Gold: Yesterday, Today, and Tomorrow


In ages past, a government would seize gold and try to palm off bronze or copper coins to its citizens. The modern method has consisted of palming off paper after seizing gold. So there's nothing new in today's governmental attitudes toward gold or other forms of wealth.

Indeed, the one conclusion that can be safely drawn after 30 centuries of fiscal and monetary history is that wealth can be obtained by earning it (which is difficult), or by seizing it—which is much easier, and which is the favorite method of governments.

Of course, if a person seizes another person's property, the action is called a crime; but if done by a government, it is called taxation or "nationalization" or some such euphemism for theft and fraud.

It is worth noting that, at least since the Renaissance, the frauds and thefts of monetary history have been interwoven with a new element: lunacy. The alchemists of the Middle Ages, for instance, searched in vain for the philosophers' stone that would change lead into gold. The alchemists of today (often known as "new economists") haven't found the philosophers' stone either—but they have found a substitute: the Keynesian stone. It turns gold into paper. Which is not too bad. Paper, after all, is a worthwhile commodity.

Unfortunately, the Keynesian stone has a side effect: it also changes those who touch it into philosopher-kings. Philosopher-kings invariably get into government. And today's government, as Ludwig von Mises has noted, is the only institution that can take a worthwhile commodity like paper, slap some ink on it, and make it totally worthless.

Case in point: the U.S. dollar.

The U.S. dollar is worth 1/42.5 of an ounce of gold, according to current mythology. Like all myths, this too is based on some fragment of fact—which in this case is the U.S. monetary reserve of less than $11 billion. Considering the hundreds of billions of dollars now circulating, not to mention the more than $100 billion of U.S. short-term liabilities abroad or the $465 billion National Debt, it's hard to think of the dollar as worth anything other than what people (or other nations, from the Arabs to the Zambians) are willing to exchange for it—which, these days, is less and less.

"But the worth of the dollar rests on the strength and productivity of U.S. industry," we are told. Which is true, but inaccurate because—though the U.S. government has the monopoly of the country's currency and can do to it whatever it pleases—the government does not have a monopoly over U.S. industries and cannot do to them whatever it pleases. At least, not yet. Foreigners are still willing to extend credit to any American capable of producing goods and services; but these same foreigners have not been exactly eager to extend credit to the U.S. government since, shall we say, August 15, 1971, to pick a date a random. Several other governments are in a similar fix, if that's any solace.

What's fascinating is that while various governments have endorsed the mystic notion that wealth is created by issuing billions of little pieces of paper with the portrait of some national hero on it, an increasing number of people are rediscovering gold. In July 1971 the free-market price of gold averaged $40 per ounce. In September 1972, it was $63. In March 1973—a date I remember because I began buying gold coins—gold sold at $84. As this article goes to press, the "price" of gold stands at $176 per ounce.

Where do we go from here?


It might just happen that the next Congress and administration—in some unprecedented attack of rationality and responsibility—will have the courage to rescind a few laws, to cut spending, balance the budget, reduce the balance-of-payment deficit, and lower taxes. Then, if our government could achieve such "miracles," it might even be willing to move toward economic freedom by allowing Americans to own gold and to let them settle their debts with whatever commodity the free market decides. With this scenario, everybody is happy, paper bugs and gold bugs included.

There's another scenario. Without a cut in spending, without a balanced budget, without a reduction in the balance-of-payment deficit, without the legalization of gold ownership, and without a fully convertible standard ("fully convertible" as determined by the free market, not by legislative action), there are sufficient grounds to conclude that: 1) the deficits of today will have to be paid via the confiscatory taxation of tomorrow; 2) the creeping 10 percent annual inflation of today will become a runaway inflation; 3) the controls imposed on the economy "to keep the lid on inflation" will be so draconian as to wipe out the last remnants of freedom and plunge the country into either right-wing or left-wing totalitarianism; 4) the dollar will have no other backing except the military might of the U.S.—and whenever the might-makes-right ideology prevails, the world is anything but peaceful; 5) the combination of any or all of 1, 2, 3 and 4.

Too pessimistic? Well, take a look at South America.

