was a closet conservative. This gentleman was very happy in the late 1970s when I denounced Jimmy Carter but grew uneasy in 1981 when I started to denounce Ronald Reagan. He tried to deemphasize the Gold Commission and then to seize editorial control of The Gold Bug. Although he failed in these objectives, the Committee to Establish the Gold Standard was destroyed, and I was forced into a difficult and costly battle. My prediction that the conservatives were the worst enemy of the gold standard had come true but in a way I did not expect.
Meanwhile, Henry Reuss was active. No sooner had the Gold Commission ruled against him than he ran to his friends on the House Banking Committee and, using his power as Committee Chairman, got many of them to sign a statement opposing it. This read (in part):
We oppose the Gold Commission’s recommendation. No purpose is served by it other than to appease the gold lobby.
So while the Gold Commission’s report had won conservative and moderate support for the coin, Reuss’ action had the effect of putting the left in opposition. The fraud involved here is that such men as Henry Reuss, Fernand St. Germain and Frank Annunzio represent themselves as Democrats (capital D) and liberals when true American liberalism was a bastion of hard money. American liberalism had contained men like Andrew Jackson, who in his message vetoing the central bank stated:
It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes … Every man is equally entitled to protection by law; but when the laws undertake to add … artificial distinction, to grant titles, gratuities, and exclusive privileges,15 to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, arid laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government.16
It contained movements like that of the Locofocos, who said:
Resolved — That the true remedy for the people, which will reduce the price of all the necessaries of life is, that every workingman refuse paper money in payment for his services, or demand specie of the banks for all notes paid to him.17
Specie was gold or silver. And American liberalism contained one of the great political leaders of all time, Thomas Jefferson, who stated:
The sum of what has been said is … that specie is the most perfect medium, because it will preserve its own level; because, having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war; that the trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals; that it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted; … Instead, then, of yielding to the cries of scarcity of medium set up by speculators, projectors and commercial gamblers, no endeavors should be spared to begin the work of reducing it by such gradual means as may give time to private fortunes to preserve their poise, and settle down with the subsiding medium;18
If these people could look down today at Henry Reuss, Fernand St. Germain, or Frank Annunzio, they would shake their heads and wonder what had happened to the late 20th century Democratic Party that it could so shamelessly defend the privileges of the bankers.
So even though a majority in Congress favored the coin and even though the hearings were uniformly favorable, a small group of left-wing congressmen on the House Banking Committee, using their committee and sub-committee chairmanships, bottled the coin up and refused to allow it to come for a vote.
The Default of Responsibility
Most people simply go around wondering why prices are rising and why the Government can’t stop it. It never occurs to them that there is a vested interest favoring currency depreciation and that people in the Government are selling them out to this interest. Election after election they go to the polls and vote for such politicians. Think for themselves? Understand their own society? Know what is happening around them? They can’t be bothered.
The politician who moved into the breach to defend the banker interest was Congressman Frank Annunzio. Guided by his aide Curtis Prins, Annunzio used all of his power to block the Gold Commission's recommendation from becoming law. This power was considerable because Annunzio was the chairman of the House subcommittee on coinage, through which all coinage bills have to originate. (Fernand St. Germain, chairman of the full committee, delicately sidestepped responsibility.)
You are taught in civics class that the United States Congress is a democratic body where matters are decided by majority rule. Perhaps that was true in the 19th century. But 20th century congressmen are a different breed. They seek the position, not the power. That is, they wish to be publicly known and admired as congressmen. They do not have any political values for which they will seriously fight. Consequently, they have devised a system to avoid responsibility for their actions. Their credo reads: “It’s not my fault.”
Since the welfare state attempts to regulate huge areas of human life, Congress is inundated with thousands of pieces of proposed legislation each year. There is no wav it can responsibly hear and consider more than a tiny fraction of them. This places the welfare state in direct conflict with one of the fundamentals of democracy — the idea that the representatives of the people should know what they are voting for.
Even as swamped as it is, Congress could still set up a democratic system for determining which bills come up for consideration. For example, they could be considered in order of how much sponsorship they had. However, consideration of a bill is one of the dirty little secrets of politics that is not taught in school. It is the way that the system really works, as opposed to the way it is supposed to work. Consideration is generally determined by the committee chairman. (So most congressmen play the game of appeasing vested interest groups by introducing their desired legislation and then ducking responsibility by blaming the committee chairman for not hearing it.)
