GOLDEN AMERICA
Through the rise and fall of civilizations, gold has survived as a foundational store ofvalue.Ithasalsobeenacentralplayerin Americanhistory
The lure of gold moved the frontier westward, creating towns where none would have otherwise existed. Gold was a core issue in late nineteenth century political debates. William Jennings Bryan ran for the presidency three times on an anti-goldplatform,andlosteachtime.
In his most famous speech, delivered at the Chicago Democratic nominatingconventionin1896,hedeclared:
“Iftheydaretocomeoutintheopenfieldanddefendthegoldstandardas a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercialinterestsandthelaboringinterestsandallthetoilingmasses, weshallanswertheirdemandsforagoldstandardbysayingtothem,
youshallnotpressdownuponthebrowoflaborthiscrownofthorns You shallnotcrucifymankinduponacrossofgold.”
YetevenBryanwasnotopposedtoanchoringthenation’scurrencyinthe value of precious metals The difference was that he wanted silver, not gold.
Thirty-sevenyearslater,theU.S.governmentdecidedthatgoldwasinfact soessentialtoeconomicprosperitythatonlythegovernmentshouldown it.FranklinRoosevelt’sGoldReserveActpassedbyCongressthenextyear outlawedthepossessionofgoldbyprivatecitizens.
Thereasoningwasthatpanic-inducedhoardingofgoldwasdelayingthe nation’s recovery from the Great Depression and, as FDR explained, the measure was needed “to stabilize domestic prices and to protect the foreign commerce against the adverse effect of depreciated foreign currencies.”
Another 37 years after the Gold Reserve Act, the government once again lookedtoadramaticchangeingoldpolicytorestoreeconomicvibrancy. President Richard Nixon canceled the direct convertibility of the U.S. dollar to gold, taking the nation off the gold standard. Until then, U.S. currency was backed by the assurance that it could be redeemed for gold at any time. After the abandonment of the gold standard, the foundation of the dollarbecamefaithinthegovernmentanditspromises.
FromtheaftermathofWorldWarIItothedelinkingofthedollarfromgold in1971,thedollar’svaluehadbeenpeggedtoaconsistent$35perounce.
According to economist Jeffrey Garten, the postwar architects of this system“establishedthedollar-goldstandardtocreatesomepredictability and stability for global commerce. For the next 25 years, it was a tremendous success. The dollar became the global currency. Everyone washappytoholdit,inlargepartbecausetheycouldexchangeitforgold if they had any doubts about its value. It was part of the phenomenal recovery from the war in Europe and Japan. It also created enormous economicprosperityintheU.S.,allthroughthe’50sand’60s.”
Butbythelate1960stherewerefourtimesasmanydollarsfloodingthe
world as there were gold bars in US vaults This imbalance and an artificially low gold price were creating economic distortions, the governmentsaid
Writing in Forbes, Brian Domitrovic described what happened next: “The reaction was swift. Speculation against the dollar became savage. Gold shot up fivefold, from $35 to $175 by 1974, and prices of everything else followed along. On came the Great Inflation of the 1970s, when consumer pricesfivetimesincreasedatanannualrateinthedoubledigits Houses, which had never budged in relative price, all of a sudden became expensive,alegacythatlivesontoday.”
In the face of this severe inflation, people once again turned to gold. The stock market lost 45 percent of its value in late 1974 and bond prices collapsed.Americansdemandedtheybeallowedonceagaintoownone ofthefewitemsofvaluethathadproventobeabulwarkagainstinflation andeconomicuncertainty.
ByactofCongressaswellasviaanexecutiveorderfromPresidentGerald Ford, the right to own gold was restored. In 1985 the government itself joined the party, producing American Eagle gold coins for sale, in competitionwiththeCanadianMapleLeafandSouthAfricanKrugerrand.
Acrossthevast,intertwinedtapestryofgoldandAmericanhistory,wecan see two distinct patterns: The first is that gold has been understood by governments and citizens alike to be the foundation of value and the key toeconomicprosperity.
The second lesson is that when it comes to gold policy, the government can change its mind at any moment, giving new meaning to Thomas Jefferson’sfamousadmonition:“Eternalvigilanceisthepriceoffreedom.”