James Ledbetter's 'One Nation Under Gold'
James Ledbetter, the editor of Inc. magazine, recently published a weird and wonderful book, One Nation Under Gold: How One Precious Metal Has Dominated the American Imagination For Four Centuries. The gold standard is one of my areas of persistent interest. I have published around a million words touching on it here at Forbes.com and elsewhere. So, I read it avidly and with great pleasure.
More to the point, two campaign-trail comments show that Donald Trump is, at least, a strong sympathizer with the gold standard. The gold standard may yet come to matter. If so, getting it right will be crucial. And One Nation Under Gold will be a real asset in getting it right.
Ledbetter’s book is, for the most part, extraordinarily good on the history, politics, and culture. On the policy side, not so much. He cannot be blamed for reporting the conventional wisdom and missing the real, mostly behind-the-scenes, policy tick-tock. That is a minor blemish on a great book. He also shows flashes of occasional brilliance on the policy side.
The book is wildly entertaining as well as informative. It consequently drew wide attention in the mass media, with significant exposure by the New Yorker, NPR, Fortune, Quartz, the Wall Street Journal, and elsewhere. Deservedly so.
Why “weird and wonderful?” Mostly, Ledbetter is a first-rate reporter with a nose for unearthing great stories. He delivers great and often outré stories in abundance.
Steve Forbes, a great and eloquent gold standard champion, says half in jest and whole in earnest that if you get stuck between two chatty bores on a transcontinental flight just offer to explain monetary policy to them. They will promptly dive into their In Flight magazines. Ledbetter is never boring and also displays a comely ambivalence toward the gold standard, sometimes dismissing it as antiquated and fringe while more than occasionally throwing out hints of admiration or at least fascination.
You likely will be fascinated. I was.
One Nation Under Gold does not have the depth and granularity of Liaquat Ahamed’s Pulitzer Prize winning monetary history Lords of Finance: The Bankers Who Broke the World. Lords of Finance is the best extant history of the decline and fall of the gold standard. That said, Ledbetter has written a delightful book, one that succeeds in capturing, among other things, much of the loopiness that has undeservedly tarnished the reputation of the true gold standard.
One Nation Under Gold really commences with the early beginnings of America. (It is not quite clear to which "fourth" century its subtitle refers.) He commences with a complaint by one George Washington in 1779 as to how the issuance of paper money caused him great financial injury. Washington had more indictments of paper money than that, as did almost all of the other Founders.
Ledbetter: “It is almost impossible to overstate the dislike that most of the Founding Fathers, and indeed most of the American ruling class, had for paper money in the late eighteenth and early nineteenth century. The currencies issued by most states depreciated to the point of being worthless.” That depreciation left an indelible impression.
Madison devoted the second paragraph of Federalist 44 to indicting paper money:
Later on in the book, Ledbetter archly observes that "[President Lyndon] Johnson’s desperate gold strategy proved once again that when America needs to choose between its wars, it’s sense of foreign supremacy, economic well-being, and gold-backed currency, it’s gold that always gives way.” This is somewhat astute but not entirely correct.
The gold standard is part of the infrastructure of equitable prosperity (nationally and internationally). It is not a suicide pact and not designed to constrain economic growth. Rather the opposite. And yes, the gold standard, always, is an early casualty of war. If in the existential extremity of war the gold standard must be temporarily sacrificed for reasons of war finance ... so be it.
The Founders were pragmatists. In the Constitutional Convention of 1787 the framers stripped the federal government of the explicit power to issue the hated paper money. (The language, and power, removed from Article I Section 8, clause 2 was “and emit bills,” which meant to issue scrip, currency not defined by and convertible to gold.) Yet in that debate George Mason, for example, "observed that the late war [of Independence] could not have been carried on, had such a prohibition existed."
For this and other reasons no direct prohibition on the federal government's issuing paper money was placed in the Constitution. The power was withheld but not forbidden, leaving a little wiggle room. To criticize the gold standard as vulnerable to the demands of war is myopic.
Ledbetter then leads us on a merry tour of Andrew Jackson’s botched re-institution of the gold standard precipitating the Panic of 1837 and the longest depression in American history until the Great Depression. The Great Depression was also an outcome of a botched gold standard, a fact which the author find slightly elusive. He then takes his readers on a whirlwind tour of the gold rush, including what he calls its “noir dimension;” the sinking of the gold-laden (30,000 pounds) USS Central America; the Civil War’s greenbacks; and very important subsequent decisions about them by the Supreme Court: the “legal tender cases.”
These cases, especially in Julliard v. Greenman, turned Constitutional interpretation upside down, imbuing, for the first time, the federal government with the attributes of sovereignty. These are decisions held in very low esteem by legal scholars as is duly noted by Ledbetter. They elicited a harsh indictment from a preeminent American historian of that era, George Bancroft: A Plea for the Constitution of the United States: Wounded in the House of Its Guardians.