The Coin Breaks Through
Annunzio used his power as subcommittee chair to stop the gold coin. First, he lied to Congressman Paul, claiming that he would hold hearings on the coin after the “much more important” issue of selling gold medallions to finance the American Olympic team was completed.19 Once the 1984 Olympics were over, Annunzio dropped the ruse and began to fight the coin openly.
But by 1984, I had managed to put The Gold Bug back into circulation and began a campaign for the coin. The pressure built up. Then early in 1985, the congressional Black Caucus, which was then pushing for anti-apartheid legislation, decided to support the American coin.20 Although Ron Paul was no longer in Congress, his aide, Joe Cobb, moved to the Joint Fconomic Committee and continued fighting for the coin. Congressman Jerry Lewis (Calif.) stepped into Ron Paul’s shoes and co-sponsored the 1985 gold coin bill with Julian Dixon of the Caucus. This broke the dam of left wing opposition, and support poured in from all over the political spectrum. By June, 230 congressmen were co-sponsoring the coin.
I had spent a long time in the hard money movement arguing that gold was naturally a liberal position and that the conservatives were our enemies. So I took a great deal of satisfaction in the fact that the gold coin passed into law as a part of the anti- apartheid legislation and with a great deal of left wing support. A half century of alliance with the right had done nothing for the gold standard except cause it to be ridiculed and attacked. But after a few months of alliance with the left, we achieved victory.
It was a foregone conclusion by the summer of 1985 that the anti-apartheid legislation would pass into law. True sentiment on the gold coin, therefore, was measured by the vote to attach it to the anti-apartheid legislation as an amendment. This motion in the Senate, sponsored by Senators Dole and Cranston, was approved by a unanimous vote. It was a great moment for gold bugs.
The bankers could not defeat the people in an open vote. But with Frank Annunzio as their agent and Curtis Prins as their tactician, they were working hard behind the scenes. Due to some parliamentary maneuvering, the coin was not attached to the anti-apartheid bill in the House (where, with a majority of the members as sponsors, it was assured of easy passage). Instead, the House leadership assured us that the coin had no opposition and would be attached in the joint House-Senate conference which reconciles differences between House bills and Senate bills.
Unfortunately, Annunzio managed to get himself appointed to this committee and fast talked it into adding a face value of 50 dollars to the coin (and similar values to the smaller gold coins and the silver coins issued in conjunction with it). There was no gold advocate on the committee to explain the absurdity of his position, and the majority, ignorant of the issue involved, went along to be polite. This was a violation of congressional procedure as a House-Senate conference is only supposed to compromise House and Senate versions of a bill. It is not supposed to make up completely new measures, such as the 50 dollar face value, which have not been the subject of hearings and votes in either chamber. However, after the long litany of abuses which gold bugs have suffered and which have been detailed above, it would surely be ungracious of us to complain too loudly of a mere violation of congressional procedure. Most members of Congress did not notice the difference.
Annunzio’s move was a desperate attempt to fall back on the equivalence of value doctrine in order to prevent the coin's use as money. He evidently did not know that it had been repealed in 1977, and his proposal is now a joke among even the least educated who wonder why Congress placed a 50 dollar face value on a coin which is selling (in 1995) for 400 dollars.
The rest was anti-climax. The gold coin passed Congress with the anti-apartheid legislation and was signed into law by President Reagan on December 17, 1985. Congressman Lewis made the following statement on the floor of the House when the bill came up for debate:
We are creating this gold coinage today as a first step toward a completely free and competitive monetary regime, in which people — not only Americans but also the people of every other Nation in the world — can have something to choose as money that is based on more than the whim of politicians and central bankers.
The actual denomination of these new coins will be obvious to everyone — 1 troy ounce, half-ounce, quarter-ounce, and tenth-ounce. Their value will be determined by the free market, just as the values of all other goods and services are determined.
The fictional face value on the coins will not have any legal or economic effect on the circulation of the coins or their use in payment of debts denominated in terms of ounces of gold …
The clear intent of the Commission in its recommendation to the Congress was to create competition … between forms of money, as in a dual monetary system with the parallel, concurrent circulation of gold ounces and paper dollars …”21
The first coins were minted in October 1986, and America is now in the dual economy. To summarize a complex legal situation:
- Paper money which is made current22 by legal tender laws is unconstitutional as per the argument in Chapter VI of The Paper Aristocracy. However, this fact will generally be disregarded by the courts under an extremist interpretation of the doctrine of implied powers and the further doctrine that errors of the Supreme Court become truth.