Or, better yet, take a good look at Great Britain and bear in mind that—culturally, politically, and economically—England has invariably given us an excellent preview of coming events in the U.S.

If pragmatism means that people should act according to what "works," and if it's true that our political leaders are "pragmatists," we could make a good case to prove that freedom "works," and that economic freedom depends on gold ownership and real money—not on controls and legal tender—and that when economic freedom is gone, political freedom is dead. But we won't. We are not supposed to know more than our philosopher-kings. Besides, freedom implies responsibility, and to be responsible is to be "square" or "old-fashioned." Our philosopher-kings are neither.

We could point out the virtues of the convertible gold standard by proving that it is incompatible with deficit spending, that it is the most effective defense against inflation, and that it makes the welfare-warfare state impossible. But we won't—and I doubt we can because what is a virtue for us may be a vice for anyone with vested interests in deficit spending, inflation, and a welfare-warfare state (which includes big business, big labor, and 99 percent of Liberals, Democrats, Republicans, and Conservatives).

We could point out that the monetary system that collapsed in 1971 was essentially the same system that collapsed in 1931—the gold exchange standard—a hybrid system which, as economist Patrick Boarman describes it, involved the use of some key currency as a substitute for and supplement to gold in settling balance-of-payment differences among nations. But we won't. After all, that hybrid system of paper and gold didn't work, the International Monetary Fund tells us while informing us that its new hybrid system of paper and "paper gold" (alias Special Drawing Rights, SDR's) will do the trick.

The present and past Administrations have officially maintained that gold is of no importance to the U.S. economy and to government transactions. If that is true, we can then say that there is no logical reason to prevent Americans from owning gold. And that is precisely what most of us have been saying. With some success.

Thanks to Felix Wormser, a 79-year-young libertarian (who's also a mining engineer, was former Assistant Secretary of the Interior under Eisenhower, and is now a director of the Committee for Monetary Research and Education), the 1972 Republican Platform endorsed Wormser's proposal for legalizing gold ownership. Political platforms nowadays are meaningless, you might say. Perhaps. But on April 4, 1973, Senator McClure of Idaho attached the gold-ownership amendment to the dollar-devaluation bill—and the Senate passed the McClure amendment by a vote of 68 to 23.

In 1974, there is a better than a 50-50 chance that gold ownership may be legalized, according to various observers. Perhaps it will.

Meanwhile, what can we do individually? We can save as much of our skin as we can by buying gold coins. Nothing is riskless, of course, and gold coins are no exception. But they have had a tremendous appreciation in the past few years, and are likely to appreciate at an even faster rate in the future. As other authors point out in this issue of REASON, the price trend of common-date gold coins goes along with the price trend of gold bullion.


To answer that question, let's have a quick look at the international monetary mess.

The United States is a debtor nation. International debts can be settled either by a transfer of real wealth from debtor nations to creditor nations, and/or by major political concessions that eventually bring about a drastically altered balance of power among nations.

Let's do some arithmetical masturbation, just for fun.

Since there are at least $100 billion of short-term foreign claims against the U.S. gold stock of about $10 to $11 billion, a tenfold increase in the official "price" of gold—from $42.50 to $425 per ounce—would be necessary to meet our short-term obligations abroad. That would merely cure the so-called dollar overhang. But it would not make a dent in settling our long-term obligations of almost $100 billion. Thus, to settle both our short-term and long-term debts, which add up to almost $200 billion, the official "price" of gold would have to increase 20 times to an astonishing $850 per ounce! Such an event is extremely unlikely: the value of the dollar, be it "fixed" or "floating" or what-have-you, is always related to other currencies (which can be in a worse shape), and ultimately rests upon the confidence that the people of the world have in our ability to master our difficulties. But since that confidence has been severely shaken in recent years, and nothing is being done to bolster it, the relentless upward trend in the free-market price of gold shall continue for a while longer.


