Spotlight: The Man with the Golden Bonds


"A promise is a promise," says Robert Ellison. "The most important thing to a society is its money. The integrity of the free-market system is based upon contract law, which is denominated in terms of money. That monetary unit must be fixed in a standard."

The promise that Ellison is referring to involves approximately $750 million worth of corporate bonds and about $250 million in municipal obligations issued before 1933—with gold clauses. Those long-term obligations stipulate that the principal and interest will be payable in "gold coin of the United States of the present standard of weight and fineness." Of course, since 1933, they haven't been so paid. When the US government in its infinite wisdom decided in that year that it would be illegal for its subjects to own gold except in the form of jewelry, the metal cost about $20.67 an ounce. If the issuers of the original gold-backed bonds were to be held to the terms of their issues, the value of the bonds would jump from about $1 billion then to about $20 billion today (with gold at $400 an ounce).

Ellison is spearheading an effort to force the issuers of gold-backed bonds to pay up. He is founder and executive director of the Gold Bondholders Protective Council, a group whose members include: John Roosevelt, the son of President Franklin D. Roosevelt, who signed the 1933 legislation that canceled gold clauses and outlawed the private ownership of gold; Norbert Einstein, first cousin to physicist Albert and a noted hard-money economist; Sen. Barry Goldwater; financial columnist Eliot Janeway; former vice-president of Citicorp John Exter; former Bond Buyer Guide editor Paul Heffernan; and Kenneth Spang, once the president of the Foreign Bondholders Protective Council, which looked after the interests of those who held bonds from countries that defaulted as a result of World War II.

The Protective Council is pressing its legal battle in Alaska, because the Klondike state of all 50 states is generally thought to be the most sympathetic to hard money. Alaskan law actually requires that a certain percentage of state and municipal pensions be invested in gold bullion.

Given the billions of dollars at stake, the suit will undoubtedly be appealed, eventually to the Supreme Court. Since US citizens can now (as of 1977) own gold, many people—not including the companies that issued the bonds—think that the terms of the bonds should be honored. The Supreme Court has ruled on the question in a variety of ways over the years, but Ellison thinks that the precedents are on his side.

Perhaps the most interesting ruling is Perry v. United States, which was fought over gold-backed World War I liberty bonds. According to Ellison, the Court affirmed an earlier ruling that it was unconstitutional for Congress to abrogate the gold clause in the payment of a public debt but said the ruling could not be enforced because gold was a controlled substance. Another confusing legal position came about in 1977 when Congress passed a law making the 1933 prohibition of gold clauses inapplicable to issues made after October 28, 1977—but made no mention of contracts entered into before 1933.

Bonds with gold clauses are beginning to show a slight premium when compared to bonds issued at the same time with the same interest rates, according to Ellison. He conjectures that the companies with large outstanding gold-backed obligations may be getting nervous and have started buying those bonds back. (All of these bonds are non-callable—that is, not subject to redemption upon the issuer's demand.) These gold-backed debtors are putting large sums of money into legal preparation for the eventual case. Meanwhile, Robert Ellison is paid by the council in pre-1933 gold-backed bonds.

Ellison is a fascinating character. A chess player and hang-gliding enthusiast, he came to libertarian conclusions while traveling the world. Twenty years ago he went to the Middle East, where he studied, worked, taught in Egyptian and Moroccan universities, worked for the United States Agency for International Development, and eventually married his Armenian wife in Cairo. He lived in Europe and Canada and finally returned to America in 1976.

He worked for several investment firms in the first few years back in the United States, but he eventually gave all of his time to the Protective Council, founded in 1978. "I discovered this situation with gold bonds purely by accident," Ellison says. "I stumbled into it. I read a book called The History of Interest Rates by Sidney Homer that covered about 5,000 years.…I found bond issues quoted that had maturities of 50, 200, 500, even 1,000 years. Realizing that we were on a gold standard for more than 100 years, I was led to believe that some of those gold-backed bonds might still be outstanding today."

Having found the gold-clause issues, Ellison has embarked on a full-time crusade to force the issuers of those bonds to live up to the terms of their contracts. Ellison has been compared to the alchemists of the medieval ages, attempting to turn paper into gold. But Forbes magazine, Dun's Review, the Wall Street Journal, the Washington Post, and the U.S. News Washington Letter are following Ellison's battle with interest—partly because court decisions favorable to the council's position could cause frenzied trading in gold-backed bonds, but partly because the issue is one that highlights the effects of government interference in the marketplace and the tremendous gains and losses that can follow from political decisions.

Ellison declares that the government has no business protecting corporations from their obligations. "A promise is a promise."

Patrick Cox is a free-lance writer.