Ledbetter dips into the McKinley vs. Bryan era, pointing out how The Wizard of Oz was an allegory of Bryan's populist revolt against the gold standard -- the yellow brick road -- with a call for "free coinage of silver" -- Dorothy's silver slippers. This parable was first identified in the Johns Hopkins University Press in 1964 by Henry M. Littlefield, who later happened to have been the assistant dean of students of Amherst College, while I was there an undergraduate, and my mentor. I was let in on this little secret almost 50 years ago.
One Nation Under Gold then takes us through deeply interesting stories of FDR’s policies toward gold: the (appropriate) revaluation of the dollar from $20.67/oz to $35/oz, the indefensible forced expropriation of gold, and the prohibition of private ownership (outside of jewelry and coin collections). The story as he tells it is fascinating, and useful, if not always quite as “sound as a dollar.”
Thanks to the 1922 Genoa Conference -- replacing the true gold standard with the defective gold-exchange, "interwar," gold standard” -- the commodities price level had risen by 50%. The dollar remained pinned to its historical value. These unseen imbalances invisibly proved economically catastrophic. Yet Ledbetter quotes Arthur Schlesinger as stating “To what extent did the President really think that he could raise the price of commodities by raising the price of gold? The answer is, not very much.”
Lords of Finance is much better on this topic. It persuasively demonstrates that FDR was following the guidance of America's then-top commodities economist, George Warren. Warren prescribed the revaluation for this very purpose, and FDR -- his Wall Street and Washington advisors aghast -- clearly was following Warren's advice. It was brilliantly successful in dramatically restarting the economy, but only worked temporarily due to FDR’s weak grasp of what he was doing, and why. FDR drifted and the second dip back into the Great Depression ensued.
All of FDR’s measures, but especially that of making gold ownership contraband, sealed a myth that the gold standard was the cause of the Great Depression. My own Depression-era parents, when I as a child asked them what had caused the Great Depression, told me: “the gold standard.”
Of course, the true, classical, gold standard had been out of action for well over a decade when the Depression manifested. (Long lags can't explain it.) It ruptured at the start of World War I. It was the gold standard’s “grotesque caricature,” the gold-exchange standard enacted at Genoa in 1922, that precipitated the Great Depression. Others, such as Prof. Barry Eichengreen, have also collapsed this crucial distinction.
Ledbetter shows signs of an awareness of the defects of a gold-exchange standard when he observes that “the Bretton Woods framework was, in the medium to long term, unstable, and when it began to topple, all the gold in Fort Knox wouldn’t be able to prop it up.” He may have simply (and shrewdly) been reciting from Triffin and just doesn't connect the dots.
The book then merrily whisks us through reports of some of the grotesqueries thereafter, especially those measures attempting to prop up the gold-exchange standard. These stories include the picturesque saga of the prosecution of one 14 pound solid gold rooster, launching the political career of Reagan's best friend Paul Laxalt. (Laxalt, and the rooster, won.) He goes on to recount the government’s long, preposterous, “Operation Goldfinger” to seek new sources of gold through ludicrous means.
Ledbetter provides excellent exposés of the floundering of American monetary officials under Eisenhower, JFK, LBJ and Nixon. Various high officials proved ill equipped to address, and staunch, the steady gold outflow from American reserves, an inevitable outcome of the gold standard’s “evil twin,” the gold-exchange standard. And while JFK at least sensed this importance of this, others did not.
Ledbetter’s account of how it became legal again for Americans to own gold, under President Ford, is a treasure. This is great reporting. He properly gives credit to Senator Jesse Helms for this small but important triumph.
The book continues its historical tour by describing the monetary debacles of Ford and Carter and the ultimate revision of monetary policy under Reagan and Clinton by Paul Volcker and then Alan Greenspan, who recently made explicit that he was emulating the operations of the gold standard under the period of his governance called the “Great Moderation.” It was a period of splendid, albeit ad hoc, equitable prosperity.
Let me add a splash of color to his account of the Reagan era. I was invited, at the behest of Gold Commissioner Lewis E. Lehrman (whose Institute I have since served intermittently), to be one of the 23 official witnesses before the Reagan Gold Commission. I was called to testify in an area of my expertise, Constitutional monetary history. Thereafter I was invited, by the kindness of Howard Segermark, a man usefully interviewed by the author, to a reception with Sen. Helms.
I had brought with me an authentic 1896 McKinley presidential campaign “gold bug” lapel pin. I offered it to Senator Helms as a small tribute. He initially declined to take it, citing ethics concerns. I told him I would be embarrassed to tell him how little it had cost me. And so, he accepted, chortling, “Oh, Dot (his wife) will be delighted with this!”