Any government, for "humanitarian," "noble," or asinine reasons, can, in effect, steal freely from its own citizens by inflating the currency. But when it attempts to grab the assets of the citizens of other nations, it is likely to get clobbered. Currency is a claim only against the assets of one's own citizens, who can be forced to shut up and put up with "legal tender" backed with the government's promises and nothing else. But when confidence in a government's promises wanes, other nations want to be, and can insist on being, paid in values—real goods, real assets, and, ultimately, in gold, not in pieces of paper. No government can tamper with the measurement of value, i.e., inflate its currency, and get away with it indefinitely in the realm of international trade. [1]

When inflation keeps eroding the value of your currency, nations holding your fiat money (say, the Arabs) become increasingly nervous. They don't want the money they are holding to lose value; they don't want to be stuck with your IOU's. They can use a number of tactics to bring you to your senses.

Creditor nations can, for example, drastically curtail their trade with you, and raise all sorts of back-breaking export-import controls. They can unload their reserves of your inflated money into foreign-exchange markets, thus, in effect, forcing you into a devaluation. The latter may be costly to them—but at least they will subsequently be able to make you pay more for the goods you buy from them. Or they can cut you off from their markets. (Would the Arabs have turned off their oil faucets if the dollar had been healthy? Ponder on that sometime.) And, as a last resort, they can send back your paper money and insist that you meet your obligations by paying in gold or, say, a chunk of your territory. [2]


Gold invariably acts as a thermometer that indicates the health of a country's economic and monetary system. As long as a country is healthy, nothing much happens to the "price" of gold. But when a country's monetary and economic system is in trouble, gold goes up. Plunging a thermometer into an ice bath does not eliminate the fever and does not cure the disease—thus, freezing the "price" of gold at an artificially low level, which is precisely what the U.S. government has done since 1934, is useless.

Actually, it is worse than useless. Because unless you shape up and stop inflating, you'll eventually remain isolated from world trade. Nationalism and mercantilism then take over with a vengeance. Your reserves of foreign currencies and gold melt like snow in July, and you can no longer buy the finished goods or raw materials more economically produced in foreign nations. As a consequence, you are forced to rechannel whatever capital, manpower, and other resources you can muster in such a manner as to produce, at a much higher cost, that which you had formerly imported. Your entire national economy is dislocated; you no longer enjoy the enormous benefits derived from the world-wide division of labor. Very soon, many companies that depended on foreign trade go bankrupt; many people lose their jobs. The price of some commodities (let's say, gasoline) goes into orbit while the price of other commodities nosedives (just watch and see what will happen to silver and some non-ferrous metals, for instance). Farmers scream their heads off because they can't make a living—they're stuck with megatons of produce they can no longer export (unless, of course, you make a grain deal with Russia, and you know with what results). Many industries that rely on foreign ores are now dangerously short of raw materials—more jobs are lost. Labor unions go on the warpath seeking higher wages and "job security"; demagogues of all stripes have a field day. Profits decline, at first gently; then a trickle of red ink becomes a flood on corporate annual reports. The stock market, which has been going to the dogs all this time, "unexpectedly" crashes. Business and bank failures multiply; millions of people are out of work; the savings of other millions are wiped out overnight.

Sound familiar?

These and similar disasters, lumped together under the category of "The Great Depression," are the phenomena that occurred in the United States and other countries between 1929 and 1939.[3] "It won't happen again." I wouldn't bet on it.

But whatever happens, I am convinced that the nations of the world cannot and will not eliminate gold completely, much as they allegedly dislike the barbarous relic. Why? I asked that question of Jacques Rueff, financial advisor to the French government since the days of Charles de Gaulle. "The nations cannot eliminate gold because, where money is concerned, there is no government on earth that can fully trust any other government," said Rueff, who's a good diplomat and could say no more to me than he did. [4] But since I am not a diplomat, I'll put it more bluntly:

Each government is like a small-time crook who periodically writes bad checks. Since all governments sooner or later write bad checks—meaning: since they all issue fiat money—the last thing any government wants is to be stuck with some other nation's IOU's.

At any international monetary meeting, the smiles and polite bows and hearty handshakes are the camouflage for all the savage fighting that goes on in the back-rooms and that is always centered on this one issue: WHO OWES WHAT TO WHOM?