- The intention of the framers of the Constitution to establish justice is not considered a basis for interpreting the body of the document.
- Once the doctrine of implied powers was extended to its present form, the paper aristocracy used it to justify virtually any power of government it desired, including: the power to outlaw ownership of gold, the power to abrogate (gold clause) contracts, and the power to legislate value. However, the laws usurping such powers have now been repealed, and they no longer pose an obstacle to gold clause contracts between citizens. According to the legal tender principle, the debtor can tender any (legal) money he chooses, including paper money. But with a properly drawn gold clause contract, he will have to pay you the amount of paper money determined by the market price of gold, not by the doctrine that a paper dollar is equal to a gold dollar. If you lend him one gold ounce, he either pays you one ounce back or the market paper dollar price of gold; he does not get away with paying you 50 paper dollars.
- Although the old (pre-1933) clauses were grandfathered out when gold clauses were legalized in 1977, an unusual circumstance involving Frederick’s Department Store in Seattle, Washington has validated at least one of them. Ownership of the store was transferred from Marshall Field to BAT Holdings in 1982. U.S. District Judge Carolyn Dimmick ruled that this transfer constituted a new lease, made subsequent to 1977, and that the old gold clause, which had been made in 1929, was valid. If this contract, made in gold dollars, is legally valid, then there should be no problem with our new contracts, made in gold ounces.23
Could Congress change the law again and repudiate the gold standard? Yes, they could. But that is no reason to lie down and play dead. Liberty is at hand, and eternal vigilence is its price. Use the gold coin as money, and support it in the political arena. That is the path to freedom.
1 One of the purposes for which our government was created (as stated in the preamble to the Constitution) was the establishment of justice. Seeing to it that people live up to their contracts is one aspect of justice.
2 Gold Commission meeting, February 12, 1982.
3 Although true gold advocates are opposed to legal tender laws, 31 U.S.C. §5103 makes all U.S. coins legal tender. What is important is that the coin be as legal a tender as other U.S. currency.
4 Gold Commission meeting, February 12, 1982.
5 The Pilgrims used corn as money after they abolished communism and adopted a system of private property in 1623-24. Their celebration of this (on July 30, 1623, old style, not in the autumn of 1621 as is generally believed) is the basis for our holiday of Thanksgiving. [See my article, “How the Commies Stole Thanksgiving,” The Gold Bug, December 1984-January 1985.]
6 Still another example is the State of California, which remained on the gold standard while the rest of the country suspended it during the Civil War. A massive campaign of civil disobedience made a dead letter of the legal tender laws. A debtor who invoked Federal law to pay in paper was boycotted and driven out of business. California was a hard money state whose first state constitution prohibited commercial banking.
7 i.e., make the coin money
8 Gold Commission meeting, February 12, 1982 (my emphasis)
9 Gold Commission meeting, February 12, 1982. Unfortunately, he came back at the next meeting.
10 Beryl Sprinkel, Washington dinner, April 21, 1982.
11 Paul Volcker, letter to Senator Jake Garn, May 6, 1983, “Hearing before the Committee on Banking, Housing and Urban Affairs1 United States Senate, April 15, 1983,” U.S. Government Printing Office, Washington, D.C. 1983, p. 188.
12 Manual Johnson, Ibid., p. 158, 162.
13 advantages gained by force and fraud
14 They argue that it is the road to plenty whereby the sovereign can create economic value without labor.
15 such as the exclusive privilege to create money
16 Andrew Jackson, “Message Vetoing the Bank Bill,” July 10, 1832.
17 Locofoco resolution, passed Feb. 13, 1837, as quoted by F. Byrdsall, The History of the Loco-Foco or Equal Rights Party, (Burt Franklin, 1967), p. 102.
18 Thomas Jefferson, letter to John W. Eppes, Nov. 6, 1813.
19 The Olympics were originally conceived as a private undertaking. Government support of the nation's Olympic team was introduced by the Communist countries and copied by the Reagan Administration.
20 It was an unofficial position. But it did the job.
21 Congressman Jerry Lewis, Congressional Record — House, Dec. 2, 1985, p. H 10533.
23 See, Bruce Ramsey, “Frederick's must pay in gold, judge rules,” Business Section, Seattle Post-Intelligencer, Jan. 13, 1987.
This material is made available with the generous permission of Howard Katz (1931-2012).