Ledbetter gives a decent, but somewhat superficial, overview of the Reagan Gold Commission. If he had taken a deeper dive he would have discovered a far more interesting back story on why President Reagan flinched at giving the Commission the directive and direction toward gold to which its executive director, Anna Schwartz (Milton Friedman's collaborator on A Monetary History of the United States: 1867-1960), later confessed, in her essay Reflections on the Gold Commission Report, it was open. Schwartz:
As Robert Novak wrote in his memoir, The Prince of Darkness (p. 421):
"Well," the president began and then paused (a ploy he frequently used to collect his thoughts), "I still do support the gold standard, but--"At that point, Reagan was interrupted by his chief of staff. "Now, Mr. President," said Don Regan, "we don't want to get bogged down talking about the gold standard."
"You see?" the president said to me, with palms uplifted in mock futility. "They just won't let me have my way."
Beyond that, the public technical disagreements among gold standard proponents -- from Rep. Ron Paul to Dr. Arthur Laffer to Jude Wanniski to Lewis E. Lehrman. Lehrman, a protégé of the French gold standard economist Jacques Rueff, had and has the most distinguished pedigree in this arena. He, together with John Mueller, Kemp’s resident economist, persuaded Rep. Jack Kemp, the gold standard’s premier advocate of our era, that the true classical gold standard is the correct model.
Persuading, on top of Friedman’s irredentist opposition, the administration’s agnostic treasury secretary, hostile under secretary for monetary policy, and cynical director of OMB proved too heavy a lift. Reagan himself was heavily focused on winning the Cold War. Thus, “They just won’t let me have my way.”
Then Fed Chairman Volcker administered strong (even brutal) monetary medicine. Once it took effect inflation wilted and the economy roared. That drained away most of the political interest in the gold standard.
Ledbetter provides many fascinating and useful stories. That said, he betrays a fundamental confusion about how the gold standard worked, and again would work, in practice. He, as do many others, mistakenly believe that the gold standard would provide a constraint on the quantity of money (and, thus, the vibrancy of the economy). This is a widely-shared fallacy.
As Forbes.com’s own Nathan Lewis pointed out here:
Doesn’t anyone know how to play this game?
I like to take the example of the United States. In 1775, the total amount of currency in circulation (primarily gold and silver coins) was an estimated $12 million. In 1900, it was $1,954 million – an increase of 163x!
During this time period, the amount of gold in the world increased by about 3.4 times, due to mining production.
Obviously, the two have nothing at all to do with one another.
That said, One Nation Under Gold is a must-read book for anyone with even modest interest in the gold standard, in gold, or simply in the human comedy. While I have long been an advocate of the gold standard, I am not a “gold bug,” not part of the demimonde of gold enthusiasts who have been predicting, with something between horror and glee, that the paper-money-based world monetary system will collapse. The gold bugs have been, and most still are, predicting that -- and prescribing investment in gold. They predict it will rise in price from its current $1300/oz range to $5,000 or even $50,000. Its price, of course, entirely depends on US dollar policy.
Ledbetter traces the source of this apocalyptic theme back to the eccentric Murray Rothbard, the John Birch Society, and to authors of apocalyptic pulp books such as Harry Browne. “What distinguished Browne was his insistence not merely that the status quo was untenable, but that economic collapse was imminent--as in a matter of days.”
The gold bugs may prove right. Yet few others share their dystopian disposition or panic. Their advocacy has gotten conflated in the popular imagination (and Ledbetter’s) with the true gold standard advocated by more distinguished thinkers. I, after several decades of hearing it, long ago wearied and grew skeptical of claims that “The End Is Nigh.”
I am a gold standard advocate because the gold standard correlates beautifully with eras of equitable prosperity. And the gold standard would be entirely easy to restore. Let's not confuse matters further by overemphasis on the gold bugs. Many years ago, in systematically taking the case for the gold standard to Capitol Hill, a senior Congressional committee aide (now in the White House) observed to me: “You are the first gold standard advocate who’s come up here who is not a crazy.”
He obviously had not encountered the distinguished Lewis E. Lehrman, Steve Forbes, or the any of the other approximately two dozen experts who really have a firm grasp of the gold standard as policy. That said, and as Ledbetter demonstrates, the gold standard still has some reputational challenges to overcome among the political and media elites. That said, for those who wish to return to Reagan and Clinton growth rates it offers a very attractive option.
It is tempting to address the many fallacies contained in the book's final, and only weak, chapter. Yet to do so would be both tendentious and tedious. So, recalling Steve Forbes’s observation about repelling pesky neighbors on transcontinental flights, let's skip that, at least for now. Ledbetter’s interest in gold is welcome and the popular history he delivers in One Nation Under Gold is entertaining and wonderfully informative.
Then -- President Trump, call your office! -- onward to the true gold standard!
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Ralph Benko is an advisor to nonprofit and advocacy organizations, is a member of the Conservative Action Project, a contributor to the contributor to the ARRA News Service. Founder of The Prosperity Caucus, he was a member of the Jack Kemp supply-side team, served in an unrelated area as a deputy general counsel in the Reagan White House. The article which first appeared in Forbes.
Tags: Ralph Benko, book review, James Ledbetter, One Nation Under Gold To share or post to your site, click on "Post Link". Please mention / link to the ARRA News Service and "Like" Facebook Page - Thanks!
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