And since they all know that their currencies are fundamentally no good, the issue boils down to: WHO OWES GOLD TO WHOM?

On the one hand, creditor nations want to be paid in gold. On the other hand, debtor nations want to settle their debts by writing another bad check, say, a check backed by inconvertible dollars, "paper gold" or Special Drawing Rights. A debtor nation also tries to make gold the scapegoat: it blames the rise in the price of gold for the monetary and economic mess that exists; which is like blaming a thermometer for causing high fever.[5]

Very little gets accomplished at international monetary meetings—except the usual unanimous declaration of eternal friendship, which lasts about three weeks or until the next monetary crisis. Meanwhile, despite the debtor nations' efforts to keep it down, gold keeps on going up. And so do gold coins.

The dollar, says John Exter (a monetary consultant and former senior Vice President of First National City Bank) was convertible into gold until March 1968; up to that time,

central banks issuing all major currencies were promising all holders: "I owe you gold at $35 an ounce." Under the two-tier system, however, the IOU-gold promise was abrogated for private people, and…central banks refused to sell any gold at any price to private people. The IOU-gold-at-$35-an-ounce promise was honored only among central banks and governments.…On August 15, 1971, it was abrogated even among central banks. So today all currencies in the world are saying, "I do not owe anybody anything." Each says, in effect, "I owe you nothing in the way of any commodity that is a store of value." Each is an IOU-Nothing.[6]

Since 1968, of course, the various nations have tried to push forth the idea of Special Drawing Rights, as the ultimate answer to the liquidity problem.

But can SDR's work? Again, I quote my good friend John Exter:

In an IOU-Nothing world, with all IOU-Nothings growing rapidly in number, but more rapidly in some currencies than in others, it is idle for any central bank to think that it can keep the value of its own IOU-Nothings constant, or even nearly constant, in relation to all, or even many, of the rest for very long. So, if anyone thinks that international monetary reform can restore a reasonably stable exchange-rate world he might as well forget it.…

I particularly suggest forgetting the SDR. It has no obligor, so it is not even an IOU-Nothing. It is a "Who-Owes-You-Nothing?" If no one promises to pay, there is no limit or check to its creation. The thought of basing an IOU-Nothing pyramid on a Who-Owes-You-Nothing base is not one that a realistic mind can long entertain. [7]


Monetary history is the history of theft, fraud and lunacy on a grandiose scale.

People can cope with theft and fraud—and they'll be able to cope with some sort of semi rational monetary system, such as the gold-exchange standard, which will probably be revivified, Bretton-Woods style, along with a temporary relaxation on the prohibition of gold ownership.

Of course, a fully convertible gold standard is what I would personally like to see. I don't know if I will.

But I do know that no one will ever be able to cope with the sort of lunacy generated by freely floating IOU-Nothings, or fixed ones, or IOU-Nothings based on 'Who-Owes-You-Nothings.'

Meanwhile, my advice is to get hold of some "metallic SDR's." It's the new name for gold, or will soon be.

Eugene Guccione, a chemical engineer, is currently president of Mountain States Lime Inc., and R&D vice president of the parent company, Mountain States Resources Corp. (Salt Lake City), which he joined early this year after 14 years in New York as associate editor of McGraw-Hill's CHEMICAL ENGINEERING and senior editor of ENGINEERING & MINING JOURNAL. He is also monetary consultant to Coin America Inc., Phoenix, AZ, and a director of the Committee for Monetary Research & Education, a nonprofit organization in Greenwich, CT.


[1] Eugene Guccione, "How To Plan A Disaster," THE LIBERTARIAN, April 1970.

[2] Ibid.

[3] Ibid.

[4] Jacques Rueff, private communications, March 9, 10 and 11, 1973.

[5] Eugene Guccione, "Gold, Money, and Inflation," Coin America Seminar, Buffalo, NY, October 11, 1973.

[6] John Exter, "Toward a New World Monetary System," Proceedings of the First International Monetary Seminar by the Committee for Monetary Research and Education, ENGINEERING AND MINING JOURNAL (McGraw-Hill, 1973), pp. 186-98.

[7] Ibid.